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

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Pfizer Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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1The 2015 Financial Report is not included in this filing. The portions of the 2015 Financial Report that are incorporated by reference in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015 (the “2015 Form 10-K”) were filed, and the other portions of the 2015 Financial Report were furnished, solely for the information of the SEC on Exhibit 13 to the 2015 Form 10-K. The 2015 Financial Report is contained in Appendix A to the Proxy Statement being mailed to our shareholders beginning on or about March 15, 2016. The Letter to Shareholders and Corporate and Shareholder Information contained in the materials being mailed to our shareholders beginning on or about March 15, 2016 are not included in this filing.

 

Notice of 2016 Annual Meeting and Proxy Statement

 

 

This Notice of 2016 Annual Meeting and Proxy Statement only relates to the proposals described above and does not relate to the pending Allergan plc (Allergan) transaction. In November 2015, Pfizer and Allergan entered into a definitive merger agreement pursuant to which they agreed to combine their respective businesses under a single company. In connection with the proposed transaction, Allergan has filed with the U.S. Securities and Exchange Commission (the SEC) a registration statement on Form S-4 that includes a joint proxy statement/prospectus of Pfizer and Allergan. Investors and security holders are advised to read the joint proxy statement/prospectus because it contains important information about the proposed transaction and the parties to the transaction.

 

Proxy Voting

 

It is important that your shares be represented and voted at the Meeting. You can vote your shares by completing and returning your proxy card/voting instruction card or by voting electronically via the Internet or by telephone. If you are attending the meeting, you will be asked to present your admission ticket or proof of ownership of Pfizer stock and government-issued photo identification as described in the Proxy Statement. See details under “How to Vote” below.

 

Pfizer 2016 Proxy Statement

I

NOTICE OF 2016 ANNUAL MEETING AND PROXY STATEMENT

 

HOW TO VOTE

 

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

 

		For registered holders and Pfizer Savings Plan participants: (Shares are registered in your name with Pfizer’s transfer agent, Computershare, or held in the Pfizer Savings Plan)			For beneficial owners: (Shares are held in a stock brokerage account or by a bank or other holder of record)
Electronically*		Using your mobile device – scan this QR code			Using your mobile device – scan this QR code
		Electronically via the Internet at www.investorvote.com/PFE			Electronically via the Internet at www.proxyvote.com
By telephone*		Within the U.S., U.S. territories & Canada +1-800-652-VOTE (8683) – toll-free Outside of the U.S., U.S. territories & Canada +1-781-575-2300 – standard rates apply			+1-800-454-VOTE (8683) – toll-free
By mail		Completing the enclosed proxy card			Completing the enclosed voting instruction card
* You will need to provide your control number that appears on the right hand side of the enclosed proxy card or voting instruction card.

 

MATERIALS TO REVIEW

 

This booklet contains our Notice of 2016 Annual Meeting and Proxy Statement. Our 2015 Financial Report is included as Appendix A to this Notice of 2016 Annual Meeting and Proxy Statement and is followed by certain Corporate and Shareholder Information. Neither Appendix A, nor the Corporate and Shareholder Information, nor the accompanying Letter to Shareholders, is a part of our proxy solicitation materials.

 

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

 

This Notice of 2016 Annual Meeting and Proxy Statement and a proxy or voting instruction card are being mailed or made available to shareholders starting on or about March 15, 2016.

 

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON APRIL 28, 2016   This Notice of 2016 Annual Meeting and Proxy Statement and the 2015 Financial Report and Corporate and Shareholder Information are available on our website at www.pfizer.com/annualmeeting. Except as stated otherwise, information on our website is not considered part of this Proxy Statement.

 

 

Margaret M. Madden

Vice President and Corporate Secretary, Chief Governance Counsel
March 15, 2016

 

II	Pfizer 2016 Proxy Statement

 

Table of Contents

 

 

Proxy Statement Summary

 

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

 

 

 

Our Director Nominees

 

You are being asked to vote on the election of the following 11 Directors. All Directors are elected annually by the affirmative vote of a majority of votes cast. Detailed information about each Director’s background, skill sets and areas of expertise can be found beginning on page 8.

 

Committee Memberships

Name

Age*

Director Since

Occupation and Experience

Independent

Audit

Compensation

Corporate Governance

Regulatory/ Compliance

Science/ Technology

Other Public Boards

Dennis A. Ausiello, M.D. Lead Independent Director

70

2006

Director, Center for Assessment Technology & Continuous Health, Physician-in-Chief, Emeritus, Massachusetts General Hospital & Jackson Distinguished Professor, Harvard Medical School

Yes

CHAIR

2

W. Don Cornwell

68

1997

Retired Chairman & Chief Executive Officer, Granite Broadcasting Corporation

Yes

CHAIR

l

l

l

2

Joseph J. Echevarria

59

2015

Retired Chief Executive Officer, Deloitte LLP

Yes

l

l

l

1

Frances D. Fergusson, Ph.D.

71

2009

President Emeritus, Vassar College

Yes

l

CHAIR

l

1

Helen H. Hobbs, M.D.

63

2011

Investigator, Howard Hughes Medical Institute & Professor, University of Texas Southwestern Medical Center

Yes

l

l

l

–

James M. Kilts

68

2007

Founding Partner, Centerview Capital

Yes

CHAIR

l

2

Shantanu Narayen

52

2013

President & Chief Executive Officer, Adobe Systems Incorporated

Yes

l

l

l

1

Suzanne Nora Johnson

58

2007

Retired Vice Chairman, Goldman Sachs Group, Inc.

Yes

l

l

l

3

Ian C. Read Chairman

62

2010

Chairman & Chief Executive Officer, Pfizer

No

1

Stephen W. Sanger

70

2009

Retired Chairman & Chief Executive Officer, General Mills, Inc.

Yes

l

CHAIR

l

1

James C. Smith

56

2014

President & Chief Executive Officer, Thomson Reuters Corporation

Yes

l

l

l

1

* Age is as of the date of the 2016 Annual Meeting.

 

Pfizer 2016 Proxy Statement

1

PROXY STATEMENT SUMMARY BOARD COMPOSITION / CORPORATE GOVERNANCE HIGHLIGHTS

 

Board Composition

 

We seek to build a diverse board representing a wide breadth of experience and perspectives. Here we provide highlights regarding the composition of our Director nominees.

 

 

Corporate Governance Highlights

 

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

 

Board and Other Governance Information

 

 

* As of April 28, 2016

 

2	Pfizer 2016 Proxy Statement

PROXY STATEMENT SUMMARY EXECUTIVE COMPENSATION HIGHLIGHTS

 

2015 SHAREHOLDER OUTREACH & PROXY ACCESS ADOPTION

 

We believe that engaging in shareholder outreach is an essential element of strong corporate governance. We strive for a collaborative approach to issues of importance to investors that affect our business and to gain valuable insights into the current and emerging issues about which investors care most. In 2015, we engaged with 42 institutional investors representing 34% of our outstanding shares.

 

As a result of our shareholder engagement efforts and our commitment to corporate governance excellence, in December 2015 our Board adopted a proxy access by-law, enabling Pfizer shareholders to include their own director nominees in Pfizer’s proxy materials along with candidates nominated by the Board, so long as they meet certain requirements, as set forth in our By-laws.

 

For more information about our 2015 shareholder engagement program and the actions we took in response to shareholder feedback, including adopting proxy access, see “Governance – Shareholder Outreach,” beginning on page 25 and “Corporate Governance Committee Report,” on page 22.

 

Executive Compensation Highlights

 

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

 

 

 

	To achieve these objectives:
	•	We position total direct compensation and each compensation element at approximately the median of our pharmaceutical peer and general industry comparator companies.
	•	We align annual short-term incentive awards with annual operating, financial and strategic objectives, as well as with business unit/function and individual performance.
	•	We align long-term incentive awards with the interests of our shareholders by delivering value based on operating results and absolute and relative shareholder return, encouraging stock ownership and promoting retention of key talent.
	•	A significant portion of the total compensation opportunity for our executives is directly related to Pfizer’s total shareholder return (TSR) and our progress against the performance goals of our strategic and operating plans, as well as our performance against that of our peers.

 

OUR COMPENSATION PRACTICES

 

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

 

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

 

Pfizer 2016 Proxy Statement

3

PROXY STATEMENT SUMMARY EXECUTIVE COMPENSATION HIGHLIGHTS

 

2015 KEY ELEMENTS OF EXECUTIVE COMPENSATION

 

Direct compensation for our executives in 2015 consisted of the following key elements:

 

Element		Type/Description		Objective
Annual Salary (Cash)		The fixed amount of compensation for performing day-to-day responsibilities is set based on market data, job scope and responsibilities and experience.		Provides competitive level of fixed compensation
Annual Short-Term Incentive Compensation/ Global Performance Plan (GPP) (Cash)		Our annual incentive plan pool is funded based on performance against Pfizer’s short-term financial goals (revenue, adjusted diluted earnings per share (EPS) and cash flow from operations). Individual awards are based on business unit and individual performance measured over the current year.		Provides short-term incentives tied to corporate performance against three operational metrics and links individual awards to both company and individual performance based on achievement of financial and strategic goals
		2015 Performance Metrics
Long-Term Incentive Compensation (100% Performance Based Equity)		•   5-Year Total Shareholder Return Units (TSRUs) •   7-Year Total Shareholder Return Units (TSRUs) •   Performance Share Awards (PSAs)		TSRUs provide direct alignment with shareholders as awards are tied to absolute total shareholder return over a five- or seven-year period PSAs align executive compensation to operational goals through performance against a combination of operating income* over three one-year periods and TSR relative to the NYSE ARCA Pharmaceutical Index (DRG Index) over a three-year performance period

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

 

2015 Named Executive Officer (NEO) Pay Mix

 

CEO - 2015 Target Direct Compensation		Other NEOs - Target Direct Compensation (Average)

 

4	Pfizer 2016 Proxy Statement

PROXY STATEMENT SUMMARY EXECUTIVE COMPENSATION HIGHLIGHTS

 

2015 NEO PERFORMANCE YEAR TOTAL DIRECT COMPENSATION

 

The Compensation Committee evaluates pay and performance using Total Direct Compensation (TDC) on a performance-year basis for our NEOs rather than using the values shown in the 2015 Summary Compensation Table (SCT). The Committee believes its approach better reflects pay for performance during 2015. The table below provides 2015 performance year TDC, which is comprised of year-end base salary, 2015 performance year annual incentive awards paid in 2016, and 2016 long-term incentive award values, which include the full value of the PSA award approved by the Compensation Committee. For additional information, see “2015 NEO Total Direct Compensation (TDC)” later in this Proxy Statement.

 

NEO Performance Year Total Direct Compensation

 

										Annual Incentive				Equity Award(1)
						Year-End				Award (paid in				(granted in				Total Direct
						Salary				2016)				2016)				Compensation(2)
Name		Year				(A) ($)				(B) ($)				(C) ($)				(D=A+B+C) ($)
I. Read			2015				1,870,000				4,300,000				13,245,212				19,415,212
F. D’Amelio			2015				1,300,000				2,341,000				3,667,900				7,308,900
M. Dolsten			2015				1,215,000				1,850,000				3,667,900				6,732,900
G. Germano			2015				1,175,000				1,850,000				0				3,025,000
J. Young			2015				1,100,000				2,100,000				3,667,900				6,867,900

(1)

The amounts represent the entire 2016 long-term incentive grant value, which includes the full PSA grant value. Consistent with historical practice, long-term incentive values are converted into units using the closing stock price/value on the first trading day of the week of grant and the accounting value is calculated based on the converted units valued using the closing stock price/value on the grant date, so these values usually differ.

(2)

The SCT total compensation includes equity awards valued on an accounting basis which reflects one-third of the PSA grant made during the year, change in pension benefits and the All Other Compensation, and as such, will differ significantly from the 2015 performance year TDC amounts shown in column D.

 

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

 

For additional information about Pfizer, please view our 2015 Financial Report (see “Appendix A”) and our 2015 Annual Review at www.pfizer.com/annual. Please note that neither our 2015 Financial Report nor our 2015 Annual Review is a part of our proxy solicitation materials.

 

Pfizer 2016 Proxy Statement

5

 

Item 1 – Election of Directors

 

Eleven members of our Board are standing for re-election, to hold office until the next Annual Meeting of Shareholders. A majority of the votes cast is required for the election of Directors in an uncontested election (which is the case for the election of Directors at the 2016 Annual Meeting). A majority of the votes cast means that the number of votes cast “for” a Director nominee must exceed the number of votes cast “against” that nominee. Our Corporate Governance Principles contain detailed procedures to be followed in the event that one or more Directors do not receive a majority of the votes cast “for” his or her election at the Annual Meeting.

 

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

 

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

 

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

 

Criteria for Board Membership

 

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

 

Important general criteria and considerations for Board membership include:

 

	GENERAL CRITERIA:
	•	Proven integrity and independence, with a record of substantial achievement in an area of relevance to Pfizer. Generally should have prior or current leadership experience with major complex organizations, including within the scientific, government service, educational, finance, marketing, technology or not-for-profit sectors, with some members of the Board being widely recognized as leaders in the fields of medicine or biological sciences.
	•	Commitment to enhancing Pfizer’s long-term growth.
	•	Demonstrated ability, with broad experience, diverse perspectives, and the ability to exercise sound judgment, and should possess a judicious and critical temperament that will enable objective appraisal of management’s plans and programs.
	•	Diverse composition with respect to gender, ethnic background and professional experience.

 

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

 

 

	DIRECTOR SKILLS CRITERIA:
	•	business and operations leadership;	•	risk management;
	•	medicine, science or research and development (R&D);	•	government and public policy;
	•	healthcare and related fields (including pharmaceuticals);	•	international business;
	•	finance and accounting;	•	academia/education; and
	•	leadership and management development;	•	technology.

 

6	Pfizer 2016 Proxy Statement

 

ITEM 1 – ELECTION OF DIRECTORS

 

ANNUAL CRITERIA AND DIRECTOR EVALUATIONS

 

The Corporate Governance Committee and the full Board conduct ongoing evaluations of Directors and nominees to ensure satisfaction of the criteria for Board membership. The Board and each committee also conduct annual self-evaluations. Based on these activities and their review of the current composition of the Board, the Corporate Governance Committee and the Board believe that the criteria for Board membership have been satisfied.

 

Retirement Policy

 

Under Pfizer’s Corporate Governance Principles, a Director is generally required to retire when he or she reaches age 73 or at the first Annual Meeting of Shareholders following his or her 73rd birthday. On the recommendation of the Corporate Governance Committee, the Board may waive this requirement as to any Director if it deems a waiver to be in the best interests of the company.

 

Selection of Candidates

 

In recruiting and selecting Board candidates, the Corporate Governance Committee takes into account the size of the Board and considers a “skills matrix,” which indicates whether a particular Board member or candidate possesses one or more of the “skill sets,” as well as whether those skills and/or other attributes qualify him or her for service on a particular committee. The Committee also considers a wide range of additional factors, including each Director’s and candidate’s projected retirement date, to assist in Board succession planning; other positions the Director or candidate holds, including other boards of directors on which he or she serves; and the independence of each Director and candidate, to ensure that a substantial majority of the Board is independent.

 

POTENTIAL DIRECTOR CANDIDATES

 

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

 

Shareholders who wish to recommend candidates may contact the Corporate Governance Committee in the manner described in “Communications with Directors.” All candidates are required to meet the criteria outlined above, as well as those discussed under “Director Independence” below and in our Corporate Governance Principles and other governing documents, as applicable, as determined by the Corporate Governance Committee in its sole discretion. Shareholder nominations must be made according to the procedures required under our By-laws (including via our proxy access by-law) and described in this Proxy Statement under the heading “Submitting Proxy Proposals and Director Nominations for the 2017 Annual Meeting.” Shareholder-recommended candidates and shareholder nominees whose nominations comply with these procedures and who meet the criteria referred to above will be evaluated by the Corporate Governance Committee in the same manner as the Corporate Governance Committee’s nominees.

 

Our 2016 Director Nominees

 

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

 

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

 

Pfizer 2016 Proxy Statement

7

 

ITEM 1 – ELECTION OF DIRECTORS DIRECTOR NOMINEES

 

 

Director Nominees

 

Director Since: 2006   Lead Independent Director since April 2015   Board Committees: Science and Technology (Chair)   Other Current Public Boards: Alnylam Pharmaceuticals, Inc. and Seres Therapeutics, Inc.

Dennis A. Ausiello, M.D., 70   POSITION, PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE:   Director, Center for Assessment Technology and Continuous Health (CATCH). Physician-in-Chief, Emeritus at Massachusetts General Hospital and Chief of Medicine at Massachusetts General Hospital from 1996 until April 2013. Jackson Distinguished Professor of Clinical Medicine at Harvard Medical School. President of the Association of American Physicians in 2006. Member of the Institute of Medicine of the National Academies of Science and a Fellow of the American Academy of Arts and Sciences. Director of Alnylam Pharmaceuticals, Inc., Seres Therapeutics, Inc., TARIS BioMedical LLC and several nonprofit organizations.

KEY ATTRIBUTES, EXPERIENCE AND SKILLS:   Medicine, Science & Healthcare/Academia: Dr. Ausiello’s experience and training as a practicing physician (Board certified in nephrology), a scientist and a nationally recognized leader in academic medicine enable him to bring valuable insights to the Board, including through his understanding of the scientific nature of our business and the ability to assist us in prioritizing opportunities for drug development.   R&D/Business Leadership & Operations: Dr. Ausiello oversaw a large research portfolio and an extensive research and education budget at Massachusetts General Hospital, giving him a critical perspective on drug discovery and development and providing a fundamental understanding of the potential pathways contributing to disease.   Leadership: Through his past experience as the Chief of Medicine at Massachusetts General Hospital, Dr. Ausiello also brings leadership, oversight and finance experience to the Board.

 

Director Since: 1997   Board Committees: Audit (Chair), Compensation, Regulatory and Compliance and Science and Technology   Other Current Public Boards: American International Group, Inc. and Avon Products, Inc.

W. Don Cornwell, 68   POSITION, PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE:   Chairman of the Board and Chief Executive Officer of Granite Broadcasting Corporation (Granite) from 1988 until his retirement in August 2009, and served as Vice Chairman of the Board until December 2009. Granite filed for voluntary reorganization under Chapter 11 of the U.S. Bankruptcy Code in December 2006 and emerged from its restructuring in June 2007. Director of American International Group, Inc. and Avon Products, Inc. Director of the Edna McConnell Clark Foundation. Director of the Wallace Foundation from 2002 until 2012 and previously served as a Director of CVS Caremark (including two years as Chair of its Compensation Committee) for over 10 years. Trustee of Big Brothers/Sisters of New York.

KEY ATTRIBUTES, EXPERIENCE AND SKILLS:   Business Leadership/Talent Management/Risk Management: Through Mr. Cornwell’s 38-year career as an entrepreneur driving the growth of a consumer-focused media company, an executive in the investment banking industry and a director of several significant consumer product and healthcare companies, he has valuable business, leadership and management experience and brings important perspectives on the issues facing Pfizer. Mr. Cornwell founded and built Granite, a consumer-focused media company, through acquisitions and operating growth, enabling him to provide insight and guidance on strategic direction and growth.   Finance and Accounting: Mr. Cornwell’s strong financial background, including his work at Goldman Sachs prior to co-founding Granite and his service and leadership on the audit, finance and investment committees of other companies, also provides financial expertise to the Board, including an understanding of financial statements, corporate finance, accounting and capital markets.

 

8	Pfizer 2016 Proxy Statement

 

ITEM 1 – ELECTION OF DIRECTORS DIRECTOR NOMINEES

 

 

Director Since: 2015   Board Committees: Audit, Regulatory and Compliance, and Science and Technology   Other Current Public Boards: The Bank of New York Mellon Corporation

Joseph J. Echevarria, 59   POSITION, PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE:   Chief Executive Officer of Deloitte LLP (Deloitte), a global provider of professional services, from 2011 until his retirement in 2014. During his 36-year tenure with Deloitte, he served in various leadership roles, including Deputy Managing Partner, Southeast Region Audit Managing Partner and U.S. Managing Partner and Chief Operating Officer. Director of The Bank of New York Mellon Corporation. Member of the President’s Export Council and the Presidential Commission on Election Administration. CEO of My Brother’s Keeper Alliance. Member of the Board of Trustees of the University of Miami.

KEY ATTRIBUTES, EXPERIENCE AND SKILLS:   Business Leadership/International Business: Mr. Echevarria’s 36-year career at Deloitte brings financial expertise, international business and leadership skills to the Board.   Finance and Accounting: Mr. Echevarria’s financial acumen, including his significant previous audit experience, expertise in accounting issues and his service on the audit committee of another public company, is an asset to Pfizer’s Board and Audit Committee.   Government/Public Policy: Pfizer also benefits from Mr. Echevarria’s breadth and diversity of experience which includes his public service on the President’s Export Council.

 

Director Since: 2009   Board Committees: Corporate Governance, Regulatory and Compliance (Chair) and Science and Technology   Other Current Public Boards: Mattel, Inc.

Frances D. Fergusson, Ph.D., 71   POSITION, PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE:   President Emeritus of Vassar College since 2006 and President from 1986 to 2006. Served on the Mayo Clinic Board for 14 years, the last four years as its Chairman, and as President of the Board of Overseers of Harvard University from 2007 through 2008. Director of Wyeth from 2005 until 2009. Director of Mattel, Inc. She serves as a Trustee of the J. Paul Getty Trust (executive committee) and Second Stage Theatre, and as a Director on the executive committee of The John and Mable Ringling Museum of Art Foundation, Inc.

KEY ATTRIBUTES, EXPERIENCE AND SKILLS:   Leadership/Academia: Dr. Fergusson has strong leadership skills, having served as President of Vassar College for 20 years and, during her tenure, developing a long-term financial plan and strengthening the College’s financial position. She has also headed strategic planning projects at Vassar College and other organizations.   Healthcare: Dr. Fergusson’s service on the boards of not-for-profit organizations, including the Mayo Clinic (which she chaired from 1998 to 2002), enables her to bring to the Board experience and knowledge of healthcare from various perspectives.

 

Pfizer 2016 Proxy Statement

9

 

ITEM 1 – ELECTION OF DIRECTORS DIRECTOR NOMINEES

 

 

Director Since: 2011   Board Committees: Corporate Governance, Regulatory and Compliance and Science and Technology   Other Current Public Boards: None

Helen H. Hobbs, M.D., 63   POSITION, PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE:   Investigator of the Howard Hughes Medical Institute since 2002, Professor of Internal Medicine and Molecular Genetics and Director of the McDermott Center for Human Growth and Development at the University of Texas Southwestern Medical Center. Member of the American Society for Clinical Investigation and the Association of American Physicians. Elected to the National Academy of Medicine in 2004, the American Academy of Arts and Sciences in 2006, and the National Academy of Sciences in 2007. She received both the Clinical Research Prize (2005) and Distinguished Scientist Award (2007) from the American Heart Association. In 2012, she received the inaugural International Society of Atherosclerosis Prize and in 2015 she received both the Pearl Meister Greengard Award and the Breakthrough Prize in Life Sciences.

KEY ATTRIBUTES, EXPERIENCE AND SKILLS:   Academia/Medicine & Science/Healthcare: Dr. Hobbs’ background reflects significant achievements in academia and medicine. She has served as a faculty member at the University of Texas Southwestern Medical Center for more than 20 years and is a leading geneticist in the arena of metabolism and heart disease, areas in which Pfizer has significant investments and experience. Pfizer benefits from her experience, expertise and achievements in both medicine and science.

 

Director Since: 2007   Board Committees: Compensation (Chair) and Science and Technology   Other Current Public Boards: MetLife, Inc. and Nielsen Holdings N.V.

James M. Kilts, 68   POSITION, PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE:   Founding Partner, Centerview Capital, a private equity firm, since 2006. Vice Chairman, The Procter & Gamble Company (Procter & Gamble), from 2005 to 2006. Chairman and Chief Executive Officer, The Gillette Company (Gillette), from 2001 to 2005 and President, Gillette, from 2003 to 2005. President and Chief Executive Officer, Nabisco Group Holdings Corporation (Nabisco), from 1998 until its acquisition in 2000. Non-Executive Director of the Board of Nielsen Holdings N.V., Chairman of the Board of Nielsen Holdings N.V. (from January 2011 until December 2013) and Chairman of the Nielsen Company B.V. (from 2009 until 2014), Director of MetLife, Inc., Chairman of Big Heart Pet Brands until March 2015 and Director of Meadwestvaco Corporation until April 2014. Emeritus Trustee of Knox College and Trustee of the University of Chicago, a member of the Board of Overseers of Weill Cornell Medical College, and Founder and Co-Chair, Steering Committee, of the Kilts Center for Marketing at the University of Chicago Booth School of Business.

KEY ATTRIBUTES, EXPERIENCE AND SKILLS:   Business Leadership/International Business: Mr. Kilts’ tenure as CEO of Gillette and Nabisco and as Vice Chairman of Procter & Gamble provides valuable business, leadership and management experience, including expertise in cost management, value creation and resource allocation. In addition, Mr. Kilts’ knowledge of consumer businesses has given him insights on reaching consumers and on the importance of innovation - both important aspects of Pfizer’s business. Through Mr. Kilts’ service on various compensation committees, including ours, he has a strong understanding of executive compensation and related areas.   Healthcare: Through his service on the board of MetLife, Inc. an insurance company, Mr. Kilts offers a view of healthcare from another perspective.

 

10	Pfizer 2016 Proxy Statement

 

ITEM 1 – ELECTION OF DIRECTORS DIRECTOR NOMINEES

 

 

Director Since: 2013   Board Committees: Audit, Corporate Governance and Science and Technology   Other Current Public Boards: Adobe Systems Incorporated

Shantanu Narayen, 52   POSITION, PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE:   President and Chief Executive Officer and Director of Adobe Systems Incorporated (Adobe), a producer of creative and digital marketing software. Prior to his appointment as CEO in December 2007, Mr. Narayen held various leadership roles at Adobe, including President and Chief Operating Officer, Executive Vice President of Worldwide Products, and Senior Vice President of Worldwide Product Development. Director of Dell Inc. from 2009 until October 2013 and Director of Metavante Technologies Inc. from 2007 until 2009. He serves as President of the Board of Adobe Foundation, which funds philanthropic initiatives around the world.

KEY ATTRIBUTES, EXPERIENCE AND SKILLS:   Business Leadership & Operations/ International Business/Finance: Mr. Narayen’s experience as President and CEO of Adobe brings strong leadership and management skills to the Board, and his past roles in worldwide product development provide valuable global operations experience. His past experience as a director on other public boards provides a broad perspective on issues facing public companies and governance matters.   Technology: Mr. Narayen also brings a strong technology background to Pfizer’s Board, as well as a diversity of experience that benefits Pfizer.

 

Director Since: 2007   Board Committees: Audit, Compensation and Science and Technology   Other Current Public Boards: American International Group, Inc., Intuit Inc. and Visa Inc.

Suzanne Nora Johnson, 58   POSITION, PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE:   Retired Vice Chairman, Goldman Sachs Group, Inc. (Goldman Sachs), since 2007. During her 21-year tenure with Goldman Sachs, she served in various leadership roles, including Chair of the Global Markets Institute, Head of Global Research, and Head of Global Health Care. Director of American International Group, Inc., Intuit Inc. and Visa Inc. Member of the Board of Governors of the American Red Cross; Vice Chair, Board of Trustees of The Brookings Institution; Co-Chairman of the Board of Trustees of the Carnegie Institution of Washington; and member of the Board of Trustees of the University of Southern California.

KEY ATTRIBUTES, EXPERIENCE AND SKILLS:   Business Leadership & Operations/Risk Management: Ms. Nora Johnson’s careers in law and investment banking, including serving in various leadership roles at Goldman Sachs, provide valuable business experience and critical insights on the roles of the law, finance and strategic transactions to our business.   Healthcare/Pharma: Ms. Nora Johnson’s extensive knowledge of healthcare through her role in healthcare investment banking and her involvement with not-for-profit organizations, such as in scientific research (The Carnegie Institution), healthcare policy (RAND Corporation and The Brookings Institution) and healthcare services (the American Red Cross), provide touchstones of public opinion and exposure to diverse, global points of view.   Finance & Accounting: Ms. Nora Johnson also brings financial expertise to the Board, providing an understanding of financial statements, corporate finance, accounting and capital markets.

 

Pfizer 2016 Proxy Statement

11

 

ITEM 1 – ELECTION OF DIRECTORS DIRECTOR NOMINEES

 

 

Director Since: 2010   Other Current Public Boards: Kimberly-Clark Corporation

Ian C. Read, 62   POSITION, PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE:   Chairman of the Board and Chief Executive Officer of Pfizer since December 2011. President and Chief Executive Officer from December 2010. Previously, he served as Senior Vice President and Group President of the Worldwide Biopharmaceutical Businesses, which he led from 2006 through December 2010. In that role, he oversaw five global business units—Primary Care, Specialty Care, Oncology, Established Products and Emerging Markets. Mr. Read began his career with Pfizer in 1978 as an operational auditor. He worked in Latin America through 1995, holding positions including Chief Financial Officer, Pfizer Mexico, and Country Manager, Pfizer Brazil. In 1996, he was appointed President of Pfizer’s International Pharmaceuticals Group, with responsibility for Latin America and Canada. He became Executive Vice President, Europe, in 2000, was named a Corporate Vice President in 2001, and assumed responsibility for Canada, in addition to Europe, in 2002. Mr. Read later became accountable for operations in both the Africa/Middle East region and Latin America as well. Director of Kimberly-Clark Corporation. Mr. Read serves on the Boards of Pharmaceutical Research and Manufacturers of America (PhRMA) and the Partnership of New York City.

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

 

12	Pfizer 2016 Proxy Statement

 

ITEM 1 – ELECTION OF DIRECTORS DIRECTOR NOMINEES

 

 

Director Since: 2009   Board Committees: Audit, Corporate Governance (Chair) and Science and Technology   Other Current Public Boards: Wells Fargo & Company

Stephen W. Sanger, 70   POSITION, PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE:   Chairman of General Mills, Inc. (General Mills), a packaged food producer and distributor, from 1995 until his retirement in 2008 and its Chief Executive Officer from 1995 to 2007. Former Chairman of the Grocery Manufacturers of America. Recipient of the Woodrow Wilson Award for Public Service in 2009. Chaired the Fiscal Policy Committee of the Business Roundtable and served as a director of Catalyst. Director of Wells Fargo & Company. Director of Target Corporation from 1996 until 2013.

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

 

Director Since: 2014   Board Committees: Compensation, Regulatory and Compliance and Science and Technology   Other Current Public Boards: Thomson Reuters Corporation

James C. Smith, 56   POSITION, PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE:   President and Chief Executive Officer and Director of Thomson Reuters Corporation, a provider of intelligent information for businesses and professionals, since January 2012 and its Chief Operating Officer from September 2011 to December 2011 and Chief Executive Officer, Thomson Reuters Professional Division, from 2008 to 2011. Prior to the acquisition of Reuters Group PLC by The Thomson Corporation (Thomson) in 2008, he served as Chief Operating Officer of Thomson and as President and Chief Executive Officer of Thomson Learning’s Academic and Reference Group. Member of the International Business Council of the World Economic Forum, the International Advisory Boards of British American Business and the Atlantic Council.

KEY ATTRIBUTES, EXPERIENCE AND SKILLS:   Business Leadership/Talent Management: Mr. Smith’s experience as President and CEO of Thomson Reuters Corporation brings valuable leadership and management skills.   Operations/International Business: Pfizer benefits from Mr. Smith’s organizational expertise and leadership experience, honed during the merger and subsequent integration of two of the information industry’s preeminent firms, as well as his strong operational and international expertise from his experience as Chief Operating Officer.

 

Pfizer 2016 Proxy Statement

13

 

Governance

 

Overview

 

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

 

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

 

GOVERNANCE MATERIALS AVAILABLE ON OUR WEBSITE

 

Our Corporate Governance Principles and the following Board policies and other corporate governance materials are published on our website at www.pfizer.com/about/leadership_and_structure/meet_board.jsp and www.pfizer.com/about/corporate_governance/corporate_governance.jsp:

 

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

 

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

 

14	Pfizer 2016 Proxy Statement

GOVERNANCE BOARD INFORMATION

 

Board Information

 

Director Independence

 

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

 

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

 

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

 

The Board has determined that all of our current Directors (other than Mr. Ian C. Read) are independent of the company and its management and meet Pfizer’s criteria for independence. The independent Directors are Drs. Dennis A. Ausiello, Frances D. Fergusson and Helen H. Hobbs; Ms. Suzanne Nora Johnson; and Messrs. W. Don Cornwell, Joseph J. Echevarria, James M. Kilts, Shantanu Narayen, Stephen W. Sanger and James C. Smith. The Board previously determined that Ms. Constance J. Horner, Mr. George A. Lorch and Dr. Marc Tessier-Lavigne, each of whom served as a Director during a portion of 2015, were independent during the time he or she was a Director. The Board has determined that Mr. Ian C. Read is not independent because of his employment as Pfizer’s CEO.

 

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

 

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

 

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

 

In 2015, there was no indebtedness between Pfizer and any entity of which a Director or an immediate family member of a Director was an executive officer.

 

Drs. Ausiello and Hobbs are employed, and during the portion of 2015 that he served as a Director, Dr. Tessier-Lavigne was employed, at medical or academic institutions with which Pfizer engages in ordinary-course business transactions. Mr. Narayen is the chief executive officer of Adobe Systems Incorporated and Mr. Smith is the chief executive officer of Thomson Reuters Corporation, companies with which Pfizer engages in ordinary-course business transactions. We reviewed our transactions with each of these entities and found that these transactions were made in the ordinary course of business and were below the levels set forth in our Standards (1% of the annual revenues of these entities in each of the last three years).

 

Pfizer 2016 Proxy Statement

15

GOVERNANCE BOARD INFORMATION

 

 

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

 

Annual Review of Board Leadership Structure

 

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

 

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

 

The Board recognizes that in circumstances where the positions of Chairman and CEO are combined, investors believe it is imperative that the Board appoint a strong Lead Independent Director with a clearly defined role and responsibilities.

 

Following thorough reviews by the Corporate Governance Committee, the independent Directors reconsidered the Board’s leadership structure and determined in December 2015 to maintain the current leadership structure, with Mr. Read as Chairman. These determinations were based on the independent Directors’ continued strong belief that Mr. Read has extensive experience in and knowledge of the research-based biopharmaceutical industry and regulatory environment; continues to demonstrate the leadership and vision necessary to lead the Board and the company in our challenging industry and macroeconomic environments; possesses a fundamentally investor-driven viewpoint; and exercises leadership that has generated strong operational performance and strengthened colleague engagement in our ownership culture. The independent Directors also believe that this unified structure provides Pfizer with strong and consistent leadership. Given the significant regulatory and market environment in which we operate, having one clear leader in both roles, with deep industry expertise and company knowledge, provides decisive and effective leadership internally and externally.

 

In considering the Board’s leadership structure, the independent Directors have taken a number of additional factors into account. The Board—which consists entirely of independent Directors other than Mr. Read—exercises a strong, independent oversight function. This oversight function is enhanced by the fact that our Audit, Compensation, Corporate Governance, Regulatory and Compliance and Science and Technology Committees are comprised entirely of independent Directors. Further, a number of Board and committee processes and procedures provide substantial independent oversight of our CEO’s performance, including regular executive sessions of the independent Directors, an annual evaluation of our CEO’s performance against pre-determined goals, and a separate evaluation that, among other things, assesses the CEO’s interactions with the Board in his role as Chairman.

 

LEAD INDEPENDENT DIRECTOR

 

Our Corporate Governance Principles align with investor preferences. If the same individual holds the positions of Chairman and CEO, then we appoint a Lead Independent Director with a clearly defined role and responsibilities. At Pfizer, the Lead Independent Director position entails significant responsibility for independent Board leadership.

 

Mr. George A. Lorch served as our Lead Independent Director through the 2015 Annual Meeting of Shareholders. The independent Directors selected Dr. Dennis A. Ausiello to serve as Lead Independent Director following the 2015 Annual Meeting of Shareholders. Upon becoming Lead Independent Director, Dr. Ausiello also became an ex-officio member of each of the Board’s committees and continued in his role as Chair of the Science and Technology Committee. During his tenure as Lead Independent Director, Dr. Ausiello has demonstrated strong leadership skills and independent thinking, a deep understanding of the business, a high level of scientific expertise and a willingness to meet with investors. The independent Directors are confident in Dr. Ausiello’s ability to continue to serve as Lead Independent Director.

 

16	Pfizer 2016 Proxy Statement

GOVERNANCE BOARD INFORMATION

 

Dennis A. Ausiello, M.D. Lead Independent Director	The position of Lead Independent Director at Pfizer comes with a clear mandate and significant authority and responsibilities under a Board-approved charter. These responsibilities and authority include the following:
	•	presiding at executive sessions of the independent Directors and at other Board meetings at which the Chairman and CEO is not present;
	•	serving as an ex-officio member of each committee and attending meetings of the various committees regularly;
	•	calling meetings of the independent Directors;
	•	leading the evaluation by the independent Directors of the CEO’s effectiveness as the Chairman and CEO, including an annual evaluation of his/her interactions with the Directors and ability to provide leadership and direction to the full Board;
	•	serving as liaison between the independent Directors and the Chairman and CEO;
	•	approving information sent to the Board, including the quality, quantity and timeliness of such information;
	•	approving meeting agendas;
	•	facilitating the Board’s approval of the number and frequency of Board meetings and approving meeting schedules, to ensure that there is sufficient time for discussion of all agenda items;
	•	authorizing the retention of outside advisors and consultants who report directly to the Board;
	•	being regularly apprised of inquiries from shareholders and involved in correspondence responding to these inquiries when appropriate; and
	•	if requested by shareholders or other stakeholders, ensuring that he/she is available, when appropriate, for consultation and direct communication.
	The Charter of the Lead Independent Director can be found on our website at http://www.pfizer.com/files/about/lead_independent_director.pdf.

 

EXECUTIVE SESSIONS

 

Executive sessions of the independent Directors generally take place at every regular Board meeting. At these executive sessions, led by our Lead Independent Director, the independent Directors review and discuss, among other things, the criteria upon which the performance of the CEO and other senior managers is evaluated, the performance of the CEO against those criteria, and the compensation of the CEO and other senior managers.

 

Board and Committee Information

 

During 2015, the Board of Directors met 13 times. Each of our incumbent Directors attended at least 90% of the total meetings of the Board and the Board Committees on which he or she served that were held during the time he or she was a Director in 2015, and from which said Directors were not otherwise recused.

 

Out of an abundance of caution and to avoid the appearance of any conflict of interest, Mr. Kilts recused himself from meetings at which the Allergan plc (Allergan) transaction was discussed because of Pfizer’s retention of Centerview Partners in connection with the transaction. As a result of such recusal, but only because of such recusal, Mr. Kilts attended fewer than 75% of the total meetings of the Board and the Board Committees on which he served that were held during 2015. Excluding the special meetings of the Board and the Compensation Committee that related solely to the Allergan transaction, Mr. Kilts attended 90% of the total meetings of the Board and the Board Committees on which he served that were held during 2015. Mr. Kilts is an independent member of the Board. However, he recused himself because of his status as a founding partner of Centerview Capital and the fact that Pfizer engaged Centerview Partners on a limited basis, along with other advisory firms, to consult in connection with Pfizer’s entry into a definitive merger agreement with Allergan. Centerview Capital’s private equity business, with which Mr. Kilts is engaged, and the advisory business, Centerview Partners, were separated in 2010. As a result, Mr. Kilts does not share in any of the revenues of Centerview Partners (including any fees to be paid by Pfizer to Centerview Partners for the limited advisory services), nor does he have any role (legal or otherwise) in the governance or conduct of Centerview Partners in any respect.

 

Pfizer 2016 Proxy Statement

17

GOVERNANCE BOARD INFORMATION

 

In light of the unique circumstances relating to Mr. Kilts’ meeting attendance in 2015, and the lack of any attendance issues in prior years, the Board does not have any concerns regarding Mr. Kilts’ future attendance at Board and Board Committee meetings. The Board values Mr. Kilts as a fully engaged and highly knowledgeable member whose business, leadership and management experience provide significant benefits to the company and our shareholders.

 

All Board members standing for re-election are expected to attend the Annual Meeting unless an emergency prevents them from doing so. All the Directors then in office attended our 2015 Annual Meeting.

 

The table below provides membership and meeting information for each of the standing Board Committees for 2015 and reflects, among other things, changes to the compositions of certain committees, effective as of the 2015 Annual Meeting.

 

			Corporate	Regulatory	Science
Name	Audit	Compensation	Governance	and Compliance	and Technology
Dennis A. Ausiello, M.D.(a)					CHAIR
W. Don Cornwell	CHAIR	l		l	l
Joseph J. Echevarria(b)	l			l	l
Frances D. Fergusson, Ph.D.(c)			l	CHAIR	l
Helen H. Hobbs, M.D.(d)			l	l	l
Constance J. Horner(e)			l	l	l
James M. Kilts		CHAIR			l
George A. Lorch(f)
Shantanu Narayen(g)	l		l		l
Suzanne Nora Johnson	l	l			l
Ian C. Read
Stephen W. Sanger	l		CHAIR		l
James C. Smith(h)		l		l	l
Marc Tessier-Lavigne, Ph.D.(i)				l	l
2015 Meetings	11	8	7	6	3

(a)	Effective as of the 2015 Annual Meeting, Dr. Ausiello became the Lead Independent Director, and serves as an ex-officio member of each committee and regularly attends meetings of Board committees. Dr. Ausiello continued in his role as Chair of the Science and Technology Committee and stepped down from the Audit Committee, the Corporate Governance Committee and the Regulatory and Compliance Committee.
(b)	Mr. Echevarria was elected to the Board and appointed to serve as a member of the Audit Committee, the Regulatory and Compliance Committee and the Science and Technology Committee, effective June 25, 2015.
(c)	Effective as of the 2015 Annual Meeting, Dr. Fergusson stepped down from the Compensation Committee and joined the Corporate Governance Committee.
(d)	Effective as of the 2015 Annual Meeting, Dr. Hobbs joined the Regulatory and Compliance Committee.
(e)	Effective as of the 2015 Annual Meeting, Ms. Horner retired from the Board and as a member of the Corporate Governance Committee, the Regulatory and Compliance Committee and the Science and Technology Committee.
(f)	Effective as of the 2015 Annual Meeting, Mr. Lorch retired from the Board and as the Lead Independent Director.
(g)	Effective as of the 2015 Annual Meeting, Mr. Narayen joined the Audit Committee.
(h)	Effective as of the 2015 Annual Meeting, Mr. Smith stepped down from the Corporate Governance Committee and joined the Compensation Committee and the Regulatory and Compliance Committee.
(i)	Effective as of May 14, 2015, Dr. Tessier-Lavigne resigned from the Board and as a member of the Regulatory and Compliance Committee and the Science and Technology Committee.

 

18	Pfizer 2016 Proxy Statement

 

GOVERNANCE BOARD INFORMATION

 

 

BOARD COMMITTEES

 

THE AUDIT COMMITTEE

 

 

THE COMPENSATION COMMITTEE

 

 

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GOVERNANCE BOARD INFORMATION

 

 

THE CORPORATE GOVERNANCE COMMITTEE

 

 

THE REGULATORY AND COMPLIANCE COMMITTEE

 

 

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GOVERNANCE BOARD INFORMATION

 

 

THE SCIENCE AND TECHNOLOGY COMMITTEE

 

 

Pfizer 2016 Proxy Statement

21

 

GOVERNANCE BOARD INFORMATION

 

 

Corporate Governance Committee Report

 

The Corporate Governance Committee seeks to maintain and enhance Pfizer’s record of excellence in corporate governance by continually refining Pfizer’s corporate governance policies, procedures and practices. The following are examples of how we worked to achieve these objectives in 2015.

 

Adoption of Proxy Access: During 2015, the Committee oversaw Pfizer’s extensive shareholder engagement efforts, particularly with respect to proxy access. As a result of feedback from our shareholder engagement and Pfizer’s commitment to corporate governance excellence, we developed a proxy access framework that Pfizer’s Board approved and that resulted in amending our By-laws. As a result, a shareholder or a group of up to 20 shareholders who have owned at least 3% of our outstanding shares for at least three years may submit nominees for up to 20% of the Board, or two nominees, whichever is greater, for inclusion in Pfizer’s proxy materials, subject to complying with the requirements identified in our By-laws. During our extensive shareholder engagement, our shareholders expressed support for the provisions adopted by Pfizer.

 

Board and Committee Matters; Director Evaluations: During 2015, the Committee assessed Director independence and qualifications to serve on various committees and recommended changes to the composition of certain committees; conducted a comprehensive self-evaluation process for the Board and its committees; reviewed and, where appropriate, recommended changes to our governing documents, including our committee charters and Corporate Governance Principles; and continued to review the functioning of the Board and committees in developing areas. The Committee also discussed committee Chair and membership assignments and determined that, in 2015, no changes would occur to Chair assignments given the election of a new Lead Independent Director.

 

Board Leadership Structure: The Committee conducted a thorough annual review of the Board’s leadership structure and decided to retain the current leadership structure consisting of a combined Chairman and CEO and a Lead Independent Director.

 

Recruitment and Assessment of New Directors: In 2015, the Committee continued an ongoing Board succession planning process to assess candidates for election as Directors, based upon a “skills matrix” and other criteria. Resulting from this process, in June 2015, the Committee recommended and the Board elected Mr. Joseph J. Echevarria as a Director and a member of the Audit, Regulatory and Compliance and Science and Technology Committees. Among other qualifications, Mr. Echevarria brings financial expertise, international business and leadership skills to the Board. The Committee considered the election of Mr. Echevarria as a Director upon recommendation by management and our Chairman and CEO and evaluation by a third-party search firm. We also reviewed outside and unsolicited requests to join the Board, as well as suggestions presented by external advisors.

 

Corporate Responsibility and Public Policy: Under our charter, the Committee maintains an informed status on company issues related to public policy, social responsibility and philanthropy and monitors emerging issues potentially affecting the reputation of the pharmaceutical industry and Pfizer specifically. The Committee received an update on Pfizer’s corporate responsibility initiatives at year-end and were also informed of Pfizer’s public policy and corporate political spending practices through periodic discussions and reviews of the company’s semi-annual PAC and Corporate Political Contributions Report.

 

Legislative and Regulatory Developments: The Committee continued to monitor and evaluate corporate governance and executive compensation developments and best practices, including SEC rules and NYSE listing standards.

 

Shareholder Engagement/Activism: The Committee engaged in ongoing reviews of shareholder and stakeholder communications at each of its meetings and periodic reviews of shareholder feedback received during Pfizer’s year-round investor outreach and proxy season. The Committee was also kept informed of shareholder activism in the marketplace.

 

Leadership Planning: During 2015, the Committee reviewed emergency succession scenarios for Pfizer’s management.

 

The Corporate Governance Committee

 

Stephen W. Sanger, Chair	Frances D. Fergusson
Helen H. Hobbs	Shantanu Narayen

 

22	Pfizer 2016 Proxy Statement

 

GOVERNANCE BOARD INFORMATION

 

 

Regulatory and Compliance Committee Report

 

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

 

In 2015, we received reports and discussed with management, including the Chief Compliance and Risk Officer, significant healthcare-related regulatory and compliance risks and related compliance program initiatives and functions.

 

Among the matters considered were:

 

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

 

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

 

The Regulatory and Compliance Committee

 

Frances D. Fergusson, Chair	W. Don Cornwell
Joseph J. Echevarria	Helen H. Hobbs
James C. Smith

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GOVERNANCE BOARD INFORMATION

 

 

The Board’s Role in Risk Oversight

 

Management is responsible for assessing and managing risk, including through the Enterprise Risk Management (ERM) program, subject to oversight by the Board. The ERM program provides a framework for risk identification and management. The Board believes that its leadership structure and the ERM program support the risk oversight function of the Board. The Board executes its oversight responsibility for risk assessment and risk management directly and through its committees, as follows:

 

	THE BOARD   The Board considers specific risk topics, including risks associated with our strategic plan, our capital structure and our R&D activities. In addition, the Board receives regular reports from members of our Executive Leadership Team (ELT)—the heads of our principal business and corporate functions—that include discussions of the risks involved in their respective areas of responsibility. The Board is routinely informed of developments that could affect our risk profile or other aspects of our business.   The Board is kept informed of its committees’ risk oversight and other activities through reports of the committee Chairs to the full Board. These reports are presented at every regular Board meeting.

	AUDIT COMMITTEE   The Audit Committee has primary responsibility for overseeing Pfizer’s ERM program. Pfizer’s Chief Internal Auditor, who reports to the Committee, facilitates the ERM program, in coordination with the Legal Division and Compliance Division, and helps ensure that ERM is integrated into our strategic and operating planning process. The Committee’s meeting agendas throughout the year include discussions of individual risk areas, as well as an annual summary of the ERM process.   The Audit Committee also reviews and receives regular briefings concerning Pfizer’s information security and technology risks (including cybersecurity), including discussion of the company’s information security and risk management programs. Pfizer’s Chief Information Officer leads our cybersecurity risk management program, which is fully integrated into the overall ERM program and overseen by the Committee.		REGULATORY AND COMPLIANCE COMMITTEE   The Regulatory and Compliance Committee is responsible for reviewing and overseeing Pfizer’s compliance program, including but not limited to evaluating its effectiveness, and receives information about current and emerging risks and regulatory and enforcement trends that may affect our business operations, performance, or strategy. The Committee has primary responsibility for overseeing and reviewing risks associated with Pfizer’s healthcare law compliance programs and the status of compliance with applicable laws, regulations and internal procedures. From time to time, the Regulatory and Compliance Committee and the Audit Committee hold joint sessions to discuss risks relevant to both committees’ areas of risk oversight.		OTHER BOARD COMMITTEES:   Compensation Corporate Governance Science and Technology   The Board’s other committees oversee risks associated with their respective areas of responsibility. For example, the Compensation Committee considers the risks associated with our compensation policies and practices for both executive compensation and compensation generally.

 

24	Pfizer 2016 Proxy Statement

 

GOVERNANCE SHAREHOLDER OUTREACH

 

 

Shareholder Outreach

 

CONNECT We engage with our investors which is fundamental to our commitment to good governance and essential to maintaining our industry-leading practices.

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

COMMUNICATE We share investor feedback directly with our Corporate Governance Committee and full Board. Investors can communicate their concerns to the Independent Directors or Audit Committee Chair by e-mail or letter.

 

Connect

 

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

 

During 2015, we met with 42 investors who represent 34% of shares outstanding to discuss various key corporate governance-related matters, including executive compensation. These meetings were conducted in person, via teleconference or one-on-one at industry conferences. Our engagement activities take place throughout the year. Although shareholder outreach is primarily a function of management, members of our Board will also participate when appropriate. In addition to speaking with our institutional investors, we also are responsive to our retail investors and other stakeholders. In 2015, we responded to more than 1,700 of their inquiries sent to our Board of Directors or Corporate Secretary about governance or other company matters. All investor feedback is summarized and presented to the Corporate Governance Committee and full Board at least quarterly.

 

Collaborate

 

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

 

Summary of 2015 Shareholder Discussions

 

Board-related: Many of our discussions addressed the subject of board composition as investors are keenly focused on Director skills, tenure and diversity, with a particular desire to understand how the Board considers renewal and the evolution of its composition in connection with current and future business needs. In general, investors expressed minimal concerns about our Board’s composition, individual Directors, our Board policies or our overall approach to shareholder engagement. Investors were pleased with the addition of several new Directors in recent years, which brings the average tenure to seven years.

 

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

 

Action taken: See information on board composition and risk oversight throughout this Proxy Statement.

 

Executive Compensation: During our discussions, investors continued to show support for our overall executive compensation program and viewed it as well-structured and aligned with performance. Investors were particularly interested in discussing recent changes to the long-term components of our program, including the use of operating income as a financial metric and the DRG Index as a comparator group for evaluating performance for our PSAs beginning in 2015. Most viewed our review of the performance metrics and the changes to the metrics, as well as the change to replace restricted stock unit awards with PSAs for our executives, making all of their long-term compensation performance based, as positive. Several investors requested enhanced disclosure around our short-term and long-term incentive programs.

 

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

 

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25

 

GOVERNANCE OTHER GOVERNANCE PRACTICES AND POLICIES

 

 

Proxy Access: We also discussed the potential benefits and risks of giving shareholders the ability to nominate Directors through “proxy access”. In 2015, more investors indicated they were generally supportive of the right and interested in discussing the nuances of the by-law provisions for proxy access and whether Pfizer had plans to adopt proxy access.

 

Action taken: As a result of our shareholder engagement efforts and our commitment to corporate governance excellence, in December 2015, our Board adopted a proxy access by-law, enabling Pfizer shareholders to include their own director nominees in Pfizer’s proxy materials along with candidates nominated by the Board, so long as they meet certain requirements, as set forth in our By-laws.

 

Reporting of Non-Financial Metrics: Nearly half of the investors we spoke with indicated some level of interest in reviewing non-financial Environmental, Social and Governance (ESG) performance metrics in tandem with financial metrics. The trend in this integrated reporting is increasing. Pfizer’s investors expressed interest in the types of ESG issues that may impact our business objectives and/or create risks. We currently provide data on three non-financial performance metrics: Access to Medicines, Colleague Safety and Environmental Sustainability Goals. See the inside back cover of this Proxy Statement for additional information.

 

Action taken: Pfizer is assessing appropriate next steps, and will continue to engage with investors on this topic.

 

Communicate

 

Our goal is to communicate with our shareholders through many communication platforms - our website, in print or in person at shareholder meetings or investor presentations. We share investor and other stakeholder feedback directly with our Corporate Governance Committee and full Board.

 

HOW TO COMMUNICATE WITH OUR DIRECTORS

 

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

 

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

By e-mail: Go to Pfizer’s website at www.pfizer.com/about/corporate_governance/contact_directors.

 

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

 

Other Governance Practices and Policies

 

Pfizer policies on business ethics and conduct

 

All of our employees, including our Chief Executive Officer, Chief Financial Officer and Controller, are required to abide by Pfizer’s policies on business conduct to ensure that our business is conducted in a consistently legal and ethical manner. Pfizer’s policies form the foundation of a comprehensive process that includes compliance with corporate policies and procedures, an open relationship among colleagues to foster good business conduct, and a high level of integrity. Our policies and procedures cover all major areas of professional conduct, including employment practices, conflicts of interest, intellectual property and the protection of confidential information, and require strict adherence to laws and regulations applicable to the conduct of our business.

 

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

 

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

 

26	Pfizer 2016 Proxy Statement

 

GOVERNANCE OTHER GOVERNANCE PRACTICES AND POLICIES

 

 

Code of conduct for Directors

 

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

 

The full text of the Code of Business Conduct and Ethics for Members of the Board of Directors is posted on our website at www.pfizer.com/about/corporate_governance/directors_code.jsp.

 

Corporate responsibility

 

Through our corporate responsibility programs, we have touched the lives of millions of people around the world. We believe that all individuals, everywhere, deserve access to quality healthcare and the opportunity to lead healthy lives. Pfizer Corporate Responsibility combines traditional philanthropic methods with novel approaches that aim to create an enduring and meaningful impact on public-health systems. We strive to make the best use of Pfizer’s resources - our people, products, and funding - to help build healthcare capacity, expand access to medicines, and offer community support through corporate citizenship initiatives. We partner with nonprofit organizations, governments and foundations to identify and allocate appropriate resources to help underserved communities around the world. Our portfolio of programs range from donating Pfizer medicines and volunteering valuable colleague skills to providing grants and investments, through the Pfizer Foundation¹, that support social entrepreneurs and enterprises, fostering local innovation and improving healthcare delivery and access.

 

In addition, we believe that companies will play a key role in supporting and advancing the United Nations’ Global Goals for Sustainable Development (The Global Goals). At Pfizer, we are advancing existing programs and considering new initiatives to help achieve The Global Goals in order to create meaningful impact by 2030.

 

The Corporate Governance Committee is responsible for maintaining an informed status on our corporate social responsibility and philanthropic efforts and initiatives. The Committee receives at least an annual update on Pfizer’s Corporate Responsibility strategy, encompassing the work of both Pfizer and the Pfizer Foundation.

 

Public policy engagement and political participation

 

ENGAGING IN PUBLIC POLICY

 

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

 

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

 

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

 

Pfizer 2016 Proxy Statement

27

 

GOVERNANCE OTHER GOVERNANCE PRACTICES AND POLICIES

 

 

CORPORATE POLITICAL CONTRIBUTIONS

 

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

 

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

 

INDEPENDENT EXPENDITURES

 

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

 

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

 

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

 

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

 

The Corporate Governance Committee is responsible for maintaining an informed status on public policy and corporate political spending practices through periodic discussions and reviews of the company’s semi-annual PAC and Corporate Political Contributions report.

 

Federal and state lobbying activity

 

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

 

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

 

28	Pfizer 2016 Proxy Statement

 

   

 

 

Compensation of Non-Employee Directors

 

Our non-employee Directors receive cash compensation, as well as equity compensation in the form of Pfizer stock units, for their Board service. Each of these components is described below. The 2015 compensation of our non-employee Directors is shown in the “2015 Director Compensation Table” below. Mr. Read does not receive any compensation for his service as a Director or as Chairman.

 

NON-EMPLOYEE DIRECTOR COMPENSATION

 

In 2015, compensation for our non-employee Directors consisted of the following:

 

Position		Cash Retainers*				Pfizer Stock Units
Board Member			$137,500				$162,500
Chair of each Board Committee			$30,000
Lead Independent Director			$50,000	**

 

*	Each of Dr. Tessier-Lavigne, Ms. Horner and Messrs. Echevarria and Lorch were paid a prorated portion of their respective cash retainers for the period they served as Directors in 2015.
**	Dr. Ausiello was paid a prorated portion of the cash retainer for the period he served as Lead Independent Director in 2015.

 

Under the Pfizer Inc. Nonfunded Deferred Compensation and Unit Award Plan for Non-Employee Directors (Unit Award Plan), during 2015, each Director (other than Mr. Echevarria) received Pfizer stock units with a value of $162,500 as of the date of grant upon election at the 2015 Annual Meeting of Shareholders, provided the Director continued to serve as a Director following the Meeting. In 2016, each Director will receive Pfizer stock units with a value of $162,500 as of the date of grant upon election at the 2016 Annual Meeting of Shareholders, provided the Director continues to serve as a Director following the Meeting. A new Director also receives Pfizer stock units in a like amount when first elected to the Board. In 2015, Mr. Echevarria received Pfizer stock units with a value of $162,500 as of the date of grant upon his election to the Board.

 

DIRECTOR STOCK OWNERSHIP

 

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

 

Pfizer 2016 Proxy Statement

29

 

COMPENSATION OF NON-EMPLOYEE DIRECTORS

 

 

2015 Non-Employee Director Stock Ownership

 

Shares held as a multiple of Annual Cash Retainer (dollar value of shares determined using Pfizer's closing stock price as of December 31, 2015)

 

 

(1)

Mr. Smith became a member of our Board in June 2014 and Mr. Echevarria became a member of our Board in June 2015. Directors have five years from the date of his or her first election as a Director or, if later, from an increase in the amount of Pfizer stock required to be held, to satisfy the stock ownership requirement.

 

DEFERRED COMPENSATION

 

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

 

Equity Compensation. Directors who have met the stock ownership requirements as of December 31st of the prior year are permitted each year to elect to defer units granted that year or to receive the units in shares. All units granted in 2016 will be deferred. The number of deferred stock units in a Director’s account is increased by crediting additional stock units based on the value of any dividends on the common stock. Units deferred are not payable until the Director ceases to be a member of the Board, at or after which time they are paid in cash or in shares of Pfizer stock at the Director’s election. The amount of any cash payment is determined by multiplying the number of Pfizer stock units in the account by the closing price of our common stock on the last business day before the payment date.

 

MATCHING GIFT PROGRAM

 

Our non-employee Directors may participate in Pfizer’s matching gift program, which is also available to all Pfizer employees. Under these programs, the Pfizer Foundation will match contributions to eligible nonprofit organizations, up to a maximum of $15,000 per year, per director; contributions to religious and certain other types of nonprofit organizations, as well as to individuals and others in need, are not eligible and are not matched. In addition, the Pfizer Foundation will match contributions made to the United Way Campaign, up to a maximum of $15,000 per year, per director. The matching contributions made by the Pfizer Foundation with respect to our non-employee Directors are included in the 2015 Director Compensation Table below.

 

30	Pfizer 2016 Proxy Statement

 

COMPENSATION OF NON-EMPLOYEE DIRECTORS 2015 DIRECTOR COMPENSATION TABLE

 

 

2015 Director Compensation Table

 

The following table shows 2015 compensation for our non-employee Directors.

 

		Fees Earned		Equity/Stock		All Other
		or Paid in Cash		Awards(1)		Compensation(2)		Total
Name		($)		($)		($)		($)
Dennis A. Ausiello, M.D.		200,833		162,500		13,650		376,983
W. Don Cornwell		167,500		162,500		15,000		345,000
Joseph J. Echevarria(3)		71,016		162,500		—		233,516
Frances D. Fergusson, Ph.D.		167,500		162,500		12,975		342,975
Helen H. Hobbs, M.D.		137,500		162,500		18,460(2)		318,460
Constance J. Horner(3)		45,833		—		7,000		52,833
James M. Kilts		167,500		162,500		15,000		345,000
George A. Lorch(3)		62,500		—		—		62,500
Shantanu Narayen		137,500		162,500		15,000		315,000
Suzanne Nora Johnson		137,500		162,500		15,000		315,000
Stephen W. Sanger		167,500		162,500		15,000		345,000
James C. Smith		137,500		162,500		—		300,000
Marc Tessier-Lavigne, Ph.D.(3)		51,563		162,500		—		214,063

 

(1)	For all Directors except Mr. Echevarria, represents stock units awarded in 2015 to Directors who were re-elected at the 2015 Annual Meeting of Shareholders. The number of units granted was determined by dividing the grant date value of the award, $162,500, by $35.36, the closing price of Pfizer’s common stock on April 23, 2015. In the case of Mr. Echevarria, represents stock units awarded on June 25, 2015, upon his election as a Director, determined by dividing the grant date value of the award, $162,500, by $34.02, the closing price of Pfizer’s common stock on June 25, 2015. At the end of 2015, the aggregate number of stock units (including dividend equivalents) held by each current non-employee Director was as follows: Dr. Ausiello, 30,887; Mr. Cornwell, 106,534; Mr. Echevarria, 7,078; Dr. Fergusson, 42,344; Dr. Hobbs, 37,320; Mr. Kilts, 114,785; Mr. Narayen, 25,579; Ms. Nora Johnson, 47,394; Mr. Sanger, 96,039; and Mr. Smith, 16,955.
(2)	The amounts in this column represent charitable contributions made in 2015 under our matching gift program (see “Matching Gift Program” above). Dr. Hobbs’ amount reflects matching contributions made in 2015 in respect of 2014 and 2015 contributions. Certain charitable contributions by our Directors are not eligible for matching contributions under the programs and, therefore, the amounts in the above table may not reflect all such contributions made by our Directors.
(3)	Ms. Horner and Mr. Lorch retired as Directors, effective at the 2015 Annual Meeting of Shareholders. Dr. Tessier-Lavigne resigned as a Director on May 14, 2015. Mr. Echevarria was elected as a Director, effective June 25, 2015.

 

Pfizer 2016 Proxy Statement

31

 

   

 

 

Securities Ownership

 

The table below shows the number of shares of our common stock beneficially owned (as of the close of business on January 29, 2016) by each of our Directors and each NEO listed in the 2015 Summary Compensation Table, as well as the number of shares beneficially owned by all of our current Directors and executive officers as a group. Together, these individuals beneficially own less than one percent (1%) of our common stock outstanding.

 

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

 

										Options
		Number of Shares or Units								Exercisable
Beneficial Owners			Common Stock				Stock Units				Within 60 Days
Dennis A. Ausiello, M.D.			2,362	(1)			30,887	(2)
W. Don Cornwell			1,759	(1)			106,534	(2)
Frank A. D’Amelio			342,003	(3)			112,066	(4)			292,000
Mikael Dolsten, M.D., Ph.D.			300,941	(3)			76,674	(4)
Joseph J. Echevarria			—				7,078	(2)
Frances D. Fergusson, Ph.D.			—				42,344	(2)
Geno J. Germano*			258,816	(1)(3)			72,475	(4)
Helen H. Hobbs, M.D.			—				37,320	(2)
James M. Kilts			2,259	(1)			114,785	(2)
Shantanu Narayen			—				25,579	(2)
Suzanne Nora Johnson			10,000				47,394	(2)
Ian C. Read			1,261,099	(3)(5)			426,108	(4)			275,000
Stephen W. Sanger			85	(1)			96,039	(2)
James C. Smith			2,000				16,955	(2)
John D. Young			85,734	(3)			57,487	(4)			41,700
All Directors and Executive Officers as a group (23)			2,897,482				1,676,740				728,700

 

*	On February 8, 2016, we announced that Mr. Germano will be leaving Pfizer. Mr. Germano ceased serving as an executive officer, including his role as Group President, Global Innovative Pharma (GIP) business effective with the announcement.
(1)	Includes the following shares held in the names of family members: Dr. Ausiello, 2,362 shares; Mr. Cornwell, 300 shares; Mr. Germano, 1,587 shares; Mr. Kilts, 2,259 shares; and Mr. Sanger, 85 shares. Dr. Ausiello and Messrs. Cornwell, Germano and Kilts disclaim beneficial ownership of such shares.
(2)	Represents units (each equivalent to a share of Pfizer common stock) under our Director compensation program (see “Compensation of Non-Employee Directors” above).
(3)	Includes shares credited under the Pfizer Savings Plan and/or deferred shares relating to previously vested awards under Pfizer’s share award programs. These plans are described later in this Proxy Statement. Also includes 1,339 shares in the Pfizer Share Ownership Plan for Mr. Young.
(4)	In the case of Messrs. D’Amelio, Germano, Read and Young and Dr. Dolsten, includes units (each equivalent to a share of Pfizer common stock) to be settled in cash following the officer’s separation from service, held under the Pfizer Inc. Supplemental Savings Plan (PSSP), and for Mr. Germano also includes 4,410 units held under the Wyeth Supplemental Employee Savings Plan. The PSSP is described later in this Proxy Statement. Also includes the following RSUs (each equivalent to a share of Pfizer common stock) as of January 29, 2016: Mr. D’Amelio, 74,036; Dr. Dolsten, 67,432; Mr. Germano, 60,478; Mr. Read, 226,603; and Mr. Young, 52,312. These units were unvested as of January 29, 2016, except that in the cases of Messrs. Read and Germano, in view of their respective ages and years of service with Pfizer, a prorated portion of the units granted prior to 2014 would vest upon retirement and units granted in 2014 would continue to vest into retirement in accordance with their vesting schedule. This column does not include the following stock appreciation rights in the form of TSRUs as of January 29, 2016: Mr. D’Amelio, 1,764,049, of which 210,280 settled on February 24, 2016; Dr. Dolsten, 1,701,526, of which 210,280 settled on February 24, 2016; Mr. Germano, 1,458,252, of which 163,551 settled on February 24, 2016; Mr. Read, 6,006,135, of which 584,112 settled on February 24, 2016; and Mr. Young, 956,143, of which 52,570 settled on February 24, 2016. See “Compensation Tables—2015 Outstanding Equity Awards at Fiscal Year-End Table” and “— Estimated Benefits upon Termination” for a discussion of the vesting of RSUs, PSAs and TSRUs and the settlement price for the TSRUs that settled on February 24, 2016. Information regarding PSAs is not included in the above table.
(5)	Includes 33,809 shares held in a Grantor Trust.

 

32	Pfizer 2016 Proxy Statement

 

SECURITIES OWNERSHIP

 

 

Beneficial Owners

 

Based on filings made under Sections 13(d) and 13(g) of the Securities Exchange Act of 1934, as amended, as of December 31, 2015, the only persons or entities known by us to be a beneficial owner of more than 5% of our common stock were as follows:

 

		Shares of Pfizer
Name and Address of Beneficial Owner		Common Stock				Percent of Class
BlackRock, Inc.(1)
55 East 52nd Street
New York, NY 10055			407,526,542	(1)			6.6	%
The Vanguard Group(2)
100 Vanguard Boulevard
Malvern, PA 19355			367,651,919	(2)			5.95	%
State Street Corporation(3)
State Street Financial Center
One Lincoln Street
Boston, MA 02111			313,883,103	(3)			5.1	%

 

(1)	The information regarding BlackRock, Inc. is based solely on a Schedule 13G/A filed by BlackRock, Inc. with the SEC on February 10, 2016 (the BlackRock 13G/A). According to the BlackRock 13G/A, includes sole voting power with respect to 351,707,145 shares, shared voting power with respect to 78,475 shares, sole dispositive power with respect to 407,448,067 shares, and shared dispositive power with respect to 78,475 shares.
(2)	The information regarding The Vanguard Group is based solely on a Schedule 13G/A filed by The Vanguard Group with the SEC on February 11, 2016 (the Vanguard 13G/A). According to the Vanguard 13G/A, includes sole voting power with respect to 11,412,618 shares, shared voting power with respect to 611,300 shares, sole dispositive power with respect to 355,708,515 shares, and shared dispositive power with respect to 11,943,404 shares.
(3)	The information regarding State Street Corporation is based solely on a Schedule 13G filed by State Street Corporation with the SEC on February 16, 2016 (the State Street 13G). According to the State Street 13G, includes shared voting power with respect to 251,765,627 shares and shared dispositive power with respect to 313,883,103 shares. According to the State Street 13G, 251,765,627 shares are held in various capacities and 62,117,476 shares are held as investment manager for the Pfizer Savings Plans, Wyeth Union Savings Plan and the Pfizer Savings Plan for Employees Resident in Puerto Rico.

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our Directors and certain of our officers to file reports of holdings and transactions in Pfizer equity with the SEC and the NYSE. Based on our records and other information, we believe that in 2015 our Directors and our officers who were subject to Section 16(a) met all applicable filing requirements, except as follows: In February 2015, Anthony J. Maddaluna, Executive Vice President, filed a Form 4 with the SEC on a timely basis, reporting, among other things, the settlement in shares of performance share awards granted to him by the company. Due to an inadvertent administrative error by the company, the number of shares for the settlement included on the Form 4 (1,725) was not correct. Upon being informed of the error, Mr. Maddaluna filed an amendment to the Form 4 on the following business day reporting the correct number of shares (6,902). Also, in February 2016, 633 Pfizer stock units were credited to John Young, Group President, Global Established Pharma Business, under the Pfizer Inc. Supplemental Savings Plan representing amounts contributed by the company as a retirement savings contribution. Due to an administrative error by the company, the Form 4 reporting the transaction was filed late.

 

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33

 

   

 

 

Related Person Transactions and Indemnification

 

RELATED PERSON TRANSACTION APPROVAL POLICY

 

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

 

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

 

TRANSACTIONS WITH RELATED PERSONS

 

We have no related person transactions to report.

 

INDEMNIFICATION

 

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

 

34	Pfizer 2016 Proxy Statement

 

   

 

 

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

 

The Audit Committee is directly responsible for the appointment, compensation, retention and oversight of Pfizer’s independent registered public accounting firm. The Committee conducts a comprehensive annual evaluation of the independent registered public accounting firm’s qualifications, performance and independence. The Committee considers whether the independent registered public accounting firm should be rotated and considers the advisability and potential impact of selecting a different independent registered public accounting firm.

 

The Audit Committee selected, and the Board of Directors ratified the selection of, KPMG LLP (KPMG) to serve as our independent registered public accounting firm for 2016. Pfizer’s auditors have been KPMG and its predecessor firm, Peat, Marwick, Mitchell & Co., since 1987. Prior to that, Pfizer’s auditors were Main Hurdman (until its acquisition by Peat, Marwick, Mitchell & Co. in 1987) and its predecessors.

 

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

 

The Audit Committee and the Board of Directors believe that the continued retention of KPMG as our independent registered public accounting firm is in the best interest of Pfizer and our shareholders, and we are asking our shareholders to ratify the selection of KPMG as our independent registered public accounting firm for 2016. Although ratification is not required by our By-laws or otherwise, the Board is submitting the selection of KPMG to our shareholders for ratification because we value our shareholders’ views on Pfizer’s independent registered public accounting firm and as a matter of good corporate practice. In the event that our shareholders fail to ratify the selection, it will be considered a recommendation to the Board of Directors and the Audit Committee to consider the selection of a different firm. Even if the selection is ratified, the Audit Committee may in its discretion select a different independent registered public accounting firm at any time during the year if it determines that such a change would be in the best interests of Pfizer and our shareholders.

 

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

 

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

 

YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF KPMG LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR 2016.

 

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ITEM 2 – RATIFICATION OF SELECTION OF OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 

 

 

Audit and Non-Audit Fees

 

The following table shows the fees for professional services rendered by KPMG for the audit of the company’s annual financial statements for the years ended December 31, 2015 and December 31, 2014, and fees billed for other services rendered by KPMG during those periods.

 

		2015		2014
Audit fees:(1)		$42,408,000		$32,415,000
Audit-related fees:(2)		2,148,000		4,808,000
Tax fees:(3)		3,791,000		3,350,000
All other fees:(4)		0		0
Total		$48,347,000		$40,573,000

 

(1)	Audit fees were principally for audit work performed on the consolidated financial statements and internal control over financial reporting, as well as statutory audits. The increase in audit fees in 2015 versus 2014 is primarily due to fees related to the potential separation of our businesses and, to a lesser extent, our acquisition of Hospira, Inc. and the pending Allergan transaction.
(2)	Audit-related fees were principally for the audits of employee benefit plans and due diligence in connection with acquisition activities.
(3)	Tax fees were principally for services related to tax compliance and reporting and analysis services.
(4)	KPMG did not provide any “other services” during the period.

 

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

 

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

 

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

 

1.	Audit services include audit work performed on the financial statements and internal control over financial reporting, as well as work that generally only the independent registered public accounting firm can reasonably be expected to provide, including comfort letters, statutory audits, and discussions surrounding the proper application of financial accounting and/or reporting standards.
2.	Audit-related services are for assurance and related services that are traditionally performed by the independent registered public accounting firm, including due diligence related to mergers and acquisitions, employee benefit plan audits, and special procedures required to meet certain regulatory requirements.
3.	Tax services include all services, except those services specifically related to the audit of the financial statements, performed by the independent registered public accounting firm’s tax personnel, including tax analysis; assisting with coordination of execution of tax-related activities, primarily in the area of corporate development; supporting other tax-related regulatory requirements; and tax compliance and reporting.
4.	All other services are those services not captured in the audit, audit-related or tax categories. Pfizer generally does not request such services from the independent registered public accounting firm.

 

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

 

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

 

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Audit Committee Report

 

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

 

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

 

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

 

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

 

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

 

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

 

In reliance on the reviews and discussions referred to above, the Committee has recommended to the Board of Directors, and the Board has approved, that the audited financial statements be included in Pfizer’s Annual Report on Form 10-K for the year ended December 31, 2015, for filing with the U.S. Securities and Exchange Commission. The Committee has selected, and the Board of Directors has ratified, the selection of Pfizer’s independent registered public accounting firm for 2016.

 

The Audit Committee

 

W. Don Cornwell, Chair	Joseph J. Echevarria
Shantanu Narayen	Suzanne Nora Johnson
Stephen W. Sanger

 

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

 

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Item 3 – Advisory Approval of Executive Compensation

 

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

 

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

 

We implement our philosophy and achieve our program goals by following three key principles:

 

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

 

Results of 2015 Advisory Vote on Executive Compensation

 

Pfizer’s executive compensation program received substantial shareholder support and was approved, on an advisory basis, by 94.2% of the votes cast at the 2015 Annual Meeting. Our Compensation Committee and the other members of our Board believe that this level of approval of our executive compensation program is indicative of our shareholders’ strong support of our compensation philosophy and goals and the decisions made by the Compensation Committee in 2014 and early 2015. They also believe that the consistent high level of support from our shareholders for our executive compensation program over the past several years is a result of our Compensation Committee’s commitment to compensating our executives in a manner that provides a strong link between pay and performance and is reflective of our philosophy and goals, market best practices and strong shareholder engagement.

 

2015 Pay for Performance

 

2015 was very productive in terms of business momentum, business development activity and pipeline advancement. The Compensation Committee believes that the compensation of our named executive officers for 2015 is reasonable and appropriate, is justified by the performance of our company and is working to ensure management’s interests align with increasing shareholder value. In deciding how to cast your vote on this proposal, the Board requests that you consider the structure of Pfizer’s executive compensation program in connection with our 2015 performance, which is more fully discussed in the Compensation Discussion and Analysis (CD&A) section. The CD&A also contains more details about how we implement our philosophy and goals, and how we apply these principles to our compensation program. In particular, we discuss how we set compensation targets and other objectives and evaluate performance against those targets and objectives to ensure that performance is appropriately rewarded.

 

38	Pfizer 2016 Proxy Statement

 

ITEM 3 – ADVISORY APPROVAL OF EXECUTIVE COMPENSATION 2016 ADVISORY VOTE ON EXECUTIVE COMPENSATION

 

 

2016 Advisory Vote on Executive Compensation

 

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

 

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

 

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

 

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

 

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Compensation Committee Report

 

The Compensation Committee has reviewed and discussed with management the following Compensation Discussion and Analysis section of Pfizer’s 2016 Proxy Statement. Based on our review and discussions, we have recommended to the Board of Directors that the Compensation Discussion and Analysis be included in Pfizer’s 2016 Proxy Statement.

 

The Compensation Committee

 

James M. Kilts, Chair	W. Don Cornwell
James C. Smith	Suzanne Nora Johnson

 

40	Pfizer 2016 Proxy Statement

 

   

 

 

Executive Compensation

 

Key Terms

 

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

 

Adjusted diluted EPS:		Non-GAAP Adjusted diluted Earnings Per Share
CD&A:		Compensation Discussion and Analysis included in this Proxy Statement
DCP:		Pfizer Inc. Deferred Compensation Plan
DRG Pharmaceutical Index or DRG Index:		NYSE ARCA Pharmaceutical Index – A publicly traded index of pharmaceutical companies
ELT:		Executive Leadership Team – The CEO and his direct reports
GAAP:		Generally Accepted Accounting Principles in effect in the U.S.
GEP:		Global Established Pharmaceutical Segment – Focuses on legacy brands that have lost or will soon lose market exclusivity in both developed and emerging markets, branded generics, generic sterile injectable products, biosimilars, and infusion systems
GIP:		Global Innovative Pharmaceutical Segment – Focuses on developing and commercializing novel, value-creating medicines that significantly improve patients’ lives
GPP:		Global Performance Plan – Annual incentive award program (bonus)
IBT:		Income Before Taxes
IRC/Internal Revenue Code:		The Internal Revenue Code of 1986, as amended
LOE:		Loss of Exclusivity – Loss of patent rights
Named Executive Officers or NEOs:		Pfizer’s CEO and CFO, and the three most highly compensated Executive Officers during fiscal 2015
OI:		Non-GAAP Adjusted Operating Income
OTC:		Over-the-Counter
PCPP:		Pfizer Consolidated Pension Plan – A qualified defined benefit pension plan; closed to new entrants January 1, 2011 and will be frozen as of December 31, 2017
PRAP:		Pfizer Retirement Annuity Plan – A sub-plan of the PCPP
PSA:		Performance Share Award – Long-term incentive award tied to performance
PSP:		Pfizer Savings Plan – A qualified defined contribution plan which includes a 401(k) feature
PSSP:		Pfizer Inc. Supplemental Savings Plan – A non-qualified savings plan
RSC:		Retirement Savings Contribution – Annual employer retirement contribution to the PSP and PSSP, if applicable, for colleagues not participating in the PRAP
RSU:		Restricted Stock Unit – Long-term incentive award
Section 16:		Section 16 of the Securities Exchange Act of 1934, as amended
SEC:		U.S. Securities and Exchange Commission
SCT:		Summary Compensation Table – SEC-required table showing compensation, as defined by the SEC regulations, of the NEOs for the most recently completed and prior two years
TC:		Total Compensation reported in the Summary Compensation Table (salary, bonus and long-term incentive)
TDC:		Total Direct Compensation presented on a performance-year basis
TSR:		Total Shareholder Return
TSRU:		Total Shareholder Return Unit – Long-term incentive award tied to absolute TSR
VOC:		Global Vaccines, Oncology and Consumer Healthcare Segment – Focuses on the development and commercialization of vaccines and products for oncology and consumer healthcare

 

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EXECUTIVE COMPENSATION COMPENSATION DISCUSSION AND ANALYSIS

 

Compensation Discussion and Analysis

 

This Compensation Discussion and Analysis, or “CD&A,” describes Pfizer’s executive compensation program for 2015 and certain elements of our 2016 program. We use this program to attract, motivate and retain the executives who lead our business. In particular, this CD&A explains how the Compensation Committee (the Committee) of the Board of Directors (the Board) made 2015 compensation decisions for our executives, including the Named Executive Officers (NEOs) identified in this CD&A:

 

 

42	Pfizer 2016 Proxy Statement

EXECUTIVE COMPENSATION EXECUTIVE SUMMARY

 

Executive Summary

 

About Pfizer

 

Pfizer Inc. is a research-based, global biopharmaceutical company. We apply science and our global resources to bring therapies to people that extend and significantly improve their lives through the discovery, development and manufacture of medicines, vaccines, medical devices and consumer healthcare products.

 

We manage our global commercial operations through two distinct businesses: Innovative Products and Established Products. The Innovative Products business has two operating segments – the Global Innovative Pharmaceutical segment (GIP) and the Global Vaccines, Oncology and Consumer Healthcare segment (VOC). The Established Products business consists of the Global Established Pharmaceutical segment (GEP).

 

Innovative Products Business			Established Products Business
Global Innovative Pharmaceutical segment: focuses on developing and commercializing novel, value-creating medicines that significantly improve patients’ lives.   Key therapeutic areas include inflammation/immunology, cardiovascular/metabolic, neuroscience/pain and rare diseases.	Global Vaccines, Oncology and Consumer Healthcare segment: focuses on the development and commercialization of vaccines and products for oncology and consumer healthcare. Consumer Healthcare manufactures and markets several well-known, over-the-counter (OTC) products. Each of the three businesses in VOC operates as a separate, global business, with distinct specialization in terms of the science and market approach necessary to deliver value to consumers and patients.		Global Established Pharmaceutical segment: includes legacy brands that have lost or will soon lose market exclusivity in both developed and emerging markets, branded generics, generic sterile injectable products, biosimilars and infusion systems.
Leading brands, such as	Leading brands, such as		Leading brands, such as
• Xeljanz	• Prevenar/Prevnar 13		• Lipitor
• Eliquis	• Sutent		• Celebrex
• Lyrica (U.S. and Japan)	• Ibrance		• Zyvox
• Viagra (U.S. and Canada)	• Nexium 24HR		• Pristiq
• Enbrel (outside U.S. and Canada)	• Advil		• Norvasc

 

This structure allows each operating segment greater autonomy, focus, and responsibility for its commercial activities and for certain research and development projects and for new investigational products. Each business has a geographic footprint across developed and emerging markets.

 

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

 

2015 Performance Overview

 

2015 was very productive in terms of business momentum, business development activity and pipeline advancement. In 2015, we:

 

•	Recorded strong financial performance, generating operational revenue growth every quarter, which resulted in 6%* operational (excluding the impact of foreign exchange rates) revenue growth in 2015.

 

*	For additional information on the change in revenues, see the “Overview of our Performance, Operating Environment, Strategy and Outlook—Our 2015 Performance—Revenues—2015” in the company’s 2015 Financial Report.

 

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EXECUTIVE COMPENSATION EXECUTIVE SUMMARY

•	Continued to gain considerable momentum with new, in-line and acquired assets, as well as operational revenue growth in emerging markets.
•	Achieved strong VOC revenue growth of 26% in 2015, compared to 2014, which resulted in operational revenue growth of 34% for the same period due in large part from Prevenar/Prevnar 13 and the launch of Ibrance.**
•	Recorded revenue growth for GIP of 1% for 2015, compared to 2014, which resulted in operational revenue growth of 9% for the same period.**
•	Announced a proposed combination with Allergan plc.
•	Progressed 39 programs in our R&D pipeline.
•	Acquired Hospira, Inc., which is an attractive potential growth driver with its portfolio of sterile injectables and biosimilar products.

 

SHAREHOLDER RETURNS

 

During 2015, progress against our strategic goals, managing losses of exclusivity (LOEs), continued operational revenue growth in emerging markets, strong business results and effective execution, resulted in shareholder returns of:

 

•	$13.1 billion to shareholders through dividends ($6.9 billion) and share repurchases ($6.2 billion) in 2015.
•	Increased quarterly dividend payments by approximately 8% from $0.26 to $0.28 as compared to 2014.
•	Stock price increased approximately 4% from $31.15 to $32.28 at closing on December 31, 2015.

 

As of February 2, 2016, we had a total of 90 programs in clinical development including 38 in late-stage development or registration. While we continue to experience a challenging macroeconomic environment and absorb the negative effect of product LOEs, we created value for our shareholders and achieved significant milestones across our strategic imperatives that are detailed below.

 

 

Pfizer’s Pay-for-Performance Philosophy

 

The Committee believes that Pfizer’s executive compensation program drives performance and increases shareholder value. This philosophy, which is set by the Committee, is intended to align each executive’s compensation with Pfizer’s short- and long-term performance and provide the compensation and incentives needed to attract, motivate and retain key executives who are crucial to Pfizer’s long-term success.

 

	Our three executive compensation pay-for-performance principles are:
	•	positioning total direct compensation and each compensation element at approximately the median of our peer and general industry comparator companies, with consideration of relative company market capitalization and complexity;
	•	aligning annual incentive awards with annual operating, financial and strategic objectives; and
	•	rewarding absolute and relative performance in TSR through long-term equity incentive awards.

**	For additional information on the change in revenues, see the “Analysis of Operating Segment Information” in the company’s 2015 Financial Report.

44	Pfizer 2016 Proxy Statement

EXECUTIVE COMPENSATION EXECUTIVE SUMMARY

 

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

 

2015 NEO Pay Mix

 

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

 

CEO - 2015 Target Direct Compensation		Other NEOs - Target Direct Compensation (Average)

 

2015 NEO Total Direct Compensation (TDC)

 

The Committee evaluates pay and performance using total direct compensation on a performance-year basis, rather than using the total compensation values shown in the Summary Compensation Table (SCT), which reflect an accounting basis approach for long-term incentives. The Committee believes its approach better reflects pay for performance during 2015.

 

PERFORMANCE YEAR TDC BASIS VERSUS SUMMARY COMPENSATION TABLE

 

Total direct compensation on a performance-year basis includes:

 

•	year-end base salary;
•	annual incentive award paid for the performance year even though it is paid in March of the following year; and
•	long-term incentive (LTI) award grant value made on a performance-year basis and granted in February of the following year.

 

It is important to note that the performance year compensation information in the table and graph below for Mr. Read and the other NEOs is a tool the Committee uses to assess compensation and is not intended as a substitute for the SCT. It illustrates the difference between annual direct pay and amounts reflected in the SCT. We also consider the grant value of the long-term incentive awards, without regard to the accounting and SCT treatment that requires spreading the PSA over multiple years due to its design. There is no guarantee the NEOs will actually receive the full value of the total direct compensation. The actual payout attributable to long-term incentive awards will be based on future performance, stock price and dividends.

 

2015 CEO COMPENSATION AT A GLANCE

 

The chart below shows the components of Mr. Read’s TDC for the 2014 and 2015 performance years.

 

The 2015 performance year TDC ($19.415 million) is comprised of year-end base salary ($1.870 million), 2015 performance year bonus paid in 2016 ($4.300 million), and the 2016 LTI award (accounting value of $13.245 million⁽¹⁾). This results in a 16% increase year-over-year from the 2014 performance year TDC of $16.703 million (see “CEO Compensation” on page 46), reflecting the company’s strong performance against its financial goals and Mr. Read’s individual performance.

 

(1)

Full value of the 2016 LTI Award approved by the Committee was $13.000 million. Consistent with historical practice, long-term incentive values are converted into units using the closing stock price/value on the first trading day of the week of grant (February 22, 2016) and the accounting value is calculated based on the converted units valued using the closing stock price/value on the grant date (February 25, 2016) so these values usually differ.

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EXECUTIVE COMPENSATION EXECUTIVE SUMMARY

 

The 2015 SCT total compensation (TC) ($14.013 million) is comprised of 2015 salary ($1.859 million), 2015 performance year bonus paid in 2016 ($4.300 million) and the 2015 LTI award (accounting value of $7.855 million) which includes one-third of the 2015 PSA grant value because accounting rules provide that only one-third of the award is included in each of the three performance years as a result of the use of three one-year goals. In addition, as the SCT includes grants made during the year, rather than on a performance-year basis, the 2015 LTI grant is included rather than the 2016 LTI grant.

 

If accounting rules did not provide that only one-third of the PSA grant should be disclosed, the 2015 SCT total compensation (TC) at full value would have been $18.037 million (salary $1.859 million, bonus paid in 2016 $4.300 million and 2015 LTI $11.878 million). This would have resulted in a 2.3% increase year-over-year from the 2014 SCT ($17.625 million), which is comprised of salary ($1.815 million), bonus paid in 2015 ($3.000 million) and 2014 LTI ($12.810 million).

 

CEO Compensation⁽¹⁾

 

 

(1)	Consistent with historical practice, long-term incentive values are converted into units using the closing stock price/value on the first trading day of the week of grant, and the accounting value is calculated based on the converted units valued using the closing stock price/value on the grant date, so these values usually differ (subject to rounding).
(2)	The SCT total compensation includes equity awards made during the year and may differ significantly from the 2015 performance year TDC amounts shown above (subject to rounding). Consistent with the accounting rules, PSAs are accounted for one-third per year due to the use of three one-year goals, therefore, the 2015 SCT amounts include one-third of the 2015 PSA value. This is reflective of the grant date fair value of Mr. Read’s 2015 long-term incentive award granted on February 26, 2015, calculated in accordance with FASB ASC Topic 718. The 2015 full value grant was $11.878 million and consisted of $5.843 million of 5-and 7-year TSRUs and $6.035 million of PSAs.

 

 

NEO 2015 PERFORMANCE YEAR TDC AND SUMMARY COMPENSATION TABLE

 

The compensation decisions for the NEOs reflect their contributions to the company’s overall performance and that of their respective businesses or functions. The table below provides the 2015 performance year TDC versus the total compensation from the 2015 SCT for the NEOs.

 

			Performance Year Compensation				Summary Compensation Table(1)
			Annual	Equity Award(2)
		Year-End	Incentive Award	(granted in	Total Direct		Total
Name	Year	Salary	(paid in 2016)	February 2016)	Compensation		Compensation	Total
		(A) ($)	(B) ($)	(C) ($)	(D=A+B+C) ($)		(E) ($)	(F) ($)
I. Read	2015	1,870,000	4,300,000	13,245,212	19,415,212		14,013,368	17,987,962
F. D’Amelio	2015	1,300,000	2,341,000	3,667,900	7,308,900		5,991,138	6,670,174
M. Dolsten	2015	1,215,000	1,850,000	3,667,900	6,732,900		5,413,888	6,057,866
G. Germano	2015	1,175,000	1,850,000	—	3,025,000		5,375,138	6,782,720
J. Young	2015	1,100,000	2,100,000	3,667,900	6,867,900		5,541,388	5,918,925

(1)	The SCT “Total Compensation” (column E) includes salary, non-equity incentive compensation and equity awards valued on an accounting basis (which reflects PSAs at one-third) made during the year. The “Total” (column F) also includes Total Compensation (column E) and the increase in pension value and the All Other Compensation and, as such, differs from the 2015 performance year TDC amounts shown in column D.
(2)	The amounts represent the entire 2016 long-term incentive grant value, which includes the full PSA grant value. Consistent with historical practice, long-term incentive values are converted into units using the closing stock price/value on the first trading day of the week of grant and the accounting value is calculated based on the converted units valued using the closing stock price/value on the grant date, so these values usually differ.

46	Pfizer 2016 Proxy Statement

EXECUTIVE COMPENSATION EXECUTIVE SUMMARY

 

Compensation Practices

 

COMPENSATION RISK ASSESSMENT

 

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

 

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

 

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

 

LEADING COMPENSATION PRACTICES

 

WHAT WE DO

 

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

 

WHAT WE DON’T DO

 

x	No Hedging or Pledging. We prohibit our executives and Directors from pledging, hedging, or engaging in any derivatives trading with respect to company shares.
x	No “Gross-Ups.” We do not provide tax “gross-ups” for perquisites or other benefits provided to our executive officers, other than in the case of certain relocation expenses, consistent with our relocation policy for all U.S.-based employees.
x	No Repricing. Our equity incentive plan prohibits the repricing or exchange of equity awards without shareholder approval.
x	No Employment Agreements. None of our executive officers has an employment agreement with the company.

 

2015 Advisory Vote on Executive Compensation and Shareholder Outreach Program

 

HISTORICAL ADVISORY VOTES

 

Pfizer’s executive compensation program received substantial and consistent shareholder support ranging from 94.2% to 96.8% over the past several years. Pfizer’s executive compensation program received support of 94.2% and 95.6% of the votes cast at the 2015 and 2014 Annual Meetings, respectively. Our Compensation Committee and the other members of our Board believe this consistent high level of support from our shareholders is a result of our commitment to ensuring that our

 

Pfizer 2016 Proxy Statement

47

 

EXECUTIVE COMPENSATION EXECUTIVE SUMMARY

 

 

executives are compensated in a manner that provides a strong link between pay and performance. We also believe our shareholders’ votes reflect support for our compensation philosophy and goals, market best practices and focus on shareholders’ interests.

 

ROBUST 2015 OUTREACH PROGRAM

 

In 2015, we continued our longstanding robust investor outreach program to solicit valuable feedback which we then shared with the Committee and the Board. Our shareholder outreach resulted in discussions with both U.S.- and non-U.S.-based investors representing approximately 34% of our outstanding shares as of year-end 2015, and more than a majority of the votes cast at our 2015 Annual Meeting. Investor feedback was generally positive of our executive compensation program and its link between pay and performance. Shareholders voiced support for our compensation program and provided important feedback on program design and disclosure.

 

The Committee and Board value our shareholders’ insights and consider shareholder feedback, evolving business needs, and a desire to further link executive pay to performance, when evaluating our compensation program. The Committee has taken a number of actions, such as enhancing our proxy statement disclosure and changing the executive compensation program to align more closely with our performance and with shareholders’ interests.

 

2015 CHANGES TO THE EXECUTIVE COMPENSATION PROGRAM

 

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

 

Based on this annual review and in response to changing business needs, market best practice and shareholder feedback, the Committee took the actions below to enhance our executive compensation program. We introduced key changes during 2014 and early 2015. We believe these changes create a stronger link between executive pay and total shareholder return, provide a more transparent alignment between pay and performance and continue our alignment with the market. The following actions were taken in 2015:

 

Topic		Action		Rationale
Long-Term Incentive (LTI) Awards Mix		Implemented a redesigned annual long-term incentive program for our Executive Leadership Team (ELT). Effective with the February 2015 long-term incentive grant, additional PSAs replaced the portion of the long- term incentive award value formerly allocated to RSUs.		Elimination of RSUs and transition to a fully performance-based long-term incentive structure strengthens the alignment between our ELT’s incentives, and the performance of our company and our shareholders.   Increased alignment between pay and performance and alignment with shareholders by having 100% performance-based long-term compensation for our ELT.
Long-Term Incentive (LTI) Awards Performance Metrics		Starting with the February 2015 long-term incentive grant, we changed the PSA performance measure from three-year relative total shareholder return (TSR) versus a peer group of pharmaceutical companies, to two measures:   1.  Operating income* over three one-year periods, and   2.  Relative TSR as compared to the NYSE ARCA Pharmaceutical Index (DRG Index) over the three- year performance period.		Consistent with market practice.   We believe these metrics establish stronger alignment with shareholders’ interests as rewards are based on both financial performance of the company and relative TSR.

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

 

48	Pfizer 2016 Proxy Statement

 

EXECUTIVE COMPENSATION EXECUTIVE SUMMARY

 

 

2015 Executive Compensation Program Summary

 

Element/Type		Performance Measure		Terms		Objectives
Salary (Cash)		—		The fixed amount of compensation for performing day- to-day responsibilities. Set based on market data, job scope, responsibilities and experience. Generally reviewed annually for potential increase based on a number of factors including market levels, performance and internal equity		Provides competitive level of fixed compensation
Annual Short-Term Incentive/Global Performance Plan (GPP) (Cash)		Company, Business Unit and Individual Performance   Plan funded based on Pfizer performance and weighted as follows:   - 40% Revenue, - 40% Adjusted diluted EPS, and - 20% Cash Flow from Operations		Aggregate pool is funded based on performance against Pfizer’s short-term financial goals (revenue, adjusted diluted earnings per share (EPS) and cash flow from operations). Individual awards based on business unit and individual performance measured over the current year		Provides short-term incentives tied to corporate performance against three operational metrics and links individual awards to both company and individual performance based on achievement of financial and strategic goals
Long-Term Incentive Compensation (100% Performance Based Equity)   5- and 7-Year Total Shareholder Return Units (TSRUs)   Each represents 25% of total annual grant value (50%)		Absolute TSR		5- and 7-Year TSRUs generally vest three years from the grant date and are settled on the fifth or seventh anniversary of the grant date, respectively   The value earned for each TSRU is equal to the difference between the settlement price (the 20-day average of the closing prices of Pfizer common stock ending on the settlement date) and the grant price (the closing price of Pfizer common stock on the date of grant), plus the value of dividend equivalents accumulated over the term. This value, if any, is converted into shares by dividing it by the settlement price; no value is received if the TSR is negative		Provides direct alignment with shareholders as awards are tied to absolute TSR
Performance Share Awards (PSAs)   Representing 50% of total annual grant value		Operating Income* and relative TSR		PSAs have a three-year performance period starting on January 1st of the year of grant and generally vest on the third anniversary of the grant based on performance   Beginning in 2015, PSAs are paid based on the company’s performance against a combination of operating income over three one-year periods and relative TSR over a three-year period as compared to the DRG Index   Dividend equivalents are applied to the number of shares actually earned under the award, if any, at the end of the performance period   Earned PSAs and dividend equivalents are paid in shares of Pfizer common stock		Aligns the interests of management/key executives with those of shareholders by aligning compensation to operational goals and relative TSR over a three-year performance period

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

 

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EXECUTIVE COMPENSATION EXECUTIVE SUMMARY

 

 

2015 Executive Compensation Program Summary (cont’d)

 

Element/Type				Terms		Objectives
Retirement		Pension Plan		Provides retirement income for eligible participants based on years of service and average earnings up to tax code limitations. (Plan ceased accepting new participants effective 1/1/11 and is being frozen 12/31/17)		Provides retirement income
		Supplemental Pension Plan		Provides retirement income relating to compensation in excess of tax code limitations under the same formula as the qualified pension plan noted above. (Plan ceased accepting new participants effective 1/1/11 and is being frozen 12/31/17)		Provides additional retirement income   Attracts, retains and motivates key executives
		Savings Plan		A qualified 401(k) savings plan that provides participants with the opportunity to defer a portion of their eligible compensation, up to tax code limitations, and receive a company matching contribution (up to 4.5%)		Provides employees with a 401(k) plan savings feature
		Retirement Savings Contribution (RSC)		An age- and service-weighted company contribution (5%-9%) to the savings plans for those not participating in the Pension Plan		Provides retirement savings in a defined contribution format consistent with market trends
		Supplemental Savings Plan		Extends the Savings Plan for deferral of eligible compensation in excess of the tax code limitations under the same terms as the qualified savings plan		Allows for additional deferrals
Other		Perquisites		Certain other benefits provided to executives by the company consisting of limited reimbursement for personal financial planning services and certain personal travel benefits for the CEO and other NEOs		Provides CEO and other NEOs the ability to focus on company business

 

50	Pfizer 2016 Proxy Statement

 

EXECUTIVE COMPENSATION SECTION 1 – OUR COMPENSATION PHILOSOPHY

 

 

SECTION 1 – Our Compensation Philosophy

 

Pfizer’s Pay-for-Performance Philosophy and Principles of Our Executive Compensation Program

 

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

 

 

		Our executive compensation program objectives:
		•	align interests of key executives with the long-term interests of our shareholders;
		•	attract, retain and motivate key executives to drive our business and financial performance; and
		•	link a significant amount of executive compensation to the achievement of pre-established performance metrics directly tied to our business goals and strategies.

 

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

 

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

 

 

		Our three executive compensation pay-for-performance principles are:
		•	positioning total direct compensation and each compensation element at approximately the median of our peer and general industry comparator companies, with consideration of relative company market capitalization and complexity;
		•	aligning annual incentive awards with annual operating, financial and strategic objectives; and
		•	rewarding absolute and relative performance in TSR through long-term equity incentive awards.

 

SECTION 2 – Elements of Our Executive Compensation Program

 

2015 Salaries

 

Salary is a fixed amount of compensation for performing day-to-day responsibilities. Salaries represented approximately 11% of total compensation (year-end salary, target bonus and target long-term incentive) for the CEO and 20% for the other NEOs in 2015. Base salaries for the NEOs are reviewed on an annual basis, and in connection with a promotion or other changes in responsibilities.

 

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EXECUTIVE COMPENSATION SECTION 2 – ELEMENTS OF OUR EXECUTIVE COMPENSATION PROGRAM

 

 

The table below shows the annual salaries for our NEOs set by the Committee, effective April 1, 2015.

 

		April 1, 2015		2015 Salary
		Salary		Grade Midpoint
Name		($)		($)(1)
I. Read		1,870,000		1,794,700
F. D’Amelio		1,300,000		1,170,500
M. Dolsten		1,215,000		1,170,500
G. Germano		1,175,000		1,170,500
J. Young		1,100,000		1,170,500

 

(1) See “Target Setting for Annual Incentive Awards” for an explanation of how we use salary grade midpoints to determine target annual incentive awards.

 

Annual Incentive Award Program/Global Performance Plan (GPP)

 

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

 

ANNUAL INCENTIVE POOL FUNDING

 

The annual incentive program is funded based on the company’s achievement of pre-established financial goals determined by the company’s annual budget which includes our planned capital allocation activities (i.e., planned share repurchases and dividends), as well as certain other qualitative criteria. For annual incentive purposes, the weighted financial goals are:

 

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

 

(See “Financial Results for Annual Incentive Purposes” on page 54 for additional information.)

 

		Key features include:
		•	bonus pool funding is based on performance against pre-set financial goals based on annual budget;
		•	achievement versus our pre-set financial goals is measured using the same key operating assumptions as those in our annual budget, which take into account planned capital allocation activities such as share repurchases and dividends paid, and budgeted foreign exchange rates (share repurchases in excess of budgeted amounts are removed from the calculation of the financial results for GPP purposes);
		•	funding for the achievement of each financial goal is determined within a range based on performance and allows for limited consideration of other market factors that may have influenced performance; and
		•	award opportunity is limited to a range from 0% for below threshold performance to 200% at maximum and the pool is not funded unless threshold performance is met.

 

QUALITATIVE CONSIDERATION/OTHER FACTORS

 

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

 

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EXECUTIVE COMPENSATION SECTION 2 – ELEMENTS OF OUR EXECUTIVE COMPENSATION PROGRAM

 

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

 

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

 

FINAL FUNDING ALLOCATION

 

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

 

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

 

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

 

Target Setting for Annual Incentive Awards

 

The target annual incentive award opportunity for our NEOs represents a percentage of a salary grade midpoint which is set based on market data. Target annual incentive award levels are:

 

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

 

For 2015, target annual incentive opportunities for the NEOs ranged from 100% to 150% of salary midpoint

 

Financial Performance Measures for Annual Incentive Awards

 

Each year, the Committee evaluates the continued use of the financial measures that fund the GPP pool, with the intent of ensuring that these measures:

 

•	support the achievement of Pfizer’s annual operating plan;
•	are appropriate to promote decisions and behaviors aligned with maximizing near-term business results while supporting the achievement of the company’s long-term goals;
•	exhibit a strong line of sight (i.e., are clearly understood and can be affected by the performance of our executives and employees); and
•	are consistent with best practices and are commonly used within our industry.

 

As in prior years, the Committee considered other metrics—such as return on equity, return on assets, return on invested capital and economic value added—as potential measures under our annual incentive plan. However, the Committee determined that the metrics (and weighting) selected—total revenue, adjusted diluted EPS and cash flow—continue to be better suited for our company, whose business is characterized by long lead times and significant uncertainties relating to product development. The Committee also believes that the alternative metrics lack a clear line of sight for employees and, therefore, are not appropriate measures for Pfizer’s annual incentive plan.

 

The following three financial metrics are used for annual incentive compensation purposes:

 

Financial Performance Metric*		Weighting		Supports Basic Principles
Total Revenue		40%		Revenue is a leading indicator of performance and value creation; provides a clear focus on growth; is an important measure in a sales industry; and is understandable with a clear line of sight and employee impact.
Adjusted diluted Earnings Per Share (EPS)		40%		EPS is a measure of income; provides focus on profitable growth; focuses managers on expense control; is viewed as a strong indicator of sustained performance over the long term; and is understandable with a clear line of sight and employee impact.
Cash Flow from Operations (Cash Flow)		20%		Cash Flow provides focus on generating cash in the short term to fund operations and research and to return funds to shareholders in the form of dividends and share repurchases; focuses managers on expense control and on improvement in working capital; and is a strong link to long-term shareholder value creation.

 

*	See “Financial Measures” on page 87 for a reconciliation of U.S. GAAP numbers to these objectives for annual incentive purposes and “Financial Results for Annual Incentive Purposes” on page 54 for additional information.

 

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EXECUTIVE COMPENSATION SECTION 2 – ELEMENTS OF OUR EXECUTIVE COMPENSATION PROGRAM

 

Financial Results for Annual Incentive Purposes

 

Pfizer outperformed the 2015 target goal for both total revenue and adjusted diluted EPS, and was slightly above target for cash flow. These target goals for annual incentive purposes were set by the Committee in the first quarter of 2015 based on its evaluation of the budgeted amounts and its determination that there was a sufficient degree of stretch in the targets. These results are different from our results under Generally Accepted Accounting Principles (GAAP) in the U.S.

 

2015 Financial Objectives (For Annual Incentive Purposes)

 

The table below provides a comparison of 2014 results with 2015 Threshold, Target and Results (excludes the impact of Hospira, Inc.).

 

 

(1)	The 2015 amounts shown in the table exclude the results from legacy Hospira, Inc., which Pfizer acquired on September 3, 2015.
(2)	Total revenue for annual incentive purposes is based on budgeted foreign exchange rates assumed in each respective year and excludes certain non-recurring items. Therefore, 2015 and 2014 results differ from U.S. GAAP revenue of $48.9 billion and $49.6 billion, respectively. See “Financial Measures” for a reconciliation of U.S. GAAP revenue to total non-GAAP revenue for 2015 and 2014 for annual incentive purposes.
(3)	Adjusted diluted EPS for annual incentive purposes is based on budgeted foreign exchange rates assumed in each respective year and excludes certain non-recurring items. See “Financial Measures” for a reconciliation of U.S. GAAP diluted EPS to the non-GAAP adjusted diluted EPS for 2015 and 2014 for annual incentive purposes.
(4)	2014 and 2015 Targets and Results exclude certain tax and other discretionary timing items for compensation purposes (non-GAAP amounts).
(5)	2015 revenue reflected above at 2015 budgeted foreign exchange rates ($48.4 billion) increased operationally (excluding fluctuations in foreign exchange rates) by approximately $1.6 billion versus 2014 revenue when restated/estimated at 2015 budgeted foreign exchange rates ($46.8 billion).

 

Note:

See “Financial Measures” for reconciliations of 2015 and 2014 U.S. GAAP revenues and U.S. GAAP diluted EPS to non-GAAP total revenue and non-GAAP adjusted diluted EPS for annual incentive purposes, respectively, and for the impact of foreign exchange rates. Adjusted diluted EPS is defined as U.S. GAAP diluted EPS excluding purchase-accounting adjustments, acquisition-related costs, discontinued operations and certain significant items. Non-GAAP total revenue and non-GAAP adjusted diluted EPS for annual incentive purposes are not, and should not be viewed as substitutes for U.S. GAAP revenues and U.S. GAAP diluted EPS, respectively.

 

2015 Annual Incentive Awards

 

In February 2016, the Committee determined annual incentives earned for 2015:

 

•	The Committee reviewed Mr. Read’s performance for 2015 with input from the other members of the Board and with advice from the Committee’s independent consultant, and determined his 2015 annual incentive award.
•	Mr. Read submitted 2015 annual incentive award recommendations to the Committee for each of the other ELT members (including the other NEOs), based on his evaluation of their individual performance and the performance of their respective business unit/function.
•	The Committee, with input from the other members of the Board and the Committee’s independent consultant, reviewed these recommendations and considered the evaluation of each executive’s performance and his or her relative contribution to Pfizer’s overall performance, to determine the amounts awarded.
•	The independent members of the Board ratified the 2015 annual incentive awards for the CEO and other ELT members (including the other NEOs) as approved by the Committee.

 

Based on Pfizer’s financial performance against the pre-established goals for 2015 and the Committee’s assessment and consideration of other factors including the progress on the product pipeline and the business environment, the Committee approved funding the GPP Pool at 160% of target. Actual annual incentive awards were determined based on objective performance measures for the company and adjusted for individual and business unit/function performance. In addition, for Messrs. D’Amelio and Young, to recognize their role in the successful acquisition and integration of Hospira, Inc.

 

54	Pfizer 2016 Proxy Statement

EXECUTIVE COMPENSATION SECTION 2 – ELEMENTS OF OUR EXECUTIVE COMPENSATION PROGRAM

 

Annual incentive award targets and payout ranges for 2015, as well as the actual annual incentive award payouts for each of the NEOs, are:

 

Name	Target Payout as a % of Salary Midpoint		Payout Range as a % of Salary Midpoint		Target Award ($)		Maximum Award ($)(1)		Actual Award ($)
I. Read	150%		0-300%		2,692,100		5,384,200		4,300,000
F. D’Amelio	100%		0-200%		1,170,500		2,341,000		2,341,000
M. Dolsten	100%		0-200%		1,170,500		2,341,000		1,850,000
G. Germano	100%		0-200%		1,170,500		2,341,000		1,850,000
J. Young	100%		0-200%		1,170,500		2,341,000		2,100,000
(1) Maximum award is 200% of target award.

 

Long-Term Incentive Awards Program (Equity)

 

Beginning in 2015, Long-Term Incentive Grant Value for ELT members is delivered as: 50% 5- and 7-Year TSRUs and 50% PSAs

 

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

 

Long-Term Performance Incentive Awards		% Allocation of Grant Value		Objective/Performance Measure
5- and 7-year Total Shareholder Return Units		50% in total (25% each)		To provide absolute long-term alignment with shareholders by linking rewards to absolute TSR over a five- and seven-year period
Performance Share Awards		50%		Aligns rewards to both strategic financial performance metrics (operating income) and relative TSR performance as compared to a publicly traded pharmaceutical index, over a three-year period

 

Change for 2015 Awards: 2015 PSA Program is tied to performance against a combination of operating income over three one-year periods and relative TSR over a three-year period as compared to the DRG Index

 

Starting with grants in 2015, time-vested Restricted Stock Units (RSUs) that were formerly granted and represented approximately 25% of the annual grant value for our ELT members, including our NEOs, were replaced by additional PSAs, which now represent approximately 50% of the annual grant value along with the remaining 50% in 5- and 7-Year TSRUs. The number of PSAs earned will be based on performance against three one-year operating income metrics and relative TSR performance over the three-year period. TSRUs continue to reward absolute total shareholder return over 5- and 7-year periods. These changes were approved by the Committee to better align pay delivery with long-term performance, and to reflect shareholder feedback.

 

2015 Grant Value of Long-Term Incentive Awards

 

The 2015 grant value of each NEO’s long-term incentive award was set by the Committee based on competitive market data (targeted to median), relative duties and responsibilities, the individual’s future advancement potential, and his impact on Pfizer’s results; the awards were also used for retention purposes. These grant values (differ significantly from the accounting values shown in the 2015 Summary Compensation Table) were as follows:

 

Performance Equity			NEOs 2015 LTI Grant Value (granted in February 2015) ($)
Awards Type(1)	Allocation %		I. Read	F. D’Amelio	M. Dolsten	G. Germano	J. Young
5-Year TSRUs	25%		3,000,000	900,000	900,000	900,000	900,000
7-Year TSRUs	25%		3,000,000	900,000	900,000	900,000	900,000
PSAs	50%		6,000,000	1,800,000	1,800,000	1,800,000	1,800,000
Total Grant Value of
LTI Awards(2)			12,000,000	3,600,000	3,600,000	3,600,000	3,600,000

 

(1)

Consistent with historical practice, the grant value is converted into TSRUs and PSAs using the closing stock price/value on the first trading day of the week of grant. The actual value of the grant may differ due to the change in the value of the TSRUs/PSAs between the conversion date and the date of grant. In addition, due to the accounting rules, only one-third of the PSA grant value is reported in the SCT for 2015.

(2)

The amounts shown represent the full value of the grant which is significantly different from the amount reported in the SCT which reports one-third of the 2015 PSA grant in accordance with applicable accounting rules. The Committee considers the full value in its determination of annual compensation.

 

Pfizer 2016 Proxy Statement

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EXECUTIVE COMPENSATION SECTION 2 – ELEMENTS OF OUR EXECUTIVE COMPENSATION PROGRAM

 

Our long-term incentive awards are structured to align our executives’ interests with the interests of our shareholders and to emphasize the Committee’s expectation that our executive officers focus their efforts on improving Pfizer’s TSR, both on an absolute basis (through TSRUs, as the value realized from the TSRUs is consistent with the value received by Pfizer’s shareholders) and based on financial performance, and on a relative basis (through PSAs, which are earned based on both operating income performance against an internal goal and Pfizer’s TSR compared with the DRG Index).

 

2015 long-term incentive grant values represent a significant percentage of the overall actual compensation for our NEOs - 66% for the CEO and approximately 53% (on average) for the other NEOs. The ultimate value realized by an executive is directly linked to company performance and is aligned with the interests of our shareholders - the value of PSAs over the three-year performance period is realized based on relative TSR and financial performance; the value of TSRUs over the 5- and 7-year performance periods is realized based on absolute TSR.

 

Total Shareholder Return Units (TSRUs)

 

TSRUs, which deliver value based on absolute total shareholder return, vest three years following the date of grant and settle on the fifth or seventh anniversary of the grant date. The settlement value equals the difference between the settlement price and the grant price (both as described below), plus dividend equivalents accumulated during the term. The grant price is the closing stock price on the date of grant ($34.59 for the TSRUs granted on February 26, 2015), and the settlement price is the 20-day average of the closing prices ending on the fifth or seventh anniversary of the grant. The settlement value is delivered in shares of Pfizer common stock.

 

Performance Share Awards (PSAs)

 

 

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

 

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EXECUTIVE COMPENSATION SECTION 2 – ELEMENTS OF OUR EXECUTIVE COMPENSATION PROGRAM

 

How We Determine Performance Share Awards (PSAs) Earned

 

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

 

•	First year of the award was based on performance against the 2015 OI target, which resulted in a performance factor of 150% (see table below);
•	Second year of the award will be based on performance against the OI target which was set in early 2016;
•	Third year of the award will be based on performance against the OI target to be established in early 2017;
•	At the beginning of 2018, both the average annual OI performance factor along with the relative TSR point differential between Pfizer’s TSR and DRG Index TSR will be calculated; and
•	The average of the performance factors will be adjusted by the relative TSR differential (as adjusted by the leveraging factors). The final result will be the percentage of the target awards earned which will be paid in early 2018.

 

For the 2015 PSAs, we will determine the amount earned as follows:

 

							STEP 3
			STEP 2				Calculated Differential
	STEP 1				Achievement Against		(against DRG Index)
			Performance Factors		OI Target
							“Leveraging Factor”
	2015-2017		Year 1*: 2015 Performance Factor =		150%		PSA Payout**
	Target PSAs		(Goals set: February 2015)		Target: $16.30 billion		TBD
					Threshold: $15.55 billion		(Approved February 2018)
					Actual: $17.50 billion
							To determine this final payout, the 3-year average OI performance factor will be determined and adjusted by the relative TSR including the application of the 1.5x / 2.0x leveraging of the differential.
			Year 2: 2016 Performance Factor =		TBD
			(Goals set: February 2016)		(Determined February
					2017)
			Year 3: 2017 Performance Factor =		TBD
			(Goals set: February 2017)		(Determined February
					2018)

	*		Excludes Hospira, Inc. results
	**		Payout ranges from 0% to maximum of 200%

 

2015 PSA Formula: Average of the three annual OI % Performance Factors + ((1.5 x the first 20 percentage point differential between Pfizer’s TSR % - DRG Index TSR %) + (2.0 x the differential over 20 percentage points))

 

2013 PSAs (pre-2015 Awards)

 

In early 2016, the PSAs granted in 2013 vested. The vesting of the 2013 PSAs was linked to Pfizer’s cumulative relative TSR (including reinvested dividends) over a three-year period (2013-2015) as compared to that of our pharmaceutical peer group. For this award, our pharmaceutical peer group consisted of AbbVie, Amgen, AstraZeneca, Bristol-Myers Squibb, Eli Lilly, GlaxoSmithKline, Johnson & Johnson, Merck, Novartis, Roche and Sanofi. The potential payout ranged from 0% to 200% of target. However, the payout would be capped at target if TSR was negative in the absolute (i.e., the decrease in the value of the stock exceeded the total dividend equivalents), regardless of Pfizer’s relative ranking. Based on Pfizer’s relative TSR ranking, the payout range was determined. The actual payout, within the range, was then determined by the Committee, which considered (but did not need to do so) other factors influencing performance both positively and negatively including factors outside of management’s control. Notwithstanding the foregoing, the Committee cannot approve a payout outside of the range.

 

Pfizer 2016 Proxy Statement

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EXECUTIVE COMPENSATION SECTION 2 – ELEMENTS OF OUR EXECUTIVE COMPENSATION PROGRAM

 

2013-2015 Performance Share Award Payout Matrix

 

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

 

Our 2013 long-term incentive grants to our executives, including the NEOs, included PSAs that were earned during the performance period ending in 2015 based on the above matrix. Pfizer’s performance over the three-year period (2013-2015) resulted in a relative performance ranking of 9th (Tier 5), resulting in a payout ranging from 33% to 66% of target. In February 2016, the Committee approved a payout at 50% of target as shown below due to relative performance compared to peers.

 

Performance Share Award Payout for the
2013-2015 Performance Award Cycle

 

		Target Award		Actual Award		Actual Award Value at
Name		at Grant (#)		Shares(1) (#)		$30.23 Per Share(2) ($)
I. Read		109,911		60,737		1,836,080
F. D’Amelio		35,395		19,559		591,269
M. Dolsten		33,532		18,530		560,162
G. Germano		27,943		15,441		466,781
J. Young		20,492		11,324		342,325

 

(1)	These amounts include accumulated dividends on 50% of the target award for the three-year period, converted into shares at $30.23 per share.
(2)	This column represents the actual award value based on a stock price of $30.23 on February 26, 2016 (the closing price on the last trading day prior to the vesting date of February 28, 2016).

 

SECTION 3 –

How We Determine Executive Compensation

 

Role of the Compensation Committee

 

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

 

We set our executives’ (including our CEO’s) total target direct compensation for 2015 at approximately the 50th percentile of the market as defined by our pharmaceutical peer and general industry comparators. A significant portion of the total compensation opportunity for each of our executives (including the NEOs) is directly related to Pfizer’s total shareholder return and to other performance factors that measure our progress against the goals of our strategic and operating plans, as well as our performance against that of our pharmaceutical peer group and general industry comparators. In making such comparisons, we consider company market capitalization and complexity, as indicated by revenues, range of products, international operations and other factors, because we use such factors in setting target levels of compensation and determining the value or level of awards granted.

 

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EXECUTIVE COMPENSATION SECTION 3 – HOW WE DETERMINE EXECUTIVE COMPENSATION

 

Role of the Independent Compensation Consultant

 

In 2015, the Committee decided to continue to retain the firm of Frederic W. Cook & Co., represented by George Paulin, its Chairman and Chief Executive Officer, as the Committee’s independent compensation consultant, to advise the Committee on executive compensation matters in accordance with our policy on criteria and assessment of the firm’s independence. See Other Compensation Programs and Policies—Criteria for Selection of Committee Consultant and 2015 Independence Assessment of Committee Consultant. Generally, these services can include advising the Committee on our executive compensation program, philosophy and evolving industry practices, providing market information and analysis regarding the competitiveness of our program design, reviewing our peer group, evaluating management proposals and our specific awards and other compensation values for appropriateness and in relationship to company performance.

 

2015 Compensation Consultant Services

 

In 2015, as part of his ongoing services to the Committee, Mr. Paulin attended all six of the regularly scheduled Committee meetings plus the two special Committee meetings that related solely to the Allergan transaction held during the year. During 2015, Mr. Paulin:

 

•	reviewed agendas in advance of Committee meetings and meeting minutes afterwards;
•	performed a risk analysis of the company’s executive compensation policies and programs which concluded that there is no “potential material risk” to Pfizer in their design or administration;
•	conducted a review of executive pay relative to peers and corporate performance, including the use of tally sheets and an analysis of realizable pay;
•	advised the Committee on the executive compensation peer groups and competitive benchmarking of executive positions; and
•	reviewed the executive pay structure.

 

He also advised the Committee on:

 

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

 

The total amount of fees paid to Frederic W. Cook & Co. in 2015 for services provided to the Compensation Committee was $223,624. In addition, the Committee reimburses Frederic W. Cook & Co. for Mr. Paulin’s reasonable travel and business expenses. During 2015, Frederic W. Cook & Co. received no other fees or compensation from the company other than $2,000, related to work for the Corporate Governance Committee. The Corporate Governance Committee of the Board agreed in February 2015 to retain Mr. Paulin and Frederic W. Cook & Co. to act as its consultant on Board compensation matters.

 

Pfizer 2016 Proxy Statement

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EXECUTIVE COMPENSATION SECTION 3 – HOW WE DETERMINE EXECUTIVE COMPENSATION

 

How We Establish Executive Pay Targets

 

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

 

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

 

Analysis/Tools		Data Source		How We Use This Information				Purpose
Peer and Comparator Group Pay Analysis		Publicly available financial and compensation information as reported by our Peer and Comparator Group companies		•	We target the median compensation values of our peer and comparator groups to help determine an appropriate total level and mix of pay for our executives.			Establishes a competitive pay framework using comparator groups’ median compensation values, to help determine base pay and annual and long-term incentive targets
		(Typically from surveys and Public filings)		•	We use median compensation data for similar positions in our peer groups as a guide to set compensation targets for each executive.
				•	Each compensation target is assigned a numbered salary grade to simplify our compensation administration process.
					–	Each salary grade has a range of salary levels: including minimum, midpoint and maximum salary levels.
					–	Minimum and maximum salary range levels for each grade are set 25% below and above the salary range midpoint to approximate the bottom and top pay quartiles for positions assigned to that grade.
				We review this framework/salary grade as a guide to determine the preliminary salary recommendation, target annual incentive award opportunity, and target long-term incentive value for each executive position.
				Note: The actual total compensation and/or amount of each compensation element for an individual executive may be more or less than this median.
Tally Sheets		Internal compensation and benefits data		We review a “tally sheet” for each ELT member that includes target and actual total compensation elements, as well as benefits information, accumulated deferred compensation, and outstanding equity awards. Tally sheets are a useful tool in evaluating total compensation and internal pay equity.				This information helps the Committee to evaluate total compensation in relation to competitive market practice and performance

 

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EXECUTIVE COMPENSATION SECTION 3 – HOW WE DETERMINE EXECUTIVE COMPENSATION

 

Our 2015 Peer Groups – Competitive Pay Positioning

 

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

 

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

 

2015 PHARMACEUTICAL PEER AND GENERAL INDUSTRY COMPARATOR GROUPS

 

Our peer group for 2015 consisted of the companies listed in the charts below.

 

		2015 Pharmaceutical Peer Group
		AbbVie	Bristol-Myers Squibb	Johnson & Johnson	Roche*
		Amgen	Eli Lilly	Merck	Sanofi*
		AstraZeneca	GlaxoSmithKline	Novartis*
	*	The Committee recognizes that while data is available on the performance of our non-U.S.-based peer companies, the compensation data in some cases is limited in terms of comparable benchmarks and may use different pay models as compared to Pfizer’s pay model.

 

		2015 General Industry Comparator Group
		AT&T	ConocoPhillips	Honeywell	United Technologies
		Boeing	Dow Chemical+	IBM	UnitedHealth Group
		Caterpillar	DuPont+	Mondelez	Verizon
		Chevron	Express Scripts	PepsiCo
		Coca-Cola	General Electric	Procter & Gamble
		Comcast	Hewlett-Packard	United Parcel Service
	+	Announced merger on December 11, 2015.

 

PFIZER COMPARISON TO PEER GROUP MEDIANS

 

The chart below compares Pfizer’s 2015 revenue, net income and market capitalization to the median 2015 revenue, net income and market capitalization for our pharmaceutical peer group and general industry comparator group.

 

		Pharmaceutical Peer	General Industry
In Billions	Pfizer ($)	Group Median ($)	Comparator Group Median ($)
Revenue*	48.9	23.8	74.5
Reported Net Income*	7.0	4.8	5.5
Market Capitalization*	183.3	97.4	85.2

 

*

Revenue and Net Income based on published earnings releases. Market Capitalization as of February 24, 2016. Figures for Hewlett-Packard reflect total pre-split revenue and net income as of 10/31/15 (last reported quarter) and combined HP Inc. and HP Enterprise market capitalization values as of February 24, 2016.

 

Pfizer 2016 Proxy Statement

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EXECUTIVE COMPENSATION SECTION 4 – HOW WE EVALUATE PERFORMANCE: 2015 COMPENSATION DECISIONS

 

SECTION 4 –

How We Evaluate Performance: 2015 Compensation Decisions

 

Linking Pay and Performance

 

This section highlights the Committee’s key compensation decisions for 2015, as reported in the 2015 Summary Compensation Table based on the Committee’s review of each NEO’s performance and annual assessment. These decisions were made with the advice of the Committee’s independent consultant, Frederic W. Cook & Co., and are discussed in greater detail elsewhere in this CD&A.

 

SETTING PERFORMANCE OBJECTIVES

 

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

 

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

 

 

DETERMINING 2015 AWARDS

 

For 2015, the Committee reviewed the annual incentive funding matrix, which sets funding ranges based on performance, and found that the relationship between the funding levels at the varying performance levels and the performance was appropriate. The Committee also concluded that the degree of difficulty of the targets (and other points on the matrix) was significant and reasonable given the business environment and related factors. The Committee also reviewed the target levels for the annual long-term incentive awards and concluded that they were appropriate and do not encourage unnecessary or excessive risk-taking.

 

PAYING FOR PERFORMANCE

 

The Committee made decisions about individual compensation elements and total compensation using its judgment, advice from its independent consultant, and input from the CEO (in the case of the other NEOs), focusing primarily on each NEO’s performance against his individual financial and strategic objectives, as well as Pfizer’s overall performance. The Committee also considered a variety of qualitative factors, including the business environment in which the results were achieved. Therefore, the Committee determined each NEO’s compensation based on multiple factors, including the competitive market, individual performance, internal equity and affordability. The Committee took into consideration the key individual accomplishments described below which were important factors in assessing the respective NEO’s performance for 2015.

 

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EXECUTIVE COMPENSATION SECTION 4 – HOW WE EVALUATE PERFORMANCE: 2015 COMPENSATION DECISIONS

 

2015 NEO Pay and Performance Summaries

 

The tables below provide the compensation actions relating to 2015 as follows: April 1, 2015 salary, 2015 performance year bonus and the 2015 LTI grant awarded in February 2015 for each NEO and a summary of his individual accomplishments for 2015.

 

Ian C. Read CHAIRMAN AND CEO	2015	Base Salary:	$1.87M
		Bonus/GPP:	$4.30M
		LTI Grant:	$11.88M
		(Full value)

KEY ACCOMPLISHMENTS Imperative 1: Improving the Performance of Our Innovative Core   • Progressed 39 programs in the pipeline, including an accelerated approval for Ibrance in advanced ER+/HER2- breast cancer in the U.S. and approval of Xalkori in 1st line ALK+ advanced non-small cell lung cancer in the E.U.; received U.S. FDA Breakthrough Therapy Designations for three key oncology clinical development programs in areas of unmet patient need. • Advanced key scientific collaborations in immuno-oncology to establish a potential for deep, competitive market position; Pfizer/Merck KGaA alliance for the co-development of avelumab successfully underway with 28 studies to date, seven with registrational intent.   Imperative 2: Making the Right Capital Allocation Decisions   • Ensured timely and effective close of Hospira, Inc. acquisition; on track to achieve stated synergy and EPS targets. • Announced our proposed transaction with Allergan plc to accelerate the growth strategies of the Innovative and Established businesses and improve topline growth potential. • Deployed capital in targeted transactions to advance our pipeline and accelerate growth potential across our businesses. Key transactions included Servier in immuno-oncology, Redvax and GlaxoSmithKline in vaccines, and AM Pharma in inflammation. • Returned $13.1 billion to shareholders through dividends and share repurchases.

Imperative 3: Earning Greater Respect from Society   • Strengthened Pfizer’s reputation as an industry leader through robust engagement with our stakeholders and continued momentum in our public health initiatives: - Engaged domestic policymakers and international government leaders in Europe and China on key legislative issues, including intellectual property protection, free market policies, and the value of medicines to encourage public policy supportive of innovation. - Extended the reach of the Get Old platform to more than 98 million people, inspiring people of all ages to embrace healthy aging. - The Chief Medical Officer program, Get Healthy, Stay Healthy reached tens of millions of people, with more than 90 million views of the program’s content in 2015 alone and drove a substantial year-over-year increase in consumers’ willingness to act on the information they learned.   Imperative 4: Creating a Culture of Ownership   • Advanced our ownership culture through colleague initiatives designed to support thoughtful risk taking and encourage the adoption of a growth mindset; demonstrated by improvements across key culture areas in our annual colleague engagement survey. • Held 3rd annual OWNIT! day to emphasize importance of a strong culture in empowering colleagues and progressing Pfizer’s business objectives.

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EXECUTIVE COMPENSATION SECTION 4 – HOW WE EVALUATE PERFORMANCE: 2015 COMPENSATION DECISIONS

 

Frank A. D’Amelio EVP, BUSINESS OPERATIONS AND CFO	2015	Base Salary:	$1.30M
		Bonus/GPP:	$2.34M
		LTI Grant:	$3.56M
		(Full value)

KEY ACCOMPLISHMENTS   • Exceeded 2015 Reported Revenue guidance and achieved high-end of 2015 Adjusted Diluted EPS guidance. • Reduced outstanding shares by approximately 182 million or 3.0% as a result of $6.2 billion in share repurchases. • Generated $1.35 billion of operating cash flow and $350 million in savings incremental to the annual operating plan through various finance and business operations initiatives.

• Successfully closed the acquisition of Hospira, Inc. on September 3, 2015. • Negotiated the proposed combination with Allergan. • Returned $13.1 billion to shareholders through dividends and share repurchases. • Drove clear and effective analysis of business development activity with focus on capital allocation, and delivered above benchmark results in procurement.

 

Mikael Dolsten, M.D., Ph.D. PRESIDENT, WORLDWIDE RESEARCH AND DEVELOPMENT	2015	Base Salary:	$1.22M
		Bonus/GPP:	$1.85M
		LTI Grant:	$3.56M
		(Full value)

KEY ACCOMPLISHMENTS   • Progressed 24 programs in the mid- to late-stage pipeline (phase 2 through in registration) with focus on six core therapeutic areas: - Two approvals, including an accelerated approval for Ibrance in advanced ER+, HER2- breast cancer in the U.S. in combination with letrozole in the first line setting U.S.; Xalkori for ALK-positive non-small cell lung cancer (NSCLC) in the first line setting (EU). •  In addition, achieved approval of label expansion for Prevenar 13 Adult Vaccine based on results of CAPiTA Trial (U.S./EU). - 3 submissions, including Xeljanz QD-MR 11mg U.S.; Xalkori for ROS1 positive patients in NSCLC U.S.; Ibrance for recurrent advanced breast cancer U.S. and advanced and recurrent advanced breast cancer (EU). - Six Phase III Starts, including avelumab in NSCLC 2nd line, potential biosimilar bevacizumab in lung cancer, potential biosimilar adalimumab for rheumatoid arthritis, rivipansel for sickle cell disease, tanezumab in osteoarthritis, and Ibrance for early breast cancer in the adjuvant setting. - Six Proofs of Concept. - 11 Proof of Concept Study Starts.

• Entered into over 20 external asset and technology deals, including access to novel approaches in cancer immuno-therapy and gene therapy: - Six compound license deals; - Eight major technology deals; - Additionally: • Equity based deals with early biotech; and • Research collaborations with academic institutions. • Actively engaged global regulatory agencies to help shape policy environment related to expedited drug pathways, disclosure of clinical trial data, and post-marketing commitment reporting reform.

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EXECUTIVE COMPENSATION SECTION 4 – HOW WE EVALUATE PERFORMANCE: 2015 COMPENSATION DECISIONS

 

Geno Germano GROUP PRESIDENT, GLOBAL INNOVATIVE PHARMA BUSINESS (GIP)	2015	Base Salary:	$1.18M
		Bonus/GPP:	$1.85M
		LTI Grant:	$3.56M
		(Full value)

KEY ACCOMPLISHMENTS   • Achieved $14 billion in revenue and income before taxes (IBT) of $7.8 billion for GIP: - Grew net product revenues from Eliquis and Xeljanz by $871 million. • Achieved the following targeted approvals: - Rapamune: Approval in the U.S. for the treatment of Lymphangioleiomyomatosis; - Somavert: Approval in the EU for the treatment of Acromegaly; and - Eliquis: Approval in Japan for the treatment and prevention of recurrence of Venous Thromboembolism (deep vein thrombosis and pulmonary embolism).

• Advanced eight Phase III pipeline innovative medicines, including the following key drugs: bococizumab for the treatment of hyperlipidemia, ertugliflozin for the treatment of Type 2 Diabetes and rivipansel for the treatment of vaso-occlusive crisis in sickle cell disease. • Initiated a strategic leadership plan designed to accelerate value creation through a focus on Category Leadership and achieve competitive, sustainable growth through innovation.

 

John D. Young GROUP PRESIDENT, GLOBAL ESTABLISHED PHARMA BUSINESS (GEP)	2015	Base Salary:	$1.10M
		Bonus/GPP:	$2.10M
		LTI Grant:	$3.56M
		(Full value)

KEY ACCOMPLISHMENTS   • Achieved $21.6 billion in revenue and IBT of $12.9 billion for GEP. • Successfully led the acquisition and commercial integration of Hospira, Inc. including creation of a focused, dedicated GEP R&D organization as an engine of potential sustainable growth for GEP. • Advanced five assets in Phase lll (potential biosimilars to trastuzumab, rituximab, infliximab, bevacizumab and adalimumab) with all meeting or exceeding development timelines.

• Contributed to improving Pfizer’s reputation by expanding the GEP initiatives and the collaborations with global health institutions that can contribute efforts to improve global public health by providing family planning and anti-infective products.

Pfizer 2016 Proxy Statement	65

EXECUTIVE COMPENSATION SECTION 5 – 2016 COMPENSATION ACTIONS

 

SECTION 5 – 2016 Compensation Actions

 

SALARY AND ANNUAL INCENTIVE TARGETS

 

In February 2016, the Committee approved salaries (effective April 1, 2016) and 2016 target annual incentive award levels for the NEOs as follows:

 

	April 1, 2016	2016 Salary	2016 Target Annual	2016 Target Annual
Name	Salary ($)	Midpoint ($)(1)	Incentive (%)	Incentive ($)(1)
I. Read	1,917,000	1,794,700	150%	2,692,100
F. D’Amelio	1,332,000	1,170,500	100%	1,170,500
M. Dolsten	1,245,000	1,170,500	100%	1,170,500
G. Germano(2)	1,175,000	1,170,500	100%	1,170,500
J. Young	1,140,000	1,170,500	100%	1,170,500

(1)	2016 salary midpoints are unchanged from 2014; 2016 target annual incentive amounts are based on a percentage of 2016 salary range midpoints.
(2)	Mr. Germano will not receive an April 1, 2016 merit increase and his salary is therefore unchanged from 2015.

 

2016 LONG-TERM INCENTIVE AWARDS

 

In February 2016, the Committee granted long-term equity incentive awards to the NEOs in consideration of their 2015 performance and their expected future performance. These awards included 5- and 7-Year TSRUs and PSAs.

 

			Estimated Future Payouts Under the
			Performance Share Program(1) PSA Grants			5-year TSRUs	7-year TSRUs
	Performance	Award Value	Threshold(2)	Target(3)	Maximum(2)	Grant(4)	Grant(5)
Name	Period	($)	(#)	(#)	(#)	(#)	(#)
I. Read	1/1/16 – 12/31/18	13,000,000	0	216,306	432,612	560,345	500,770
F. D’Amelio	1/1/16 – 12/31/18	3,600,000	0	59,900	119,800	155,172	138,675
M. Dolsten	1/1/16 – 12/31/18	3,600,000	0	59,900	119,800	155,172	138,675
G. Germano(6)	1/1/16 – 12/31/18	—	—	—	—	—	—
J. Young	1/1/16 – 12/31/18	3,600,000	0	59,900	119,800	155,172	138,675

(1)	The actual number of shares, if any, that will be paid out at the end of the performance period cannot be determined because the shares earned by the NEOs will be based upon our future performance compared with the three one-year annual operating income targets and with Pfizer’s relative three-year TSR performance as compared to the DRG Index. Dividend equivalents on any shares earned will be paid in shares of common stock at the end of the performance period. See more detail regarding this program under “Performance Share Award.”
(2)	Based on performance against the three one-year annual operating income targets and Pfizer’s relative three-year TSR performance as compared to the DRG Index, varying amounts of shares of common stock, from 0% to 200%, of target will be earned. In no event will the payout exceed the maximum payout of 200% of target.
(3)	The target amount represents 50% of the total award value of the long-term incentive grant; remaining 50% of the total award value is allocated to TSRUs.
(4)	5-Year TSRUs vest on the third anniversary of the grant date (February 25, 2019) and will be settled in shares on the fifth anniversary of the grant date (February 25, 2021). The number of shares delivered at settlement, if any, for each TSRU will equal the difference between the settlement price (the average of the closing prices of Pfizer common stock for the 20 trading days ending February 25, 2021) and the TSRU grant price ($30.59), plus dividend equivalents accrued during the life of the TSRU, divided by the settlement price, subject to the results being positive.
(5)	7-Year TSRUs vest on the third anniversary of the grant date (February 25, 2019) and will be settled in shares on the seventh anniversary of the grant date (February 25, 2023). The number of shares delivered at settlement, if any, for each TSRU will equal the difference between the settlement price (the average of the closing prices of Pfizer common stock for the 20 trading days ending February 25, 2023) and the TSRU grant price ($30.59), plus dividend equivalents accrued during the life of the TSRU, divided by the settlement price, subject to the results being positive.
(6)	Mr. Germano did not receive a 2016 annual LTI award.

 

NOTE: Consistent with historical practice, long-term incentive award values are converted into units using the closing stock price/value on the first trading day of the week of grant. The PSA values were converted to units using the closing stock price on February 22, 2016 of $30.05. The 5-Year TSRU values were converted to TSRUs using $5.80 and the 7-Year TSRU values were converted to TSRUs using $6.49, representing the estimated value at grant using the Monte Carlo Simulation model as of February 22, 2016.

 

66	Pfizer 2016 Proxy Statement

EXECUTIVE COMPENSATION SECTION 5 – 2016 COMPENSATION ACTIONS

 

EQUITY AWARD GRANT PRACTICES

 

The Committee customarily approves equity awards to eligible employees, including the NEOs, at its meeting held in late February of each year and which are granted the following day. Equity grants to certain newly hired employees, including executive officers, are effective on the last business day of the month of hire. Special equity grants to continuing employees are effective on the last business day of the month in which the award is approved. Stock option and TSRU grants have an exercise/grant price equal to the closing market price of Pfizer’s common stock on the grant date. Our equity incentive plan prohibits the repricing or exchange of equity awards without shareholder approval.

 

RETENTION AWARDS

 

In connection with our entering into a definitive merger agreement with Allergan plc, in November 2015 our Directors approved retention awards for each of Dr. Dolsten, and Messrs. Germano and Young, whom the Board believed would have an important role in consummating the combination with Allergan and successfully integrating the two businesses. Each retention award provides for a $1 million cash payment subject to the recipient’s continued employment for three months following the closing or the termination of the merger agreement. The retention award would be forfeited upon an earlier termination of employment, other than involuntary termination without cause or death.

 

Pfizer 2016 Proxy Statement

67

EXECUTIVE COMPENSATION SECTION 6 – POST-EMPLOYMENT COMPENSATION AND BENEFITS

 

SECTION 6 – Post-Employment Compensation and Benefits

 

The following table provides information on Pfizer’s post-employment compensation programs and benefits.

 

Plan/Eligibility		Description of Benefit
Pension and Savings Plans Available to eligible U.S.- and Puerto Rico-based employees, including eligible NEOs   Plans include: - defined benefit pension plans - non-qualified supplemental pension plans - defined contribution savings plans - non-qualified supplemental savings plan   Benefits under the defined benefit pension plans will be frozen as of December 31, 2017 for all participants, although they may continue to grow into retirement plan milestones.   Effective January 1, 2018, all eligible U.S.- and Puerto Rico-based colleagues will earn retirement benefits through the RSC coincident with the freezing of the defined benefit pension plans.		Since 2011, newly hired colleagues, rehired colleagues and colleagues who transfer to the U.S. and Puerto Rico, earn retirement benefits through an age- and service-weighted annual company retirement savings contribution (RSC) to the defined contribution savings plans, which is in addition to the company matching contributions. Effective January 1, 2018, all eligible U.S.- and Puerto Rico-based colleagues will earn retirement benefits through the RSC.   The Pfizer defined contribution savings plans permit all eligible U.S.- and Puerto Rico-based employees, including the NEOs, to make pre-tax, after-tax and/or Roth contributions, from their eligible pay, up to certain limits and to receive company matching contributions. Pfizer also maintains a non-qualified supplemental savings plan that permits eligible participants to make pre-tax contributions in excess of tax law limitations on qualified plans and to receive matching contributions and RSC, if applicable.   Pfizer maintains related non-qualified supplemental benefit plans for U.S. employees (including NEOs) participating in the pension plan and earning in excess of the IRC limit ($265,000 for 2015).   The provisions and features of the qualified defined benefit pension plans and the related supplemental pension plans are described in the narrative accompanying the “2015 Pension Benefits Table” and the “2015 Non-Qualified Deferred Compensation Table”.
Insurance Plans Provide health and family security benefits, such as medical insurance, dental insurance, life insurance and long-term disability insurance. Available to all eligible U.S.- and Puerto Rico-based employees, including the NEOs.		Programs are designed to provide certain basic quality of life benefits and protections to Pfizer employees, including the NEOs, and at the same time enhance Pfizer’s attractiveness as an employer of choice.   The cost of these plans is shared between the employee and the company. The company’s annual cost of the benefits for each NEO ranges from approximately $17,600 to $26,900.
Individual Supplemental Disability Insurance		Pfizer makes available additional supplemental individual disability insurance coverage, in excess of the limits available under the company’s group long-term disability plan and participants pay the full cost of this coverage.
Deferred Compensation Executives are permitted to elect to defer receipt of their annual incentive awards and any shares earned under the Performance Share Awards (PSAs) into the Pfizer Inc. Deferred Compensation Plan.   Certain of our NEOs are required to defer the receipt of Restricted Stock Units (RSUs). See “Other Compensation Programs and Policies—Tax Policies”.		Annual incentive awards may be deferred under one of more of the following: Pfizer Savings Plan (PSP), the Pfizer Inc. Supplemental Savings Plan (Pfizer Supplemental Savings Plan or PSSP) and/or Pfizer Deferred Compensation Plan. Deferrals may be notionally invested in a selection of mutual funds, Pfizer stock and/or a cash fund earning interest at 120% of the applicable federal long-term rate (the return ranged between 2.61% and 3.34% in 2015).   The Pfizer stock unit funds are credited with dividends, which are reinvested into dividend equivalent units. Deferred PSAs (prior to 2014) and RSUs may only be deferred into the Pfizer stock fund.
Retiree Health Care Benefits Pfizer maintains post-retirement medical coverage for the benefit of its eligible U.S.- and Puerto Rico-based employees, including the NEOs.		Active employees who are at least age 55 and have at least 15 years of service after age 40 are eligible for post-retirement medical coverage. For U.S. employees, including the NEOs, the value of the post-retirement medical coverage currently ranges from $123,000 to $275,000 (based on service and coverage) over the course of retirement.
Executive Severance Plan Provides severance benefits to ELT members in the event of involuntary termination of employment without cause.   Severance payments and benefits under the Executive Severance Plan are described in “Estimated Benefits Upon Termination Table”.		Benefits consist of cash severance equal to the greater of:   (a) one times pay (defined as base salary plus target annual incentive), or (b) 13 weeks’ pay plus three weeks’ pay per year of service, subject to a maximum of 104 weeks’ pay.   Eligible participants in the GPP also receive a pro-rata annual incentive for the year of termination, provided certain performance targets are achieved, as well as certain health and insurance benefits.

68	Pfizer 2016 Proxy Statement

EXECUTIVE COMPENSATION SECTION 7– OTHER COMPENSATION PROGRAMS AND POLICIES

 

SECTION 7 – Other Compensation Programs and Policies

 

PERQUISITES

 

We provide a limited number of perquisites (personal benefits) to our NEOs, including limited use of company aircraft, reimbursement for certain financial counseling and home security services. For our CEO, we also include the use of a company car and driver and limited personal security where deemed necessary and advisable in connection with business travel to high-risk locations. The transportation benefits provide increased efficiencies and allow more productive use of our executives’ time and, in turn, greater focus on Pfizer-related activities.

 

We do not provide tax “gross-ups” for perquisites provided to ELT members, except in the case of certain relocation expenses (consistent with our relocation policy for U.S.-based employees generally); therefore, executives (including the NEOs) pay taxes due on perquisites (other than certain relocation expenses). The Compensation Committee reviews and carefully considers the reasonableness and rationale for providing these perquisites.

 

Company Aircraft

 

As a result of the recommendations contained in an independent, third-party security study, the Board has determined that the CEO must use company-provided aircraft for all air travel, including personal travel, to the maximum extent practicable. The security study also recommends that the CEO’s spouse and dependent children use company-provided aircraft when they accompany the CEO, to the maximum extent practicable. Travel by the CEO’s spouse or dependent children is generally considered personal use and is subject to taxation and disclosure.

 

Other ELT members (including the other NEOs) may use company aircraft for limited personal travel. Personal use by ELT members (including the other NEOs) is permitted only with the prior approval of the CEO or his designees and is subject to other limitations. Travel by Messrs. Read and D’Amelio to attend meetings of the boards of directors of Kimberly-Clark Corporation and Humana Inc., respectively, is treated as business travel in view of the significant benefits to Pfizer of their service on those boards.

 

The amounts disclosed in the “All Other Compensation” column in the 2015 Summary Compensation Table and in the table below have been valued based on the incremental costs to the company for the personal use of company-provided aircraft. Incremental costs for personal use consist of the variable costs incurred by Pfizer to operate the aircraft for such use, including fuel costs; crew expenses (including travel, hotels and meals); in-flight catering; landing, parking and handling fees; communications expenses; certain trip-related maintenance; and other trip-related variable costs, as well as certain costs of any “deadhead” flights. Such costs do not include fixed or non-variable costs that would be incurred whether or not there was any personal use of the aircraft, such as crew salaries and benefits, insurance costs, aircraft purchase costs, depreciation, and scheduled maintenance.

 

To the extent required by tax regulations, amounts associated with personal use of corporate aircraft are imputed as income to ELT members, including the CEO. These amounts are not grossed up for taxes.

 

Car and Driver

 

The company’s policy on the use of cars and drivers is as follows:

 

•	cars and drivers are available to ELT members (including the NEOs) for business reasons;
•	ELT members (other than the CEO, as discussed below) are required to reimburse the company for personal use of cars and drivers;
•	for security reasons, cars and drivers are available to the CEO for personal use (including commuting); and
•	spouse/partner travel is generally considered personal use, and the incremental cost of such travel must be reimbursed to the company.

 

Incremental cost to the company is calculated as a portion of the cost of the annual lease, a portion of the cost of the driver, and fuel used.

 

The company costs of personal use of a car and driver by the CEO need not be reimbursed, and the unreimbursed incremental cost to the company of personal use of a car and driver by Mr. Read in 2015 is reflected in the table below and in the “All Other Compensation” column in the 2015 Summary Compensation Table. For tax purposes, the cost of the use of the cars and fuel is imputed as income to the CEO. All taxes on this income are paid by the CEO and he is not provided a gross-up for these taxes by the company. Tax regulations provide that as a result of the recommendations contained in the independent, third-party security study referred to above, the cost of the driver is not reportable as income to the CEO.

 

Pfizer 2016 Proxy Statement

69

EXECUTIVE COMPENSATION SECTION 7 – OTHER COMPENSATION PROGRAMS AND POLICIES

 

Other Perquisites

 

Pfizer provides a taxable allowance of up to $10,000 per year to each of our executive officers for financial counseling services, which may include tax preparation and estate planning services. We value this benefit based on the actual charges for the services, and such value is imputed as income to the individual.

 

Reimbursement for appropriate home security systems and monitoring charges is provided to the ELT members. The cost of these items is imputed as income to the recipients, as required.

 

Pfizer purchases season and other tickets to sporting, cultural and other events for use in connection with our business. On occasion, these tickets are provided to employees, including ELT members, and non-employee Directors for personal use. There is no incremental cost associated with such tickets or other items. In addition, ELT members and/or non-employee Directors may from time to time receive tickets or other items from third parties (subject to our policies on conflicts of interest). Pfizer does not provide or reimburse for country club memberships for any executive officers.

 

The following table summarizes the incremental cost of perquisites for the NEOs in 2015.

 

2015 INCREMENTAL COST OF PERQUISITES PROVIDED TO NEOs

 

	Aircraft	Financial	Car	Home	Other	Total
Name	Usage ($)	Counseling ($)	Usage ($)	Security ($)	($)(1)	($)
I. Read	106,843	10,000	24,870	27,679	—	169,392
F. D’Amelio	41,474	10,000	—	939	—	52,413
M. Dolsten	60,560	10,000	—	2,415	—	72,975
G. Germano	63,318	8,938	—	472	1,324	74,052
J. Young	21,887	2,500	—	—	36,575	60,962

(1)	The amount shown for Mr. Germano represents the value of certain personal benefits provided in association with business travel. The amount shown for Mr. Young represents the cost of relocation benefits of $34,473 and a tax gross-up for a portion of the relocation benefits of $2,102, consistent with Pfizer’s relocation policy for U.S.-based employees.

 

 

Tax Policies

 

IRC Section 162(m) limits to $1.0 million the amount of non-performance-based remuneration that Pfizer may deduct in any calendar year for its CEO and each of the three other highest-paid NEOs, other than the CFO. We have structured our annual short-term and long-term incentive awards with the intention of meeting the exception to this limitation for “performance-based” compensation, as defined in IRC Section 162(m), so that these amounts may be fully deductible for income tax purposes. However, RSUs granted prior to 2014 do not qualify as “performance-based” compensation. Consequently, our NEOs are generally required to defer the receipt of these RSUs to avoid the loss of the deduction. Effective with the February 2015 Annual LTI Award, RSUs are no longer granted as part of the annual LTI award.

 

To maintain flexibility and the ability to pay competitive compensation, we do not require all compensation to be deductible. Since the non-performance-based compensation paid to our NEOs exceeds $1.0 million, a portion of their compensation (other than that paid to the CFO) is not deductible.

 

Derivatives Trading/Hedging Policy

 

Executive officers, including the NEOs, may not purchase or sell options on Pfizer common stock or engage in short sales of Pfizer common stock. Also, trading by executive officers in puts, calls, straddles, equity swaps or other derivative securities that are directly linked to Pfizer common stock (sometimes referred to as “hedging”) is prohibited. These provisions also apply to our non-employee Directors.

 

70	Pfizer 2016 Proxy Statement

EXECUTIVE COMPENSATION SECTION 7 – OTHER COMPENSATION PROGRAMS AND POLICIES

 

Compensation Recovery/Clawback

 

The Compensation Committee may, if permitted by law, make retroactive adjustments to any cash- or equity-based incentive compensation paid to NEOs and other executives where a payment is predicated upon the achievement of specified financial results that are the subject of a subsequent restatement. Where applicable, we will seek to recover any amount the Committee determines to have been inappropriately received by the individual executive officer. In addition, our equity incentive awards contain compensation recovery provisions.

 

Stock Ownership and Holding Requirements

 

Our NEOs, are subject to stock ownership and holding requirements. The CEO is required to own Pfizer common stock equal in value to at least six times his annual salary. Each of the other NEOs is required to own Pfizer common stock equal in value to at least four times their annual salary. For purposes of these requirements, ownership includes not only shares owned directly by the NEO, but also shares and certain units held through various Pfizer plans and programs. We have also established milestone guidelines that we use to monitor progress toward meeting these targets over a five-year period, at the end of which the executive is expected to have reached the applicable ownership level.

 

Until an NEO reaches the applicable milestone, he must hold and may not sell any shares (except to meet tax withholding obligations). Once the ownership level is met, he must hold and may not sell shares if doing so would cause his ownership to fall below that level. As of December 31, 2015, Mr. Read owned Pfizer common stock and units equal in value to approximately 29 times his salary. Although Pfizer does not require its NEOs to hold Pfizer common stock for specified periods of time, we believe that the above holding requirements result in the ownership by our NEOs of significant amounts of common stock for substantial periods of time and align the interests of our NEOs with those of our shareholders. Additionally, certain long-term incentive awards continue to vest and settle in accordance with their stated terms following an NEO’s retirement rather than vesting upon retirement, maintaining the alignment with shareholders.

 

The following graph summarizes the shares held as a multiple of base salary for the NEOs as of December 31, 2015.

 

2015 STOCK OWNERSHIP

 

 

In addition, consistent with our policy prohibiting the pledging of Pfizer stock, none of our ELT members (including our NEOs) or other officers has pledged Pfizer stock as collateral for personal loans or other obligations.

 

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71

EXECUTIVE COMPENSATION SECTION 7 – OTHER COMPENSATION PROGRAMS AND POLICIES

 

CRITERIA FOR SELECTION OF COMMITTEE CONSULTANT

 

The Committee has established the following criteria used to select its consultant. For more information regarding the role of the independent compensation consultant, see “How We Determine Executive Compensation – Role of the Independent Compensation Consultant” on page 59.

 

 

2015 INDEPENDENCE ASSESSMENT OF COMMITTEE CONSULTANT

 

In 2015, as required by rules adopted by the Securities and Exchange Commission under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the Committee decided to continue to retain the firm of Frederic W. Cook & Co. to serve as its independent compensation consultant after assessing the firm’s independence, including taking into consideration the following factors, among others:

 

•	the fact that neither the firm nor Mr. Paulin provides any other services to the company other than as a consultant to the Corporate Governance Committee on Board-related compensation matters;
•	the fees received by the firm as a percentage of its total revenues;
•	the firm’s policies and procedures designed to prevent conflicts of interest;
•	the absence of any significant business or personal relationships between the firm or Mr. Paulin and the members of the Committee;
•	the fact that neither the firm nor Mr. Paulin owns any company stock or equity derivatives; and
•	the absence of any business or personal relationships between the firm or Mr. Paulin and any executive officer of the company.

 

Based upon this assessment, the Committee determined that the engagement of Frederic W. Cook & Co. does not raise any conflicts of interest or similar concerns. The Corporate Governance Committee performed a similar assessment of Frederic W. Cook & Co. prior to retaining the firm’s services as consultant on Board-related compensation matters during February 2015.

 

72	Pfizer 2016 Proxy Statement

EXECUTIVE COMPENSATION COMPENSATION TABLES

 

Compensation Tables

 

2015 Summary Compensation Table

 

							Change In Pension
							Value and Non-
						Non-Equity	Qualified Deferred
				Stock	Option	Incentive Plan	Compensation	All Other
Name and		Salary	Bonus	Awards(1)	Awards(2)	Compensation(3)	Earnings(4)	Compensation(5)	Total
Principal Position	Year	($)	($)	($)	($)	($)	($)	($)	($)
I. Read Chairman and Chief Executive Officer	2015	1,858,750	–	2,011,628	5,842,990	4,300,000	3,586,558	388,036	17,987,962
	2014	1,815,000	–	6,447,998	6,361,672	3,000,000	5,266,550	391,828	23,283,048
	2013	1,776,250	–	6,016,528	6,066,471	3,400,000	1,212,198	476,300	18,947,747
F. D’Amelio EVP, Business Operations and Chief Financial Officer	2015	1,293,750	–	603,492	1,752,896	2,341,000	509,904	169,132	6,670,174
	2014	1,268,750	–	2,140,974	2,112,274	1,300,000	1,443,327	217,488	8,482,813
	2013	1,243,750	–	1,937,522	1,953,612	1,650,000	103,791	235,655	7,124,330
M. Dolsten President, Worldwide Research and Development	2015	1,207,500	–	603,492	1,752,896	1,850,000	458,165	185,813	6,057,866
	2014	1,177,500	–	1,863,860	1,838,921	1,300,000	938,593	156,180	7,275,054
	2013	1,148,750	–	1,835,542	1,850,790	1,340,000	113,810	164,512	6,453,404
G. Germano Group President, Global Innovative Pharma Business(6)	2015	1,168,750	–	603,492	1,752,896	1,850,000	1,219,961	187,621	6,782,720
	2014	1,150,000	–	1,813,518	1,789,223	1,355,000	2,817,518	630,593	9,555,852
	2013	926,250	–	1,529,600	1,542,325	1,075,000	7,698	173,174	5,254,047
J. Young Group President, Global Established Pharma Business	2015	1,085,000	–	603,492	1,752,896	2,100,000	0	377,537	5,918,925
	2014