Also, let me know if you hear about customer satisfaction within the first 20 minutes of management’s comments.
With those metrics in mind look at the table from the proxy on how YUM senior management gets paid.
(1) Including the leverage factor (not included in the table), EPS growth of at least 10% can account for more than 50% of the bonus.
(2) Referring to my previous post, capital spending as a % of sales has been steadily increasing. This allows the company to open more units, allowing the company to hit another 20% of the performance targets.
(3) A direct result of the aggressive increase in unit openings will be system wide sales growth, allowing management to make 20% of the performance targets.
(4) These three metrics are all management needs to do to get paid millions.
No wonder KFC and Pizza Hut are not going anywhere. There is no incentive for management to improve the operating performance of the company. In light of the poor operating performance in the US, it is very clear why management wants to leverage the balance sheet and reduce the share count by 8%.
As you may have seen, Moody's downgraded YUM’s debt yesterday. In all likelihood, this is due to the increased debt levels and the poor operating performance in the US.
But who cares as management is all but guaranteed to make millions this year.