1. RGM / AC Bonus Guide

2. 2 Purpose and Report Contents Serve as an educational resource for HR and Finance within YRI BMUs Outline design parameters for the implementation of the Yum RGM / AC Bonus Provide detailed design steps and techniques for modeling the Yum RGM / AC Bonus Provide support for a YRI Q1 2005 implementation As such, this document includes the following sections Bonus design and implementation process Data to be collected as pre-work to modeling the bonus Outline of principles and objectives of the bonus to assist in communication and education within the BMU Steps for modeling the bonus including an outline of design parameters for each bonus component The examples and methodologies outlined in this presentation and Bonus Modeling Tool are intended as a starting point for modeling; each BMU must consider what makes sense for restaurant performance and objectives within the BMU

3. Bonus Design and Implementation Process

4. 4 Tools US templates Outcomes Bonus communication materials Training materials Q2 Mar - May Q3 Jun - Aug Q4 Sept - Nov Q1 Day 1 Pd 1 Develop Field- ready bonus & training materials Engage Finance & Operations Work with Finance & Operations to validate design Test design & revisions within TPM tool Go Live Execute Communication and training plan Tools RGM / AC Bonus Guide Bonus design tool Outcome Proposed design Test design within TPM tool Model the bonus Become familiar with TPM tool capabilities Experiment with design & data Experiment with reports Tools TPM tool Report templates Outcome Preliminary understanding of how the bonus will be administered through TPM Identification of issues/barriers Finalize design and develop communication plan Gain BMU Approval

5. Pre-Work

6. 6 Collect a full year of data for the following key Yum! performance measures Sales and Profit (RCP) data Plan for 2004 Plan and Actual results for 2003 Flow-Thru Results for 2003 Target for 2004 CHAMPSCheck Results for 2003 Target for 2004 Results from Strategic Initiative measure e.g., Team Member turnover results for 2003 and target for 2004 To ensure you have a full year of data, you could collect current YTD data and estimate the balance of the year (e.g., using plan data) Collect the data for each restaurant including restaurant number and area number

7. 7 Pre-Work - Tips Clean the data Use annual data for design work Remove partial store periods and use Full Store Periods only Remove extreme data points For example, sort the data by sales and delete extremely high or low sales figures…repeat for RCP and other data points The modeling technique outlined in this document uses full-year data, when validating the design you may want to consider what the bonus will payout for each quarter 3... The Strategic Component should be determined by the BMU. For this example, we have assumed Team Member Turnover is the strategic component.

8. Bonus Design Principles and Objectives

9. 9 Bonus Design Principles Motivate RGMs and ACs to meet and exceed performance target Aligned with other programs (e.g., BSC, PA) and across Operations & BMU Achieve a balanced emphasis on Customer, Sales, Profits & Strategic Drive operating Blue Chips Building people capability Driving customer mania through 100% CHAMPS Grow profitable sales Improve RCP & margins Beat Year Ago StrategicStrategic Initiative (e.g., Turnover) Customer100% CHAMPSCheck Sales & ProfitMake Plan Matrix and Flow-Thru

10. 10 Design ObjectiveDesign Element to Achieve Objective Engage employees through short-term incentivesQuarterly payout Higher volume restaurant = Higher value to Yum! and higher rewards for RGM/AC Volume-based financial rewards Fixed $ payout based on satisfying customers 100% each time (RGM only) Customer Mania focus Flexibility to focus on strategic initiativeBusiness Unit focus Performance-based Competitive payout for on-target performance Increased payout for exceeding target Limited payout for below target performance Leveraged to encourage higher performance Bonus Design Objectives

11. 11 Aligned F/T P&L Reports RGM Bonus Customer 100% CHAMPSCheck People Strategic Focus e.g., Team Member Turnover Sales Make Plan Matrix Profit Flow-Thru RGM Bonus Customer 100% CHAMPSCheck People Strategic Focus e.g., Team Member Turnover Sales Make Plan Matrix Profit Flow-Thru Balanced Scorecard Customer 100% CHAMPSCheck Speed of Service People Turnover Core Training Retention Sales Net Sales to Plan Profit Profit to Plan Flow-Thru Balanced Scorecard Customer 100% CHAMPSCheck Speed of Service People Turnover Core Training Retention Sales Net Sales to Plan Profit Profit to Plan Flow-Thru Performance Appraisal Customer BSC + Process (CER, 1-800) People BSC + Leadership/Culture (Safety, Staffing, Team Development) Sales BSC + Leadership/Culture/Process Profit BSC + Leadership/Culture/Process Performance Appraisal Customer BSC + Process (CER, 1-800) People BSC + Leadership/Culture (Safety, Staffing, Team Development) Sales BSC + Leadership/Culture/Process Profit BSC + Leadership/Culture/Process Long Term Incentive Examples: Period: CHAMPS Cards Quarter: Team Celebrations Yearly: Champions Club Trip & Prizes Examples: Period: CHAMPS Cards Quarter: Team Celebrations Yearly: Champions Club Trip & Prizes

12. 12 Balanced emphasis on People, Customer, Sales & Profits BMUs will adjust weights based on overall strategy Bonus will reward results and carries heavier weightings on financials compared to the BSC to minimize funding risk Long term Process-oriented Short term Focused on business results

13. RGM Bonus - Modeling the Bonus

14. 14 RGM Bonus - Steps in Modeling the Bonus Step 1Determine the target payout for each performance measure Step 2Calculate Sales growth Step 3Calculate average RCP and RCP growth Step 4Develop the Sales & RCP Make Plan Matrix Step 5Develop the Flow-Thru Chart Step 6Develop 100% CHAMPSCheck Chart Step 7Develop Chart for the Strategic Component

15. 15 RGM Bonus - Step 1 - Target Payouts *Note: In markets that do not have Flow-thru, the Flow-thru component may be omitted from the bonus design. The weight from the Flow-thru component should be redistributed to the other components. Weight Parameters 3 20% - 30%100% Perfect CHAMPSCheck 1 30% - 40%Sales & RCP Make Plan Matrix 2 20% - 30% Flow-Thru 4 15% - 30%Strategic Initiative The following are the performance measures and weight parameters BMUs should determine the appropriate strategic measure initiative and adjust weights based on overall BMU strategy A bonus can be earned for achieving targets on each measure, separately

16. 16 RGM Bonus - Step 1 - Target Payout Use market data to establish the overall bonus target amount Market pricing – target Total Cash at the 50 th percentile base salary and 75 th percentile bonus taking into consideration the following: Appropriate mix of base pay and variable pay Financial ability to pay at the desired market level Tips and Advice Avoid major target changes from year to year Comparison of Yum! Total Cash to Market Total Cash Market Data - Restaurant/Unit Manager 25th Percentile50th Percentile75th PercentileYum! RGM Average 0 $10.0 $20.0 $30.0 $40.0 $50.0 Annual Dollars (000) Base PayTarget Bonus Amount Example Data $38.5 $40.0 $3.9 $5.8 $8.9 $6.0 $42.4 $44.3 $47.4 $46.0 In this example, Yum Total Cash should be between $44.3 and $47.4

17. 17 RGM Bonus - Step 1 - Target Payout Worksheet Tab in the Bonus Modeling Tool Calculate the target payout for each bonus component using the weight parameters 1_TargetBonus From Market Assessment Calculate a bonus target amount for each component. 6,000 x.30 = $1,800 2 Change to reflect your bonus weightings. 1

18. 18 RGM Bonus - Step 2 - Sales Planning Worksheet Tab in the Bonus Modeling Tool 2004 Sales Growth will be used to set the minimum value at which a bonus will be paid (threshold) for Sales vs. Plan on the Make Plan matrix 3 2_SalesPlan 3... Collect Sales Plan data for the upcoming year Calculate sums: 2003 Sales Actual 2004 Sales Plan Calculate 2004 Sales Growth (245,314,938 - 239,100,390) 239,100,390 = 2.6% Make sure this number aligns to the BMU goal! 1 1 2 3 2 2 3

19. 19 RGM Bonus - Step 3 - Profit (RCP) Planning Tips and Advice Work with Finance to ensure that the overall RCP growth percentage is aligned to the BMU goal. Worksheet Tab in the Bonus Modeling Tool Average 2004 RCP Plan will be used as a basis for modeling on the Make Plan matrix and Flow- Thru chart 3... Collect RCP data for the upcoming year Calculate averages: 2003 RCP Actual 2004 RCP Plan 1 2 1 2 2 3_ProfitPlan

20. 20 RGM Bonus - Step 4 - Develop the Make Plan Matrix Objective Fuel Beat Year Ago mentality Sales vs. Plan is the Fair Pay measure Plan assumes growth over prior year Plan normalizes prior year peaks/valleys and addresses quarterly anomalies Design Parameters Based on actual RCP results (volume-based) Bonus increases with increase in profitable sales Quarterly calculation (i.e. payout based on quarterly results) Weight of component can vary between 30% – 40% Targets and Thresholds Business Unit establishes thresholds The lowest point for bonus payment (e.g., payout 50% for nearly hitting plan) should be set such that performance exceeds prior year on a national basis Payouts will vary by BMU to fit strategy and financial planning % RCP pool figure will vary based on component weight and average RCP for the BMU 100% factor within the matrix should correspond to 100% Sales to Plan and 100% RCP to Plan 300% factor within the matrix is the maximum upside potential and should typically reward 5-10% of performers

21. 21 RGM Bonus - Step 4 - Develop the Make Plan Matrix (continued) Basic steps Calculate the Make Plan bonus target as % of the average 2004 RCP Plan This number will tell you the percentage of profit that should be paid for achieving RCP and Sales plans Set up the spreadsheet to model the matrix Establish thresholds (the minimum level of performance for which a bonus will be paid) and maximums on the matrix Adjust Sales and RCP scales to determine the cost of the bonus The modeling tool will calculate the average payout that the matrix will provide compared to the bonus target that you are trying to achieve based on prior years performance Adjust matrix payouts to ensure bonus is affordable Make sure to include your Operations and Finance partners to tailor your design to the BMU. The information on the following pages is intended as guidelines to assist you in decision making around the Make Plan matrix. Judgment is required to focus appropriate behavior within the BMU.

22. 22 RGM Bonus - Step 4 - Develop the Make Plan Matrix Worksheet Tab in the Bonus Modeling Tool Calculate Make Plan bonus target as % of the average 2004 RCP Plan Make Plan Target as % of RCP Plan is the percentage of profit that RGMs would be paid for achieving sales and profit plans. The number will be used as the basis for calculating the payout on the Make Plan Matrix. 4a_MakePlanMatrix (1,800 410,420) x 100 =.44% From Step 1 From Step 3

23. 23 RGM Bonus - Step 4 - Develop the Make Plan Matrix (continued) Set up the spreadsheet to model the matrix Worksheet Tab in the Bonus Modeling Tool 4b_MakePlanMatrix l 1 l 2 l 3 In the bonus modeling tool, include your prior year Sales and RCP data as well as current year RCP Plan l 4 l 5 1 2 3 4 5 Identify the appropriate matrix multiplier from the Make Plan matrix using 2003 Sales vs. Plan and 2003 RCP vs. Plan Calculate payouts by multiplying.44% of RCP by the Matrix Multiplier 1,578 x 2.0 = 3,156 Calculate.44% of 2004 RCP Actual for each restaurant.0044 x 359,700 = 1,578 Calculate estimated 2004 RCP Actual based on last years result 1.1 x 327,000 = 359,700 Create a column for Receivers and for those RGMs who earned $0 bonus, leave the cell blank. l 6

24. 24 RGM Bonus - Step 4 - Develop the Make Plan Matrix (continued) Calculate averages Worksheet Tab in the Bonus Modeling Tool There are two averages that should be calculated: All is the average of bonuses paid to all RGMs, even those who received $0. This number would be used to gauge the overall cost of the bonus. Receivers is the average of the bonus paid for only those RGMs who received a bonus (e.g., excludes those who received $0). This number would be used to assess how competitive the bonus is relative to the labor market. 4b_MakePlanMatrix Calculate the average payout for Receivers, excluding payouts of $0. l 2 Average Payout for "All"2,130 Average Payout for "Receivers"3,183 Count Store ID 2003 Sales vs. Plan 2003 RCP vs. Plan 2004 RCP Plan 2004 RCP Actual.58% of RCP Matrix MultiplierAllReceivers 11,000107.5%110.0%327,000359,7001,578200%3,155 21,002103.0%101.7%223,733227,435997125%1,247 121,022102.2%90.6%372,887337,8061,4820%0 Estimated Pay-out if Last Year's Performance Pay-Outs l 1 1 Calculate the average payout for All, including payouts of $0. 2

25. 25 RGM Bonus - Step 4 - Develop the Make Plan Matrix (continued) Set Sales minimum for payout – To ensure Beat Year Ago is achieved, the minimum should be set such that achieving the minimum level of performance will result in improvement over the prior year. In this example, sales growth is targeted to be 2.6% (from Step 2) so payment should be made only when that level of performance is achieved (98% of plan). Guidelines - Setting Sales and RCP Scales Set RCP minimum level of payout – Work with Finance to determine the expected level of RCP if 98% of Sales is achieved. A rule of thumb used in the US is to assume that RCP will be 33% of Sales. This number will vary based on the country's margins. For example… Formulas: 2004 Sales Plan x.98 X.33 = Expected 2004 RCP Expected 2004 RCP 2004 RCP Plan = Threshold Example of an average store 1,226,575 x.98 X.33 = 396,674 396,674 410,420 = 96.6% The first increment is typically from the threshold amount (i.e., 98%) to 99.9%. Model the scales using the bonus modeling tool (see next slide) For setting both Sales and RCP scales, you may want to consider aligning the scales to the Balance Scorecard targets.

26. 26 RGM Bonus - Step 4 - Develop the Make Plan Matrix (continued) Adjust scales to determine what total spending would be and if the program would be affordable Average Payout for All would be the number used for accrual Average Payout for Receivers would be the number to gauge how you are paying for performance. $1,800 should be the payment for achieving plans. The matrix is paying $3,183 for exceeding plans. 1 1 2 3 2 3 Worksheet Tabs 4c_MakePlanMatrix 4b_MakePlanMatrix 1 1

27. 27 RGM Bonus - Step 4 - Develop the Make Plan Matrix (continued) If the bonus is not affordable using the current matrix percentages, consider changing the matrix percentages Again, the following are guidelines to assist you in decision making; judgment is required to focus appropriate behavior within your BMU See Next Slide for Matrix Graphic Guidelines Pay 100% target at 100% of RCP Plan and Sales Plan If you must reduce cost, adjust from 300% down to 250% (adjust other matrix cells accordingly) Pay a percentage of target for nearly achieving plan. To reduce cost, consider holding payment flat for increasing sales but not achieving profit plan Encourage both growth in sales and growth in profit To avoid negative behaviors, consider maintaining a flat percentage for not increasing sales but increasing profit. Encourage sales growth Consider making the increase between these increments larger to reflect the fact that it is more difficult to achieve these levels of performance. Reduce the matrix payouts below this level.

28. 28 RGM Bonus - Step 4 - Develop the Make Plan Matrix (continued)

29. 29 RGM Bonus - Step 5 - Develop the Flow-Thru Chart Objective Focus RGMs on maximizing profitability by focusing on costs that they control Flow-Thru reflects bottom-line controls by adjusting for sales plan attainment Bonus increases with increase in profitable sales Design Parameters Based on actual RCP results (volume-based) Quarterly calculation (i.e. payout based on quarterly results) Weight of component can vary between 20% – 30% Targets and Thresholds % RCP pool figure will vary based on component weight and average RCP for the BMU 100% factor on the Flow-Thru chart should correspond to at least 100% RCP to Flow-Thru index All other percentages on the chart can vary based on BMU discretion BMU establishes thresholds Establish thresholds that ensure good long-term cost control decisions are made

30. 30 RGM Bonus - Step 5 - Develop the Flow-Thru Chart BMUs may have a different Flow-Thru calculation than the one outlined in the following example Consult with your Finance partner on how Flow-Thru works for the BMU

31. 31 RGM Bonus - Step 5 - Develop the Flow-Thru Chart Worksheet Tab in the Bonus Modeling Tool Calculate Flow-Thru Bonus Target as a % of the average 2004 RCP Plan Flow-Thru Payout as % of RCP Plan is the percentage of actual RCP that RGMs would receive for achieving Flow-Thru targets. The number will be used as the basis for calculating the payout on the Flow-Thru chart. Calculate the Flow-Thru Bonus Target as a % of Average 2004 RCP Plan (1,200 410,420) x 100 =.29% From Step 1 From Step 3 5a_FlowThru

32. 32 RGM Bonus - Step 5 - Develop the Flow-Thru Chart Set up the spreadsheet to model the matrix Worksheet Tab in the Bonus Modeling Tool 5c_FlowThru l 3 Identify the appropriate multiplier from the Flow-Thru chart (next slide) using estimated 2004 Flow-Thru Calculate payouts by multiplying.29% of RCP by the chart multiplier.0029 x 359,700 x 1.5 = 1,565 l 4 l 1 Assume that 2004 Flow- Thru will equal 2003 Flow- Thru for each restaurant l 1 Include estimated 2004 RCP data from Make Plan Matrix modeling l 2 l 2 l 3 l 4

33. 33 RGM Bonus - Step 5 - Develop Flow-Thru Chart Set 100% payout at 100% RCP vs. Flow-Thru %; Set at bonus target for the component ($1,200) Allow for threshold payment for achieving within 2-3% of the goal. Work with Finance to determine the appropriate RCP vs. Flow-Thru %. Set the maximum based on your performance distribution and what the BMU can afford (see next slide) Based on the performance distribution, create a logical progression for payment (see next slide). As a starting point, you may want to align to Balanced Scorecard targets. 0.29% (.0029) of actual RCP x quarterly multiplier Quarterly Multiplier 104200% 103-103.9150% 102-102.9125% 101-101.9110% 98-99.950% 97.90% RCP versus Flow-Thru %Payout 2,400 1,800 1,500 1,320 1,200 600 0 100-100.9100% Worksheet Tab in the Bonus Modeling Tool 5b_FlowThru

34. 34 RGM Bonus - Step 5 - Develop the Flow-Thru Chart Worksheet Tabs Set the maximum at around the 90th percentile (e.g., only 5-10% of RGMs should achieve this level of payment) Use the modeling tool to determine the appropriate breakpoints based on what the BMU can afford Adjust scales to determine what total spending would be and if the program would be affordable 3 3 3 5b_FlowThru 5c_FlowThru

35. 35 RGM Bonus - Step 6 - Develop 100% CHAMPSCheck Chart Objective 100% CHAMPS = Satisfied Customers Design Parameters Every CHAMPSCheck score of 100% is rewarded Every customer provides RGM with opportunity to generate more sales and bonus Fixed $ payout assumes similar level of complexity in delivering 100% CHAMPS, regardless of volume Period calculation (i.e. payout based on period results) Weight of component can vary between 20% – 30% Targets and Thresholds Targets should be set to motivate improvement over prior year Work closely with your CHAMPS team to ensure that you have a good prediction of 100% CHAMPSCheck in the base year and the year for which you are planning BMU establishes threshold for payment Payouts vary by BMU to fit strategy

36. 36 RGM Bonus - Step 6 - Develop 100% CHAMPSCheck Chart From Step 1 Enter the 2004 CHAMPSCheck target Calculate the average number of CHAMPSChecks needed to achieve the goal 16 *.628 = 10 Calculate the bonus payout per 100% CHAMPSCheck score 1,800 10 = 180 Enter the average number of CHAMPSChecks per year 1 2 3 1 1 2 3 4 4 Worksheet Tab in the Bonus Modeling Tool 6_CHAMPSPlanning

37. 37 RGM Bonus - Step 7 - Calculate Strategic Component Chart Objective Align to BMU strategic objectives Business Unit can change strategic measure each year although we recommend balancing year of initiative with consistency Example - BMU could use People Measure (e.g. TM Turnover to drive people capability mindset) to balance Financial Measures Design Parameters Must be measured on Balanced Scorecard Summary or Balanced Scorecard Detail reports Calculation timeframe can be period or quarterly (we recommend that you pay quarterly) Fixed $ or volume-based Should be a recognized strategic focus for BMU and YRI AOP Weight of component can vary between 15% – 30%

38. 38 1 2 3 RGM Bonus - Step 7 - Calculate Strategic Component Chart Example: Team Member Turnover data The Strategic Component should be determined by the BMU. We recommend a People or Customer measure to balance the Financial measures. 3... Use % of improvement to calculate the estimated 2004 TM Turnover by restaurant 78 * (1-.123) = 68 Calculate the Average TM Turnover for the prior year Enter the Target for 2004 Calculate % of improvement (1.14-1.00)/1.14 * 100 = 12.3 1 2 3 4 4 Worksheet Tab in the Bonus Modeling Tool 7a_StrategicPlanning

39. 39 RGM Bonus - Step 7 - Develop Strategic Component Chart Adjust scales to determine what total spending would be and if the program would be affordable. As a starting point, you may want to align to Balanced Scorecard targets. Payout 0-54.93,000 55- 74.92,400 75-99.91,500 100-114.91,200 115-129.9900 130+0 Leverage Multiple 250% 200% 125% 100% 75% 0% Projected Annualized Turnover Set the maximum at around the 10th percentile (e.g., only 5-10% of RGMs should achieve this level of payment). Payment can be up to 300% depending on what the BMU can afford. Calculate the estimated bonus for each RGM using 2004 Team Member Turnover. For example, 69 falls into the 55-74.9 category yielding a bonus of $2,400. Calculate the overall average payout. Worksheet Tabs 7_StrategicPlanning 7_StrategicPayouts

40. 40 Putting it all together... 2 Flow-Thru 4 Strategic Initiative 1 Sales & RCP Make Plan Matrix 3 100% Perfect CHAMPSCheck $180 payout per 100% CHAMPSCheck

41. 41 Validation To validate the bonus design, the following should be taken into consideration On an average basis, consider how the plan is paying out for the level of performance that is achieved Is the overall cost of the bonus affordable for the BMU

42. 42 Validation (continued) When calculating the projected cost of the bonus, the following should be taken into consideration: This bonus modeling technique is modeled on annual data. To validate the bonus, you may want to model the cost of the bonus for each quarter of data to ensure that you are not under or over funding the plan. The model assumes that all stores will be open for a full year. Work with Finance to determine the appropriate assumptions to apply to the total cost figure. The model assumes that no RGMs will forfeit the bonus by terminating employment. Work with Finance to determine the appropriate assumptions to apply to the total cost figure. The model assumes that restaurants will perform at the same level to plan as they did in the prior year.

43. 43 Validation (continued) To test the bonus, calculate bonus payouts for different performance levels and restaurant volumes Does the payout level appropriately reflect performance? Restaurant 200 Almost achieved Sales Plan Achieved RCP Plan Almost achieves Flow-Thru target 10 of 16 100% CHAMPSChecks Achieves TM Turnover Target Receives 73% of bonus target Restaurant 13 Achieved Sales Plan Achieved RCP Plan Exceeds Flow-Thru target 8 of 16 100% CHAMPSChecks Achieves TM Turnover Target Receives 118% of bonus target Restaurant 161 Exceeds Sales Plan Exceeds RCP Plan Achieves Flow-Thru target 6 of 16 100% CHAMPSChecks Achieves TM Turnover Target Receives 215% of bonus target