2018 Guide to Effective Proxies

6 TH EDITION | GUIDE TO EFFECTIVE PROXIES 266 GOODYEAR TIRE & RUBBER COMPANY COMPENSATIONDISCUSSIONANDANALYSIS ExecutiveSummary OurCEO’srealizedpayshowsstrongalignmenttoourstockprice 1 As reported in theSummaryCompensation Table beginning at page 49 of this Proxy Statement. 2 Realized pay includes base salary,annual incentive earned, long term incentive to be paid out and pre-tax compensation earned upon the exercise of stock options and vesting of stock awards regardless ofwhen theywere granted.Formore information on our calculation of realized pay, see “Summary ofRealized Pay Earned byOurChief Executive Officer for2015,2016 and2017” beginning at page51 of this ProxyStatement. 37th (inmillions, except TSR) SummaryCompensation Table 1 Realized Pay 2 Trailing 3-Year Total ShareholderReturn (TSR) Percentile 0 10 20 $30 $19.8 $13.8 $10.8 $10.0 2017 2015 $20.1 2016 $19.3 94th 63rd Asaresultofouroperatingperformance,theperformancetargetsforthe2017performanceperiodsunderour2015-2017, 2016-2018and2017-2019long-termawardswerenotexceededandpayoutsof34%,28%and52%,respectively,oftarget wereapprovedfortheapplicableperiods,subjecttocontinuedserviceandarelativetotalshareholderreturnmodifier(which werefertoasthe“TSRmodifier”andwhichisdescribedinmoredetailonpage38).Ourstockout-performed37%ofthe companiesintheS&P500duringthethree-yearperiodendingDecember31,2017,resultinginaTSRmodifierof0.9times, whichfurtherreducedthepayoutforthe2015-2017performancecycle. Inthefaceofchallengingglobalindustryconditions,weremaincommittedtoourstrategywhichisaimedatcapturing profitablegrowthinattractivemarketsegments,particularlyin17-inchandaboverimsizetires,masteringincreasing complexityandturningthatintoacompetitiveadvantage,andconnectingwithconsumersthroughouraligneddistribution networkofdistributorsanddealers. Inordertodrivethisfuturegrowthandaddressthechallengingindustryenvironment,weremainfocusedon: • Developinginnovativeproductsandservicesthatanticipateandrespondtotheneedsofconsumers; • Buildingthevalueofourbrand,helpingourcustomerswinintheirmarkets,andbecomingconsumers’preferred choice;and • Improvingourmanufacturingefficiencyandcreatinganadvantagedsupplychainfocusedonreducingourtotal deliveredcosts,optimizingworkingcapitallevelsanddeliveringbestinindustrycustomerservice. Ourstrategyisdesignedtotakeadvantageofthelong-termtrendsshapingourindustry,particularlyinthelargerrimsize segmentofthemarket. InFebruary2018,weprovidedinvestorswithourfinancialtargetsfor2018andbeyond.Wealsoannouncedour2018-2020 capitalallocationplanthatprovidesforgrowthcapitalexpendituresof$700millionto$900million,restructuringpaymentsof approximately$400million,debtrepaymentsof$400millionto$600millionand,subjecttoourperformance,commonstock dividendsandsharerepurchasesof$1.5billionto$2.0billion.Wealsoincreasedthequarterlycashdividendonourcommon stockby40%,from$0.10pershareto$0.14pershare,beginningwiththeDecember1,2017paymentdate. 23 Total of 06 pages in section COMPENSATIONDISCUSSIONANDANALYSIS Executive Summary KEYACCOMPLISHMENTSIN2017 ShareholderReturnProgram • In2017,wereturned$510milliontoourshareholders,comprisedof$110millionof dividendsand$400millionofsharerepurchases.Since2013,wehavepaiddividends of$332millionandrepurchased$1.3billionofourCommonStock. StrongCostSavings Performance • Wehad$179millionoftotaldeliveredcostproductivitysavings,exceedingourgoalby 19%. NewProductVitality • Welaunched55newproductsglobally. OurCEO’sactualpayoutsunderourannualincentiveplanoverthepastthreeyearsarealignedwithourEBITandFreeCash FlowfromOperationsperformanceoverthoseperiods,asshowninthegraphicbelow.For2017,thepayoutforoverall companyperformanceunderourannualincentiveplanswascalculatedtobe26%oftarget.However,inlightofthe Company’sfinancialperformance,Mr.Kramerrecommendedthatheandtheotherofficersnotreceiveanypayoutunderthe annualincentiveplan.TheCompensationCommitteeagreedwithhisrecommendationandreducedtheannualincentiveplan payoutsforalloftheofficerstozero. CEOannualincentivepayout (inmillions, exceptActualPayout) EBIT FreeCash Flow fromOperations ActualPayout as a percent of Target 2017 2015 $966 2016 $1,853 $739 $1,839 $522 $1,453 0 100 200% 192% 75% 0% Ineachofthepastthreeyears,ourCEO’srealizedpayhasbeenstronglyalignedwithourtrailingthree-yearrelativeTSR performance.In2017,ourrelativeTSRmodifierreducedthepayoutsforour2015-2017performancecycleby10%. 22 COMPENSATION DISCUSSION AND ANALYSIS Executive Summary 2017OPERATINGRESULTSANDOURSTRONGPAYANDPERFORMANCEALIGNMENT Weexperiencedchallengingglobalindustryconditions,andourperformancefellshortofourtargetsunderourannualand long-termincentiveplans,in2017duetohigherrawmaterialcostsandincreasedpricecompetition.Wealsoexperienced weakeningdemandfororiginalequipmentandconsumerreplacementtiresintheUnitedStatesandEuropedespitefavorable trendsinmilesdriven,gasolinepricesandunemployment.Weendedtheyearwithastrongrecoveryinunitvolumesinthe fourthquarterof2017.Wealsosuccessfullylaunchedmanynewproducts,therebykeepingourproductportfoliorefreshed, andsuccessfullyexecutedonourcostsavingsinitiatives. Ourincentivecompensationplansworkedasintendedin2017.Thepayoutsunderthoseplanswerestronglyalignedwithour financialandstockpriceperformance–demonstratingourcommitmenttostructureanexecutivecompensationprogramthat paysforperformance–asthepayoutsweresignificantlylowerthaninprioryears. Thefollowingsummarizeskeyelementsofthecompany’sperformancein2017. SEGMENTOPERATING INCOME (inmillions) 2015 2016 1500 500 1000 $2500 2000 $2,020 $1,985 2017 $1,522 0 $119 attributable toVenezuela TOTALSHAREHOLDERRETURN (2015–2017) 2015 2016 2017 –20 0 20 40 60% 17% INCREASE TOTALSHAREHOLDER RETURN* 37th %ILEOFS&P500 EBIT* $1,453 MILLION NET INCOME* $800 MILLION FREECASH FLOW FROMOPERATIONS* $522 MILLION SHAREHOLDER RETURNPROGRAM $510 MILLION * Asdefinedforpurposesofourcompensationplansin2017 21 HERSHEY COMPANY BecauseourTSRmetricwasbelowthresholdforthe2015-2017PSUcycle,ourNEOsreceiveda0% payoutforthismetric,significantlyreducingtheiroverallPSUpayout,asdescribedinmoredetailin thesectionentitled“PerformanceStockUnitTargetsandResults.” Our Stockholders Strongly Approve of Our Pay Practices Lastyear,ourstockholdersoverwhelminglyapprovedour“say-on-pay”resolution,withmorethan95% ofthevotescastbytheholdersofCommonStockandmorethan99%ofthecombinedvotescastbythe holdersoftheCommonStockandClassBCommonStockvotinginfavor.OurCompensation Committeebelievestheresultsoflastyear’s“say-on-pay”voteaffirmedourstockholders’supportofour Company’sexecutivecompensationprogram.Consequentially,ourapproachtoexecutivecompensation in2017wassubstantiallythesameastheapproachstockholdersapprovedin2016.Atthe2017Annual MeetingofStockholders,ourstockholdersvotedtocontinuehavinganannual“say-on-pay”voteas describedinProposalNo.3–AdviseonNamedExecutiveOfficerCompensation.Weplantoask stockholderstoexpressapreferenceforthefrequencyofthe“say-on-pay”voteatour2023Annual MeetingofStockholders. Webelieveourcompensationandgovernancepoliciesandpracticesaresignificantdriversofour stockholdersupport.Thesepoliciesandpracticesinclude: • Payforperformance. AsubstantialpercentageofeachofourNEO’stargettotaldirect compensationisvariable,performance-basedcompensation. • Performancemeasuressupportstrategicobjectives. Theperformancemeasuresweuse forourvariable,performance-basedcompensationreflectstrategicandoperatingobjectives, creatinglong-termvalueforourstockholders. • Appropriaterisk-taking. Wesetperformancegoalsthatconsiderourpublicly-announced financialexpectations,whichwebelievewillencourageappropriaterisktaking.Ourincentive programsareappropriatelycappedsoasnottoencourageexcessiverisktaking. • Notaxgross-ups. Wegenerallydonotprovidetaxgross-ups,exceptforrelocationexpenses. In2017,weprovidedagross-uppaymenttoMr.Bilbreytoprovidehimwithbenefitstowhich hewasentitledunderthetermsofhisretirementagreement. • “Double-trigger”benefitsintheeventofachangeincontrol. Intheeventofachangein control,thepaymentofseverancebenefitsandtheaccelerationofvestingoftime-basedlong- termincentiveawardsare“double-trigger”benefits.Theseverancepaymentsandaccelerated vestingofcontinuingincentiveawardswillnotoccurunlessthereisalsoaqualifying terminationofemploymentuponorwithintwoyearsfollowingthechangeincontrol. • Nore-pricingsorexchangesofunderwaterstockoptions. Ourstockholder-approved EquityandIncentiveCompensationPlan(“EICP”)prohibitsre-pricingorexchangeof underwaterstockoptionswithoutstockholderapproval. • Donotprovideexcessiveperquisites. Executiveperquisitesarekepttoaminimallevel relativetoaNEO’stotalcompensationanddonotplayasignificantroleinourexecutive compensationprogram. • DonotprovidefortheprepaymentofdividendsonunearnedPSUs. Dividendsarenot paidonPSUawardsduringthethree-yearperformancecycle. • Significantstockownershipguidelines. OurNEOsandotherexecutivesarerequiredto accumulateandholdstockequaltoamultipleofbasesalary.Ifanexecutivehasnotmethisor herownershiprequirementinatimelymanner,theexecutiveisrequiredtoretainaportionof sharesreceivedunderlong-termincentiveawardsuntiltherequirementsaremet. • Anti-hedgingpolicy. OurNEOs,directorsandotherinsidersareprohibitedfromentering intohedgingtransactionsrelatedtoourstock. • Anti-pledgingpolicy. OurNEOs,directorsandotherinsidersareprohibitedfromentering intopledgingtransactionsrelatedtoourstock. 44 Total of 06 pages in section Actualresultsfor2017wereasfollows: 2016 2017 2017Growth inNetSales Inmillionsof dollars $7,600 $7,500 $7,400 $7,300 $7,200 $7,100 $7,000 2016 2017 2017Growth inAdjustedEarnings perShare-Diluted $4.90 $4.80 $4.60 $4.70 $4.50 $4.40 $4.30 $3.70 $3.80 $3.90 $4.00 $4.10 $4.20 1% growthvs.2016 $7,515 $7,440 $4.41 7.9% growth vs.2016 $4.76 Becausewedidnotmeetourexpectations,ourNEOsearnedsignificantlybelow-targetperformance stockunit(“PSU”)payoutsandslightlybelow-targetannualcashincentiveawards,furtherreinforcing ourpay-for-performancephilosophy. Hershey Has Strong Pay-for-Performance Alignment TheCompensationandExecutiveOrganizationCommittee(the“CompensationCommittee”)ofour BoardofDirectors(the“Board”)hasoversightresponsibilityforourexecutivecompensationframework andforaligningourexecutives’paywiththeCompany’sperformance.Webelievewehaveastrong pay-for-performancealignmentbecauseasignificantportionofeachNEO’stargettotaldirect compensationistiedtothefinancialperformanceoftheCompanyaswellasshareholderreturns. In2017,approximately68%ofourCEO’sand60%ofourotherNEOs’targettotaldirectcompensation, excludingMr.Bilbrey’s,wastiedtoCompanyperformance,includingasubstantialportiontiedto shareholdervalue.Specifically,34%ofourPSUsweretiedtoTotalShareholderReturn(“TSR”). CombinedwiththeotherfinancialandstrategicmetricsthatdetermineourNEOs’compensation,we havealignedourexecutivecompensationprogramwiththelong-terminterestsofourstockholders. Overthelastthreeyears,wehavedeliveredaTSRof17.4%,whichisatthe20 th percentileofour2015 peergroupdescribedinthesectionentitled“PerformanceStockUnitTargetsandResults.” TotalShareholderReturn December 31,2014 throughDecember 31,2017 Hershey 2015PeerGroup (Median) S&P 500 17.4% 37.5% 38.3% 43 COMPENSATION DISCUSSION & ANALYSIS EXECUTIVE COMPENSATION Thissectiondiscusses andanalyzesthedecisionswemadeconcerningthecompensationofournamed executiveofficers (“NEOs”) for2017.Italsodescribes theprocess fordeterminingexecutive compensationandthefactors consideredindeterminingtheamountofcompensationawardedtoour NEOs.OurNEOsfor2017are: Name Title MicheleG.Buck (1) PresidentandChiefExecutiveOfficer(“CEO”) PatriciaA.Little SeniorVicePresident,ChiefFinancialOfficer (“CFO”) TerenceL.O’Day (2) SeniorVicePresident,ChiefProductSupplyandTechnologyOfficer ToddW.Tillemans (3) President,U.S. MaryBethWest (4) SeniorVicePresident,ChiefGrowthOfficer JohnP.Bilbrey (5) ChairmanoftheBoard,FormerPresidentandCEO (1) OnMarch1,2017,Ms.BuckwaspromotedfromExecutiveVicePresident,ChiefOperatingOfficer(“COO”)toPresidentandCEO. (2) OnMay2,2017,Mr.O’DaywasappointedSeniorVicePresident,ChiefProductSupplyandTechnologyOfficer.Previously,he servedastheSeniorVicePresident,ChiefSupplyChainOfficer. (3) OnApril3,2017,Mr.TillemanswashiredasPresident,U.S. (4) OnMay1,2017,Ms.WestwashiredasSeniorVicePresident,ChiefGrowthOfficer. (5) OnMarch1,2017,Mr.BilbreyretiredfromthepositionofPresidentandCEO.HecontinuestoserveasChairmanoftheBoard,but heisnotstandingforre-electionattheAnnualMeeting. Executive Summary 2017 Highlights TheHersheyCompany(the“Company”),headquarteredinHershey,Pa.,isaglobalconfectionery leaderknownforbringinggoodnesstotheworldthroughitschocolate,sweets, mintsand thergreat- tastingsnacks. Wehaveapproximately16,910employeesaroundtheworldwhoworkeveryd yto deliverdelicious,qualityproducts. Wehavemorethan80brandsthatdriveapproximately$7.5billion inannualrevenues.Buildingonitscorebusiness,theCompanyisexpandingitsportfoliotoincludea broaderrangeofdelicioussnacks. InFebruary2017,weannouncedthefollowingCompanyexpectations,whicharesubstantiallyreflected inour2017incentiveprograms: • Increasenetsalesbetween2%to3%from2016;and • Increaseadjustedearningspershare-diluted (1) between7%to9%from2016. (1) WhilewereportourfinancialresultsinaccordancewithU.S.generallyacceptedaccountingprinciples(“GAAP”),wealsousenon-GAAP financialmeasureswithinManagement’sDiscussionandAnalysisinthe2017AnnualReportonForm10-KthataccompaniesthisProxy Statementinordertoprovideadditionalinformationtoinvestorstofacilitatethecomparisonofpastandpresentperformance.Someofthe financialtargetsunderourshort-andlong-termincentiveprogramsarealsobasedonnon-GAAPfinancialmeasures.Non-GAAPfinancial measuresareusedbymanagementinevaluatingresultsofoperationsinternallyandinassessingtheimpactofknowntrendsand uncertaintiesonourbusiness,buttheyarenotintendedtoreplacethepresentationoffinancialresultsinaccordancewithGAAP.Adjusted earningspershare-dilutedisanon-GAAPfinancialmeasure.Wedefineadjustedearningspershare-dilutedasdilutedearningspershare oftheCompany’scommonstock(“CommonStock”),excludingunallocatedmark-to-market(gains)lossesoncommodityderivatives,costs associatedwithbusinessrealignmentactivities,costsrelatingtotheintegrationofacquisitions,non-servicerelatedcomponentsofour pensionexpense(“NSRPE”),goodwill,indefiniteandlong-livedassetimpairmentcharges,settlementoftheShanghaiGoldenMonkey liabilityinconjunctionwiththepurchaseoftheremaining20%oftheoutstandingsharesofShanghaiGoldenMonkey,thegainrealizedon thesaleofatrademark,costsassociatedwiththeearlyextinguishmentofdebtandothernon-recurringgainsandlosses. 42