2018 Guide to Effective Proxies

6 TH EDITION | GUIDE TO EFFECTIVE PROXIES 404 COMPENSATION DISCUSSION AND ANALYSIS Pay Ratio About our Workforce At October 1, 2017, we employed approximately 80,400 people worldwide. As our manufacturing and sales activities are outside of the U.S., 99.8% of our employees (or approximately 80,240) are located outside of the U.S. Approximately 69% of our employees are located in non-OECD countries, which tend to be lesser developed countries with lower wages than OECD countries. Approximately 36% of our workforce is in Indonesia. The national average annual net salary is approximately $2,400 in that country. (1) Approximately 67% of our overall workforce is covered by collective labor agreements, and approximately 74% of our workforce in non-OECD countries is covered by collective labor agreements. Our Pay Ratio Given our global footprint, and in accordance with the regulatory guidance, we have determined that the cost-of-living adjusted ratio based on the purchasing power parity index (or PPP) reflects the differences in the living and economic conditions of approximately 90 countries where our employees reside. (2) The PPP conversion factor represents the number of units of local currency that can buy a basket of goods that 1 CHF would buy in Switzerland, where our CEO resides. Based on this calculation, our median employee on October 1, 2017, was located in Indonesia, with a total PPP-adjusted 2017 compensation of approximately CHF 54,070. Comparing this employee’s total PPP-adjusted compensation to the total compensation of our CEO in 2017, our adjusted pay ratio is 325:1. Had we not used the PPP adjustment, our median employee’s total 2017 compensation would have been approximately $19,170. Comparing this employee’s total compensation to the total compensation of our CEO set forth in the Summary Compensation Table on page 42, the ratio would be 990:1. For reference, the ratio of the CEO’s total compensation to that of our median employee in Switzerland is 86:1. (3) At October 1, 2017, we employed approximately 3,160 people in Switzerland, including approximately 350 in our factory and 610 in our R&D facility in Neuchâtel. PMI as an Employer We are the first multinational company in Switzerland to receive an equal salary certification from the Equal Salary Foundation. In addition, our affiliate in Japan received an equal salary certification from this institution in September 2016. This year, the Top Employers Institute recognized us a Global Top Employer for the second year in a row. It also awarded us a Top Employer 2018 Seal in 43 countries worldwide, including Indonesia. (1) http://www.bi.go.id/sdds/default.asp#RealSector. (2) The PPP conversion factor is described at http://data.worldbank.org. The PPP indices are publicly available in the jurisdictions where our employees reside, with limited exceptions in the Dutch Antilles, Aruba, La Reunion, Kuwait, Taiwan, and Venezuela. Our workforce in these jurisdictions is approximately 0.6% of our total workforce (i.e., 23 employees in the Dutch Antilles, 6 employees in Aruba, 46 employees in La Reunion, 28 employees in Kuwait,132 employees in Taiwan, and 225 employees in Venezuela) and is excluded from the calculation. As a result, the total number of employees used for the cost-of-living adjusted ratio was 79,926. (3) To identify a median employee in the above calculations, we analyzed base salary information because that is the only pay element applied consistently throughout our global workforce. 54 • PMI 2018 Proxy Statement PHILIP MORRIS INTERNATIONAL, INC.