2018 Guide to Effective Proxies

6 TH EDITION | GUIDE TO EFFECTIVE PROXIES 60 PHILIP MORRIS INTERNATIONAL, INC. PROLOGIS PSEG RR DONNELLEY TABLE OF CONTENTS GlossaryofTerms ............................ 4 ProxyStatementSummary ..................... 5 BoardOperationsandGovernance .............. 7 BoardResponsibilityandMeetings ............. 7 GovernanceGuidelines,PoliciesandCodes ..... 7 LeadershipStructure ........................ 7 PresidingDirector ........................... 7 CommitteesoftheBoard ..................... 8 BoardRiskOversight ........................ 11 CommunicationswiththeBoard ............... 12 SummaryofCorporateGovernancePractices.... 13 ElectionofDirectors ........................... 14 ProcessforNominatingDirectors .............. 14 RecommendationsoftheBoard;Director Attributes,Diversity,RefreshmentandTenure ... 14 IndependenceofNominees ................... 15 MajorityVoteStandardinUncontested Elections .................................. 15 DirectorNominees .......................... 16 CompensationofDirectors ..................... 25 StockOwnershipInformation ................... 27 OwnershipofEquitySecurities ................ 27 Section16(a)BeneficialOwnershipReporting Compliance ................................ 28 CompensationDiscussionandAnalysis ........... 29 ExecutiveSummary ......................... 29 AdditionalCompensationPoliciesand Processes ................................. 38 CompensationandLeadershipDevelopment CommitteeReport .......................... 41 SummaryCompensationTable ................ 42 AllOtherCompensation ...................... 43 GrantsofPlan-BasedAwardsDuring2017 ...... 44 OutstandingEquityAwardsasofDecember31, 2017...................................... 45 StockOptionExercisesandStockVested During2017 ............................... 46 PensionBenefits ............................ 47 Non-QualifiedDeferredCompensation .......... 51 DeferredProfit-SharingandBenefitEqualization Plan ...................................... 51 EmploymentContracts,Terminationof EmploymentandChangeinControl Arrangements .............................. 52 PayRatio .................................. 54 AdvisoryVoteApprovingExecutive Compensation ............................... 55 AuditCommitteeMatters ....................... 56 RatificationoftheSelectionofIndependent Auditors ..................................... 58 RelatedPersonTransactionsandCodeof Conduct ..................................... 59 AvailabilityofReports,OtherMatters and2019 AnnualMeeting............................... 60 ExhibitA:Questions&Answers ................. 61 ExhibitB:Reconciliations ...................... 65 PMI2018ProxyStatement •3 Table of Contents 1 ProxySummary 1 2017BusinessHighlights 2 2017CompensationHighlights 3 2017EnvironmentalStewardship,SocialResponsibility andGovernanceHighlights 4 ProposalsSubmittedtoVoteatthe2018Annual Meeting 6 BoardofDirectorsandCorporateGovernance 7 PrologisCorporateGovernanceTearSheet 8 ElectionofDirectors(Proposal1) 9 BoardEvaluationsandProcessforSelectingDirectors 10 DirectorQualifications,SkillsandExperience 13 DirectorNominees 18 DirectorIndependence 19 BoardLeadershipStructure 21 BoardCommittees 24 OtherGovernanceMatters 30 ExecutiveOfficers 32 EnvironmentalStewardship,SocialResponsibility andGovernance 45 ExecutiveCompensation 46 CompensationDiscussionandAnalysis 47 ExecutiveSummary 49 KeyPoints 56 2017CompensationHighlights 57 DiscussionandAnalysisofCEOCompensation 65 2017Say-on-PayVoteandStockholderOutreach 67 DiscussionofCompensationComparisonGroup 69 CompensationElements 70 2017CompensationDecisions:AnnualBaseSalaryand BonusOpportunity 75 2017CompensationDecisions:AnnualLTIEquity Awards 78 2017CompensationDecisions:OutperformancePlans 81 OtherCompensationElementsandConsiderations 85 TalentandCompensationCommitteeReport 86 SummaryCompensationTableforFiscalYear2017 90 GrantsofPlan-BasedAwardsinFiscalYear2017 97 OutstandingEquityAwardsatFiscalYear-End (December31,2017) 100 OptionExercisesandStockVestedinFiscalYear 2017 102 NonqualifiedDeferredCompensationinFiscalYear 2017 106 PotentialPaymentsUponTerminationorChangein Control 109 CEOPayRatio 110 AdvisoryVotetoApprovetheCompany’sExecutive Compensationfor2017(Proposal2) 111 DirectorCompensation 113 NonqualifiedDeferredCompensationPlansfor Directors 115 DirectorCompensationforFiscalYear2017 117 SecurityOwnership 121 EquityCompensationPlans 122 AuditMatters 123 AuditCommitteeReport 124 IndependentRegisteredPublicAccountingFirm 125 RatificationoftheAppointmentoftheIndependent RegisteredPublicAccountingFirm(Proposal3) 126 AdditionalInformation 127 Noticeof2018AnnualMeetingofStockholders 128 ProxyMaterialsandVotingInformation 128 ProxyandAnnualMeetingFAQ 133 SubmittingStockholderProposals 136 Section16(a)BeneficialOwnershipReporting Compliance 136 AnnualReporttoStockholdersandCorporate GovernanceDocuments A-1 AppendixA:DefinitionsandReconciliationsof GAAPandNon-GAAPFinancialMeasures ImportantNoticeRegardingtheAvailabilityofProxyMaterialsfortheAnnualMeetingofStockholderstobeheld onMay2,2018.Thisproxystatementandaccompanyingformofproxyarefirstbeingmadeavailabletoyouonor aboutMarch23,2018.Proxymaterialsareavailableatwww.proxyvote.com.Thisproxystatementcontains importantinformationforyoutoconsiderwhendecidinghowtovoteonthemattersbroughtbeforetheAnnual MeetingoftheStockholders.Pleasereaditcarefully. I i Table of Contents Proposals Proposal1:ElectionofDirectors ............................................................................................ 1 Proposal2:AdvisoryVotetoApproveExecutiveCompensation ............................................................... 5 Proposal3:RatificationofIndependentRegisteredPublicAccountingFirm .................................................... 7 QuestionsandAnswersAboutHowtoVoteYourProxy ................................................................... 8 CompanyInformation TheBoard’sCommitteesandTheirFunctions ................................................................................ 10 PolicyonAttendanceatStockholderMeetings ............................................................................... 12 CorporateGovernance..................................................................................................... 12 StockOwnership BeneficialStockOwnershipofDirectors,ExecutivesandLargeStockholders................................................... 16 CompensationDiscussion&Analysis ExecutiveSummary ........................................................................................................ 18 CompensationProgramDesign ............................................................................................ 20 2017CompensationDetail ................................................................................................ 21 EmploymentArrangements ................................................................................................ 24 CertainOtherPolicies...................................................................................................... 24 HumanResourcesCommitteeReport ....................................................................................... 26 ExecutiveCompensation 2017SummaryCompensationTable ........................................................................................ 27 2017GrantsofPlan-BasedAwards ......................................................................................... 29 OutstandingEquityAwardsat2017FiscalYear-End ......................................................................... 30 2017OptionExercisesandStockVested .................................................................................... 31 PensionBenefits ........................................................................................................... 31 NonqualifiedDeferredCompensation ....................................................................................... 32 PotentialPaymentsUponTerminationorChangeinControl TerminationOtherThanAfteraChangeinControl........................................................................... 33 TerminationAfteraChangeinControl ...................................................................................... 33 PotentialPaymentObligationsUnderEmploymentAgreementsuponTerminationofEmployment .............................. 34 CEOPayRatioDisclosure ................................................................................................. 39 DirectorCompensation DirectorCompensationProgram ........................................................................................... 40 2017Non-EmployeeDirectorCompensationTable .......................................................................... 41 CertainTransactions ...................................................................................................... 42 Section16(a)BeneficialOwnershipReportingCompliance ................................................................. 42 ReportoftheAuditCommittee ............................................................................................ 43 TheCompany’sIndependentRegisteredPublicAccountingFirm ........................................................... 44 SubmittingStockholderProposalsandNominationsfor2019AnnualMeeting .............................................. 45 DiscretionaryVotingofProxiesonOtherMatters ......................................................................... 45 AppendixA:ReconciliationofNon-GAAPFinancialMeasures .............................................................. A-1 TableofContents TableofContents ii PSEG2018ProxyStatement PROXYSTATEMENT SUMMARY ......................................................................................................... 1 Proposal1:ELECTIONOFDIRECTORS ............................................................................................... 6 CORPORATEGOVERNANCE .......................................................................................................... 6 Board ofDirectors ................................................................................................................................ 6 BoardEffectiveness andAccountability .................................................................................................... 6 Sustainability ...................................................................................................................................... 7 Diversity and Inclusion .......................................................................................................................... 8 PublicPolicy andPoliticalContributions .................................................................................................... 8 StockholderEngagement and Communicationswith theBoard ...................................................................... 8 Independence ..................................................................................................................................... 9 LeadershipStructure ............................................................................................................................ 10 LeadDirector ...................................................................................................................................... 10 RiskManagementOversight .................................................................................................................. 11 TalentManagement andSuccessionPlanning ........................................................................................... 13 DirectorEducation andBoardEvaluation .................................................................................................. 13 Meetings of theBoard,Committees andStockholders ................................................................................. 13 CommitteeMembership ........................................................................................................................ 14 BoardCommitteeResponsibilities ........................................................................................................... 15 CompensationConsultant ...................................................................................................................... 19 Standards ofConduct ........................................................................................................................... 19 TransactionswithRelatedPersons .......................................................................................................... 20 Conflicts of Interest .............................................................................................................................. 22 NOMINEES AND ELECTION ............................................................................................................. 23 Election ............................................................................................................................................. 23 MajorityVoting forElection ofDirectors .................................................................................................... 23 Ability andDiversity .............................................................................................................................. 24 DemographicBackground . .................................................................................................................... 24 Refreshment andTenure ....................................................................................................................... 24 Director andNomineeQualifications andAvailability .................................................................................... 25 DirectorTerms ofService ..................................................................................................................... 25 StockOwnership ................................................................................................................................. 25 NominationProcess andProxyAccess ..................................................................................................... 26 BIOGRAPHICAL INFORMATIONOFDIRECTORNOMINEES ....................................................... 27 Skills andQualifications ........................................................................................................................ 28 Biographies ........................................................................................................................................ 29 SECURITYOWNERSHIP OFDIRECTORS,MANAGEMENT AND CERTAINBENEFICIAL OWNERS ............................................................................................................................................ 35 Section 16(a)BeneficialOwnershipReportingCompliance ........................................................................... 36 DIRECTORCOMPENSATIONTABLE ............................................................................................. 36 DirectorCompensation ......................................................................................................................... 37 Proposal2:ADVISORYVOTEONTHEAPPROVALOFEXECUTIVECOMPENSATION .................. 39 CD&AEXECUTIVE SUMMARY ........................................................................................................ 40 COMPENSATIONDISCUSSION AND ANALYSIS (CD&A) ............................................................. 47 CompensationPhilosophy ..................................................................................................................... 47 Elements ofExecutiveCompensation ...................................................................................................... 51 ExecutiveCompensationGovernanceFeatures andControls ........................................................................ 61 COMPENSATIONCOMMITTEEREPORT ........................................................................................ 65 2017 SUMMARYCOMPENSATIONTABLE ..................................................................................... 66 Total of 02 pages in section