<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
McDonald's Corporation
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(Name of Registrant as Specified In Its Charter)
Gloria Santona
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
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<PAGE>
Notice of McDonald's Corporation
1999 Annual Shareholders' Meeting
and Proxy Statement
To McDonald's Corporation shareholders
McDonald's Corporation will hold its 1999 Annual Shareholders' Meeting on
Thursday, May 20, 1999 at 10:30 a.m., local time. At the meeting, we will:
1. Elect four Directors to serve until our 2002 Annual Shareholders' Meeting;
2. Approve the appointment of our independent auditors for 1999;
3. Act on a shareholder proposal; and
4. Transact other business properly presented at the meeting.
Shareholders are cordially invited to attend the Annual Meeting at The
Auditorium Theatre at 50 East Congress Parkway, Chicago, Illinois. This new
location will enable more shareholders to attend the meeting in person. If you
are unable to attend the meeting in person, a rebroadcast of a portion of the
meeting will be posted on our Web site located at www.mcdonalds.com by the close
of business on May 21, 1999.
Your Board of Directors recommends that you vote FOR all nominees, FOR the
approval of our auditors and AGAINST the shareholder proposal. Your vote is
important. Please consider the issues presented in this Proxy Statement and vote
your shares as promptly as possible.
By order of the Board of Directors,
/s/ Gloria Santona
Gloria Santona
Secretary
Oak Brook, Illinois
April 7, 1999
<PAGE>
General information
Record date and voting at the Annual Meeting
Shareholders owning common stock outstanding at the close of business on March
22, 1999 may vote at the 1999 Annual Meeting. On that date, 1,365,532,213 shares
of common stock were outstanding. Each share is entitled to one vote on each
matter to be voted upon at the Annual Meeting.
Most shareholders have a choice of voting over the internet, by telephone or
by using a traditional proxy card. Check your proxy or voting instruction card
to see which options are available to you. Voting instructions are included on
the proxy or voting instruction card.
The internet and telephone voting procedures are designed to authenticate
shareholders' identities, to allow shareholders to vote and to allow
shareholders to confirm that their instructions have been properly recorded.
If you properly sign and return your proxy or properly complete your proxy via
the telephone or the internet, your shares will be voted as you direct. If you
properly submit your proxy but do not specify how you want your shares voted,
they will be voted FOR the election of all nominees for Director as set forth
under "Election of Directors", FOR the approval of auditors and AGAINST the
shareholder proposal. You may change your vote at any time before your proxy is
exercised by voting in person at the Annual Meeting, by submitting written
notice to the Company's Secretary, or by submitting another proxy that is
properly executed and later dated (including a telephone or internet vote).
All votes cast at this year's annual meeting will be tabulated by First
Chicago Trust Company (First Chicago), which has been appointed independent
inspector of election. First Chicago will determine whether or not a quorum is
present. With respect to the election of Directors, First Chicago will treat
votes withheld as shares present for purposes of determining a quorum. Directors
are elected by a plurality vote, so the four persons receiving the greatest
number of votes will be elected. Withheld votes will not affect the outcome of
the election. With respect to the approval of auditors, the shareholder proposal
or any other matter properly brought before the meeting, First Chicago will
treat abstentions as shares present for purposes of determining a quorum. Since
a majority of the shares represented at the meeting and entitled to vote is
required for approval of these matters, abstentions will have the effect of a
vote against approval.
We do not know of any other matters to be presented or acted upon at the
meeting. If any other matter properly comes before the meeting, the shares
represented by proxies will be voted in accordance with the judgment of the
person or persons voting those shares.
Proxies submitted by brokers that do not indicate a vote because they do not
have discretionary authority and have not received instructions as to how to
vote on a proposal (so-called "broker non-votes") will be considered as present
for quorum purposes but not as shares entitled to vote on that matter. Broker
non-votes will not affect the outcome of the vote.
Proxy solicitation
This Proxy Statement and form of proxy were mailed to shareholders beginning on
or about April 7, 1999 in connection with the solicitation of proxies by the
Board of Directors to be used at the 1999 Annual Meeting.
The cost of soliciting proxies in the enclosed form will be paid by the
Company. The Company has retained Innisfree M&A Incorporated to aid in the
solicitation at a fee estimated to be $15,000 plus reasonable out-of-pocket
expenses. Proxies may also be solicited by employees and Directors of the
Company by mail, by telephone, by fax, by e-mail or in person.
Confidential voting
It is the Company's policy to protect the confidentiality of shareholder votes
throughout the voting process. In this regard, the vote of any shareholder will
not be disclosed to the Company, its Directors, officers or employees, except to
meet legal requirements or to assert or defend claims for or against the Company
or except in those limited circumstances where (1) a proxy solicitation is
contested; (2) a shareholder writes comments on a proxy card; or (3) a
shareholder authorizes disclosure. Both the tabulators and inspectors of
election have been and will remain independent of the Company.
Nothing in this policy prohibits shareholders from disclosing the nature of
their votes to the Company, its Directors, officers or employees, or impairs
voluntary communication between the Company and its shareholders, nor does this
policy prevent the Company from ascertaining which shareholders have voted or
from making efforts to encourage shareholders to vote.
List of shareholders
A list of registered shareholders entitled to vote at the Annual Meeting will be
available for review by any shareholder for any purpose related to the meeting
during ordinary business hours for a period of 10 calendar days prior to the
meeting at First Chicago Trust Company, One North State Street, Eleventh Floor,
Chicago, IL 60602.
Adjustment for stock split
The number of shares and option exercise prices have been adjusted throughout
this Proxy Statement to reflect the Company's two-for-one stock split in March
1999.
<PAGE>
ITEM 1. Election of Directors
The Board of Directors is currently divided into three classes, each having
three-year terms that expire in successive years. Directors elected at this
year's Annual Meeting will hold office for a three-year term expiring in 2002.
Nominees
The nominees for Director are: Hall Adams, Jr., Gordon C. Gray, Terry L. Savage
and Fred L. Turner.
The Board of Directors expects all nominees to be available for election. If
any of them should become unavailable to serve as a Director for any reason
prior to the Annual Meeting, the Board may substitute another person as a
nominee. In that case, your shares will be voted for that other person.
Your shares will be voted according to your instructions. If you properly
submit your proxy but do not provide voting instructions, your shares will be
voted FOR the election of the four nominees. The four nominees who receive the
most votes will be elected.
The Board of Directors recommends that shareholders vote FOR all four
nominees.
Biographical information
[PHOTO] Hall Adams, Jr. Nominee. Retired Chief Executive Officer of Leo Burnett
& Co., Inc. Director of The Dun & Bradstreet Corporation and Sears,
Roebuck and Co. Class of 1999. Age: 65. Director since 1993.
[PHOTO] James R. Cantalupo. Vice Chairman, Chairman and Chief Executive
Officer--McDonald's International since August 1998. Previously,
President and Chief Executive Officer--McDonald's International.
Director of Morton International, Inc. Class of 2000. Age: 55. Director
since 1987.
[PHOTO] Gordon C. Gray. Nominee. Chairman of Rio Algom Limited, a Canadian
mining company and metals distributor. Director of Abitibi-Consolidated
Inc. Class of 1999. Age: 71. Director since 1982.
[PHOTO] Jack M. Greenberg. President and Chief Executive Officer since August
1998. Previously, Vice Chairman, Chairman and Chief Executive Officer--
McDonald's U.S.A. and prior to 1997, Vice Chairman and Chief Financial
Officer. Director of Arthur J. Gallagher & Co. and Harcourt General,
Inc. Class of 2001. Age: 56. Director since 1982.
[PHOTO] Enrique Hernandez, Jr. Chairman and Chief Executive Officer of Inter-Con
Security Systems, Inc., a provider of high-end security and facility
support services to government, utilities and industrial customers.
Director of Washington Mutual, Inc. and Nordstrom, Inc. Class of 2000.
Age: 43. Director since 1996.
[PHOTO] Donald R. Keough. Chairman of Allen & Company Incorporated, investment
bankers. Director of Excalibur Technologies Corporation, H.J. Heinz
Company, The Home Depot, Inc., The Washington Post Company and USA
Networks, Inc. Class of 2000. Age: 72. Director since 1993.
[PHOTO] Donald G. Lubin. Partner of the law firm of Sonnenschein Nath &
Rosenthal, which provides legal services to the Company on a regular
basis. Director of Molex Incorporated. Class of 2001. Age: 65. Director
since 1967.
[PHOTO] Walter E. Massey. President of Morehouse College since 1997. Previously,
Provost and Senior Vice President Academic Affairs for The University of
California System. Director of BP Amoco p.l.c., BankAmerica Corporation
and Motorola, Inc. Class of 2001. Age: 60. Director since 1998.
1
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[PHOTO] Andrew J. McKenna. Chairman and Chief Executive Officer of Schwarz Paper
Company, a printer, converter, producer and distributor of packaging and
promotional materials. Director of Aon Corporation, Dean Foods Company,
Skyline Corporation and Tribune Company. Class of 2001. Age: 69.
Director since 1991.
[PHOTO] Michael R. Quinlan. Chairman. Previously, Chairman and Chief Executive
Officer. Director of The Dun & Bradstreet Corporation and The May
Department Stores Company. Class of 2000. Age: 54. Director since 1979.
[PHOTO] Terry L. Savage. Nominee. Financial journalist, author and President of
Terry Savage Productions, Ltd., which provides speeches, columns and
videos on personal finance for corporate and association meetings,
publications and national television programs. Previously, commentator
for CBS News (WBBM-TV) in Chicago. Director of PennzEnergy Company.
Class of 1999. Age: 54. Director since 1990.
[PHOTO] Roger W. Stone. Retired President and Chief Executive Officer of
Smurfit-Stone Container Corporation, a multinational paper company
primarily producing and selling pulp, paper and packaging products.
Previously, Chairman, President and Chief Executive Officer of Stone
Container Corporation. Director of Autoliv, Inc., Morton International,
Inc. and Option Care, Inc. Class of 2001. Age: 64. Director since 1989.
[PHOTO] Robert N. Thurston. Business consultant. Director of ACNielsen
Corporation and Ag-Bag International Limited. Class of 2001. Age: 66.
Director since 1974.
[PHOTO] Fred L. Turner. Nominee. Senior Chairman since 1990. Previously,
Chairman. Director of Aon Corporation, Baxter International Inc. and
W.W. Grainger, Inc. Class of 1999. Age: 66. Director since 1968.
[PHOTO] B. Blair Vedder, Jr. Retired Chief Operating Officer of Needham Harper
Worldwide, Inc. Class of 2000. Age: 74. Director since 1988.
Stock ownership
The following table shows the stock ownership of the named individuals and group
as of February 1, 1999. Directors and Executive Officers as a group have sole
voting and investment power except for 447,870 shares held jointly, 93,950
shares held by members of their immediate families and 19,080 shares held in
trust or in a partnership, over which they share voting and investment power. No
Director or Executive Officer owns more than 1.0% of the common stock. Directors
and Executive Officers as a group owned (directly and through benefit plans)
approximately 1.0% of the common stock as of February 1, 1999.
<TABLE>
<CAPTION>
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Common stock
Name (a,b,c,d,e,f)
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<S> <C>
Hall Adams, Jr. 15,052
James R. Cantalupo 2,230,516
Alan D. Feldman 209,780
Gordon C. Gray 31,760
Jack M. Greenberg 1,615,170
Enrique Hernandez, Jr. 13,518
Donald R. Keough 30,412
Jeffrey B. Kindler 158,272
Donald G. Lubin 95,032
Walter E. Massey 636
Andrew J. McKenna 67,634
Michael R. Quinlan 3,987,706
Terry L. Savage 42,984
James A. Skinner 552,728
Roger W. Stone 56,592
Robert N. Thurston 148,682
Fred L. Turner 2,073,028
B. Blair Vedder, Jr. 62,936
Directors and Executive Officers as a group
(the Group) (22 persons) 12,675,384
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</TABLE>
(a) Beneficial ownership of shares which are owned by members of their
immediate families directly or through trusts is disclaimed as follows: Messrs.
Gray, 5,000; Keough, 600; McKenna, 640; Quinlan, 1,400; and the Group, 7,640.
(b) Excludes 48,000 shares held by Mr. McKenna as Trustee of the Schwarz Paper
Company Profit Sharing Trust.
(c) Includes unallocated shares held in Profit Sharing Program accounts as
follows: Messrs. Cantalupo, 10,090; Feldman, 2,502; Greenberg, 5,610; Kindler,
1,198; Quinlan, 8,970; Skinner, 20,172; Turner, 26,494; and the Group, 133,796.
(d) Includes shares that could be purchased by exercise of stock options on or
within 60 days after February 1, 1999 under the Company's option plans as
follows: Messrs. Adams, 6,002; Cantalupo, 1,868,500; Feldman, 201,000; Gray,
6,002; Greenberg, 1,395,000; Hernandez, 2,002; Keough, 6,002; Kindler, 155,000;
Lubin, 6,002; Massey, 0; McKenna, 6,002; Quinlan, 3,109,500; Skinner, 351,150;
Stone, 6,002; Thurston, 6,002; Turner, 912,000; Vedder, 6,002; Ms. Savage,
6,002; and the Group, 9,083,482.
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Additional information concerning
the Board of Directors
(e) The following individuals also own common stock equivalent units held in
the non-qualified component of their Profit Sharing Program accounts as follows:
Messrs. Cantalupo, 21,882; Feldman, 9,030; Greenberg, 32,554; Kindler, 4,648;
Quinlan, 38,826; Skinner, 29,862; Turner, 18,630; and the Group, 197,202.
(f) Includes common stock equivalent units credited under the Directors'
Stock Plan as follows: Messrs. Adams, 5,050; Gray, 12,486; Hernandez, 3,116;
Keough, 17,210; Lubin, 31,276; Massey, 636; McKenna, 30,992; Stone, 42,590;
Thurston, 46,824; Vedder, 51,194; and Ms. Savage, 33,982.
Stock ownership guidelines
In 1997, McDonald's set minimum stock ownership guidelines for all Directors.
Each Director is expected to acquire, within a five-year period after becoming a
Director, common stock or common stock equivalent units equal in value to at
least five times the annual retainer, and hold such amount of stock throughout
his or her term.
Stock ownership of certain beneficial owners
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Amount and nature of Percent of
Name beneficial ownership (a) class (b)
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FMR Corp. and Affiliates 97,547,580 7.2%
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(a) Reflects shares beneficially owned as of December 31, 1998, according to
a statement on Schedule 13G filed with the SEC, which provides that: (a) FMR
Corp. (FMR), 82 Devonshire Street, Boston, MA 02109, had sole dispositive power
over these shares and sole voting power with respect to 8,604,820 shares, (b)
Edward C. Johnson, 3d, Chairman of FMR, and Abigail P. Johnson, a Director of
FMR, had sole dispositive power over these shares, and (c) these shares
represented (1) 86,564,760 shares beneficially owned by Fidelity Management &
Research Company (Fidelity), a wholly-owned subsidiary of FMR, as a result of
acting as investment adviser to various investment companies, (2) 8,937,626
shares beneficially owned by Fidelity Management Trust Company, a wholly-owned
subsidiary of FMR, as a result of its serving as investment manager of certain
institutional accounts, and (3) 2,045,194 shares owned by Fidelity International
Limited, a company of which a partnership controlled by Mr. Johnson and
immediate family members owns approximately 40% of the voting stock, as a result
of acting as investment adviser to various non-U.S. investment companies and
certain institutional investors. The voting power with respect to the 86,564,760
shares beneficially owned by Fidelity is held by the Boards of Trustees of the
investment companies of which Fidelity is the investment adviser. The Schedule
13G also provides that the securities were acquired in the ordinary course and
not with the purpose nor with the effect of changing or influencing the control
of McDonald's.
(b) Based on the number of outstanding shares of common stock on February 1,
1999.
Board committees
The audit committee recommends to the Board the independent auditors who audit
the Company's books and records; reviews the audit with these auditors and
management; reviews the Company's dealings with Directors; reviews financial
reporting issues and practices; reviews the Company's legal affairs; consults
with the independent auditors and management regarding risk management and the
adequacy of financial and accounting controls; and reports to the Board of
Directors about these matters. Throughout the year, the Committee regularly
meets with the independent auditors without members of management present.
Members of the Committee are Directors Gray, Massey and Vedder. Mr. Lubin serves
as secretary in a non-voting capacity. In 1998, the Audit Committee met five
times.
The compensation committee evaluates the performance of the Company's Chief
Executive Officer and recommends his compensation to the Board annually; reviews
and approves senior management's compensation; establishes compensation
guidelines for all other officers and recommends to the Board the compensation
paid to outside Directors. The Committee administers the Company's incentive
compensation and stock option plans and develops compensation policies. Members
of the Committee are Directors Hernandez, Keough, Savage and Thurston. In 1998,
the Compensation Committee met seven times.
The nominating and corporate governance committee sets criteria for Board
membership; searches for and screens candidates to fill Board vacancies;
recommends appropriate candidates for election each year and, in this regard,
evaluates individual Director performance; assesses overall Board performance;
considers issues regarding Board composition and size; and evaluates the
Company's corporate governance process. Members of the Committee are Directors
Adams, Lubin, McKenna and Stone. In 1998, the Committee met four times.
Shareholders can nominate Director candidates for consideration by writing to
the Committee c/o the Corporate Secretary at McDonald's Plaza, Oak Brook IL
60523 and providing the candidate's name, biographical data and qualifications.
Meeting attendance
In 1998, the Board met seven times. During the year, all the Directors attended
all the meetings of the Board and of the committees on which they served except
that one Director was absent from one Board meeting.
3
<PAGE>
Compensation of the Board
In 1998, each outside Director earned an annual retainer of $35,000 plus a
$2,000 fee for each Board meeting, a $1,000 fee for each committee meeting and a
$1,000 fee for each executive session not held in conjunction with a Board
meeting. Beginning in January 1999, the chairman of each committee receives an
additional annual retainer of $10,000. Directors can defer their retainer and
fees in the form of common stock equivalent units under the Company's Directors'
Stock Plan. Deferred amounts are credited to an account, which is adjusted to
reflect dividends as well as gains or losses, as if invested in common stock.
Each outside Director also receives a credit of $17,500 to his or her Directors'
Stock Plan account at the end of each full year of service, up to a maximum of
ten years. Deferred amounts are generally paid in cash after the Director
retires from the Board.
In May 1998, each outside Director received options to purchase 2,000 shares
of common stock. Mr. Massey received additional options to purchase 2,000 shares
of common stock on the date he was first elected to the Board. All options vest
in equal installments over three years, have a ten-year life and permit the
holder to purchase shares at their fair market value on the date of grant.
In 1998, Mr. Lubin and Mr. Thurston received the use of corporate vehicles.
Mr. Lubin's use was valued at $11,969 and Mr. Thurston's use was valued at
$3,083.
Responsibilities
The Board's primary responsibilities are:
Evaluating the performance of the Company and its executive management;
Reviewing and, where appropriate, approving fundamental operating, financial and
other corporate strategies, as well as major plans and objectives;
Providing advice to the Chief Executive Officer and executive management;
Overseeing management to ensure that the Company's assets are safeguarded and
business is conducted in compliance with laws and regulations; and
Evaluating the overall effectiveness of the Board, as well as selecting and
recommending to shareholders an appropriate slate of candidates for election to
the Board.
Corporate governance guidelines
The board's corporate governance guidelines incorporate principles by which the
Board has been operating for many years. Among other things, the guidelines
provide that:
A majority of Directors should come from outside the Company and independence
and diversity of background is important in the selection of new candidates. The
Board selects candidates and extends invitations to join the Board.
Only outside Directors serve on the Audit, Compensation and Nominating and
Corporate Governance Committees.
Outside Directors have primary responsibility for matters relating to the
selection and succession of the Chief Executive Officer and the compensation of
executive management. The Chief Executive Officer receives a performance review
conducted annually by the Chairman of the Compensation Committee.
Outside Directors generally meet alone with the Chief Executive Officer at each
Board meeting and, at least once each year, evaluate the performance of
executive management and discuss matters of succession planning and management
development with the Chief Executive Officer.
Outside Directors meet without members of management at least twice each year.
The Board meets on a bimonthly basis. The agenda is set by the Chairman and the
Chief Executive Officer, and Directors may suggest items for inclusion.
Information about the Company's business, performance and prospects, as well as
information regarding recommendations for action by the Board are made available
to the Board a reasonable period before each meeting.
At least once each year, Directors review the Company's strategic plans and
evaluate the impact of such plans on the Company's performance and on the value
of shareholders' interests.
The Nominating and Corporate Governance Committee annually evaluates the
performance and effectiveness of the Board and recommends appropriate changes
for consideration by the entire Board.
Directors have access to the System's management around the world.
4
<PAGE>
Executive compensation
Compensation committee report on executive compensation
Dear fellow shareholders:
Our Committee approves executive compensation, establishes compensation
guidelines for corporate officers and administers the Company's stock option and
incentive plans. Our decisions are based on our understanding of McDonald's
business and its long-term strategies, as well as our knowledge of the
capabilities and performance of the Company and its executives.
Philosophy
We believe that our stakeholders are best served by running the Company with a
long-term perspective, while striving to deliver consistently good annual
results. Therefore, the Company's executive compensation program has been
designed to attract, energize, reward and retain superior talent that will
produce strong results and enhance McDonald's position in a highly competitive
global business. The Company is led by exceptional managers, many of them long-
term McDonald's people, while others bring experiences from outside McDonald's.
We have always believed that the Company's executives will more effectively
represent McDonald's shareholders, whose interests they are charged with
enhancing, if they are shareholders themselves. Accordingly, we focus our
executives' attention on managing McDonald's as owners of the business by
encouraging our officers to have significant stock ownership in the Company.
Consistent with this philosophy, we instituted minimum ownership requirements
for all officers and regional managers in 1997. The minimum levels of ownership
range from one to five times base salary. Our profit sharing program and stock
option plans are designed to facilitate this share ownership by our executives.
Executive compensation
We believe that executive compensation should be competitive with other high-
performing companies and alternative careers within the McDonald's System (i.e.,
careers as a franchisee or supplier) in order to motivate and retain the talent
needed to produce superior results. In that regard, our Committee conducts an
overall review of compensation annually.
The process we use to establish compensation is not purely a mechanical one.
We review information supplied by independent consultants to determine the
competitiveness of McDonald's total compensation package with that of a peer
group. The peer group, which we use solely for compensation comparison purposes,
consists of 26 of the companies comprising the Dow Jones Industrial Average on
which our consultants have data. In addition to reviewing competitive pay
information, we also review five- and ten-year shareholder returns for the
Company and the peer group illustrated in the graphs set forth on page 10 of
this Proxy Statement.
We have not sought to position compensation within any particular range as
compared to the peer group. Moreover, because the Committee believes that
special management talents and sensitivities are required to balance the unique
relationships between and among the Company, its employees, franchisees and
suppliers, we go beyond a simple evaluation of competitive salary information
and Company financial results in making compensation decisions. We also consider
qualitative factors which we believe contribute significantly to building
McDonald's global brand, thereby optimizing shareholder value over the long
term.
At this point in time, cash compensation for the officers named in the summary
compensation table on page 7 of this Proxy Statement approximates the middle of
the peer group's range, while stock options are above the median, consistent
with our philosophy that a significant portion of compensation should be at
risk.
Annual cash compensation
Annual cash compensation for senior management, as for all employees, consists
of base salary and a variable, at-risk incentive under TIP (Target Incentive
Plan). Throughout this report, references to TIP payments for 1998 relate to TIP
payments made on April 1, 1999 based on performance during 1998, while
references to salaries paid in 1998 unless otherwise indicated relate to
salaries established on April 1, 1998 based on performance in 1997.
Our Committee annually establishes an executive's base salary based on our
evaluation of the executive's level of responsibility and individual
performance, considered in light of competitive pay practices. We gauge
individual performance in: developing and executing corporate strategies;
leading and developing people; initiating and managing change; balancing the
many relationships within the McDonald's System; and contributing to programs
which impact the Company's performance. Base salaries for executives increased
in 1998 based on our assessment of individual performances as evidenced by the
positive momentum experienced by the Company's U.S. and international businesses
throughout 1997.
Under TIP, each employee is assigned a target incentive at the beginning of
the year (the greater the individual's responsibility, the higher the percentage
of target incentive to salary). In 1998, target incentives for corporate
executives were initially adjusted by a corporate performance factor measured
by: consolidated operating income and return on assets, U.S. results
(owner/operator cash flow, customer and employee satisfaction) and international
results (comparable sales and new store openings). For U.S. executives, TIP
awards were measured by the U.S. results discussed above and U.S. operating
income and return on assets. TIP awards for international executives were
measured by the international results discussed above and international
operating income and return on assets. An individual performance factor was also
applied. Target incentives paid on April 1, 1999 were favorably impacted by the
positive restaurant results achieved during 1998.
5
<PAGE>
Long-term incentives
Long-term incentives consist of stock options and cash awards under a long-term
incentive plan (LTIP). These awards serve to focus executive attention on the
long-term performance of the business and comprise a significant portion of
total compensation for senior management consistent with our increased emphasis
on the risk-reward element of executive compensation.
Options. Options have proven to be an effective means of linking executive pay
with the creation of shareholder wealth, since an optionee will benefit only if
McDonald's stock price increases. Options granted to executives typically have a
life of ten years, vest over seven years and have an exercise price equal to the
fair market value of the common stock on the grant date. In establishing
guidelines for the size of stock option awards, we consider the following
criteria (in order of importance): level of responsibility, achievement of plan
objectives and the implementation of key strategies. Individual awards to
members of senior management are made within these guidelines, dependent
primarily upon current individual performance and, to a lesser extent, on the
potential for positively influencing future results. The positive momentum
experienced by the Company's U.S. and international businesses throughout 1997
favorably impacted the size of 1998 stock option awards.
Long-term incentive plan. Under this plan, officers receive cash awards based
on U.S., international and/or corporate performance targets over three-year
performance cycles. Cash awards vary if minimum, target or maximum predetermined
performance goals are achieved at the end of the cycle. No payout occurs unless
the Company achieves certain threshold performance objectives. As a pay-for-
performance plan, the LTIP is intended to motivate and reward executives by
directly linking the amount of any cash bonus to specific long-term U.S.,
international and/or corporate financial goals. Specific measurements are chosen
each year for each successive three-year cycle. For the 1998-2000 cycle, the
Committee established consolidated global performance measurements applicable to
all officers, which include return on assets and growth in operating income.
Because the LTIP was established in 1997, no payouts have yet been made under
the plan.
Compensation of the Chief Executive Officers
Compensation of Mr. Greenberg
Mr. Greenberg participates in the compensation programs described throughout
this report and, consistent with our compensation philosophy, at-risk
compensation represents the predominant portion of Mr. Greenberg's total
compensation package. Based on his outstanding performance in 1997 and his
leadership in the many change initiatives implemented in the U.S. business, Mr.
Greenberg's salary was increased on April 1, 1998 from $827,000 to $872,500 and
in early 1998 he received options to purchase 500,000 shares of common stock. In
connection with Mr. Greenberg's promotion to President and Chief Executive
Officer, the Compensation Committee approved an increase in Mr. Greenberg's
salary to $1,000,000 and an increase in his target percentage under TIP for 1998
from 65% to 90% of his annual salary, and awarded him options to purchase
800,000 shares of common stock. The Compensation Committee approved this grant
and the increases to his annual compensation to provide significant incentive to
Mr. Greenberg in his new, expanded role particularly in light of the many change
initiatives which he is leading in the U.S. and international businesses.
On April 1, 1999, Mr. Greenberg was awarded an incentive payment of $1,220,000
under TIP based on the Company's impressive performance in 1998 as well as Mr.
Greenberg's strong leadership of the world's largest branded retail business.
Compensation of Mr. Quinlan
Mr. Quinlan also participates in the compensation programs described throughout
this report and, consistent with our compensation philosophy, at-risk
compensation also represents the predominant portion of Mr. Quinlan's total
compensation package. On April 1, 1998, Mr. Quinlan's salary was increased from
$1,132,500 to $1,195,000, and in early 1998 he received options to purchase
664,000 shares of common stock reflecting his significant long-term
contributions as well as his support of constructive change. On April 1, 1999,
Mr. Quinlan was awarded an incentive payment under TIP of $720,600 based on the
Company's impressive performance in 1998 as well as his commitment to
facilitating a smooth transition upon Mr. Greenberg's promotion to Chief
Executive Officer.
Policy with respect to the $1 million deduction limit
Section 162(m) of the Internal Revenue Code of 1986 generally limits the tax
deductibility of annual compensation paid to certain officers to $1 million. Our
Committee is obligated to recognize and reward performance which increases
shareholder value and will exercise its discretion in determining whether or not
to conform the Company's executive compensation plans to the approach provided
for in the Code. Assuming continued deferral of compensation by certain
officers, we expect that most, if not all, compensation will qualify as a tax-
deductible expense.
Respectfully submitted,
The Compensation Committee
/s/ Robert N. Thurston /s/ Donald R. Keough
Robert N. Thurston Donald R. Keough
Chairman
/s/ Terry L. Savage /s/ Enrique Hernandez, Jr.
Terry L. Savage Enrique Hernandez, Jr.
6
<PAGE>
Summary compensation table
The following table summarizes the total compensation earned by or paid for
services rendered in all capacities to the Chief Executive Officer and five
other executive officers who were most highly compensated in 1998 (Named
Officers). Executive officers are designated by the Board of Directors.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Annual compensation Long-term compensation
------------------------------------
Awards Payouts
------------------------ ----------
Restricted Securities All other
stock underlying LTIP* compensation
Name and principal position Year(a) Salary($) Bonus($) awards($) options(#) payouts($) ($)(b)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Jack M. Greenberg 1998 $ 946,125 $1,220,000 0 1,300,000 0 $339,478
President and 1997 805,487 535,500 0 480,000 0 212,787
Chief Executive Officer 1996 752,601 462,000 0 380,000 0 227,457
James R. Cantalupo 1998 896,125 910,000 0 1,200,000 0 327,666
Vice Chairman, Chairman and 1997 805,487 535,500 0 380,000 0 210,060
Chief Executive Officer-- 1996 776,250 477,500 0 400,000 0 236,314
McDonald's International
Michael R. Quinlan 1998 1,179,375 720,600 0 664,000 0 497,351
Chairman of the Board 1997 1,132,500 1,044,000 0 630,000 0 335,994
1996 1,116,475 932,000 0 662,000 0 384,703
Alan D. Feldman 1998 465,417 440,000 0 300,000 0 145,408
President--McDonald's U.S.A. 1997 350,101 187,812 0 60,000 0 78,342
James A. Skinner 1998 454,425 277,900 0 100,000 0 153,959
President--Europe Group 1997 408,253 228,420 0 95,000 0 96,118
1996 386,700 175,302 0 100,000 0 101,712
Jeffrey B. Kindler 1998 442,550 289,500 0 120,000 0 148,962
Executive Vice President and 1997 408,059 233,708 0 100,000 0 135,742
Corporate General Counsel
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
*Long-Term Incentive Plan
(a) Since Mr. Feldman and Mr. Kindler were not executive officers of the
Company during 1996, no information is given for that year.
(b) These amounts represent matching contributions and allocations by the
Company to: (a) the Profit Sharing Program and related equalization plans; (b)
the Deferred Income Plan; and (c) premiums on group term life insurance. For
1998, the amounts in each category were as follows: Messrs. Greenberg, $211,128,
$110,985, and $17,365; Cantalupo, $19,483, $291,760, and $16,423; Quinlan,
$25,641, $457,731, and $13,979; Feldman, $101,185, $40,831, and $3,392; Skinner,
$39,518, $108,936, and $5,505; and Kindler, $147,022, $0, and $1,940. Amounts
which have been included with respect to the equalization plans and Deferred
Income Plan represent the Company's obligation to pay such amounts to
participants.
7
<PAGE>
Stock options
Options have an exercise price equal to the fair market value of a share of
common stock on the grant date, a ten-year life, and generally vest in
installments over seven years. However, the Compensation Committee, which
administers the Company's stock option plans, has granted stock options with
shorter vesting schedules as described in the Stock option grant table below.
The Company's stock option plans provide for accelerated vesting upon death,
disability and retirement. The Compensation Committee has general authority to
accelerate, extend or otherwise modify benefits under stock option grants.
Subject to the approval of the Compensation Committee, options may be
transferred to certain permissible transferees, including immediate family
members, for no consideration. Options granted to the Named Officers were about
10% of the total number of options granted in 1998.
The following table shows how much the Named Officers may eventually realize
in future dollars under two hypothetical situations: if the stock gains 5% or
10% in value per year, compounded over the ten-year life of the options. These
are assumed rates of appreciation and are not intended to forecast future
appreciation of the common stock. Also included in this table is the increase in
value to all common shareholders using the same assumed rates of appreciation.
For a perspective, in ten years one share of common stock valued at $26.25 on
March 24, 1998 would be worth $42.76 assuming the hypothetical 5% compounded
growth rate, or $68.10 assuming the hypothetical 10% compounded growth rate.
Another way to look at this is to express these amounts in today's dollars by
applying a present value approach to the hypothetical appreciation rates. These
results are shown in the last two columns of the table.
<TABLE>
<CAPTION>
Stock option grants in 1998
- ----------------------------------------------------------------------------------------------------------------------------------
Individual grants
------------------------------------------------- Potential realizable value
Number of % of total at assumed rates of stock Present value at assumed
securities options price appreciation for rates of stock price
underlying granted to Exercise option term(b) appreciation(b,c)
options employees price Expiration -------------------------------------------------------
Name granted (#) in 1998 ($/Sh) date 5% 10% 5% 10%
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Jack M. Greenberg 500,000 1.37% $26.25 3/24/08 $ 8,254,250 $20,917,750 $4,800,340 $12,165,004
Jack M. Greenberg 800,000/(a)/ 2.19% $29.66 4/29/08 14,920,400 37,811,600 8,482,365 21,495,979
James R. Cantalupo 500,000 1.37% $26.25 3/24/08 8,254,250 20,917,750 4,800,340 12,165,004
James R. Cantalupo 700,000/(a)/ 1.92% $29.66 4/29/08 13,055,350 33,085,150 7,422,069 18,808,981
Michael R. Quinlan 664,000 1.82% $26.25 3/24/08 10,961,644 27,778,772 6,374,851 16,155,125
Alan D. Feldman 100,000 0.27% $26.25 3/24/08 1,650,850 4,183,550 960,068 2,433,001
Alan D. Feldman 200,000/(a)/ 0.55% $32.97 5/21/08 4,146,800 10,508,700 2,393,400 6,065,346
James A. Skinner 100,000 0.27% $26.25 3/24/08 1,650,850 4,183,550 960,068 2,443,001
Jeffrey B. Kindler 120,000 0.33% $26.25 3/24/08 1,981,020 5,020,260 1,152,082 2,919,601
- ----------------------------------------------------------------------------------------------------------------------------------
Increase in value to all common shareholders(d) $22.5 billion $57.1 billion $13.1 billion $33.2 billion
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Mr. Greenberg received a special stock option grant in connection with
his promotion to President and Chief Executive Officer. Mr. Greenberg's options
vest 100% after five years. Mr. Cantalupo also received a special stock option
grant in connection with his promotion to Vice Chairman, Chairman and Chief
Executive Officer--McDonald's International. Mr. Cantalupo's options vest 50%
after three years and 100% after five years. In connection with his promotion to
President--McDonald's U.S.A., Mr. Feldman also received a special stock option
grant, which vests in installments over seven years.
(b) Calculated over a ten-year period, representing the life of the options.
(c) Calculated assuming an investment in a ten-year, zero coupon U.S.
Treasury note made at the time the options were granted (5.57% on March 24,
1998, 5.81% on April 29, 1998 and 5.65% on May 21, 1998).
(d) Calculated using a common stock price of $26.25, the closing market price
on March 24, 1998, which is the exercise price of the most substantial portion
of the options granted in 1998, and the total weighted average number of common
shares outstanding for 1998.
8
<PAGE>
Aggregated option exercises in 1998 and fiscal year-end option values table
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Number of securities Value of unexercised
underlying unexercised in-the-money
Shares acquired options at 12/31/98 options at 12/31/98
on exercise Value realized (#)(b,c) ($)(c)
Name (#) ($)(a) Exercisable/unexercisable Exercisable/unexercisable
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Jack M. Greenberg 150,000 $3,368,460 1,235,000/2,463,000 $29,256,513/$34,558,238
James R. Cantalupo 195,800 4,469,021 1,643,500/2,303,500 42,179,508/ 32,890,078
Michael R. Quinlan 136,000 2,443,644 2,893,000/2,809,000 72,299,600/ 49,446,863
Alan D. Feldman 0 0 146,000/ 536,000 2,841,688/ 6,418,875
James A. Skinner 151,000 3,547,733 301,150/ 348,250 7,413,303/ 5,761,490
Jeffrey B. Kindler 0 0 90,000/ 390,000 1,396,563/ 5,648,438
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Calculated by subtracting the exercise price from the market value of the
common stock on the exercise date.
(b) The securities underlying the options are shares of common stock.
(c) Calculated using the market value of the common stock at December 31,
1998 ($38.41 per share) less the option exercise price multiplied by the number
of exercisable or unexercisable option shares, as the case may be. All values
are on a pre-tax basis.
Long-term incentives
Long-term incentive plans--awards in 1998 (to be paid in April 2001)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Performance Estimated future payouts under
or other period non-stock price-based plans (a)
until maturation ----------------------------------------
Number of units or payout Threshold Target Maximum
Name (#) (a) ($) ($) ($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Jack M. Greenberg 372,150 1/1/98 to 12/31/00 $46,519 $372,150 $ 744,300
James R. Cantalupo 310,125 1/1/98 to 12/31/00 38,766 310,125 620,250
Michael R. Quinlan 611,243 1/1/98 to 12/31/00 76,405 611,243 1,222,485
Alan D. Feldman 92,500 1/1/98 to 12/31/00 11,563 92,500 185,000
James A. Skinner 112,500 1/1/98 to 12/31/00 14,063 112,500 225,000
Jeffrey B. Kindler 106,250 1/1/98 to 12/31/00 13,281 106,250 212,500
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Awards are in the form of a cash incentive, based on achievement of
performance goals set at the beginning of each performance cycle. Actual awards
are based on the achievement of these goals and a percentage of the individual's
base salary at the start of the performance cycle. No payout occurs unless the
Company achieves certain threshold performance objectives. For the 1998-2000
cycle, the Committee established consolidated global performance measurements
applicable to all officers that include return on assets and growth in operating
income. A participant must be an employee at the end of the performance period
to receive an award; except if such participant dies, retires or becomes
disabled prior to the end of the performance period, any award will be prorated
based on the portion of the performance period he or she was an employee.
9
<PAGE>
Stock performance graphs
At least annually, we consider which companies comprise a readily identifiable
investment peer group. Given the unique nature of our business, we have
consistently concluded that no one group of companies stands out.
For instance, McDonald's is included in published restaurant indices. However,
unlike most other companies included in these indices, which have no or limited
international operations, McDonald's does business in 115 countries. For added
perspective, nearly 60 percent of our operating income comes from outside the
U.S. In addition, by virtue of our size, McDonald's inclusion in those indices
tends to skew the results. Hence, we believe such a comparison would not be
meaningful.
On the other hand, our capitalization, trading volume and importance in an
industry that is vital to the U.S. economy have resulted in McDonald's inclusion
in the Dow Jones Industrial Average (DJIA) since 1985.
Thus, in the absence of any readily identifiable peer group for McDonald's, we
believe use of the companies comprising the DJIA as the group for comparison is
appropriate. Like McDonald's, many DJIA companies generate meaningful sales and
revenues outside the U.S. and some manage global brands. Also, investors who
are looking for an investment in blue chip stocks often look at the DJIA as a
benchmark.
The two performance graphs show McDonald's cumulative total shareholder
returns (i.e., price appreciation and reinvestment of dividends) relative to the
S&P 500 and the companies comprising the DJIA (including McDonald's) for the
five- and ten-year periods ended December 31, 1998. Returns shown are for years
ended December 31, and for the DJIA companies, returns are weighted for market
capitalization as of the beginning of each year.
For added perspective, McDonald's total return for the periods shown reflect
the 62 percent return the stock delivered during 1998. In 1998, we extended our
lead internationally and achieved a remarkable turnaround in our U.S. business.
Comparison of five-year cumulative
total shareholder returns
[GRAPH APPEARS HERE]
93 94 95 96 97 98
McDonald's $100 103 161 163 172 279
S&P 500 $100 101 139 171 229 294
DJIA companies $100 105 148 191 254 317
- ----------------------------------------------------------------
Comparison of ten-year cumulative
total shareholder returns
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
88 89 90 91 92 93 94 95 96 97 98
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
McDonald's $100 145 124 163 211 249 257 400 404 429 693
S&P 500 $100 132 128 166 179 197 200 275 338 451 580
DJIA companies $100 129 132 167 174 194 204 287 370 493 615
- -----------------------------------------------------------------------------------------------------
</TABLE>
[LEGEND APPEARS HERE]
Source: S&P Compustat
10
<PAGE>
ITEM 2. Approval of auditors
The Board is asking shareholders to approve Ernst & Young LLP as auditors for
1999. Ernst & Young LLP audited the Company's financial statements for 1998. A
representative of that firm will be present at the meeting and will have an
opportunity to make a statement and answer questions.
The Board recommends that shareholders vote FOR the appointment of Ernst &
Young LLP as auditors for 1999 as proposed in this Item 2.
ITEM 3. Shareholder proposal
The General Fund of the Union of Needletrades, Industrial and Textile Employees
advised the Company that it intends to present the following shareholder
proposal at the Annual Meeting. The address and share ownership of the proponent
will be furnished to any person upon request. The Board recommends a vote
AGAINST this proposal.
Shareholder proposal
Resolved: The shareholders of McDonald's Corporation ("Company") request that
our Board of Directors take the necessary steps in compliance with state law to
declassify the Board of Directors so that all directors are elected annually,
such declassification to be carried out in a manner that does not affect the
unexpired terms of directors previously elected.
Our Company currently faces serious challenges operationally and in the areas
of earnings and revenue growth. Over the past several years McDonald's has
experienced well-publicized problems with the introduction of new products as
well as conflicts with its U.S. franchisees. McDonald's average sales by
systemwide restaurants declined 6.8 percent in 1997 and the company continues to
lose market share in the increasingly competitive U.S. quick-service restaurant
industry. In addition, our Company's overall revenue growth slowed during the
third quarter of 1998, and, according to Moody's Investors Service as of
November 1998, over the last three years McDonald's total earnings per share
growth was only 18.3 percent of its industry peers.
Given these immediate and persistent problems, we believe it is in the best
interests of shareholders to increase the level of accountability of our board
of Directors. One way to achieve greater accountability is to have each board
member stand for election every year by eliminating staggered board terms.
Currently, our Company's Board of Directors is divided into three (3) classes
serving staggered, three-year terms. We believe the Company's classified Board
of Directors can be used to maintain the incumbency of the current Board and is
an anti-takeover device. There are indications from studies that classified
boards and other anti-takeover devices have an adverse impact on shareholder
value. In 1991 a study by Lilli Gordon of the Gordon Group and John Pound of
Harvard University found that companies with restrictive corporate governance
structures, including those with classified boards, are "significantly less
likely to exhibit outstanding long-term performance relative to their industry
peers."
The staggered board is also a mechanism to entrench incumbent directors and
management and a shield to protect them from regular shareholder accountability.
We believe that allowing shareholders to annually register their views on the
performance of the Board is a good method of insuring that our Company will be
managed in a manner that is in the best interests of the shareholders.
Classified boards like ours have become increasingly unpopular with
shareholders in recent years. In 1998, a majority of shareholders at Eastman
Kodak, Fleming, and Sybase, among other companies, voted in favor of proposals
asking management to repeal the classified board. Stockholders have also voted
overwhelmingly in favor of company-sponsored resolutions to declassify the board
of directors at Time Warner, Fedders and Travelers Group.
Given the recent problems experienced by our Company, we believe now is an
appropriate time for the board to take the steps necessary to increase its
accountability to shareholders by standing for election annually.
We urge you to vote FOR this resolution.
The Board's recommendation
The Board believes that this proposal of the General Fund of the Union is not in
the best interests of the Company's shareholders and recommends that
shareholders vote AGAINST it. The reasons are as follows.
First, a classified board affords the Company and its shareholders valuable
protection against potentially coercive takeover tactics, whereby a party
attempts to acquire control on terms that do not offer the greatest value to all
shareholders. Under a classified board structure, approximately one-third of the
Board of Directors is elected annually for a three-year term. Hence, it requires
at least two annual meetings--rather than one--before a change in control of the
Board could be effected. While it does not preclude unsolicited acquisition
proposals, it encourages a party seeking to obtain control of the Company to
negotiate with the Board. The Board is in a better position to negotiate for a
higher offer or pursue other alternatives that might better maximize shareholder
value.
Second, a classified Board structure provides continuity and stability to the
Company and its business and operational strategies. We believe that this
continuity will help to promote long-term success for the Company.
Third, the Board believes that Directors who are elected for staggered terms
are just as accountable to shareholders as those elected annually, since the
same standards of performance apply regardless of the term of service.
11
<PAGE>
Fourth, during each of the past 20 years, director nominees have been elected
to their positions by shareholders with the support of at least 95 percent of
the shares voted. Clearly our directors are overwhelmingly the choice of our
shareholders.
In 1983, our shareholders voted overwhelmingly in favor of creating a
classified Board of Directors. The Company's performance over these past 16
years demonstrates the Board's commitment to the shareholders. During this
period, the Company's net income increased over 400 percent, total assets
increased over 500 percent, more than 17,500 restaurants were added and
McDonald's expanded operations into 83 new countries. Also during this period,
McDonald's stock price grew more than 1600 percent, delivering a compound annual
total return of 21 percent, compared with 18 percent for both the Dow Jones
Industrial Average and the Standard & Poor's 500.
More recently, in 1998 alone, McDonald's extended its considerable lead
internationally and achieved a remarkable turnaround in the U.S. business.
Excluding the effect of foreign currency translation, Systemwide sales and
revenues increased 10 and 12 percent, respectively. Also, the Company's market
share of the U.S. hamburger segment grew to its highest level this decade.
Moreover, the Company's free cash flow (cash provided by operations less capital
expenditures) nearly tripled in 1998 growing to $887 million, and the Company
repurchased 38 million shares of stock for nearly $1.2 billion. This performance
was rewarded in the stock market with a 62 percent total return during the year.
We shared our success with shareholders by splitting the stock and increasing
the cash dividend in the first quarter of 1999.
Finally, shareholders should note that the adoption of this proposal would not
by itself eliminate the Company's classified Board, since the proposal is only
an advisory recommendation. Under the laws of Delaware, where the Company is
incorporated, to eliminate a classified Board of Directors, the Board first
would have to authorize an amendment to the Company's Certificate of
Incorporation and the shareholders then would have to approve that amendment
with at least an 80 percent vote of the outstanding shares.
We believe that the excellent financial and operational track record of the
Company demonstrates that a classified Board of Directors will continue to best
serve and protect the interests of the Company's shareholders.
The Board of Directors recommends a vote AGAINST Item 3.
Other information
Certain relationships and related transactions
Based on information available to the Company, in 1998, the Company and its
subsidiaries purchased approximately $3.3 million worth of paper and other
printed products (principally tray liners, french fry bags and pan liners)
produced by and related services provided by Schwarz Paper Company and its
subsidiaries and purchased approximately $6.8 million worth of products
(principally premiums and gift items) from Group II Communications, Inc. Mr.
McKenna, a Director of the Company, is Chairman and Chief Executive Officer, as
well as a 74 percent shareholder, of Schwarz and is also the holder of 49
percent of the stock of Group II. The Company believes that these purchases were
made on terms at least as favorable as would have been available from other
parties and intends to continue its dealings with Schwarz and Group II in 1999
on similar terms.
Based on information available to the Company, in 1998, the Company's
subsidiaries purchased approximately $17.5 million in folding cartons and
$540,000 in paper bags produced by affiliates of Smurfit-Stone Container
Corporation. The Company believes that these purchases were made on terms at
least as favorable as would have been available from other parties and intends
to continue dealings with such affiliates in 1999 on similar terms. Effective
March 31, 1999, Mr. Stone, a Director of the Company, retired as President and
Chief Executive Officer of Smurfit-Stone.
In 1998, the Company announced a home office productivity initiative designed,
among other things, to reduce ongoing selling, general and administrative
expenses. As part of this initiative, the Company sold its residential
properties. James R. Cantalupo, Vice Chairman and Chairman and Chief Executive
Officer--International, purchased one property for $1,540,000, and Fred L.
Turner, Senior Chairman, purchased one property for $1,660,000. Each of the
transactions was on terms that the Company believes to be no less favorable to
the Company than those which could have been obtained from other purchasers. The
sale prices were based on the average of three real estate brokerage appraisals
in the case of Mr. Turner, and four in the case of Mr. Cantalupo. The Audit
Committee approved the terms of each sale.
In 1998, as part of its ongoing share repurchase program, the Company
purchased shares of common stock, in each case at the New York Stock Exchange
composite closing price on the date of purchase, from Directors and executive
officers in the following amounts: James R. Cantalupo, $3,930,801; Jack M.
Greenberg, $460,250; Michael R. Quinlan, $1,844,484; Stanley R. Stein, $771,094;
and Fred L. Turner, $22,370,271. Messrs. Cantalupo, Greenberg and Quinlan
acquired these shares within two years prior to their sales through the exercise
of stock options in the following amounts, respectively: $1,100,701, $105,434
and $398,586.
12
<PAGE>
Shareholder proposals for the 2000 Annual Meeting
The Secretary of the Company must receive shareholder proposals no later than
December 9, 1999, to be considered for inclusion in the Company's 2000 proxy
materials. Additionally, the Company's advance notice bylaw provisions require
that any shareholder proposal to be presented from the floor of the 2000 Annual
Meeting must be received by the Secretary of the Company, at the Company's
principal executive offices not less than 60 days nor more than 90 days prior to
the first anniversary of the previous year's annual meeting, and such proposal
must be, under law, an appropriate subject for shareholder action in order for
such proposal to be brought before the meeting.
Section 16(a) beneficial ownership reporting compliance
Based on Company records and other information, the Company believes that all
SEC filing requirements applicable to its executive officers and Directors were
complied with for 1998 except that James R. Cantalupo, Kevin E. Dunn, Michael R.
Quinlan and Stanley R. Stein each inadvertently filed one late report covering
one transaction.
Compensation committee interlocks and insider participation
Jack M. Greenberg, President and Chief Executive Officer, served as a member of
the compensation committee of the board of directors of Stone Container
Corporation, until Stone merged with Jefferson Smurfit Corporation in November
1998. Roger W. Stone, a Director of the Company, served as Chairman, President
and Chief Executive Officer of Stone until the merger. Mr. Stone retired as
President and Chief Executive Officer of Smurfit-Stone Container Corporation on
March 31, 1999.
Executive retention plan
Effective October 1, 1998, the Compensation Committee approved a retention plan
applicable to eight key executives, including all of the named executive
officers except Mr. Quinlan. Under this plan, participating executives who
complete a specified retention period will thereafter receive specified benefits
and continued employment over a fixed period of time, subject to their
compliance with a covenant not to compete or solicit employees, a nondisclosure
covenant and a release of claims.
In order to receive benefits under this plan, an eligible executive must
remain an executive officer until the end of a retention period (April 2003 for
Mr. Greenberg, April 2001 for Mr. Cantalupo, and September 2001 for the
remaining executives). In addition, in order to receive benefits, participating
executives (other than Mr. Greenberg and Mr. Cantalupo) must be at least 62
years of age or have a designated successor who has been approved by the Chief
Executive Officer.
Under the retention plan, executives are expected to devote substantially all
of their normal business time and efforts to the business of the Company during
a transition period that extends after the end of the retention period for the
lesser of 18 months or a number of months equal to the executive's total years
of service. During the transition period, eligible executives will receive the
following benefits:
(1) base salary at the highest rate received by the executive before the
transition period, (2) an annual incentive for any calendar year or years that
end during the transition period and a prorated incentive for any partial year
during the period (both computed at the target levels), and (3) payouts for any
LTIP cycles completed during the period (computed at the target levels).
Following this transition period, the plan provides for the executives to
devote such time to the business of the Company as it may reasonably request
during a five-year continued employment period. During this period, eligible
executives will receive the following benefits: (1) base salary at a rate equal
to 25% of the base salary paid during the transition period, and (2) payouts for
any LTIP cycles completed during the period (computed at the target levels).
During both the transition period and the continued employment period, the
executives will continue to participate in employee benefit plans, but will not
receive additional stock option grants or LTIP grants. Stock options will vest
and become exercisable under the terms of the Company's stock option plans
during both periods. Participating executives will not receive annual incentives
during the continued employment period.
If either Mr. Greenberg or Mr. Cantalupo terminates his employment for "good
reason" (as defined in the plan) at any time during the retention or transition
periods, he will be entitled to the following severance benefits, subject to the
execution of a release, non-competition and nondisclosure agreement: (1) accrued
but unpaid base salary and incentive (computed at the target level), (2) an
amount equal to the present value of salary and bonus (computed at the target
level) that would have been payable to the executive during the remainder of his
transition period and the present value of salary that would have been payable
to the executive during the remainder of his continued employment period, and
(3) an amount equal to the estimated value of the executive's health and welfare
benefits for the remainder of the transition and continued employment periods.
Under this condition, Mr. Greenberg and Mr. Cantalupo would also receive five
years of accelerated vesting and exercisability for stock options. The same
severance benefits are also available to any participating executive (including
Mr. Greenberg and Mr. Cantalupo) whose employment is terminated by the Company
for any reason other than death, disability or "cause" (as defined in the plan).
The plan is in effect until the later of October 1, 2004 or two years after
the Company gives notice to all participating executives of its intention to
terminate the plan.
13
<PAGE>
[PROXY LOGO]
Home office
McDonald's Corporation
McDonald's Plaza
Oak Brook IL 60523
1-630-623-3000
(C) 1999 McDonald's Corporation
McD8-3844
McDonald's and the McDonald's Golden Arches logo are trademarks owned by
McDonald's Corporation and affiliates.
Printed on recycled paper with 30% post-consumer content.
<PAGE>
Form of non-employee card
Proxy
[LOGO]
See instructions below.
I (we), revoking any proxy previously given, appoint Jack M. Greenberg and
Gloria Santona, or either of them, as proxies with full powers of substitution
to vote all shares the undersigned is entitled to vote at McDonald's Corporation
1999 Annual Shareholders' Meeting, or any adjournment thereof, and authorize
each to vote at his or her discretion on any other matter that may properly come
before the meeting.
This proxy is solicited on behalf of the Board of Directors of McDonald's
Corporation. The Board of Directors recommends a vote FOR all nominees for
Director, FOR the approval of auditors and AGAINST the shareholder proposal to
declassify the Board. If this signed card contains no specific voting
instructions, my (our) shares will be voted with the Board's recommendations.
Please sign as your name(s) appear(s) above and return this proxy promptly. If
signing for a corporation or partnership, or as agent, attorney or fiduciary,
indicate the capacity in which you are signing. If you attend the meeting and
decide to vote by ballot, such vote will supersede this proxy.
X----------------------------------------
X---------------------------------------- Date: , 1999
The Board of Directors recommends a vote FOR items 1 and 2.
Board Nominees: 01. Hall Adams, Jr., 02. Gordon C. Gray,
03. Terry L. Savage and 04. Fred L. Turner.
1. Election of Directors
FOR ALL WITHHOLD
FROM ALL
[ ] [ ]
For all, except vote withheld from the following nominee(s)
- -----------------------------------------------------------
2. Approval of auditors
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
The Board of Directors recommends a vote AGAINST item 3.
3. Shareholder proposal to declassify the Board
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
[ ] Do not mail me future Annual Reports; another household member receives one.
[ ] Comments are on reverse side.
Detach Proxy from Annual Meeting Ticket before mailing.
McDONALD'S CORPORATION
[McDONALD'S LOGO McDonald's Plaza
APPEAR'S HERE] Oak Brook, IL 60523
Annual Meeting Ticket and Proxy Voting Instructions
Dear Shareholder:
McDonald's 1999 Annual Shareholders' Meeting will be held at 10:30 a.m. (Central
Time) on Thursday, May 20, 1999, at the historic Auditorium Theatre, 50 East
Congress Parkway, Chicago, Illinois. If you plan to attend, please detach this
ticket and bring it with you for admission to the meeting.
Please consider the issues discussed in the Proxy Statement and exercise your
right to vote by one of the following methods:
[LOGO] Accessing the Internet voting site: www.eproxyvote.com/mcd or
www.mcdonalds.com/corporate/investor/.
[LOGO] Calling toll-free any time: 877-PRX-VOTE (877-779-8683) from the
U.S./Canada; or 201-536-8073 from other countries.
[LOGO] Completing, dating, signing and mailing the above proxy in the enclosed
postage-paid envelope.
Your proxy covers the voting of shares of McDonald's Corporation Common Stock
that you are entitled to vote or of which you may direct the voting.
If voting by phone or via the Internet, the voter control number in the box
above is necessary to verify your authority to vote. A phone or Internet vote
authorizes the named proxies in the same manner as if you marked, signed and
returned the proxy card. If you choose to vote your shares by phone or
Internet, there is no need to mail back your proxy card.
Your vote is important. Thank you for voting!
<PAGE>
[LOGO]
Thank you for sharing your comments. Please note that by sharing your comments,
you are waiving confidential voting.
Although we are unable to personally respond to every proxy card comment, be
assured that your remarks are important to us. Your comments will help us learn
how to better serve you.
Comments:---------------------------------------------------------------
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
[LOGO] Annual Meeting Ticket
McDonald's Annual Meeting of Shareholders
Thursday, May 20, 1999
10:30 a.m. to Noon (Central Time)
Auditorium Theatre
50 East Congress Parkway
Chicago, Illinois 60605
[STREET MAP]
AUDITORIUM THEATRE -- 50 East Congress Parkway, Chicago, IL
* Directions
From north or south of the city: I-94/I-90 to Congress Parkway/Chicago Loop
exit. Continue east on Congress under the Chicago Stock Exchange. As you go
under the "L" tracks on Wabash, the Theatre is on the left.
From west of the city: I-290 to Congress Parkway/Chicago Loop exit. Continue
east on Congress under the Chicago Stock Exchange. As you go under the "L"
tracks on Wabash, the Theatre is on the left.
From southwest of the city: I-55 to Lake Shore Drive. Exit north and
continue past the Field Museum to Balbo. Turn left (west) on Balbo and
continue a short distance to State Street. Turn right (north) on State to
Congress Parkway. Turn right (east) on Congress to the Theatre on the corner
of Wabash and Congress.
* Parking garages near the Auditorium Theatre and estimated prices are:
Auditorium Garage, 525 S. Wabash -- $7.50 for 2-12 hr.
Loop Auto Parks, 524 S. Wabash -- $5.50 for 2-4 hr.
Grant Park South Garage, 325 S. Michigan -- $10.00 for 2-10 hrs.
Grant Park North Garage, 25 N. Michigan -- $9.00 for up to 12 hrs.
* Handicap Access
Seating: Use the Wabash Avenue entrance for handicap access; continue through
the next set of doors to the lobby.
Parking: Open lot at 401 S. Wabash Avenue located across from handicap
entrance.
<PAGE>
FORM OF BROKER CARD
McDONALD'S CORPORATION
McDonald's Plaza
Oak Brook, IL 60523
[MCDONALD'S LOGO] PROXY AND VOTING INSTRUCTION CARD
This proxy is solicited on behalf of the Board of Directors of McDonald's
Corporation.
Dear Shareholder:
McDonald's 1999 Annual Shareholders' Meeting will be held at 10:30 a.m. (Central
Time) on Thursday, May 20, 1999, at the historic Auditorium Theatre, 50 East
Congress Parkway, Chicago, Illinois. If you plan to attend, please bring your
bank or broker statement evidencing your beneficial ownership of McDonald's
stock for admittance to the meeting.
Your vote is important. Thank you for voting!
I (we), revoking any proxy previously given, appoint Jack M. Greenberg and
Gloria Santona, or either of them, as proxies with full powers of substitution
to vote all shares that I am (we are) entitled to vote at McDonald's Corporation
1999 Annual Shareholders' Meeting, or any adjournment thereof, and authorize
each to vote at his or her discretion on any other matter that may properly come
before the meeting. If this signed card contains no specific voting
instructions, my (our) shares will be voted FOR the election of all nominees for
Director, FOR the approval of auditors and AGAINST the shareholder proposal to
declassify the Board.
[MCDONALD'S LOGO] YOUR VOTE IS IMPORTANT.
PLEASE SIGN AND RETURN THIS PROXY.
Please sign as your name(s) appear(s) above and return this proxy promptly. If
signing for a corporation or partnership, or as agent, attorney or fiduciary,
indicate the capacity in which you are signing. If you attend the meeting and
decide to vote by ballot, such vote will supersede this proxy.
X
-------------------------------------------------------------------------
X Date: , 1999
------------------------- ----------------------------------
- -------------------------------------------------------------------------------
The Board of Directors recommends a vote FOR items 1 and 2.
- -------------------------------------------------------------------------------
Board Nominees: 01. Hall Adams, Jr., 02. Gordon C. Gray,
03. Terry L. Savage and 04. Fred L. Turner.
- -------------------------------------------------------------------------------
WITHHOLD
FOR ALL FROM ALL
1. Election of Directors [ ] [ ]
For all, except vote withheld from the following nominee(s)
- -------------------------------------------------------------------------------
FOR AGAINST ABSTAIN
2. Approval of auditors [ ] [ ] [ ]
- -------------------------------------------------------------------------------
The Board of Directors recommends a vote AGAINST item 3.
- -------------------------------------------------------------------------------
FOR AGAINST ABSTAIN
3. Shareholder proposal to
declassify the Board [ ] [ ] [ ]
- -------------------------------------------------------------------------------
<PAGE>
FORM OF EMPLOYEE CARD
[MCDONALD'S LOGO] Information for McDonald's Employees Only
If you wish to vote all of your shares including shares in McDonald's Profit
Sharing Program the same way, you do not need to complete the section below.
Simply follow the voting instructions on the front of this card.
The Board recommends a vote FOR all nominees for Director, FOR the approval of
auditors and AGAINST the shareholder proposal to declassify the Board.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PLAN SHARES OWNED PLAN SHARES NOT YET CREDITED OR UNVOTED
WITHHOLD WITHHOLD
FOR ALL FROM ALL FOR ALL FROM ALL
1. Election of Directors
------------- ------------- ----------- ----------------
For all, except vote withheld For all, except vote withheld
from the following nominee(s) from the following nominee(s)
-------------------------------- ----------------------------------
FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN
2. Approval of auditors
------- -------- ------- ----- --------- ---------
FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN
3. Shareholder proposal to
declassify the board
------- -------- ------- ----- --------- ---------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Thank you for sharing your comments. Although we are unable to personally
respond to every proxy card comment, be assured that your remarks are important
to us. Your comments will help us learn how to better serve you.
Comments
----------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
[MCDONALD'S LOGO] Profit Sharing Program Voting Instructions
Your vote on the front of this card directs the trustees of the Profit Sharing
Program to vote the McDonald's shares credited to your accounts under the
Program. When you vote these shares, you should consider your long-term best
interests as a Program participant.
In addition, you are also directing the trustees to vote shares held in the
Program that have not been voted by other participants and shares that have not
yet been credited to participants' accounts. When you direct the vote of these
shares, you have a special responsibility to consider the long-term best
interests of other participants.
If you want to vote the Program shares you own or the shares you are voting for
other participants differently from your shares held outside the Program, do not
vote by phone or Internet. Instead, complete the front of the proxy card and
check the "comment" box, then mark your voting direction for Program shares
above and mail in the enclosed postage-paid envelope.
Your directions to vote shares held in the Profit Sharing Program will be kept
confidential by First Chicago Trust Company of New York, the independent
inspectors of election.
