Takeda Announces FY2019 Key Performance Indicators Aligned with Shareholder Value Creation and Focused on Successful Integration

Osaka, JAPAN, July 31, 2019 --- Takeda Pharmaceutical Company Limited (“Takeda”) (TSE: 4502/NYSE: TAK) today announces that the Takeda Board of Directors has approved key performance indicators (KPIs) to be included in both the company’s short-term and long-term incentive plans for fiscal year 2019, as well as a Special Integration plan designed to promote the successful integration of Shire. The KPIs are designed to align rewards for the CEO, the other senior executives comprising the Takeda Executive Team, as well as key leaders and employees with critical measures of success that focus on the company’s business priorities including the successful integration of Takeda and Shire. Takeda’s fiscal year 2019 KPI framework reflects the feedback received from extensive discussions with shareholders in the first six months following the closing of Takeda’s acquisition of Shire.  This KPI framework also aligns with the external guidance framework announced at the beginning of the 2019 fiscal year.

The KPIs included in the short-term and long-term incentive plans were carefully considered by Takeda’s management team and the compensation committee before being approved by the Board of Directors on July 31, 2019.  Takeda believes these KPIs enable the organization to focus on growth, profitability, pipeline performance, expense management and shareholder value creation.  It is important to note that the short-term incentive plan extends beyond the Takeda Executive Team to over 21,000 employees globally -- uniting leaders and plan participants with a common vision of delivering therapies for patients and value to shareholders. Further, The Takeda Compensation Committee has authorization from the Board of Directors to exercise negative discretion on the approval of variable compensation for the CEO and the other members of the Takeda Executive Team.

SHORT-TERM INCENTIVE PLAN
Takeda’s short-term incentive (STI) framework aligns rewards with key measures of success over a one-year basis.  For the CEO, fiscal 2019 performance is based 100% on corporate KPIs.  The short-term incentive award for other members of the Takeda Executive Team, is based on 75% corporate KPIs and 25% divisional KPIs. 

We structured the incentive program in this manner so that the program participants have a clear line of sight to both company and divisional results targets in order to create value for our shareholders.

For fiscal 2019, the Takeda Board of Directors approved the following KPIs for the STI plan: underlying revenue, underlying core operating profit and underlying core earnings per share (EPS).  These KPIs were selected because they measure achievement on near-term goals, the integration of Shire and Takeda’s transformation into a leading global biopharmaceutical company.

The target goals for the annual short-term KPIs are based on the Board approved annual company budget. The program is designed in a way that allows participants to be rewarded for delivering strong results for shareholders if Takeda exceeds the incentive plan targets.  Conversely, if Takeda does not achieve our targets, participants will receive a below target payout.  If performance is below threshold, even by 0.01%, participants would receive a 0% payout for that KPI.  The maximum payout participants can receive under the plan is 200% of target.  The chart below summarizes the 2019 KPI metrics and performance ranges for the short-term incentive plan: 

The target goals for the financial metrics in the performance share plan are based on the Board approved annual company budget.  Similar to the STI plan, Takeda’s LTI plan is designed to reward participants for delivering strong results if incentive plan targets are exceeded.  The maximum payout participants can achieve under the plan is 200% of target.  If performance is below threshold, even by 0.01%, participants would receive a 0% payout for that KPI.  The chart below summarizes our KPI metrics and performance ranges for fiscal 2019 – 2021 performance share plan:  

*We are not disclosing our target goals for our 3-year pipeline performance metric to prevent competitive harm to our future performance.

After measuring performance under the financial and non-financial metrics outlined above, Takeda will assess the Total Shareholder Return (“TSR”) performance relative to our compensation peer group as a metric in the performance share plan for fiscal 2019.

Relative TSR can modify the final LTI payout by 20 percentage points.  If absolute TSR performance is negative but Takeda outperforms our peers, a positive adjustment would not be made to the performance share payout factor.  The chart below is the TSR goal for the fiscal 2019 – 2021 performance cycle:

SPECIAL INTEGRATION LTI PLAN
As previously disclosed, Takeda will grant a special integration LTI award to the Takeda Executive Team.  This share-based award will focus participants on the achievement of key integration milestones over the next three years.  Takeda’s Board of Directors approved three financial KPIs to measure the success of the integration in each of the next three fiscal years: operating expense, integration costs and net debt to adjusted EBITDA ratio.

The KPIs for the special LTI program are based on internal forecasts for each measure.  The maximum payout participants can achieve under the plan is 200% of target.  If Takeda’s performance is at or below threshold, even by 0.01%, participants would receive a 0% payout for that KPI.  The KPIs under the special LTI program focus on expense management and, as such, lower expenses, costs and ratios that reflect stronger performance would result in an above target payout.  The chart below summarizes the KPI metrics and performance ranges for the special integration LTI plan:
 

Contacts
Investor Relations
Takashi Okubo, +81-(0)3-3278-2306
[email protected]

Media Relations
Kazumi Kobayashi, +81 (0)3-3278-2095
[email protected]


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