2016 Proxy Statement and 2015 Annual Report; Form 10-K

[Pages:233]NOTICE OF 2016 ANNUAL MEETING AND PROXY STATEMENT

2015 ANNUAL REPORT TO STOCKHOLDERS

May 4, 2016 10:00 a.m., Eastern Daylight Time GIANT Center 550 West Hersheypark Drive Hershey, Pennsylvania

John P. Bilbrey Chairman of the Board, President and Chief Executive Officer

March 24, 2016

Dear Stockholder:

It is my pleasure to invite you to attend the 2016 Annual Meeting of Stockholders of The Hershey Company, which will be held at 10:00 a.m., Eastern Daylight Time on Wednesday, May 4, 2016. Detailed instructions regarding meeting attendance and how to vote your Hershey shares prior to the meeting can be found in the proxy materials that accompany this letter. Your vote is extremely important, and I encourage you to review the materials and submit your vote today.

Each day, millions of people choose from our portfolio of more than 80 delicious snack and confection brands to satisfy an ever widening array of purposes. They choose us when celebrating birthdays, holidays and special occasions. They reach for our products to stay connected with loved ones and colleagues. They choose us when they're happy, when they need a break, to fuel workouts and to stay nourished on the go. Our broad spectrum of offerings appeals to both budgetminded consumers as well as those looking for more premium choices.

Today's consumers are increasingly thoughtful about their food, seeking to know more about what's in the product they buy, where it comes from and how it's made. At Hershey, we're committed to responsible sourcing, using the highest quality ingredients, and providing consumers with more information about what's involved in the making of their food. Understanding our consumers and being a valuable partner to our retailers and suppliers is central to the job we do each day.

We are operating in a time of unprecedented change. Consumer's relationship with food is changing, the retail landscape is evolving and the global macroeconomic environment has shown a marked slow-down. Within the broader snacks category ? which includes candy, mint and gum (CMG) ? growth has slowed versus historical trends. Regardless of these conditions, it is our goal to grow our share of market. Many of the challenges impacting other food companies have had an effect on our business as well. Income bifurcation in the U.S., macroeconomic pressures in emerging markets, changing shopper habits and increased competitive activity have resulted in slower CMG growth. Specifically, over the last three years, the compounded annual growth rate (CAGR) for the U.S. CMG category was just below 2.5%, well below the historical 3-4% growth rate. Hershey U.S. CMG retail takeaway for 2015 was relatively in line with the recent market performance average, increasing by 2.4%.

Despite these challenges, The Hershey Company made progress on many important initiatives in 2015, including gross margin expansion and holding the line on our expenses, which contributed to a 3.5% increase in full year adjusted earnings per share-diluted. We continued to generate strong cash flow, returning $900 million to shareholders through a 9% dividend increase and share repurchases, and we maintained our industry-leading U.S. CMG market share at 31.3%. We also made great progress with the Krave meat snacks business and saw our new innovation products such as Reese's Snack Mix, Hershey's Snack Bites and Brookside Dark Chocolate Fruit and Nut Bar perform in line with expectations. During the fourth-quarter holiday season we debuted Holiday Hershey's Kisses Milk Chocolates and Hershey's Milk Chocolate Bars made with simple ingredients and no artificial flavors across the U.S. These are some of the first products from Hershey to transition to simpler ingredients, a commitment announced last year. Hershey's

Kisses Milk Chocolates holiday packages were also the first in the industry to include SmartLabelTM technology, an innovative initiative that allows consumers to scan a QR code and instantly access detailed product information, from ingredient and nutrition facts to allergens.

It was a difficult year for our international businesses. The strength of the U.S. dollar and fluctuation of foreign currency exchange rates had an impact on all U.S. multinationals. Additionally, we made a significant investment in the China business in the midst of a macroeconomic slowdown and a tough integration with our Shanghai Golden Monkey acquisition. In China, the chocolate category was nearly flat and our focus in the hyper market channel, where chocolate underperformed the overall category for all participants, resulted in a 1.1 point loss in market share there. In Mexico, although full year local currency sales increased 6%, our chocolate marketplace performance lagged the category and fell below our expectations. While only a small part of our overall international business, in Brazil, we were the fastest growing chocolate company as retail takeaway increased about 13%, resulting in a share gain of 0.2%. In India, our core brands performed well, but constant-currency net sales declined, in line with estimates. I remain confident in our long-term plan for our international businesses and am encouraged where we have maintained and gained market share.

I am particularly proud of our ongoing commitment to bring goodness to the world through our brands, talented employees and global citizenship. Our work resulted in several significant honors and recognition:

? Ranked #6 out of the top 500 U.S. companies in Newsweek's 2015 Green Rankings

? Named to the Dow Jones Sustainability World and North America Index for a third straight year

? Listed as one of the "Best Places to Work for LGBT Equality" in the 2016 Human Rights Campaign Corporate Equality Index

? Listed as a 2015 World's Most Ethical Companies by Ethisphere Institute

? Named to Civic 50 list as one of America's most community-minded companies

We remain focused on our responsible sourcing commitments. In 2015, we achieved our goal to source 50 percent of our global cocoa supply from certified and sustainable sources, a full year ahead of our original schedule. Given this accelerated progress, the company has set a new target of sourcing 75% of its global cocoa supply from certified and sustainable sources by the end of 2017. We also made progress on our commitment to source 100% traceable and responsible palm oil by mapping more than 90% of all mills that supply our palm and kernel oil globally.

In 2015, we launched Nourishing Minds, our shared social purpose that uses our expertise in food nutrition and production to provide access to basic nutrition so children can learn, grow, and develop. As part of this initiative, each day we provide 50,000 school age children in Ghana with Vivi, a nutritional supplement developed by a team of Hershey employees, to help these children focus on their studies rather than their stomachs. In the U.S., we are partnering with Feeding America, supporting child nutrition programs in six cities across the U.S. And with 1,233 employees giving 4,200 hours of service in eight countries, our employees are truly living our values and showing what shared goodness looks like in action.

As we look to 2016 and beyond, we'll continue to invest in our core brands in the U.S., as well as capabilities related to turning insights into action. We'll make incremental investments in our existing snacks portfolio, providing another lever of growth. We will focus on winning share of quality merchandising and incremental space in store, and executing strong consumer marketing that is more targeted and engaging.

At Hershey, our brands have become iconic symbols of goodness, delivering on a promise to give back to the people we nourish and delight. I am honored and grateful to work alongside 21,000 remarkable individuals with deep expertise in food, distribution, manufacturing, marketing, technology, quality and safety. We all appreciate your support and dedication as we work to continue to bring goodness to the world every day. Thank you for your continued investment in The Hershey Company. I look forward to seeing you at the meeting.

John P. Bilbrey

Safe Harbor Statement

Please refer to the 2015 Annual Report to Stockholders that accompanies this letter for a discussion of Risk Factors that could cause future results to differ materially from the forward-looking statements, expectations and assumptions expressed or implied in this letter to stockholders or elsewhere. This letter to stockholders is not part of our proxy soliciting material.

Q&A WITH JIM NEVELS, OUR LEAD INDEPENDENT DIRECTOR

Q: Nevels:

Q: Nevels:

What were the Board's most significant priorities over the past year?

As a Board, we include strategy, enterprise risk management, leadership development and our commitment to ethics and compliance among the items we believe create the most value for our stockholders. During 2015, we engaged with management on the development of Hershey's overall portfolio as the Company expanded into the snacks business and invested in key international markets. This oversight work included review of the macroeconomic slowdown in China and its impact on the chocolate and confectionery categories as well as the Company's efforts to integrate the newly acquired Shanghai Golden Monkey portfolio of products. We also focused on the continued development of our leadership team as we realigned our people resources to ignite a new phase of growth, including the hiring of a new Chief Financial Officer and a new Chief Marketing Officer. Finally, from a risk oversight perspective, the Board focused on a diverse set of issues ranging from the changing consumer landscape and increased competitive activity to cybersecurity and the continuing importance of food safety.

You mentioned the Company's commitment to ethics and compliance in your response above. What is the Board's role in fostering this commitment throughout the organization?

Our Code of Ethical Business Conduct sets the standards by which we conduct our operations. We expect everyone connected to our Company ? including our directors, officers, employees, suppliers and other third-parties with whom we do business ? to operate ethically and to lead with integrity. As a Board, we must set a strong tone at the top and encourage our people leaders to do the same. Setting clear expectations regarding how we do business was particularly important in 2015 given our acquisition activity, our resource realignment initiative and the overall slow-down in the global macroeconomic environment. With the oversight of the Audit Committee, the Board reinforced the importance of leading by example with the Company's senior leaders.

The Board is very proud of the Company's selection by Ethisphere Institute in 2015 as one of the most ethical food and beverage companies in the world. While winning such an award is excellent recognition of what has been accomplished, what's most important is for the Board to clearly communicate its expectation that the Company and its employees act with the highest standards of integrity in all that we do each day.

Q: Nevels:

Q: Nevels:

What do you believe are the most important elements of good corporate governance?

Strong, independent Board leadership and a team of highly effective directors are absolutely essential to good corporate governance. Other than our CEO, each of our directors is independent, and, therefore, each of our key committees is comprised solely of independent directors. This structure helps to ensure that key strategic decisions made by senior management, including our CEO, are reviewed and overseen by independent directors of the Board. To provide that oversight, the independent directors meet in executive sessions at each regularly scheduled Board meeting. I chair these sessions and serve as a liaison between the Chairman and the independent directors. As Lead Independent Director, I also work to ensure that the Board receives the appropriate quality of information needed to perform their oversight responsibilities and that we have appropriate level of dialogue and engagement with management.

As Board members for the greatest confectionery Company in the world, we're very conscious of the need for board effectiveness. We conduct an annual performance review of the Board, its independent committees and each director. This work, led by our Governance Committee, helps ensure the Board and its committees remain focused on those key priorities that will continue to drive stockholder value and that we are spending our time together as a Board on the most important issues facing the Company. In addition, the annual review process allows us to assess the composition of the Board in order to ensure it reflects an appropriate balance of knowledge, skills, expertise, diversity and independence.

Any final thoughts?

It is an exciting time to be a part of The Hershey Company, and I am extremely honored to serve as the Lead Independent Director. We value the investment our stockholders have made in this great Company and the trust placed in us as representatives on the Board, and we will work hard to ensure we continue to earn that trust and support.

TABLE OF CONTENTS

NOTICE OF 2016 ANNUAL MEETING OF STOCKHOLDERS

Page

PROXY STATEMENT SUMMARY

2016 Annual Meeting of Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Voting Matters and Board Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Our Director Nominees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Governance Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Executive Compensation Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

PROXY STATEMENT

Questions and Answers about the Annual Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 The Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Meetings and Committees of the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Proposal No. 1 ? Election of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Non-Employee Director Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Share Ownership of Directors, Management and Certain Beneficial Owners . . . . . . . . . . . . . . . . . . 34 Audit Committee Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 Information about our Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 Proposal No. 2 ? Ratification of Appointment of Independent Auditors . . . . . . . . . . . . . . . . 41

Compensation Discussion & Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

The Role and Philosophy of the Compensation Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 Compensation Components . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 Setting Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 Base Salary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 Annual Incentives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 Long-Term Incentives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 Perquisites . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 Retirement Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 Employment Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 Severance and Change in Control Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 Compensation Policies and Practices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 Stock Ownership Guidelines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 Compensation Committee Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 2015 Summary Compensation Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 2015 Grants of Plan-Based Awards Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 Outstanding Equity Awards at 2015 Fiscal-Year End Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 2015 Option Exercises and Stock Vested Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 2015 Pension Benefits Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 2015 Non-Qualified Deferred Compensation Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 Potential Payments upon Termination or Change in Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 Proposal No. 3 ? Approval of Named Executive Officer Compensation on a Non-binding Advisory Basis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81

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Proposal No. 4 ? Re-approval of the Material Terms of the Performance Criteria Under The Hershey Company Equity and Incentive Compensation Plan . . . . . . . . . . . . 82

Proposal No. 5 ? Stockholder Proposal Entitled "Report on Use of Nanomaterials" . . . . 89 Section 16(a) Beneficial Ownership Reporting Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 Certain Transactions and Relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 Compensation Committee Interlocks and Insider Participation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93 Other Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93 Annex A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1

ANNUAL REPORT TO STOCKHOLDERS Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Item 1A. Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Item 1B. Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Item 4. Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Item 5. Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer

Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Item 7. Management's Discussion and Analysis of Financial Condition and Results of

Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Item 7A. Quantitative and Qualitative Disclosures about Market Risk . . . . . . . . . . . . . . . . . . . . . . . 43 Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial

Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95 Item 9A. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95 Item 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96 Item 10. Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . 97 Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related

Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97 Item 13. Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . 98 Item 14. Principal Accountant Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98 Item 15. Exhibits, Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99 Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100 Certifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105

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