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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )

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McDonald's Corporation

(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)

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McDonald’s Corporation

NOTICE OF 2017 ANNUAL MEETING
AND PROXY STATEMENT

 

 

 

 

 

 

 

 

 

 

 

 

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A LETTER TO OUR SHAREHOLDERS FROM THE CHAIRMAN OF THE BOARD

Dear Fellow McDonald’s Shareholders,

Following last year’s Annual Shareholders’ Meeting, I was honored to be elected as Chairman by your Board of Directors. In my new role, I have focused my efforts on furthering the Board's commitment to enhancing shareholder value.

I am pleased to update you on the Company’s progress as we transition from revitalizing the McDonald’s Brand to strengthening the business for long-term sustainable growth.

2015-2016 business performance. The Board named Steve Easterbrook as President and CEO in 2015, with a mandate that he lead a turnaround of the McDonald’s business. We knew we had to change, for our customers and our shareholders. As the turnaround strategy evolved into action, the last eighteen months proved to be a time of purposeful change, fueled by four key areas of focus.

First, the Company restructured the business around four operating segments, becoming a more efficient organization. The Board and Steve built a strong leadership team, including naming presidents for each new segment, as well as new leaders in key areas such as strategy, people, marketing and communications. Including Steve, all are thoughtful innovators, passionate about McDonald’s and willing to challenge the status quo. Second, management embarked on a plan to refranchise 4,000 restaurants by the end of 2018, bolstering McDonald’s outstanding network of dedicated and independent franchisees and developmental licensees. The Company is well on its way to achieving the plan and will likely meet this goal by the end of 2017. Third, the Company targeted $500 million of net G&A savings by the end of 2018, supported in large part by the refranchising strategy as well as a more stringent discipline around spending throughout the Company. We have made meaningful progress on this initiative and are on track to achieve this target by the end of 2018. Fourth was the completion of our three-year plan to return $30 billion to shareholders by the end of 2016. That target was achieved, including the return of more than $14 billion to shareholders in 2016 - $11 billion of share repurchases and more than $3 billion in dividends, including a 6% dividend increase in the fourth quarter.

Quite simply, McDonald’s is now more focused, forward looking, fit for purpose and committed to sustaining operating growth. All of these purposeful changes resulted in improved financial results for 2016, notably our strongest year of global comparable sales since 2011. We also increased operating income and earnings per share, and grew restaurant cash flows worldwide. On behalf of the Board, I can state with confidence that Steve is the right leader for McDonald’s, and that he and his team are well-positioned to build on the success of 2016.

Board composition and structure. Our Board reflects a diverse, engaged group of Directors with relevant skills and backgrounds to oversee the McDonald’s business now and into the future. Since 2015, we have added four new Directors to the Board and four Directors retired, ensuring an appropriate mix of tenure that provides fresh perspectives balanced with institutional knowledge as we accelerate growth. Dr. Walter Massey will be retiring from the Board and not standing for re-election in 2017. We thank Walter for his 19 years of dedicated service to McDonald’s and our shareholders.

Our Governance Committee continues to utilize a comprehensive process to identify potential Director candidates who can contribute to the overall effectiveness of the Board as the need arises. We also have a robust Board evaluation process that includes regular self-assessment and Director peer review. We remain committed to ensuring that we have the right Directors in place to oversee the Company’s business and serve the interests of McDonald’s shareholders well into the future.

After becoming Chairman, I established a new Public Policy & Strategy Committee of the Board, designed to provide attentive oversight and counsel to management on the Company’s short- and long-term strategies, as well as on other matters that could affect McDonald’s iconic Brand. We also took the opportunity to rotate our other Committee memberships and most Committee Chairs, resulting in refreshing dialogue and renewed energy for all of the Directors. One thing that has not changed is our commitment to strong governance practices that appropriately balance the interests of the Company and our shareholders.

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2017 and beyond. On March 1 of this year, I was pleased to participate in the Company’s announcement of our new global “customer-centric” growth plan during a McDonald’s Investor Day event in Chicago. Steve and his team outlined the plan, new financial targets and initiatives to unlock meaningful growth and increase guest counts. Briefly, the plan focuses on enhancing digital capabilities and technology to elevate the customer experience; redefining customer convenience through delivery; accelerating deployment of Experience of the Future restaurants in the U.S.; initiating a new $22-24 billion target for cash return to shareholders for the three-year period ending 2019; and establishing new financial performance targets beginning in 2019.

We are optimistic about the trajectory of McDonald’s growth opportunities and the focus on efforts to build and sustain profitable, long-term growth. On behalf of the Board of Directors, I thank you for your continued support.

See you in the restaurants.

Sincerely,

Enrique Hernandez, Jr.
Chairman of the Board

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NOTICE OF THE ANNUAL SHAREHOLDERS' MEETING

The Company will provide the Notice of Internet Availability, electronic delivery of the proxy materials or mailing of the 2017 Proxy Statement, the 2016 Annual Report on Form 10-K and a proxy card to shareholders beginning on or about April 13, 2017.

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TABLE OF CONTENTS

3		Chairman’s letter
5		Notice of the Annual Shareholders’ Meeting
8		Proxy summary
13		Election of Directors
13		PROPOSAL NO. 1. Election of Directors
14		Director qualifications		15		Biographical information
21		Board and governance matters
21		Independent Chairman		25		Executive sessions
21		Composition		25		Board Committees
22		Board succession planning		30		Risk oversight
22		Evaluations		31		Shareholder engagement
23		Selection of Director candidates		32		Board’s response to shareholder proposals
23		Board diversity		32		Corporate governance principles
24		Director independence		32		Code of conduct for the Board of Directors
24		Management succession planning		32		Director compensation
24		Meeting attendance
34		Executive compensation
34		Compensation Committee Report		54		PROPOSAL NO. 3. Advisory vote on the frequency of future advisory votes to approve executive compensation
34		Compensation Discussion and Analysis		55		PROPOSAL NO. 4. Approval of the material terms of the performance goals for awards under the McDonald’s Corporation 2012 Omnibus Stock Ownership Plan
44		Compensation tables		57		Equity compensation plan information
54		PROPOSAL NO. 2. Advisory vote to approve executive compensation
58		Audit & Finance Committee matters
58		Audit & Finance Committee Report		59		Auditor fees and services
59		Policy for pre-approval of audit and permitted non-audit services		60		PROPOSAL NO. 5 Advisory vote to approve the appointment of Ernst & Young LLP as independent auditor for 2017
61		Shareholder proposals
61		PROPOSAL NO. 6 Advisory vote on a shareholder proposal requesting a change to the vote-counting standard for shareholder proposals		70		PROPOSAL NO. 10 Advisory vote on a shareholder proposal requesting the Board to update the Company’s policy regarding use of antibiotics by its meat suppliers
64		PROPOSAL NO. 7 Advisory vote on a shareholder proposal regarding the threshold to call special shareholder meetings		73		PROPOSAL NO. 11 Advisory vote on a shareholder proposal requesting a report assessing the environmental impacts of polystyrene foam beverage cups
66		PROPOSAL NO. 8 Advisory vote on a shareholder proposal to issue a class of preferred stock with the right to elect its own Director		75		PROPOSAL NO. 12 Advisory vote on a shareholder proposal requesting a report on charitable contributions
68		PROPOSAL NO. 9 Advisory vote on a shareholder proposal requesting that the Board make all lawful efforts to implement and/or increase activity on the Holy Land Principles

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77		Stock ownership
77		Director stock ownership guidelines and stock ownership and retention policy for senior officers		77		Security ownership of certain beneficial owners
77		Section 16(a) beneficial ownership reporting compliance		78		Security ownership of management
79		Transactions with related persons
79		Policies and procedures for related person transactions		79		Related person transaction
80		Communications
80		Communications with the Board of Directors and non-management Directors		81		Shareholder proposals for inclusion in next year’s Proxy Statement
80		Consideration of Director nominations for the 2018 Annual Shareholders’ Meeting		81		Other shareholder proposals for presentation at the 2018 Annual Shareholders’ Meeting
82		Solicitation of proxies and voting
82		Notice and access		83		Voting tabulation
82		Record date		83		Registered shareholders
82		Voting prior to the Annual Shareholders’ Meeting		83		Beneficial holders
82		Voting at the Annual Shareholders’ Meeting		84		Proxy solicitation
82		Quorum		84		Confidential voting
85		Additional information
85		McDonald’s Corporation Annual Report on Form 10-K, other reports and policies		85		Householding of Annual Shareholders’ Meeting materials
86		Information about registering for and attending the Annual Shareholders’ Meeting
86		Pre-registration and admission policy

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PROXY SUMMARY

This summary contains highlights about the Company and the upcoming 2017 Annual Shareholders’ Meeting. This summary does not contain all of the information that you should consider in advance of the meeting, and we encourage you to read the entire Proxy Statement and our 2016 Annual Report on Form 10-K carefully before voting.

NEW CUSTOMER-CENTRIC GROWTH STRATEGY

Velocity Growth Plan

	*   Long-term, average annual constant currency targets, beginning in 2019.

On March 1, 2017, the Company announced its new “Velocity Growth Plan,” shifting its focus from turnaround to growth. We are going after the tremendous opportunity at the core of our business by building a better McDonald’s, not a different one. Our actions are focused on tapping into our unique competitive advantages – unmatched global scale, iconic Brand and local market presence.

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Proxy Summary

Specifically, the three pillars of the new strategy are to:

At the same time, we remain relentlessly focused on the fundamentals of running great restaurants. As important as what we do is what we do not do – we are concentrating on our biggest opportunities and not doing the smaller things. We are building a Brand that makes delicious feel good moments easy for everyone. We have a keen sense of who we are, the customers we serve and what we will do to win back our customers.

GOVERNANCE HIGHLIGHTS

Our Board continues to evolve, including with the election of a new independent Chairman. As always, the Board continues to review, evaluate and enhance our governance. This is informed by feedback received from shareholders and evolving best practices, including:

Board refreshment. After the 2016 Annual Shareholders’ Meeting, the Board elected Enrique Hernandez, Jr. to be its next independent Chairman after the retirement of Andy McKenna. Mr. McKenna continues to advise the Board in his role as Chairman Emeritus. Later in 2016, Dr. Walter Massey announced that he would retire from the Board and not stand for reelection at the upcoming Annual Shareholders’ Meeting.

Committee refreshment. Following his election, Chairman Hernandez and the Board announced the creation of a new Board Committee – the Public Policy & Strategy Committee – to provide oversight and counsel to management on the Company’s short- and long-term strategies, as well as on other matters that could affect the McDonald’s iconic Brand. This action was complemented by the Board’s rotation of Committee members among the various standing Committees, and the appointment of new Chairs for each of the Audit & Finance, Compensation, Sustainability & Corporate Responsibility and Public Policy & Strategy Committees.

Shareholder engagement. Management continues to engage – together with participation from members of our Board – with a significant portion and variety of domestic and international shareholders, including index funds, union and public pension funds, actively-managed funds and socially-responsible investment funds. Over the past year, we have engaged with representatives of more than 30% of our outstanding shares on a variety of topics, including our turnaround and growth plans, board composition, corporate governance, executive compensation, and environmental and social issues.

BOARD OF DIRECTORS

Our current Board continues to reflect a diverse, highly-engaged group of Directors with a range of experiences.

Independence		Diversity		Experience
All independent, except the CEO		>50% are women or minorities		Fresh perspectives balanced with institutional knowledge

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Strong Board and Governance Practices

✓	Separate Chairman and CEO roles, including a new independent Chairman elected in 2016		✓	Ongoing shareholder outreach and engagement
✓	Diverse, independent Board		✓	Annual election of Directors
✓	New Public Policy & Strategy Committee		✓	Majority voting standard for uncontested Director elections
✓	Committee memberships and Chairs refreshed in 2016		✓	Proxy access for Director candidates nominated by shareholders
✓	Board Committees are 100% independent (except Executive Committee)		✓	Shareholder right to call special meetings
✓	Robust annual Board and Committee self-assessments and Director peer review		✓	Capital structure that requires one vote per share of common stock
✓	Executive sessions of independent Directors generally scheduled for each regular Board meeting		✓	Regular succession planning at CEO, senior management and Board levels
✓	Limited membership on other public company boards		✓	No shareholder rights plan
✓	Stock ownership guidelines for Directors		✓	Public disclosure of corporate political contributions

The following table provides summary information about our Directors who are nominees for re-election at the 2017 Annual Shareholders’ Meeting. Additional information regarding our Directors may be found beginning on page 14.

Committee membership

Name

Director since

Primary occupation

Independent

AFC

CC

GC

SCR

PPS

EC

Lloyd Dean

2015

President and CEO Dignity Health

✓

Stephen Easterbrook

2015

President and CEO McDonald’s

Robert Eckert

2003

Operating Partner Friedman, Fleischer & Lowe

✓

Margaret Georgiadis

2015

CEO Mattel

✓

Enrique Hernandez, Jr. Chairman of the Board

1996

Chairman, President and CEO Inter-Con Security Systems

✓

Jeanne Jackson

1999

President, Senior Strategic Advisor NIKE

✓

Richard Lenny

2005

Non-executive Chairman Information Resources

✓

John Mulligan

2015

Executive Vice President and COO Target

✓

Sheila Penrose

2006

Non-executive Chairman Jones Lang LaSalle

✓

John Rogers, Jr.

2003

Founder, Chairman and CEO Ariel Investments

✓

Miles White

2009

Chairman and CEO Abbott Laboratories

✓

Number of Committee meetings held in 2016:

8

6

5

4

2

1

2016 average meeting attendance for Board of Director meetings: 95%

93%

89%

100%

100%

100%

67%

AFC = Audit & Finance Committee	SCR = Sustainability & Corporate Responsibility Committee		= Member
CC = Compensation Committee	PPS = Public Policy & Strategy Committee		= Committee Chair
GC = Governance Committee	EC = Executive Committee		= Financial Expert

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EXECUTIVE COMPENSATION HIGHLIGHTS

Our executive compensation program is designed to support business initiatives, align the interests of our executives with those of our shareholders and strongly link pay and performance. We believe that our compensation program effectively incentivizes our executives through a mix of short- and long-term awards, which include rigorous performance goals that utilize objective metrics designed to drive the Company’s business strategy.

Below is a summary of our 2016 executive compensation program:

Key compensation elements		Performance- based		Primary metric			Key terms
Base Salary					N/A		●	Evaluated based on individual circumstances, including responsibility, performance and tenure
Short-Term Incentive Plan (STIP)		✓		●	Operating income growth		●	Includes objective modifiers that can impact payouts
Stock Options		✓		●	Share price		●	Vest 25% per year
							●	10-year term
Performance-Based Restricted Stock Units (RSUs)		✓		●	Compound annual net income growth		●	Cliff vest at end of three-year service period, subject to achievement of net income and ROIIC thresholds
				●	Return on incremental invested capital (ROIIC)
				●	Share price

The primary change from the Company’s 2015 executive compensation program was the elimination of our long-term cash incentive plan (Cash LTIP) moving forward. Beginning in 2016, long-term incentives will be delivered in generally equal economic proportions between performance-based RSUs and stock options to more closely align executive compensation with shareholder interests, and to better reflect market practice. Further, metrics for performance-based RSUs now include net income growth and ROIIC thresholds (versus earnings per share growth, which was used in prior years) to align executives with the Company’s new growth strategy.

Performance-based Compensation

	90% of CEO direct compensation opportunity is ‘at risk’						●195.5% payout for Corporate employees under 2016 STIP ●15.6% payout under 2014-2016 Cash LTIP ●35% vesting of 2014-2016 performance-based RSUs
	81% of named executive officers direct compensation opportunity is ‘at risk’

As further described in our Compensation Discussion and Analysis beginning on page 34, our turnaround efforts produced strong results in 2016, including:

●	3.8% increase in global comparable sales
●	8% (11% in constant currency) increase in operating income
●	13% (16% in constant currency) increase in diluted earnings per share

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Proxy Summary

Demonstrating our strong pay-for-performance culture, the Company’s 2016 performance resulted in a Corporate STIP payout equal to 195.5% of target; however, as performance in prior years was not as strong, the 2014-2016 Cash LTIP paid out at 15.6% of target and only 35% of the 2014-2016 RSUs vested. The Company believes our 2016 incentive payouts highlight the appropriate balance of short- and long-term awards supported by challenging performance targets.

Our Compensation Committee adheres to the following best practices.

	What We Do		✓	Strong pay-for-performance alignment
			✓	Challenging quantitative performance targets
			✓	Performance metrics align interests of management with interests of shareholders
			✓	Majority of direct compensation paid over the long term
			✓	Double-trigger change in control provisions
			✓	Independent compensation consultant
			✓	Significant stock ownership and retention requirements
			✓	Anti-hedging and pledging policy
			✓	Clawback provisions
	What We Don’t Do		✗	No change in control agreements
			✗	No tax gross-up on perquisites
			✗	No repricing of stock options
			✗	No backdating of stock options
			✗	Do not encourage unreasonable risk taking
			✗	No employment agreements

VOTING MATTERS

Item		Matter to be voted on		Board recommendation		Page reference (for more detail)
Management proposals
Proposal No. 1		Election of 11 Directors, each for a one-year term expiring in 2018		FOR each nominee		13
Proposal No. 2		Advisory vote to approve executive compensation		FOR		54
Proposal No. 3		Advisory vote on the frequency of future advisory votes to approve executive compensation		ONE YEAR		54
Proposal No. 4		Approval of the material terms of the performance goals for awards under the McDonald’s Corporation 2012 Omnibus Stock Ownership Plan		FOR		55
Proposal No. 5		Advisory vote to approve the appointment of Ernst & Young LLP as independent auditor for 2017		FOR		60
Shareholder proposals
Proposal Nos. 6 – 12		Advisory votes on seven shareholder proposals, if properly presented		AGAINST each proposal		61 - 76

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ELECTION OF DIRECTORS

PROPOSAL NO. 1			Election of Directors The Board of Directors recommends the following nominees for election to the Board of Directors for a one-year term beginning in May and continuing until the 2018 Annual Shareholders’ Meeting: Lloyd Dean; Stephen Easterbrook; Robert Eckert; Margaret Georgiadis; Enrique Hernandez, Jr.; Jeanne Jackson; Richard Lenny; John Mulligan; Sheila Penrose; John Rogers, Jr. and Miles White. Walter Massey will retire from the Board effective as of the 2017 Annual Shareholders’ Meeting and will not stand for re-election.
				The Board recommends a vote FOR each of the 11 Director nominees.

In connection with our Annual Shareholders’ Meeting, the size of our Board will be decreased by one Director, so that a total of 11 Directors will be standing for re-election, 10 of whom are independent.

Nominees who receive a majority of the votes cast will be elected. Each of the incumbent Directors has tendered an irrevocable resignation that will be effective if (i) the nominee does not receive a majority of the votes cast and (ii) upon the recommendation of the Governance Committee, the Board accepts the resignation following the meeting.

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 Shareholders’ Meeting, the Board may substitute another person as a nominee. If you have voted for the unavailable nominee, your shares will be voted for the substitute nominee.

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Election of Directors

DIRECTOR QUALIFICATIONS

Our Board is a diverse, highly engaged group of individuals that provides strong, effective oversight of our Company. Both individually and collectively, our Directors have the qualifications, skills and experience needed to inform and oversee the Company’s long-term strategic growth priorities. Importantly, each Director has senior executive experience, in many cases as CEO, in large organizations, often with significant global operations, and eight of our Directors have leadership experience in the consumer goods or food sector.

These and the other skills and attributes discussed below are taken into account in connection with Board succession planning and Director selection. For example, Directors Margaret Georgiadis and John Mulligan, who joined the Board in 2015, add to the Board’s qualifications on technology, digital initiatives and cyber-security oversight. Directors Lloyd Dean who also joined the Board in 2015 and John Mulligan supplement the Board’s skills regarding capital structure strategy and resource allocation priorities. They replaced two retiring Directors as “audit committee financial experts,” facilitating a smooth transition of financial reporting and accounting oversight.

The following are among the key attributes and skills possessed by all of our Directors:

	✓High Integrity		✓Strength of Character and Judgment		✓Intellectual/Analytical Skills
	✓Proven Record of Success		✓Knowledge of Corporate Governance Practices		✓Strategic Planning
	✓Leadership		✓Talent Management/Succession Planning		✓Risk Assessment

Our Director nominees’ individual experiences, qualifications, attributes and skills are highlighted in the following matrix. The matrix is intended as a high-level summary and not an exhaustive list of each nominee’s skills or contributions to the Board. Further biographical information about each Director standing for re-election is set forth on the following pages.

CEO/Operating Head Leadership	●	●	●	●	●	●	●	●	●	●	●
Other Public Company Board	●		●	●	●	●	●		●	●	●
Board Chair and/or Committee Chair	●		●		●	●	●	●	●	●	●
Global Brand Management		●	●	●	●	●	●		●		●
Marketing and Consumer Insight		●	●	●		●	●	●			●
Technology, Digital and/or Cyber-security		●		●		●		●
Consumer Goods/Food		●	●	●	●	●	●	●			●
Real Estate								●	●
Financial	●	●	●	●	●	●	●	●	●	●	●
Sustainability/Corporate Responsibility	●	●					●		●	●
Ethnic/Gender Diversity	●			●	●	●			●	●

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Election of Directors

BIOGRAPHICAL INFORMATION

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Election of Directors

	Miles White

	Age: 62 Director since: 2009		McDonald’s Committees ●Governance (Chair since 2014) ●Public Policy & Strategy ●Executive   Other public company directorships Abbott Laboratories and Caterpillar, Inc.   Former public company directorships (within past five years) None			Career highlights Abbott Laboratories, a global pharmaceuticals and biotechnology company ●Chairman and Chief Executive Officer (1999 - Present) Experience and qualifications As the long-standing chairman and chief executive officer of a large pharmaceutical, biotechnology and nutritional health products company, Mr. White has extensive knowledge of strategy and business development, risk assessment, finance, leadership development and succession planning, and corporate governance. In addition, he brings to the Board strong experience in addressing the needs of a global public company, as well as insights into the Board’s responsibility in oversight of management and operations matters. As Governance Committee Chair, Mr. White leads the Company’s succession planning and director candidate selection process, and he is often involved in shareholder engagement.

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BOARD AND GOVERNANCE MATTERS

INDEPENDENT CHAIRMAN

Following the 2016 Annual Shareholders’ Meeting, the Board elected Enrique Hernandez, Jr. to be our new, independent Chairman. Our former independent Chairman, Andrew McKenna, retired from the Board and was named Chairman Emeritus, an honorary position.

The principal duty of the Chairman is to lead and oversee the Board of Directors. The Chairman facilitates an open flow of information between management and the Board of Directors, and leads a critical evaluation of Company management, practices and adherence to the Company’s strategic plan and objectives. The Chairman and Chief Executive Officer (CEO) roles have been separated since 2004, enabling the Chairman to focus on corporate governance matters and the CEO to focus on the Company’s business. We find that this leadership structure fosters an open dialogue and constructive feedback among the independent Directors and management. It further allows the Board to effectively represent the best interests of all shareholders and contribute to the Company’s long-term success.

COMPOSITION

The Company’s Board of Directors reflects a diverse, highly-engaged group of Directors. The Governance Committee of the Board of Directors is responsible for maintaining a strong and diverse Board through a robust succession planning process, which includes recommending Directors for re-election and selecting new candidates with a solid record of accomplishment in their chosen fields.

The Governance Committee evaluates and determines the appropriate and desirable mix of characteristics, skills, experience and diversity for the Board as a whole, as well as the qualifications and attributes of individual Directors and candidates. Among other qualifications, the Committee considers: high integrity and business ethics; strength of character and judgment; independence from management; necessary skills to meet the evolving needs of our business; the ability and willingness to devote sufficient time to Board duties; and diversity in all its forms, including ethnicity, gender, geography and experience.

The Governance Committee also strives to achieve an appropriate balance of continuity and refreshment through a mix of relatively new and longer tenured Directors. In considering this issue, the Committee and the Board strongly believe that long tenure does not in itself impair a Director’s independence and that, in fact, tenure may enhance independence. For example, a Director who has overseen CEO successions may be more independent than Directors who are new to the Board and have served with only one CEO. Accordingly, while the Committee and the Board consider tenure in evaluating the effectiveness of the Board, it is not a controlling factor.

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Board and Governance Matters

BOARD SUCCESSION PLANNING

Under our Corporate Governance Principles, the Governance Committee has the primary responsibility for developing a succession plan for the Board and for making recommendations to the full Board on succession matters. The Governance Committee considers suggestions for new Director nominees that it receives from a variety of sources, including the independent search firm that it retained in 2015, to help ensure that diverse candidates are regularly identified, screened and evaluated as potential candidates.

The Governance Committee also evaluates all Directors who are being considered for renomination. In doing so, the Committee looks at their skills and experience in light of overall Board composition and the desire for new and different perspectives and skill sets, particularly given the evolving needs of the business. The Committee reflects on a Director’s contributions, including by taking into account results of the most recent Board and peer evaluations (as further described below).

In addition, the Governance Committee continually evaluates the mix of Directors in light of future retirements to facilitate a smooth transition of skills, experience and diversity as retirements occur.

EVALUATIONS

The Board is committed to regular evaluations of itself, its Committees and individual Directors. Each year, the Directors are asked to complete a written evaluation of the Board, their peers and the Committees on which they serve. The following graphic illustrates the process by which the Board currently carries out its evaluations:

			Directors complete evaluations (Board, peer and Committee) and send directly to an independent third party.
			Board evaluations consider: ●General board practices ●Input for improvement ●Suggestions for new skills and experiences for potential future candidates	Peer evaluations consider: ●Contributions to Board discussions and decisions throughout year ●Sharing of knowledge and expertise with Board and senior management ●Staying informed on matters that impact the Company ●Acting independently and in best interests of shareholders	Committee evaluations consider: ●Members’ balance of skills and experiences to promote active participation ●Adequacy of information received, including access to non-management resources ●Effectiveness of Committee

			To protect anonymity and integrity of the process, an independent third party compiles responses to Board, peer and Committee evaluations into a report for the Chair of the Governance Committee.
			The Governance Committee and full Board discuss the Board and peer evaluation results. Each of the standing Board Committees, except the Executive Committee, discusses its respective Committee evaluation.

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Board and Governance Matters

SELECTION OF DIRECTOR CANDIDATES

The Board has a robust policy for the consideration of potential Director candidates. The Governance Committee plays a critical role by establishing criteria, screening candidates and evaluating the qualifications of persons that may be considered for service as a Director, including candidates nominated or suggested by shareholders. The Governance Committee has retained an independent search firm to identify, screen and evaluate potential candidates. Informed by this outside perspective, the Governance Committee develops a pool of candidates that the Board may draw upon from time to time.

The following graphic illustrates the Company’s selection process for new Directors:

			The Governance Committee considers current and long-term needs of our evolving business and seeks potential Director candidates in light of emerging needs, current Board structure, tenure, skills, diversity and experience.
			The Governance Committee identifies a pool of qualified Director candidates through a robust search process, which includes use of an independent search firm, and assesses candidates’ skills experience and background. Among other qualifications, the Governance Committee considers: ●High integrity and business ethics ●Strength of character and judgment ●Necessary skills to meet the evolving needs of our business ●Ability and willingness to devote sufficient time to Board duties ●Independence from management ●Ethnic, gender and geographic diversity
			Potential Director candidates are interviewed by the Chairman, CEO, Chair of the Governance Committee and other Governance Committee members.
			The Governance Committee recommends, and the full Board approves, Director candidates best qualified to serve the interests of the Company and all shareholders.
			Shareholders consider the nominees for election to the Board and elect Directors to serve one-year terms.

The Board’s Director Selection Process may be found on the Company’s website at http://corporate.mcdonalds.com/mcd/investors/corporate-governance/governance-principles-policies-and-guidelines.html.

BOARD DIVERSITY

The Governance Committee, together with the Board, proactively seeks diverse Director candidates to ensure a representation of varied perspectives and experience in the boardroom. Diversity is considered in the broadest sense, including, among other attributes, leadership, experience, skills, perspectives, gender, ethnicity and geography. When seeking new candidates, the Governance Committee actively endeavors to include women, minorities and geographically-diverse persons in the candidate pool. Currently, more than 50% of the Board are women and individuals who are minorities, and this majority will continue following Dr. Massey’s retirement from the Board at the 2017 Annual Shareholders’ Meeting.

Our global business demands that we have highly skilled, broadly experienced and diverse leadership at both the executive level and in the boardroom. Our current Board members bring a diverse set of skills and experiences to the Company that are important to drive our strategy forward as the market and competitive landscape evolves.

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DIRECTOR INDEPENDENCE

Our Corporate Governance Principles require that all non-management Directors be independent under applicable law and listing standards, as well as under the Board’s Standards on Director Independence. The Board considers relationships involving Directors and their immediate family members and relies on information derived from Company records, questionnaires and other inquiries.

The relationships reviewed by the Board in its most recent determination involved commercial relationships with companies:

●	at which Board members then served as officers and employees (including Google Inc., Inter-Con Security Systems, Inc., Mattel, Inc. and Target Corporation);
●	in which Board members or their immediate family members then held an aggregate 10% or more direct or indirect interest (Inter-Con Security Systems, Inc.); and
●	at which Board members then served as outside Directors (including Chevron Corporation, ConAgra Brands, Inc., Discover Financial Services, Exelon Corporation, Illinois Tool Works Inc., Jones Lang LaSalle Incorporated, The Kraft Heinz Company, Navigant Consulting, Inc. and Wells Fargo & Company).

These relationships involved McDonald’s purchases of products and services in the ordinary course of business that were made on arm’s-length terms in amounts and under other circumstances that did not affect Director independence.

The Board also reviewed certain de minimis arm’s-length retail transactions with other companies affiliated with Directors, as well as Company donations to not-for-profit organizations with which Board members or their immediate family members were affiliated by service as directors or trustees.

Based on its review, the Board determined that none of its non-management Directors has a material relationship with the Company and that all of them are independent. Currently, our non-management Directors are Lloyd Dean, Robert Eckert, Margaret Georgiadis, Enrique Hernandez, Jr., Jeanne Jackson, Richard Lenny, Walter Massey, John Mulligan, Sheila Penrose, John Rogers, Jr. and Miles White. In addition, the Board previously determined that Susan Arnold and Andrew McKenna, who served as Directors during 2016 and did not stand for re-election at our 2016 Annual Shareholders’ Meeting, were independent.

MANAGEMENT SUCCESSION PLANNING

The Board regularly reviews short- and long-term succession plans for the CEO and other senior management positions. In assessing possible CEO candidates, the independent Directors identify the skills, experience and attributes they believe are required to be an effective leader in light of the Company’s global business strategies, opportunities and challenges. The Board employs a similar approach with respect to evaluating possible candidates for other senior management positions. In general, the Board’s management succession planning is designed to anticipate both “planned” successions, such as those arising from anticipated retirements, as well as unexpected successions, such as those occurring when an executive leaves suddenly to take a new position, or due to death, disability or other unforeseen events.

MEETING ATTENDANCE

Directors are expected to attend the Annual Shareholders’ Meeting and all Board meetings and meetings of the Committees on which they serve. Our Board met eight times during 2016. On average, our Directors attended 95% of the total number of meetings of the Board and respective Committees on which they serve. All Directors who stood for re-election last year attended the 2016 Annual Shareholders’ Meeting.

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EXECUTIVE SESSIONS

The independent Directors meet regularly in executive sessions, which, from time to time, include the CEO. An executive session is generally scheduled immediately before or after each regular Board of Directors’ meeting. At such sessions, the Chairman presides, except in such matters as may involve his re-election or compensation, in which case the Chair of the Governance Committee presides.

BOARD COMMITTEES

Our Board has the following committees: Audit & Finance; Compensation; Governance; Public Policy & Strategy; Sustainability & Corporate Responsibility and Executive. Each Committee has the responsibilities set forth in its respective Charter, which has been adopted by the Board of Directors. Other than the Executive Committee, all Committees review their respective Charters at least annually, and changes are recommended to the full Board of Directors for approval. Committee charters are available on the Company’s website at http://corporate.mcdonalds.com/mcd/investors/corporate-governance/board-committees-charters.html.

All Committee members are independent as defined by the listing standards of the New York Stock Exchange (NYSE) and the Board’s Standards on Director Independence, except for our CEO, who serves solely on the Executive Committee. In addition, the Board has determined that each member of the Audit & Finance Committee is financially literate, and that Lloyd Dean and John Mulligan qualify as “audit committee financial experts” as defined by applicable SEC rules and NYSE listing standards. In 2016, the Committee memberships were refreshed, and new Chairs were appointed to the following Committees: Audit & Finance; Compensation; Public Policy & Strategy and Sustainability & Corporate Responsibility.

The primary responsibilities of each Committee are summarized on the following pages. Each Committee also has oversight of risk areas as illustrated on page 30.

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	AUDIT & FINANCE COMMITTEE
	Members John Mulligan (Chair) (FE) Lloyd Dean (FE) Margaret Georgiadis Walter Massey Sheila Penrose (FE = Financial Expert)		Primary Areas of Oversight ●Oversees financial reporting, accounting, control and compliance matters ●Appoints and evaluates the independent auditor ●Reviews with the internal and independent auditors the scope and results of their audits, the adequacy and effectiveness of internal controls and the performance of the internal auditors ●Reviews material financial disclosures ●Reviews the Company’s capital structure, dividend policy and plans for share repurchases ●Pre-approves all audit and permitted non-audit services ●Annually reviews the Company’s Sarbanes-Oxley and tax compliance ●Reviews the Company’s Disclosure Controls and Procedures
	Meetings in 2016: 8* Attendance: 93% *In 2016, certain responsibilities of the Finance Committee were transferred to the Audit Committee, which was renamed the Audit & Finance Committee. The number of meetings reflects the total number of meetings of the Audit Committee (as originally constituted) and the Audit & Finance Committee (as later combined).

The Audit & Finance Committee typically addresses the following items throughout the year:

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	COMPENSATION COMMITTEE
	Members Jeanne Jackson (Chair) Lloyd Dean Richard Lenny John Rogers, Jr.		Primary Areas of Oversight ●Oversees the Company’s compensation program and policies ●For more information, see the Compensation Discussion and Analysis beginning on page 34.
	Meetings in 2016: 6 Attendance: 89%

The Compensation Committee typically addresses the following matters throughout the year:

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	GOVERNANCE COMMITTEE
	Members Miles White (Chair) Robert Eckert Enrique Hernandez, Jr. Jeanne Jackson John Rogers, Jr.		Primary Areas of Oversight ●Monitors the Board’s structure, operations and Committee memberships ●Sets criteria for Board membership ●Considers and recommends candidates for election or to fill vacancies ●Develops Board succession plans and makes recommendations to the Board on succession matters ●Evaluates Director and Board performance and assesses Board composition and size ●Recommends to the Board compensation for non-management Directors ●Evaluates the Company’s Corporate Governance Principles and oversees governance risks
	Meetings in 2016: 5 Attendance: 100%

The Governance Committee typically considers the following matters throughout the year:

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	PUBLIC POLICY & STRATEGY COMMITTEE

	Members Robert Eckert (Chair) Enrique Hernandez, Jr. John Mulligan Miles White		Primary Areas of Oversight ●Reviews and monitors the Company’s long-term strategy development and implementation ●Reviews and monitors trends and issues that could affect the Company’s business activities and performance, as well as reputation ●Reviews and monitors government affairs strategies and priorities ●Reviews human capital management matters ●Reviews the Company’s compliance programs, including compliance with the Company’s Political Contributions Policy and employees’ compliance with the Company’s Standards of Business Conduct ●Reviews risks related to cyber-security and tax matters
	Meetings in 2016: 2 Attendance: 100% In 2016, the Board created a new Public Policy & Strategy Committee to oversee the Company’s strategic initiatives and public policy matters relating to its evolving business.

	SUSTAINABILITY & CORPORATE RESPONSIBILITY COMMITTEE

	Members Sheila Penrose (Chair) Margaret Georgiadis Richard Lenny Walter Massey		Primary Areas of Oversight ●Reviews and monitors the Company’s strategies and efforts to address Brand trust through its performance as a sustainable organization ●Reviews and monitors Brand leadership priorities that are significant to the Company and its stakeholders, including food, sourcing, the environment, community engagement, philanthropy, and diversity and inclusion ●Reviews and monitors the development and implementation of goals for performance with respect to the Company’s sustainability framework and initiatives ●Reviews the Company’s global sustainability communication plans and reports
	Meetings in 2016: 4 Attendance: 100%

The Executive Committee may exercise most Board powers during the periods between Board meetings. In 2016, the Executive Committee met once. The Executive Committee members are Stephen Easterbrook (Chair), Robert Eckert, Enrique Hernandez, Jr., Jeanne Jackson, John Mulligan and Miles White.

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RISK OVERSIGHT

The Board oversees the Company’s enterprise-wide risk management activities, both as a whole and through its Committees that are comprised solely of independent Directors. The following graphic illustrates this risk oversight process:

For more information on the Board’s risk oversight responsibilities, see the Company’s Corporate Governance Principles at http://corporate.mcdonalds.com/mcd/investors/corporate-governance/governance-principles-policies-and-guidelines.html and the various Committee Charters. Oversight of risks related to executive compensation are more fully described on page 42.

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SHAREHOLDER ENGAGEMENT

Throughout each year, management and members of our Board engage with a significant portion of shareholders. In addition to current topics of particular relevance to McDonald’s, including our business results and initiatives, strategy and capital structure, we invite shareholders to discuss matters related to Board composition and tenure, corporate governance, executive compensation, and environmental and social issues, among other topics.

In 2016, we reached out to a variety of shareholders, including index funds, hedge funds, union and public pension funds, actively-managed funds and socially-responsible investment funds. Our outreach efforts represented more than 30% of our outstanding shares, with an emphasis this year on outreach to investors located outside of the United States. Shareholder feedback, including through direct discussions and prior shareholder votes, as well as engagement with proxy and other investor advisory firms that represent the interests of a wide array of shareholders, is reported to our Governance Committee periodically throughout the year. As appropriate, the Governance Committee may delegate specific issues to relevant Board Committees for further consideration.

The graphic below represents elements of our ongoing shareholder outreach and engagement, as well as certain items that take place more specifically before, during and after our Annual Shareholders’ Meeting:

Prior to Annual Shareholders’ Meeting				Annual Shareholders’ Meeting
●Seek feedback on matters for shareholder consideration ●Discuss shareholder proposals with proponents, when appropriate ●Publish Annual Report and Proxy Statement, highlighting recent Board and Company activities				●Opportunity for direct engagement with shareholders ●Voting results for management and shareholder proposals
Off-season engagement and evaluation of practices				Post Annual Shareholders’ Meeting
●Engage shareholders and other stakeholders regarding our Board, governance and executive compensation practices to better understand investor viewpoints and inform discussions in the boardroom ●Evaluate potential changes to Board, governance or executive compensation practices in light of shareholder feedback and review of practices ●Conduct annual Board and Committee evaluations and Director peer reviews				●Discuss vote outcomes from Annual Shareholders’ Meeting in light of existing governance and compensation practices, as well as feedback received from shareholders during proxy season ●Review corporate governance trends, recent regulatory developments, and the Company’s own corporate governance documents, policies and procedures ●Determine topics for discussion during off-season shareholder engagement

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BOARD’S RESPONSE TO SHAREHOLDER PROPOSALS

Last year, at the 2016 Annual Shareholders’ Meeting, shareholders expressed some support for an advisory shareholder proposal regarding the use of antibiotics by the Company’s meat suppliers. This proposal received support of less than 17% of our outstanding shares. As part of its oversight responsibilities with respect to sustainability matters generally, the Sustainability & Corporate Responsibility Committee continues to evaluate this issue. Additional information regarding the Board’s thoughtful analysis of this subject is included in its Statement in Opposition to a similar shareholder proposal expected to be presented at this year’s Annual Shareholders’ Meeting, beginning on page 70.

At the same meeting, an advisory shareholder proposal requesting the ability for shareholders to act by written consent received the support of about 30% of our outstanding shares. In response, the Board carefully considered the proposal and continues to believe that, in light of the Company’s strong governance profile, including the shareholder right to call special meetings, and the Board’s responsiveness to shareholder input, it is unnecessary and not in the best interests of all shareholders.

CORPORATE GOVERNANCE PRINCIPLES

The Governance Committee regularly reviews the Company’s Corporate Governance Principles and other governing documents and policies to ensure their appropriateness in light of the Company’s current and expected long-term circumstances, as well as evolving best practices. The Company’s Corporate Governance Principles are available on our website at http://corporate.mcdonalds.com/mcd/investors/corporate-governance/governance-principles-policies-and-guidelines.html.

CODE OF CONDUCT FOR THE BOARD OF DIRECTORS

Each year, our Directors confirm that they have read, and will comply with, the Code of Conduct for the Board of Directors. This code may be found on our website at http://corporate.mcdonalds.com/mcd/investors/corporate-governance/codes-of-conduct.html.

DIRECTOR COMPENSATION

Only non-management Directors are paid for their service on the Board. Through the 2016 Annual Meeting, this compensation was as follows: (i) an annual cash retainer of $100,000; (ii) an annual retainer fee of $25,000 for each Director serving as Chair of the Audit, Compensation or Governance Committee and an annual retainer fee of $15,000 for each Director serving as Chair of other Board Committees; and (iii) common stock equivalent units with a $140,000 value granted annually under the Directors’ Deferred Compensation Plan (Directors’ Plan).

In July 2016, upon the recommendation of the Governance Committee, the Board of Directors approved the following changes to the Directors’ compensation: (i) an annual cash retainer of $110,000; and (ii) common stock equivalent units with a $165,000 value granted annually under the Directors’ Plan. The Board of Directors also approved, upon the recommendation of the Governance Committee, an annual retainer fee of $30,000 for the Chair of the Audit & Finance Committee and an annual retainer fee of $25,000 for each Director serving as Chair of the Compensation, Governance, Public Policy & Strategy or Sustainability & Corporate Responsibility Committee, effective from and after the 2016 Annual Meeting.

Directors serving for a portion of the year receive prorated compensation. In addition, the Board considers and may, in its discretion, grant additional compensation to the Non-executive Chairman. Upon the recommendation of the Governance Committee, the disinterested members of the Board of Directors awarded Mr. Hernandez an annual retainer fee of $250,000 (prorated based on service as Chairman) and a restricted stock unit award with a deemed grant value of $250,000.

The Company reimburses non-management Directors for expenses incurred in attending Board, Committee, shareholder and other McDonald’s business meetings, as well as expenses for Director continuing education.

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The following table summarizes the compensation received by each non-management Director serving in 2016:

Name (a)		Fees earned or paid in cash ($)(b)	(2)	Stock awards ($)(c)	(3)(4)	All other compensation ($)(g)	(5)	Total ($)(h)
Susan Arnold(1)		40,385		56,230		0		96,615
Lloyd Dean		104,266		150,724		0		254,990
Robert Eckert		129,266		150,724		10,000		289,990
Margaret Georgiadis		104,266		150,724		10,000		264,990
Enrique Hernandez, Jr.		264,019		393,201		10,000		667,220
Jeanne Jackson		125,255		150,724		10,000		285,979
Richard Lenny		104,266		150,724		10,000		264,990
Walter Massey		110,283		150,724		5,000		266,007
Andrew McKenna(1)		40,385		116,066		0		156,451
John Mulligan		122,233		150,724		0		272,957
Sheila Penrose		119,239		150,724		10,000		279,963
John Rogers, Jr.		104,266		150,724		0		254,990
Miles White		129,266		150,724		0		279,990

(1)	Ms. Arnold did not stand for re-election at the 2016 Annual Shareholders’ Meeting and received prorated compensation to reflect her service in 2016. Mr. McKenna did not stand for re-election at the 2016 Annual Shareholders’ Meeting and was named Chairman Emeritus upon his retirement from the Board. Mr. McKenna received prorated compensation to reflect his service in 2016 and $100,000 in recognition of his service as Chairman Emeritus, prorated to $59,836 for 2016.
(2)	Non-management Directors may defer all or a portion of their retainer(s) in the form of common stock equivalent units under the Directors’ Plan. Such deferrals, as well as the annual grant of common stock equivalent units described in footnote 3 below, are credited to an account that is periodically adjusted to reflect the gains, losses and dividends associated with a notional investment in our common stock. Common stock equivalent units so credited are based on a per-share price equal to the closing price of our common stock on the date of credit. Amounts credited are deferred until retirement from the Board or a date specified by the Director. A Director may elect that all or a portion of the credited amount be paid in equal annual installments over a period of up to 15 years beginning after retirement from the Board. In the event of death, amounts are paid in a lump sum. For Mr. Hernandez, the amount in this column also reflects additional compensation of $250,000, prorated for 2016.
(3)	Common stock equivalent units are deferred until retirement from the Board or death. A Director may specify that deferred amounts from each year’s award be paid in a lump sum or installments over a period of up to 15 years beginning after retirement from the Board. In the event of death, amounts are paid in a lump sum. Amounts in this column represent the aggregate grant date fair value computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718 (ASC 718) of common stock equivalent units granted under the Directors’ Plan on December 31, 2016 to each non-management Director who served on the Board during 2016. Due to the compensation changes described above, such amounts reflect prorated values before and after May 2016 of $140,000 and $165,000, respectively. In connection with his service as Chairman, Mr. Hernandez also received a grant of 2,119 restricted stock units in August 2016 with an aggregate grant date fair value of $242,477 computed in accordance with ASC 718 (deemed grant value of $250,000). These restricted stock units vest on the later of one year from the date of grant or Mr. Hernandez’s departure from the Board, and shall be payable in either shares of the Company’s stock or cash, at the Company’s discretion.
(4)	Outstanding stock awards held by non-management Directors are set forth below. Stock awards include common stock equivalent units under the Directors’ Plan and, in the case of Mr. Hernandez, both common stock equivalent units and restricted stock units as described in footnote 3. Amounts are as of December 31, 2016.

(5)	Represents Company matching gifts of charitable contributions to tax-exempt organizations for participating non-management Directors that were received in 2016. The matching gift program matches up to $10,000 of charitable contributions made to certain types of tax-exempt organizations.

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EXECUTIVE COMPENSATION

COMPENSATION COMMITTEE REPORT

The Compensation Committee has reviewed and discussed the Company’s Compensation Discussion and Analysis with McDonald’s management. Based on this review and discussion, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement and the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016.

Respectfully submitted,

The Compensation Committee

Jeanne Jackson, Chair
Lloyd Dean
Richard Lenny
John Rogers, Jr.

COMPENSATION DISCUSSION AND ANALYSIS

OUR YEAR IN REVIEW

In 2016, we continued to implement our turnaround plan focusing on driving operational growth, returning excitement to our Brand and unlocking financial value. Over the past year, our results have demonstrated that the turnaround plan is working as we continue to strive to grow global comparable sales and serve more customers. We are focused on driving long-term, profitable results and pursuing our goal of being recognized by our customers as a modern, progressive burger company.

We remain committed to a pay-for-performance culture. Payouts to our executives vary based on performance against strategic financial metrics aligned with our key measures of long-term sustainable growth including: operating income, net income, return on incremental invested capital (ROIIC), and share price performance. Our 2016 pay package generally included base salary, a short-term cash incentive (STIP), performance-based restricted stock units (RSUs) and stock options. We eliminated our long-term cash incentive plan (Cash LTIP) in 2016 (see pages 36 and 40 for a discussion of this decision and its impact on our overall compensation program).

Our turnaround efforts yielded strong 2016 results, including a 3.8% increase in global comparable sales, an 8% (11% constant currencies) increase in operating income and a 13% (16% constant currencies) increase in diluted earnings per share. These results support the higher payouts under the 2016 STIP (195.5% for Corporate); however, our NEOs also received payouts well below target for the 2014-2016 Cash LTIP (15.6%) and 2014-2016 RSUs (35%), both based on performance during the 2014-2016 cycle. This balance is appropriate, as we believe it is important to reward short-term success, while also incentivizing our executives to drive shareholder value over the long term. Thus, our compensation approach effectively aligns pay and performance over both the short and long term.

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NAMED EXECUTIVE OFFICERS (NEOs)
NEOs refer to the following executive officers whose compensation is described in this Proxy Statement, pursuant to requirements of the Securities and Exchange Commission.

Stephen Easterbrook		President and Chief Executive Officer (CEO)
Kevin Ozan		Executive Vice President and Chief Financial Officer (CFO)
Douglas Goare		President, International Lead Markets and Global Chief Restaurant Officer
Michael Andres		President, McDonald’s USA (retired December 31, 2016)
Silvia Lagnado		Executive Vice President, Global Chief Marketing Officer
Peter Bensen		Former Chief Administrative Officer (CAO) (retired September 2, 2016)
David Hoffmann		Former President, High Growth Markets (resigned September 30, 2016)

COMPENSATION SETTING PROCESS
The Compensation Committee of the Board (Committee) meets regularly during the year (six times in 2016). Meeting agendas are determined by the Chair of the Committee with the assistance of our Chief People Officer. Members of management, including the Chief People Officer, also attend Committee meetings, as well as representatives from the Committee’s independent advisor, Frederic W. Cook & Co., Inc. (FW Cook), and external legal counsel, if needed.

At least annually, the Committee reviews our overall executive compensation program to ensure that it remains aligned with current business objectives and evolving best practices. The graphic on page 27 highlights the Committee’s annual review process.

The Chair of the Committee regularly reports to the Board following Committee meetings. In addition, the Chair, along with the Chairman of the Board, lead the independent Directors in the evaluation of the CEO’s performance. Based upon the results of this performance evaluation, and informed by input from FW Cook and the Chief People Officer, the Committee reviews and approves CEO compensation.

FW Cook provides the Committee with detailed compensation recommendations for the CEO and CFO (and, prior to Mr. Bensen’s retirement, the CAO) at least annually. The Committee considers peer data and other similar information obtained from various sources, including Towers Watson & Co., Equilar and Aon Hewitt. While management provides the Committee with its perspectives on compensation matters, no member of management is involved in decisions regarding his or her own compensation.

Throughout the year, management and Directors are engaged in dialogue with a significant portion of the Company’s shareholder base on a number of matters important to both the Company and its investors, including our executive compensation program. The Committee considers feedback received through direct discussions with investors as well as previous “Say on Pay” results and the voting results of any shareholder proposals related to our executive compensation program. Our compensation program has received very strong shareholder support over the last five years.

Historic “Say on Pay” Voting Results (FOR)

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2016 CHANGES TO COMPENSATION PROGRAM

ELIMINATION OF CASH LTIP

●	The Company eliminated the Cash LTIP plan, removing the prior overlap of the operating income performance measure in short- and long-term plans.
●	Long-term incentives are now awarded in the form of performance-based RSUs and stock options in generally equal economic proportions.
●	Performance-based RSUs now have net income growth and ROIIC performance targets, as well as a total shareholder return (TSR) modifier.
●	The use of equity-based awards more closely aligns executive compensation with shareholder interests and better reflects market practice.
●	The 2015-2017 Cash LTIP award remains outstanding (the 2014-2016 award was paid in March 2017 and the 2015-2017 award will be paid in March 2018, subject to the achievement of the applicable performance targets).

COMPENSATION PERFORMANCE MEASURES AND TARGETS
In order to accomplish our compensation objectives, the Committee uses a mix of variable and fixed forms of compensation comprised of both short- and long-term incentive awards, based on various measurable, objective performance metrics (both absolute and relative), as well as our stock price performance, as reflected in the chart below.

2016 principal performance measures		STIP		Stock options		Performance-based RSUs
Operating income growth		●
Net income growth						●
ROIIC						●
Share price				●		●

The Committee takes a holistic approach to establishing performance targets under the Company’s incentive compensation programs. The Committee recognizes the importance of achieving an appropriate balance between rewarding executives for strong performance over both the short- and long-term, and establishing realistic targets that continue to motivate and retain executives. In setting these objective performance targets, the Committee considers the Company’s financial objectives (over the short- and long-term) and the economic, industry and competitive environments.

EXCLUSIONS FROM REPORTED FINANCIAL RESULTS

The Committee may exclude certain items from the financial results used to determine incentive-based compensation for items that are not indicative of ongoing performance in order to focus our executives on the fundamentals of the Company’s underlying business performance. The Committee considers these exclusions pursuant to pre-established guidelines, including materiality, to provide clarity and consistency on how it views the business when evaluating performance. Charges/credits that may be excluded include the following categories: “strategic” (such as restructurings, acquisitions and divestitures); “regulatory” (changes in tax or accounting rules); and “external” (extraordinary, non-recurring events such as natural disasters).

For 2016, the Committee reviewed the impact of strategic actions taken in connection with the Company’s business turnaround plan (e.g., asset impairment and other one-time costs related to the sale of disaffiliated markets, business restructuring, and benefits/costs associated with incremental share repurchase and debt) on performance-based compensation. Consistent with the guidelines noted above, the Committee determined that it was appropriate to exclude certain turnaround-related charges, as well as charges related to changes in local market tax laws affecting the restaurant industry from operating income and earnings per share results. The impact of these exclusions on the calculation of the 2016 STIP, 2014-2016 Cash LTIP and performance-based RSUs is provided on page 39.

The Committee remains focused on ensuring that payouts closely reflect Company performance and hold management accountable for delivering long-term sustainable growth. Since actions to complete the turnaround plan will continue beyond 2016, we anticipate that additional exclusions will apply going forward, which may impact payouts in future years.

Payouts under our compensation plans also exclude the effects of foreign currency translation (either positive or negative) since we believe that changes in foreign exchange rates can cause our reported results to appear more or less favorable than business fundamentals indicate.

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PEER COMPANIES

Consistent with our goal of providing competitive compensation to incentivize and retain executive talent, we review our executives’ total direct compensation compared to levels at a peer group of companies that we believe is reflective of our business. When we set executive compensation targets, we use the market median for each compensation element as a reference point; however, we do not specifically target any element of compensation at the market median.

Following an annual review, the Committee selects a peer group comprised of companies with which we compete for talent, including our direct competitors, major retailers, producers of consumer branded goods and companies with a significant global presence. Revenues, market capitalization, systemwide sales and TSR are some of the criteria considered in constructing the peer group. Our peer group did not change this year and is set forth in the graphic below.

3M Company		Johnson & Johnson		Restaurant Brands International Inc.
Best Buy Co., Inc.		Kellogg Company		Starbucks Corporation
The Coca-Cola Company		The Kraft Heinz Company		Target Corporation
Colgate-Palmolive Company		Lowe’s Companies, Inc.		Walgreens Boots Alliance, Inc.
Dunkin’ Brands Group, Inc.		Mondeléz International, Inc.		Wal-Mart Stores, Inc.
FedEx Corporation		NIKE, Inc.		The Walt Disney Company
General Mills, Inc.		PepsiCo, Inc.		The Wendy’s Company
The Home Depot, Inc.		The Procter & Gamble Company		Yum! Brands, Inc.

The following table compares McDonald’s size and performance to that of our peer group.

McDonald’s vs. Peer Group

*	Dollars in millions. Financial data as reported on Bloomberg.com and as of December 31, 2016 unless otherwise indicated.

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Executive Compensation

ELEMENTS OF TOTAL DIRECT COMPENSATION

Approximately 90% of our CEO’s total direct target compensation opportunity for 2016 was allocated to variable compensation that is at-risk based on performance, including short- and long-term incentive compensation (as shown in the pie chart below). Further, for the NEOs who were employed at year-end, approximately 81% of the total direct compensation opportunity for 2016 was allocated to variable compensation that is at-risk based on performance.

The above chart uses ASC 718 values for equity awards granted in 2016.

ANNUAL COMPENSATION

BASE SALARY

In setting annual salary levels, we take into account competitive considerations, change in responsibilities, individual performance, tenure in position, internal pay equity and the effect on our general and administrative expenses. As part of the annual review process, each NEO received a salary increase for 2016.

STIP

Our STIP is designed to reward growth in annual operating income, which measures the success of the most important elements of our business strategy. Operating income growth requires the Company to balance increases in revenue with financial discipline to produce strong margins and a high level of cash flow. If there is no growth in operating income, there is no payout under the STIP.

If sufficient operating income growth is achieved, STIP payouts take into account pre-established “modifiers” reflecting other measures of Corporate and/or segment performance that are important drivers of our business. These modifiers in 2016 included the following objective metrics:

●	Comparable guest count growth
●	Customer satisfaction (only for U.S. segment)

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The following graphic illustrates the Corporate STIP payout calculation for 2016.

The chart below provides operating income growth necessary to achieve threshold, target and maximum payouts under 2016 STIP for Corporate (prior to adjustment based on the modifiers discussed on the previous page).

2016		Threshold		Target		Maximum
Consolidated annual operating income growth*		0%		5.3%		11.6%

*	Payout percentage interpolated for results that fall between each of the performance levels specifically identified.

The following table shows the operating income targets and results under 2016 STIP, as adjusted for the exclusions described on page 36:

(Dollars in millions)		Target 2016 operating income ($)		Target 2016 operating income growth over 2015 (%)		2016 adjusted operating income* ($)		2016 adjusted operating income growth over 2015 (%)
Corporate		7,715		5.3		8,182		11.7
U.S.		3,617		3.6		3,793		8.7
International Lead Markets		2,886		5.6		2,981		9.1
High Growth Markets		987		6.6		1,063		14.8
Foundational Markets		955		11.1		1,085		26.3

*

The exclusions discussed on page 36 had the following impact on the calculation of incentive awards (including 2016 STIP, 2014-2016 Cash LTIP and 2014-2016 performance-based RSUs): Corporate $265 million; U.S. $24 million; International Lead Markets $37 million; High Growth Markets $(20) million, and Foundational Markets $46 million.

The 2016 target awards and STIP payouts for the NEOs are shown in the table below. Please see the notes to the Grants of Plan-Based Awards table on page 47 for more information regarding the impact of the modifiers on these payouts.

Named executive officer		Target STIP payment as percentage of salary (%)		2016 target STIP payout ($)		2016 STIP payout ($)		STIP payment as percentage of target (%)
Stephen Easterbrook		175%		2,275,000		4,447,625		195.5
Kevin Ozan		100%		700,000		1,368,500		195.5
Douglas Goare		90%		616,500		1,057,760		171.6
Michael Andres		90%		576,000		1,080,720		187.6
Silvia Lagnado		80%		494,400		966,552		195.5
Peter Bensen		84%		819,160		1,601,457		195.5
David Hoffmann		67%		—		—		0

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LONG-TERM INCENTIVE COMPENSATION

RSUs

An RSU provides the right to receive a share of McDonald’s stock subject to both service- and performance-based vesting requirements.

RSUs granted to executives in 2016 as part of the annual cycle are scheduled to vest on the third anniversary of the grant date, subject to the Company’s achievement of two key financial metrics, compound annual net income growth and ROIIC, along with a modifier based on relative TSR over the 2016-2018 performance period, as illustrated in the graphic below. These awards also align executive pay with shareholder value by delivering any payout in the form of shares of Company stock.

STOCK OPTIONS

Options have an exercise price equal to the closing price of our common stock on the grant date, a term of ten years and vest ratably over four years, subject to continued service. Options require executives to drive share price increases in order to receive value from awards and thereby closely align executive pay with shareholder interests. The Company’s policies and practices regarding option grants, including the timing of grants and the determination of the exercise price, are described on page 43.

OUTSTANDING CASH LTIP AWARDS FROM PRIOR YEARS

In 2016, the Committee eliminated the Cash LTIP, and instead grants long-term incentives in the form of options and performance-based RSUs in generally equal economic proportions. This transition was designed to simplify our long-term incentive design, better align with market practice and to more closely align executive compensation with shareholder interests. As a result of this transition, in 2016, executives received larger option and RSU awards than in previous years (see the Summary Compensation Table on page 44 for more information regarding these awards).

The 2014-2016 Cash LTIP was paid in March 2017 at 15.6% of target, based on performance during that period (see pages 36 and 39 for information on the exclusions applied for 2016). The 2015-2017 Cash LTIP remains outstanding and will be paid in March 2018. Payouts will be initially determined based on the following quantitative measures over the three-year performance period: growth in operating income and ROIIC. 2015-2017 Cash LTIP payouts will be adjusted, positively or negatively, by first applying a modifier based on share of traffic and then applying a multiplier based on cumulative TSR versus the S&P 500 Index for the performance period.

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The following graphic depicts the calculation of the outstanding 2015-2017 Cash LTIP payouts:

RETIREMENT SAVINGS ARRANGEMENTS
We believe a competitive retirement program contributes to the recruitment and retention of top executive talent. NEOs participate in the same tax-qualified defined contribution retirement savings plan and supplemental non-qualified deferred compensation retirement plan applicable to U.S.-based employees.

SEVERANCE AND CHANGE IN CONTROL ARRANGEMENTS
NEOs participate in our U.S. broad-based severance plan. Benefits under the severance plan are described under “Potential Payments Upon Termination of Employment” on page 51.

The Company no longer has any change of control agreements and will not enter into new change in control agreements going forward.

PERQUISITES AND OTHER BENEFITS
McDonald’s provides the following limited perquisites to NEOs: car allowance, financial planning, physical examination (which are also available for the NEOs’ spouses), life insurance, executive security (for select NEOs), matching charitable donation, limited personal items and, generally in the case of the CEO only (and the CAO prior to retirement), personal use of the Company’s aircraft, subject to reimbursement of a portion of the cost of personal use. The Company does not provide any tax gross-ups on perquisites. NEOs also participate in all of the broad-based benefit and welfare plans available to Company staff in general.

RETIREMENTS OF MICHAEL ANDRES AND PETER BENSEN
Messrs. Andres and Bensen retired on December 31, 2016 and September 2, 2016, respectively. In connection with each executive’s retirement, the Committee agreed to waive certain notice and service requirements pursuant to the terms of their respective equity awards. These waivers permitted each executive to vest in all outstanding RSU awards upon retirement, subject to the original performance-based vesting conditions. Each executive will also continue to vest in their respective outstanding options pursuant to the original vesting schedules and such options shall remain outstanding until their original expiration dates. In addition, Messrs. Andres and Bensen received service credit through March 1, 2017, enabling them to fully vest in their 2016 option awards. In exchange for these additional benefits, each agreed to extend the non-compete period following their retirement, from the Company’s customary eighteen month period (twenty months for Mr. Andres and twenty-four months for Mr. Bensen).

See pages 51 and 52 for information regarding the Company’s customary treatment of equity awards upon termination.

RESIGNATION OF DAVID HOFFMANN
Mr. Hoffmann resigned from the Company on September 30, 2016. Mr. Hoffmann did not receive severance and, upon his resignation, he forfeited his 2016 STIP award, his Cash LTIP awards and all unvested option and RSU awards. Pursuant to an existing tax equalization arrangement, the Company made certain foreign tax payments on behalf of Mr. Hoffmann arising from his exercise of options granted during his international assignment.

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COMPENSATION POLICIES AND PRACTICES

POLICY REGARDING MANAGEMENT’S STOCK OWNERSHIP
The Company maintains stock ownership requirements because it believes executives will more effectively pursue the long-term interests of shareholders if they are long-term shareholders themselves. The Committee reviews compliance with these stock ownership requirements annually. Based on the most recent annual evaluation, all executives are in compliance with the policy.

The following table illustrates our stock ownership requirements.

Stock ownership requirements		Multiple of salary
President & CEO		6x
Other NEOs (prior to retirement, Mr. Bensen’s ownership requirement was 5x)		4x

Executives have five years to achieve their required ownership level. This five-year period restarts when an executive is promoted to a position with a higher ownership requirement. If an executive is not on track to meet his/her ownership requirements following the third year of the five-year period, he or she must retain the lesser of 50% of the net after-tax shares received upon the vesting of an RSU award or such percentage of net after-tax shares necessary to satisfy the applicable requirement. If an executive has not achieved the requisite stock ownership within five years, he or she must retain 100% of the net after-tax shares received upon the vesting of an RSU award and/or a stock option exercise until the required ownership level is attained.

The Company has adopted restrictions that prohibit executives from engaging in derivative transactions to hedge the risk associated with their stock ownership. Further, executives may not enter into an agreement that has the effect of transferring or exchanging economic interest in any award.

INDEPENDENT COMPENSATION CONSULTANT
The Committee has the sole authority to retain and dismiss an independent compensation consultant, and has engaged FW Cook as its consultant. FW Cook also provides assistance to the Board in compiling and summarizing the results of Board and Director evaluations and advising on Director fees. Consistent with its Charter, the Committee regularly considers FW Cook’s independence and, in 2016, the Committee concluded that FW Cook is independent and that its work for the Committee did not raise any conflicts of interest. Management may not engage the Committee’s consultant for any purpose.

CLAWBACKS AND FORFEITURE PROVISIONS
The Company’s equity grant agreements contain a repayment/forfeiture provision that triggers repayment of any benefits received in connection with such grants as may be required to comply with (i) New York Stock Exchange listing standards adopted in accordance with Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (regarding recovery of erroneously awarded compensation) and any implementing rules and regulations of the Securities and Exchange Commission adopted thereunder, (ii) similar rules under the laws of any other jurisdiction and (iii) any policies adopted by the Company to implement such requirements, all to the extent determined by the Company in its discretion to be applicable to the award recipient.

RISK AND COMPENSATION PROGRAMS
Our compensation program is designed to mitigate the potential to reward unreasonable risk-taking that may produce short-term results that appear in isolation to be favorable, but that may undermine the successful execution of our long-term business strategy and erode shareholder value. In particular, our executive compensation program seeks to provide an appropriate balance of short-term and long-term incentives. Our incentive program incorporates performance metrics related to various measures of operational performance. By diversifying the time horizons and the applicable performance metrics of our incentives, we seek to mitigate the risk of significant compensation payments based on accomplishments in one area that may have a negative consequence for our business as a whole.

The Company reviews its compensation programs, including broad-based programs, taking into consideration the factors described above. Based on this review, the Company does not believe that the risks arising from its compensation program are reasonably likely to have a material adverse effect on the Company.

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INTERNAL PAY EQUITY
Compensation opportunities reflect our executive officers’ positions, responsibilities and tenure in a given position and are generally similar for executives who have comparable levels of responsibility (although actual compensation delivered may differ depending on relative performance). Although our executive pay decisions are based on individual performance and other criteria, we consider the potential impact of internal pay equity on morale, incentive, management alignment and succession planning. In addition, from time to time, we make special one-time equity awards to executives in connection with their hiring or promotion. These awards permit us to meet one-time business objectives with minimum impact to long-term pay equity.

POLICY WITH RESPECT TO TAX DEDUCTIBILITY OF COMPENSATION
Our compensation programs are designed to permit the Company to deduct compensation expense under Section 162(m) of the Internal Revenue Code (Code), which limits the tax deductibility of annual compensation paid to executives to $1 million, unless the compensation is performance-based. However, the Company may, from time to time, pay compensation that does not qualify as performance-based compensation under Section 162(m) of the Code.

POLICIES AND PRACTICES REGARDING EQUITY AWARDS
We have a policy to not grant equity awards when the Company possesses material non-public information. The Company generally makes broad-based equity grants at approximately the same time each year following our release of financial information; however, the Company may choose to make equity awards outside of the annual broad-based grant (e.g., for certain new hires or promotions). Stock options may be granted only with an exercise price at or above the closing market price of the Company’s stock on the date of grant.

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COMPENSATION TABLES

SUMMARY COMPENSATION TABLE
The table below summarizes the total compensation earned by our NEOs in 2016, 2015 and 2014.

Name and principal position (a)	Year (b)		Salary ($)(c)	(4)		Bonus ($)(d)		Stock awards ($)(e)	(5)(6)		Option awards ($)(f)	(5)(7)				Non-equity incentive plan compensation ($)(g)	(5)(8)		All other compensation ($)(i)	(9)		Total ($)(j)
Stephen Easterbrook President and Chief Executive Officer(1)	2016		1,266,667			0		5,108,811			3,897,785			Annual:		4,447,625			523,665			15,355,746
														Long-term:		111,193
														Total:		4,558,818
	2015		1,025,000			0		2,968,674			2,104,524			Annual:		1,469,797			341,301			7,909,296
														Long-term:		0
														Total:		1,469,797
	2014		633,333			0		535,453			386,627			Annual:		0			134,449			1,689,862
														Long-term:		0
														Total:		0
Kevin Ozan Corporate Executive Vice President and Chief Financial Officer	2016		683,333			0		1,277,262			974,446			Annual:		1,368,500			110,247			4,437,188
														Long-term:		23,400
														Total:		1,391,900
	2015		568,333			0		534,434			378,818			Annual:		503,223			76,662			2,061,470
														Long-term:		0
														Total:		503,223
Douglas Goare President, International Lead Markets and Chief Restaurant Officer	2016		648,750			0		1,021,786			779,565			Annual:		1,057,760			1,249,941			4,849,062
														Long-term:		91,260
														Total:		1,149,020
	2015		586,667			0		623,463			441,950			Annual:		659,277			963,909			3,275,266
														Long-term:		0
														Total:		659,277
	2014		570,000			0		624,611			451,055			Annual:		0			1,259,655			2,905,321
														Long-term:		0
														Total:		0
Michael Andres President, McDonald’s USA(2)	2016		636,667			0		919,691			701,610			Annual:		1,080,720			107,769			3,517,437
														Long-term:		70,980
														Total:		1,151,700
Silvia Lagnado Corporate Executive Vice President and Global Chief Marketing Officer(3)	2016		615,000			337,500		1,138,466			350,805			Annual:		966,552			54,848			3,463,171
														Long-term:		0
														Total:		966,552
Peter Bensen Former Chief Administrative Officer(2)	2016		653,333			0		1,839,263			1,403,206			Annual:		1,601,457			207,092			5,868,801
														Long-term:		164,450
														Total:		1,765,907
	2015		941,667			0		1,068,782			757,635			Annual:		1,021,558			186,424			3,976,066
														Long-term:		0
														Total:		1,021,558
	2014		858,333			0		1,026,200			741,028			Annual:		0			168,735			2,794,296
														Long-term:		0
														Total:		0
David Hoffmann Former President, High Growth Markets(2)	2016		454,167			0		911,938			695,754			Annual:		0			1,567,704			3,629,563
														Long-term:		0
														Total:		0
	2015		586,667			0		534,434			378,818			Annual:		227,462			1,200,155			2,927,536
														Long-term:		0
														Total:		227,462
	2014		533,333			0		490,832			354,401			Annual:		0			1,381,119			2,759,685
														Long-term:		0
														Total:		0

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(1)	Mr. Easterbrook was promoted to CEO in 2015. In connection with this promotion, Mr. Easterbrook’s 2015 compensation increased significantly, as reflected in the table.
(2)	Mr. Andres retired from the Company, effective December 31, 2016. Mr. Bensen retired from the Company, effective September 2, 2016. Mr. Hoffmann resigned from the Company on September 30, 2016.
(3)	As an incentive to join the Company, Ms. Lagnado received a cash sign-on bonus, $337,500 of which was paid in 2016. Ms. Lagnado also received sign-on equity grants, as described in Footnote 7 to the Grants of Plan-Based Awards table on page 47.
(4)	Reflects annual increases in base salary that took effect during 2016. Annual base salaries as of December 31, 2016 were as follows: Messrs. Easterbrook: $1,300,000; Ozan: $700,000; Goare: $685,000; and Andres: $640,000; and Ms. Lagnado: $618,000. The base salary of each of Messrs. Bensen and Hoffmann as of the last day of employment was $975,000 and $610,000, respectively.
(5)	In 2016, the Committee eliminated the Cash LTIP and replaced the value with additional performance-based RSUs and options in generally equal proportions. As a result, the Summary Compensation Table reflects higher RSU and option awards in 2016 than in prior years. The 2014-2016 Cash LTIP was paid in March 2017 and is reflected in the "Long-term" row of column (g). The 2015-2017 Cash LTIP remains outstanding, and will be paid in 2018, subject to the achievement of threshold levels of performance. Any such payout will be disclosed in the 2018 Proxy Statement. For more information regarding this transition, see pages 36 and 40.
(6)	Computed in accordance with ASC 718, this represents the aggregate grant date fair value based on the probable outcome of the applicable performance conditions and excluding the effect of estimated forfeitures during the applicable vesting periods of RSUs granted under the McDonald’s Corporation 2012 Omnibus Stock Ownership Plan (2012 Plan). Values are based on the closing price of the Company’s common stock on the grant date, less the present value of expected dividends over the vesting period. Performance-based RSUs vest on the third anniversary of the grant date and are subject to performance-based vesting conditions linked to the achievement of net income, ROIIC and relative TSR targets over the performance period running from January 1, 2016 to December 31, 2018 (as described on page 40). For Ms. Lagnado, this also includes the additional grant of service-based RSUs that vested on February 11, 2017. Additional information is disclosed in the Grants of Plan-Based Awards table on pages 46 and 47 and the Outstanding Equity Awards at 2016 Year-end table on pages 48 and 49. A more detailed discussion of the assumptions used in the valuation of RSU awards may be found in the Notes to Consolidated Financial Statements under “Share-based Compensation” on page 46 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.
(7)	Computed in accordance with ASC 718, this represents the aggregate grant date fair value excluding the effect of estimated forfeitures during the applicable vesting periods of options. Options have an exercise price equal to the closing price of the Company’s common stock on the grant date, vest in equal installments over a four-year period and are subject to the 2012 Plan, as applicable. Values for options granted in 2016 are determined using a closed-form pricing model based on the following assumptions, as described in the footnotes to the consolidated financial statements: expected volatility based on historical experience of 19.2%; an expected annual dividend yield of 3.0%; a risk-free return of 1.2%; and expected option life based on historical experience of 5.9 years. Additional information about options is disclosed in the Grants of Plan-Based Awards table on pages 46 and 47 and the Outstanding Equity Awards at 2016 Year-end table on pages 48 and 49. A more detailed discussion of the assumptions used in the valuation of option awards may be found in the Notes to Consolidated Financial Statements under “Share-based Compensation” on pages 35 and 46 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.
(8)	Our annual cash incentive plan is referred to as STIP and our long-term cash incentive plan, which was discontinued in 2016, is referred to as Cash LTIP. Mr. Bensen’s STIP award was prorated through September 2, 2016.
(9)	“All other compensation” for 2016 includes the Company’s contributions to the 401k Plan and Deferred Compensation Plan as follows:

Also included are the following categories of perquisites: car allowance; financial planning; annual physical examinations for the executives and their spouses; executive security (for select executives); matching charitable donations; Company-paid life insurance; limited personal items; storage of household goods for Ms. Lagnado in the amount of $35,000 related to her relocation to the U.S from the United Kingdom; and personal use of the Company’s aircraft by the CEO and former Chief Administrative Officer (CAO), with a net cost to the Company in 2016 for Mr. Easterbrook of $302,279 and for Mr. Bensen of $53,802. In 2016, the CEO and CAO were the only executives permitted to use the aircraft for personal travel. However, in certain circumstances the CEO may at his discretion permit other executives to use the aircraft for personal travel. In addition, at the discretion of the CEO, other executives may be joined by their spouses on the aircraft. The Company does not provide any tax gross-ups on the perquisites described above.

The incremental cost of perquisites is included in the amount provided in the table and based on actual charges to the Company, except that corporate aircraft includes fuel, on-board catering, landing/handling fees, maintenance costs and crew costs and excludes fixed costs, such as pilot salaries and the cost of the aircraft. In accordance with Company policy, any executive who is permitted per the above to use the Company’s aircraft for personal use reimburses the Company for a portion of personal use of the corporate aircraft, calculated as the lower of (i) amount determined under the Code based on two times the Standard Industry Fare Level (SIFL) rate per person or (ii) 200% of the actual fuel cost.

In the case of the Company’s NEOs based overseas, Mr. Goare and, prior to his departure, Mr. Hoffmann, the amount in this column for 2016 also includes certain benefits in connection with their international assignments, as follows:

For Mr. Goare: Company-provided housing (in the amount of $130,237), which includes: rent, rental furniture, utilities, cleaning and a lease renewal fee; a cost-of-living adjustment (in the amount of $112,263); home leave travel allowance; tax preparation services; and tax equalization (in the amount of $835,774), which is designed to satisfy tax obligations arising solely as a result of his international assignment.

For Mr. Hoffmann: Company-provided housing (in the amount of $346,389), which includes: rent, rental furniture, utilities, maintenance, a security deposit and tenancy management; a cost-of-living adjustment; home leave travel allowance; educational expenses; transportation expenses; relocation expenses and related allowances; membership in an expatriate organization; tax preparation services; and tax equalization (in the amount of $894,685), which is designed to satisfy tax obligations arising solely as a result of his international assignment.

For each of Messrs. Goare and Hoffmann, certain amounts were paid in local currency. In these cases, when the information is available, the amounts reported reflect the exchange rate on the date the respective payments were made, and when the information is not available, the amounts reported reflect the average monthly exchange rate.

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Name (a)		Plan		Grant date (b)		Estimated future payouts under non-equity incentive plan awards(2)						Estimated future payouts under equity incentive plan awards(3)						All other stock awards: number of shares of stock or units (#)(i)		All other option awards: number of securities underlying option (#)(j)		Exercise or base price of option awards ($/Sh)(k)		Grant date fair value of stock and option awards ($)(l)	(4)
						Threshold ($)(c)		Target ($)(d)		Maximum ($)(e)		Threshold (#)(f)		Target (#)(g)		Maximum (#)(h)
Stephen Easterbrook		STIP				0		2,275,000		4,550,000
		Equity		2/11/16								0		42,834		85,668								5,108,811
		Plan(5)
		Equity		2/11/16																285,552		116.73		3,897,785
		Plan(6)
Kevin Ozan		STIP				0		700,000		1,400,000
		Equity		2/11/16								0		10,709		21,418								1,277,262
		Plan(5)
		Equity		2/11/16																71,388		116.73		974,446
		Plan(5)
Douglas Goare		STIP				0		616,500		1,233,000
		Equity		2/11/16								0		8,567		17,134								1,021,786
		Plan(5)
		Equity		2/11/16																57,111		116.73		779,565
		Plan(6)
Michael Andres(1)		STIP				0		576,000		1,152,000
		Equity		2/11/16								0		7,711		15,422								919,691
		Plan(5)
		Equity		2/11/16																51,400		116.73		701,610
		Plan(6)
Silvia Lagnado		STIP				0		494,400		988,800
		Equity		2/11/16								0		3,856		7,712								459,905
		Plan(5)
		Equity		2/11/16																25,700		116.73		350,805
		Plan(6)
		Equity		2/11/16														5,997						678,561
		Plan(7)
Peter Bensen(1)		STIP				0		819,160		1,638,320
		Equity		2/11/16								0		15,421		30,842								1,839,263
		Plan(5)
		Equity		2/11/16																102,799		116.73		1,403,206
		Plan(6)
David Hoffmann(1)		STIP				0		411,000		822,000
		Equity		2/11/16								0		7,646		15,292								911,938
		Plan(5)
		Equity		2/11/16																50,971		116.73		695,754
		Plan(6)

(1)	In connection with Messrs. Andres and Bensen’s retirements, the Committee waived certain notice and service requirements pursuant to their equity awards, so that each executive will vest in all outstanding RSU awards, subject to the original performance-based vesting conditions. Each executive will also continue to vest in outstanding options pursuant to their original vesting schedule and such options shall remain outstanding until the original expiration date. Mr. Hoffmann forfeited certain benefits, including all unvested equity awards, in connection with his resignation.
(2)	In 2016, each of the NEOs received an annual cash award under the STIP. Columns (d) and (e) show the target and maximum awards they could have earned. Actual STIP payouts are in column (g) of the Summary Compensation Table. The amount paid to Mr. Bensen was prorated to reflect service during 2016, and Mr. Hoffmann’s award was forfeited upon his resignation.
	STIP awards for 2016 were equal to a percentage of salary. STIP measures performance using a "team factor" that is initially determined based on growth in operating income. See the Compensation Discussion and Analysis at page 39 for a discussion of operating income targets, as adjusted for turnaround-related exclusions. The target level of growth produces a 100% payout and a payout can be achieved from the threshold of 0% to the maximum. Payouts can then be adjusted up or down, within specified limits, based on “modifiers” that reflect other measures of Corporate and/or segment performance that are important drivers of our business. In 2016, these modifiers included comparable guest count growth and, for the U.S. segment, customer satisfaction. The target amount is multiplied by the team factor, which includes the modifiers. The maximum STIP payout is 200% of target.
(3)	In 2016, the NEOs received two types of equity awards: RSUs subject to performance-based vesting conditions (see columns (f), (g), (h) and (l)) and options (see columns (j), (k) and (l)).

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(4)	The values in this column for RSUs and options were determined based on the assumptions described in footnotes 6 and 7, respectively, to the Summary Compensation Table.
(5)	Reflects grants of RSUs subject to performance-based vesting conditions. The RSUs vest on February 11, 2019, subject to achievement of compound annual net income growth of 5% and 3-year ROIIC of 10-25%. If the targets are achieved, 100% of the RSUs will vest. If net income growth and ROIIC performance is either above or below the target range, the awards will vest proportionally, as determined by the Committee. In addition, if net income growth and ROIIC thresholds are achieved, a TSR modifier can impact final payouts by up to plus or minus 20 percentage points. The maximum payout is 200% of target. See page 40 for more information.
(6)	Reflects grants of options in 2016. For details regarding options, refer to footnote 7 to the Summary Compensation Table.
(7)	As an incentive to join the Company, Ms. Lagnado received an equity grant of service-based RSUs in each of 2015, 2016 and 2017. The 2016 award is reflected in this table (see column (i)).

2016 STIP
The target STIP awards, the team factors (including the impact of the modifiers), and the final payouts for the NEOs in 2016 are summarized below:

Named executive officer		Target STIP award (% of salary)		Applicable team factor(s)		Team factor(s) before application of modifiers (% of target award)		Impact of modifiers (% added or subtracted)		Final STIP award ($)	(2)
Stephen Easterbrook		175		Corporate		205.0		-9.5		4,447,625
Kevin Ozan		100		Corporate		205.0		-9.5		1,368,500
Douglas Goare		90		Corporate (25%)		205.0		-9.5		1,057,760
				International Lead Markets (75%)		163.2		0.4
Michael Andres		90		Corporate (25%)		205.0		-9.5		1,080,720
				U.S. (75%)		185.0		0.0
Silvia Lagnado		80		Corporate		205.0		-9.5		966,552
Peter Bensen(1)		84		Corporate		205.0		-9.5		1,601,457
David Hoffmann		67		Corporate (25%)		205.0		-9.5		0
				High Growth Markets (75%)		215.0		-9.2

(1)	The target award was prorated for Mr. Bensen for his service through September 2, 2016.
(2)	These amounts are also reflected in column (g) to the Summary Compensation Table. Mr. Hoffmann forfeited his 2016 STIP payment upon his resignation.

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		Option awards										Stock awards
Name (a)		Number of securities underlying unexercised options exercisable (#)(b)	(2)		Number of securities underlying unexercised options unexercisable (#)(c)	(2)		Option exercise price ($)(e)		Option expiration date (f)		Number of shares or units of stock that have not vested (#)(g)	(3)		Market value of shares or units of stock that have not vested ($)(h)	(4)		Equity incentive plan awards: number of unearned shares, units or other rights that have not vested (#)(i)	(5)		Equity incentive plan awards: market or payout value of unearned shares, units or other rights that have not vested ($)(j)	(4)(5)
Stephen Easterbrook		35,235			11,744			98.42		06/14/2023
		15,807			15,806			94.89		02/12/2024
		50,444			151,332			97.15		03/16/2025
		0			285,552			116.73		02/11/2026								83,470			10,159,968
Kevin Ozan		12,875			0			57.08		02/11/2019
		12,447			0			63.25		02/10/2020
		11,755			0			75.93		02/09/2021
		20,291			0			100.05		02/08/2022
		7,980			2,659			94.00		02/13/2023
		5,667			5,662			94.89		02/12/2024
		9,080			27,240			97.15		03/16/2025
		0			71,388			116.73		02/11/2026		2,108			256,586			16,886			2,055,364
Douglas Goare		17,286			0			75.93		02/09/2021
		38,481			0			100.05		02/08/2022
		25,932			8,643			94.00		02/13/2023
		18,441			18,440			94.89		02/12/2024
		10,594			31,779			97.15		03/16/2025
		0			57,111			116.73		02/11/2026								23,150			2,817,818
Michael Andres(1)		16,668			16,666			93.75		09/16/2024
		9,080			27,240			97.15		03/16/2025
		0			51,400			116.73		02/11/2026								20,555			2,501,955
Silvia Lagnado		5,205			15,609			98.92		08/07/2025
		0			25,700			116.73		02/11/2026		5,997			729,955			7,395			900,119
Peter Bensen(1)		46,105			0			75.93		02/09/2021
		59,996			0			100.05		02/08/2022
		39,894			13,298			94.00		02/13/2023
		30,297			30,294			94.89		02/12/2024
		18,160			54,480			97.15		03/16/2025
		0			102,799			116.73		02/11/2026								39,894			4,855,898
David Hoffmann(1)		—			—			—		—		—			—			—			—

(1)

In connection with Messrs. Andres and Bensen’s retirements, the Committee waived certain notice and service requirements pursuant to their equity awards, so that each executive will vest in all outstanding RSU awards, subject to the original performance-based vesting conditions. Each executive will also continue to vest in outstanding options pursuant to their original vesting schedule and such options shall remain outstanding until the original expiration date. Mr. Hoffmann forfeited certain benefits, including all unvested equity awards, in connection with his resignation.

(2)

In general, options expire on the tenth anniversary of grant. For details regarding customary equity treatment upon termination, see pages 51 and 52.

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(3)	Our typical practice is to grant RSUs subject to performance-based vesting conditions to our NEOs. Mr. Ozan’s RSUs shown in columns (g) and (h) were not subject to performance-based vesting conditions as they were granted prior to Mr. Ozan’s promotion to CFO. These RSUs vested on February 12, 2017. Ms. Lagnado’s RSUs shown in columns (g) and (h) reflect a sign-on grant of service-based RSUs, which vested on February 11, 2017.
(4)	Calculated by multiplying the number of shares covered by the award by $121.72, the closing price of Company stock on the New York Stock Exchange on December 30, 2016, the last trading day in 2016.
(5)	Reflects unvested performance-based RSUs that are scheduled to be paid out as follows if the targets are met (or were paid out, in the case of awards that vested in early 2017):

(1)   35% of these shares vested as a result of the Company’s performance during the 2014-2016 performance period.

		Option awards				Stock awards
Name (a)		Number of shares acquired on exercise (#)(b)		Value realized on exercise ($)(c)		Number of shares acquired on vesting (#)(d)		Value realized on vesting ($)(e)
Stephen Easterbrook		0		0		2,350		287,899
Kevin Ozan		13,007		944,265		2,128		250,955
Douglas Goare		32,230		1,941,253		1,135		133,851
Michael Andres		0		0		532		61,329
Silvia Lagnado		0		0		7,077		843,649
Peter Bensen(1)		129,507		7,333,317		1,746		205,906
David Hoffmann(1)		86,368		2,655,987		655		77,244

(1)   Mr. Bensen exercised 114,350 stock options, and Mr. Hoffmann exercised 56,023 stock options, following their respective departures from the Company.

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Name (a)		Executive contributions in last FY ($)(b)	(1)	Registrant contributions in last FY ($)(c)	(1)	Aggregate earnings in last FY ($)(d)		Aggregate withdrawals/ distributions ($)(e)	(2)	Aggregate balance at last FYE ($)(f)	(3)
Stephen Easterbrook		123,573		173,002		4,709		0		490,846
Kevin Ozan		213,311		74,659		162,408		0		2,845,530
Douglas Goare		172,204		80,362		254,862		0		3,471,752
Michael Andres		777,950		75,060		66,773		(345,172)		4,035,313
Silvia Lagnado		0		0		0		0		0
Peter Bensen		143,489		100,442		131,096		0		8,530,112
David Hoffmann		54,621		38,234		(48,216)		(19,930)		1,264,318

(1)	Represents salary deferrals which are also reported as compensation for 2016 in the Summary Compensation Table.
(2)	The amount for Mr. Andres reflects his deferred compensation plan account balance prior to his rejoining the Company, and the payments are being made in accordance with the required schedule. The amount for Mr. Hoffmann reflects the balance paid upon his resignation.
(3)	Includes the following aggregate amounts reported in the Summary Compensation Table in prior years:

DEFERRED COMPENSATION PLAN
Effective January 1, 2017, the Company’s Excess Benefit and Deferred Bonus Plan was renamed the Deferred Compensation Plan (Deferred Plan). The Deferred Plan is a non tax-qualified, unfunded deferred compensation plan that allows senior management and certain highly compensated staff employees to: (i) make tax-deferred contributions from their salary, STIP and, for performance periods beginning prior to January 1, 2017, Cash LTIP awards; and (ii) receive Company matching contributions (on deferrals of salary and STIP awards only), in excess of the Internal Revenue Service (IRS) limits under the Company’s 401k Plan.

At the time of deferral, participants may elect to receive distributions either in a lump-sum or in regular installments over a period of up to 15 years following separation from service. Commencement of distributions are delayed for six months following separation from service.

Deferrals are nominally invested in investment options selected by participants and are credited with a rate of return based on the investment option(s) selected. The investment options are currently based on returns of the 401k Plan’s Capital Preservation Fund, Large Cap Equity Index Fund, and the Company’s Common Stock Fund.

SUPPLEMENTAL PROFIT SHARING AND SAVINGS PLAN
Prior to the adoption of the Excess Benefit and Deferred Bonus Plan in 2005, the Company’s Supplemental Profit Sharing and Savings Plan (Supplemental Plan) allowed participants to defer compensation in excess of the IRS limits that applied to the 401k Plan. The Supplemental Plan allowed deferrals of salary and all or a portion of cash incentives as well as Company contributions on deferrals of salary and STIP. At the end of 2004, the Company froze the Supplemental Plan. The investment options for existing accounts under the Supplemental Plan are identical to those under the Deferred Plan. A participant may elect to have distributions in a single lump-sum, in installments commencing on a date of the participant’s choice or in an initial lump-sum payment with subsequent installment payments.

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Distributions may commence in the year following termination or any later date and must be completed within 25 years. If the participant does not file a distribution election in the year of termination, the participant’s entire Supplemental Plan balance is paid out in cash in the calendar year following termination. In-service and hardship withdrawals are permitted subject to certain conditions.

POTENTIAL PAYMENTS UPON TERMINATION OF EMPLOYMENT OR CHANGE IN CONTROL
Our NEOs are entitled to certain payments and benefits in connection with a termination of employment or change in control followed by termination of employment, as described below. Post-termination arrangements for Messrs. Andres, Bensen, and Hoffmann, who were either not employed with the Company on December 31, 2016 or who retired on that date, are discussed separately at the end of this section.

TERMINATION OF EMPLOYMENT

SEVERANCE PLAN

Messrs. Easterbrook, Ozan, Goare and Ms. Lagnado would have received severance benefits under the McDonald’s Corporation Severance Plan (Severance Plan) if they were terminated by the Company without “cause,” due to a reduction in work force or job elimination on December 31, 2016. The Severance Plan excludes severance benefits in the event of termination for performance reasons.

The applicable benefits consist of a lump-sum payment with respect to severance pay, based on final salary, and a continued subsidy of medical and dental benefits. Amounts are based on position and length of service. In addition, in a covered termination, each eligible NEO would receive prorated STIP and Cash LTIP payments based on actual performance (and paid at the same time payments are made to other participants), unused sabbatical leave, and transitional assistance. Payments would be delayed for six months following termination of employment to the extent required under Code Section 409A.

The value of the benefits that would have been payable to eligible NEOs under the Severance Plan, assuming a covered termination of employment on December 31, 2016, are set forth below.

Name		Salary continuation ($)		Benefit continuation ($)		Cash LTIP ($)		Other (sabbatical and transition assistance) ($)		Total ($)
Stephen Easterbrook		650,000		2,591		2,126,543		25,000		2,804,134
Kevin Ozan		511,538		3,787		383,333		119,692		1,018,351
Douglas Goare		685,000		17,670		390,000		12,000		1,104,670
Silvia Lagnado		309,000		6,842		195,972		12,000		523,814

STOCK OPTIONS

Unvested options are generally forfeited on termination of employment, with vested options remaining outstanding and exercisable for 90 days, except on termination for “cause.”

If the NEO qualifies for favorable treatment (by satisfying the conditions for retirement or “special circumstances,” which includes termination by the Company without “cause,” and agreeing to the restrictive covenants), the options continue to become exercisable on the originally scheduled dates and remain exercisable for an extended post-termination exercise period (the full term of the option in the case of retirement and for a lesser period in the case of “special circumstances”), as applicable. If a NEO terminates employment as a result of death or disability, the options vest upon termination and remain exercisable for an extended post-termination exercise period. If a NEO violates a restrictive covenant following termination, the Company may cancel any outstanding options. Further, if a NEO terminates employment for any reason other than death or disability, all options granted in the last 12 months are generally forfeited upon termination, although the Company may elect to waive that forfeiture.

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RSUs

Unvested RSUs are generally forfeited on termination of employment. As discussed on page 40, the Company’s practice generally is to grant NEOs RSUs subject to performance-based vesting conditions. In the case of certain termination events (including retirement and termination by the Company without “cause”), generally NEOs are entitled to full or pro-rata vesting with respect to their unvested RSUs; however, performance-based RSUs are not accelerated on termination of employment and vesting remains subject to the satisfaction of the applicable performance conditions, which is determined following completion of the performance period. Further, if a NEO terminates employment for any reason other than death or disability, all RSUs granted in the last 12 months are generally forfeited upon termination, although the Company may elect to waive that forfeiture. Further, the Committee may waive the achievement of performance goals on death or disability. With respect to the performance-based RSUs held by our NEOs, we are not able to calculate the hypothetical value that each NEO could have realized as a result of a termination of employment, as vesting is based not only on the portion of the vesting period in which the NEO remained employed, but also on the Company’s actual performance through the entire performance period.

Mr. Ozan held service-based RSUs, which were granted to him prior to his promotion to Corporate Executive Vice President and CFO. If Mr. Ozan were terminated by the Company on December 31, 2016, he would have realized a value of $249,526 as a result of the accelerated pro-rata vesting of these RSUs. If Mr. Ozan retired on December 31, 2016, he would have realized a value of $256,586. In each case, amounts are based on the closing price of the Company’s common stock on December 30, 2016.

Per the terms of her sign-on arrangement, Ms. Lagnado was granted service-based RSUs. In the event Ms. Lagnado’s employment is involuntarily terminated by the Company without cause prior to the vesting date of this award, she will vest in a pro-rata portion of the RSUs granted based on the number of months worked during the vesting period, with a minimum prorated vesting equal to 6 months of service. If Ms. Lagnado’s employment had been involuntarily terminated by the Company on December 31, 2016, she would have realized a value of $669,217.

CHANGE IN CONTROL
A “change in control” is generally defined as either (i) the acquisition of 20% or more of our common stock or voting securities by a single purchaser or a group of purchasers acting together; (ii) the incumbent members of the Board cease to constitute at least a majority of the Board as a result of an actual or threatened election contest; (iii) a significant merger or other business combination involving the Company; or (iv) a complete liquidation or dissolution of the Company.

SEVERANCE PLAN PAYMENTS

Following a change in control, Messrs. Easterbrook, Ozan, and Goare and Ms. Lagnado would be entitled to payments under the Severance Plan as described above in the event their employment is terminated and they otherwise qualify for the payments and benefits thereunder. In addition, each NEO would have been entitled to a prorated Cash LTIP payment following a change in control based on actual performance through the date of the change in control for the year ended December 31, 2016. Assuming that a change in control occurred on December 31, 2016, the NEOs would have been entitled to the following Cash LTIP payments: Messrs. Easterbrook: $3,473,514; Ozan: $626,625; and Goare: $651,690; and Ms. Lagnado: $327,470, based on actual performance through such date.

CHANGE IN CONTROL AGREEMENT

The Company no longer has any change in control agreements.

Prior to his retirement, the Company was party to a change in control agreement with Mr. Bensen, which provided for: (i) a lump-sum cash payment equal to three times the sum of his salary, target annual bonus and contribution received under the Company’s deferred compensation plan; (ii) a pro-rata portion of the annual bonus based upon actual performance, reduced (but not below zero) by any portion of the annual bonus for that year previously paid to him, if any; (iii) a lump-sum payment equal to continued medical, life insurance, fringe and other benefits for three years after the termination; and (iv) a lump-sum cash payment for any accrued sabbatical leave. Mr. Bensen’s receipt of these benefits would have been subject to execution of an agreement that included restrictive covenants and a release of claims. Payment of these benefits would have been delayed for six months to the extent required under Code Section 409A. Mr. Bensen was also entitled to be reimbursed for excise tax payments that were considered to be contingent upon a change in control if the aggregate after-tax amount of benefits was at least 110% of what he would receive if benefits were reduced to a level that would not be subject to excise taxes. This agreement expired upon Mr. Bensen’s retirement.

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TREATMENT OF EQUITY AWARDS UPON A CHANGE IN CONTROL

Under the Company’s 2012 Omnibus Stock Ownership Plan (2012 Plan), upon a change in control, outstanding unvested options and RSUs will be replaced by equivalent awards based on publicly-traded stock of the successor entity. The replacement awards will vest and become exercisable (in the case of options) or be paid out (in the case of service-based RSUs) if the grantee’s employment is terminated for any reason other than “cause” within two years following the change in control. In addition, if employment is terminated other than for “cause” within two years following the change in control, all options will remain outstanding for not less than two years following termination or until the end of the original term, if sooner.

If the awards are not replaced (e.g., because the acquirer does not have publicly-traded securities) or if the Committee so determines, vesting will be accelerated. RSUs would vest (performance-based RSUs at target) and be paid out upon a Code Section 409A change in control; otherwise, the RSUs would be paid out on the originally scheduled payment date or, if earlier, on the NEO’s death, disability or termination of employment, subject to any required delay under Code Section 409A. Terminations initiated by the NEO will not result in accelerated vesting of replacement awards.

If a change in control had occurred on December 31, 2016 and either (i) the outstanding options and RSUs held by the NEOs could not be replaced or (ii) the Committee so determined, assuming that the transaction met the applicable definition of a change in control under the 2012 Plan and Code Section 409A: (i) options would have vested and (ii) RSUs would have vested and been paid out immediately (performance-based RSUs at target). The awards held by the NEOs as of December 31, 2016 are set forth in the Outstanding Equity Awards at 2016 Year-end table on pages 48 and 49.

The table below summarizes the value of the change in control payments that the NEOs could have received based on: (i) in the case of options, the “spread” between the exercise price and the closing price of the Company’s common stock on December 30, 2016 (the last trading day in 2016) and (ii) in the case of RSUs, the target number of shares, multiplied by the closing price of the Company’s common stock on December 30, 2016. The table sets forth the hypothetical value that the NEOs could have realized as a result of the accelerated equity awards, based on these assumptions. If there was no change in control, the amounts shown would have vested over time, subject to continued employment and, with respect to the RSUs, subject to performance-based vesting conditions.

Named executive officer		Stock options (closing price on 12/30/16 minus exercise price) ($)		RSUs (target number of shares multiplied by closing price on 12/30/16) ($)		Total ($)
Stephen Easterbrook		5,840,842		10,159,968		16,000,810
Kevin Ozan		1,251,132		2,311,950		3,563,082
Douglas Goare		1,800,123		2,817,818		4,617,941
Silvia Lagnado		484,128		1,630,074		2,114,202

DEFERRED COMPENSATION
Following separation from service for any reason, the NEOs will receive distributions from their accounts under the Deferred Plan and the Supplemental Plan in accordance with their elected distribution schedules, as described on page 50.

POST-TERMINATION ARRANGEMENTS FOR MESSRS. ANDRES, BENSEN AND HOFFMANN
In connection with Mr. Andres’ retirement on December 31, 2016, Mr. Andres received a 2016 STIP of $1,080,720 and also received $20,560 of a continued subsidy of health benefits for 18 months and $12,500 towards retirement planning. In connection with Mr. Bensen’s retirement in September, 2016, Mr. Bensen received a prorated 2016 STIP of $1,601,457 and $150,000 in lieu of untaken sabbatical, both of which were paid in March 2017. Mr. Bensen also received $20,618 of a continued subsidy of health benefits for 18 months and $12,500 towards retirement planning. As described in further detail on page 41, the Committee waived certain notice and service requirements for both Messrs. Andres and Bensen pursuant to their 2016 RSU and option awards in exchange for an extended non-compete provision. As a result, each executive will vest in all outstanding RSU awards, subject to the original performance-based vesting schedule and each will continue to vest in his outstanding options subject to their original vesting schedule. Outstanding options will remain outstanding until their original expiration dates. Mr. Hoffmann did not receive any additional payments and forfeited all unvested equity awards in connection with his departure from the Company.

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PROPOSAL NO. 2			Advisory vote to approve executive compensation

The Company is asking its shareholders to approve, on an advisory basis and as required pursuant to Section 14A of the Securities Exchange Act of 1934, the compensation awarded to the named executive officers for 2016, as described in the Executive Compensation section, beginning on page 34, which includes the Compensation Discussion and Analysis (CD&A) and the compensation tables and related narrative discussion.

As fully described in the CD&A, the Company’s executive compensation program is designed to support our business initiatives, align the interest of our executives with those of shareholders, and strongly link pay and performance. The Company believes its compensation program appropriately incentivizes executives through a mix of short- and long-term plans that reflect measurable, rigorous performance goals closely aligned with Company strategy.

In 2016, the Company’s turnaround efforts yielded strong results that support the above-target payouts under our annual cash incentive plan. However, as a result of performance challenges in prior years, payouts under the long-term plans were significantly below target levels. The Company believes that these pay outcomes demonstrate the appropriate mix of both short- and long-term plans as well as the rigorous target-setting process that highlights the program’s success in aligning pay and performance.

The Board believes that the Company’s executive compensation program appropriately incentivizes strong operational and financial performance in both the current year and over the long-term, thereby aligning the interests of executives with the interests of shareholders.

PROPOSAL NO. 3			Advisory vote on the frequency of future advisory votes to approve executive compensation

In addition to providing shareholders with the opportunity to cast an advisory vote to approve executive compensation, the Company is also asking its shareholders to provide an advisory, nonbinding vote on how frequently the advisory vote to approve executive compensation should be presented to shareholders, as required pursuant to Section 14A of the Securities Exchange Act of 1934. You may vote your shares to have the advisory vote held annually, every two years or every three years, or you may abstain.

After careful consideration of this proposal, the Board recommends an annual vote. When the Company’s shareholders last voted on this matter, a majority of shareholders voted in favor of an annual vote, and the Board adopted an annual frequency for executive compensation advisory votes. The Company respects the shareholders’ preference, and the Board believes that an annual frequency vote will allow shareholders to provide the Company with their input on the Company’s compensation philosophy, policies and practices as disclosed in the Proxy Statement every year.

While this vote is advisory and not binding on the Company, the Board expects to take into account the outcome of the vote, along with other relevant factors, when considering how frequently to present future advisory votes to approve executive compensation.

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PROPOSAL NO. 4			Approval of the material terms of the performance goals for awards under the McDonald’s Corporation 2012 Omnibus Stock Ownership Plan

The Company is asking its shareholders to approve the material terms of the performance goals (Performance Goals) for awards under the McDonald’s Corporation 2012 Omnibus Stock Ownership Plan (Plan). We are not amending or altering the Performance Goals or any other provision of the Plan.

BACKGROUND

Section 162(m) of the Internal Revenue Code (Section 162(m)) limits the deductibility of certain executive compensation paid to the Company’s Chief Executive Officer and the three highest compensated executive officers (other than the Chief Financial Officer), as determined pursuant to the executive compensation disclosure rules under the Securities Exchange Act of 1934. These executive officers are referred to as covered employees. An exemption from this limitation (the Performance Exception) applies to “performance-based” compensation as defined in the regulations under Section 162(m).

The Plan gives the Board’s Compensation Committee (Committee) the ability to grant equity incentive awards based upon the achievement of Performance Goals during specified periods that are designed to qualify for the Performance Exception, assuming the regulatory requirements are satisfied. One of the requirements under the Performance Exception is shareholder approval of the Performance Goals pursuant to which compensation is paid. The regulations under Section 162(m) require that, in order for awards under the Plan to qualify for the Performance Exception, shareholders must approve the material terms of the applicable Performance Goals every five years. The Performance Goals for awards under the Plan were last approved by shareholders on May 24, 2012. Therefore, the Company is asking for your approval of the Performance Goals again this year.

Nothing in the Plan or this Proxy Statement is intended to guarantee that the Company will always seek to ensure that its compensation qualifies as performance-based compensation, and no guarantee can be given that the terms of the Plan do in fact comply with the requirements for performance-based compensation, as they exist today or as they may change from time to time.

MATERIAL TERMS OF PERFORMANCE GOALS

PERFORMANCE MEASURES
For awards (other than stock options and stock appreciation rights) intended to qualify for the Performance Exception, the Performance Goals shall be based upon the attainment of specified levels of performance with respect to one or more of the following measures, applied to the Company as a whole or to any subsidiary, division or other unit of the Company: revenue; operating income; net income; basic or diluted earnings per share; return on revenue; return on assets; return on equity; return on total capital; total shareholder return; or any other measure of financial performance that can be determined pursuant to U.S. generally accepted accounting principles. These Performance Goals may be absolute or relative to the performance of one or more other companies comparable to the Company or of an index covering multiple companies. In establishing Performance Goals, the Committee may specify that there shall be excluded the effect of restructuring charges, discontinued operations, extraordinary items, cumulative effects of accounting changes, and other unusual or nonrecurring items, and asset impairment and the effect of foreign currency fluctuations, in each case as those items are defined under generally accepted accounting principles and provided in each case that such excluded items are objectively determinable by reference to the Company’s financial statements, notes to the Company’s financial statements and/or management’s discussion and analysis in the Company’s financial statements.

ELIGIBLE EMPLOYEES
The Plan may be used to grant performance-based awards to any employee of McDonald’s and its subsidiaries. Officers, other employees and non-employee directors of the Company and its subsidiaries are eligible to participate in the Plan, in the sole discretion of the Committee. As of December 31, 2016, approximately 375,000 employees, including the Company’s executive officers, and all non-employee directors were eligible to participate in the Plan, with approximately 200 officer level employees receiving awards with Performance Goals in recent years. The Committee anticipates that a comparable number of individuals will be selected for awards in the future.

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MAXIMUM AWARDS
Subject to the adjustment provisions included in the Plan, the maximum number of shares that may be granted to any grantee in any one-year period in the form of stock options or stock appreciation rights is 2,000,000 and the maximum number of shares that may be granted to any grantee in any one-year period in the form of restricted stock or other stock-based awards, in each case that are performance-based compensation awards under Section 162(m), is 500,000.

SUMMARY DESCRIPTION OF THE PLAN

AWARDS
The Plan provides for the granting of stock options, restricted stock units, stock bonuses, dividend equivalents and other stock-based awards. The closing price for the common stock on the New York Stock Exchange on March 1, 2017 was $129.05.

PLAN ADMINISTRATION
The Plan is administered by the Committee. Subject to the terms of the Plan, the Committee may delegate certain of its administrative responsibilities, and its powers may also be exercised by the full Board. Subject to the Plan, the Committee has the authority to administer the Plan, including the right to: approve the persons to whom, and the times when, awards are to be granted, as well as the type, size and terms of such awards and to modify such grants; interpret the Plan; accelerate the exercisability of and waive the restrictions and conditions applicable to, awards; and extend the time during which awards may be exercised (but not beyond 10 years).

AMENDMENT AND TERMINATION
The Plan and awards under it may be amended by our Board or the Committee, subject to shareholder approval if required by applicable law or stock exchange rules or to the extent the Board or the Committee seeks to amend the option repricing prohibition including in the Plan. No amendment may adversely affect outstanding awards without the consent of the affected grantee, unless the amendment does not materially decrease the value of the awards or is made to comply with applicable law, stock exchange rules or accounting rules. Moreover, in no event may any award be amended in any manner that would cause it to cease to qualify for the Performance Exception. The Plan will terminate on the 10^th anniversary of its effective date, unless terminated earlier by the Board.

NEW PLAN BENEFITS
Because the grant of awards pursuant to the Plan is within the discretion of the Committee, it is not possible to determine the awards that will be made under the Plan. Please see the “2016 Summary Compensation Table” and “2016 Grants of Plan-Based Awards Table” for the grant date fair values of the equity-based awards granted to our named executive officers during 2016. In addition, during 2016, all executive officers of the Company as a group (including the current named executive officers) were granted awards under the Plan with aggregate share targets of 657,851 shares.

The foregoing summary is qualified in its entirety by the full text of the Plan. The Plan is not part of this Proxy Statement. A copy of the Plan is available on the Company’s website at http://corporate.mcdonalds.com/mcd/investors.html, by clicking on “2017 Proxy Statement,” and the Securities and Exchange Commission’s website at www.sec.gov, where it is an exhibit to an electronic version of this Proxy Statement. We will provide you with a copy without charge if you call McDonald’s Corporation Shareholder Services at 800-228-9623, or write to us at McDonald’s Corporation, Shareholder Services, Department 720, One McDonald’s Plaza, Oak Brook, IL 60523-1928. Copies of the Plan will also be available at the Annual Shareholders’ Meeting.

CERTAIN FEDERAL INCOME TAX CONSEQUENCES

The following describes the principal United States federal income tax consequences related to options granted under the Plan.

Non-qualified Options. A grantee will not be subject to tax at the time a non-qualified option is granted, and no tax deduction is then available to the Company. Upon the exercise of a non-qualified option, an amount equal to the difference between the option price and the fair market value of the shares acquired on the date of exercise will be included in the grantee’s ordinary income and the Company will generally be entitled to deduct the same amount. Upon disposition of shares acquired upon exercise, appreciation or depreciation after the date of exercise will be treated by the grantee or transferee of the non-qualified option as either capital gain or capital loss.

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Executive Compensation

Incentive Stock Options. A grantee will not be subject to tax, and no tax deduction is available to the Company, at the time an incentive stock option is granted or exercised; however, the excess of the fair market value of the shares received upon exercise of the incentive stock option over the option price on the date of exercise is included in the grantee’s alternative minimum taxable income subject to the alternative minimum tax. Upon disposition of the shares acquired upon exercise of an incentive stock option, capital gain or capital loss will generally be recognized in an amount equal to the difference between the sale price and the option price, as long as the grantee has not disposed of the shares within two years of the date of grant or within one year from the date of exercise. If the grantee disposes of the shares without satisfying the holding period (a disqualifying disposition), the grantee will recognize ordinary income at the time of the disqualifying disposition to the extent of the difference between the option price and the fair market value of the shares on the date the incentive stock option is exercised, or the amount realized on such disqualifying disposition (if less). Any remaining gain or loss is treated as a capital gain or capital loss.

The Company is not entitled to a tax deduction upon either the exercise of an incentive stock option or upon disposition of the shares acquired pursuant to such exercise, except to the extent that the grantee recognized ordinary income in a disqualifying disposition.

THE BOARD’S RECOMMENDATION

The Board believes that the approval of the material terms of the Performance Goals under the Plan will permit the Committee to continue to grant performance-based equity incentive awards designed to qualify for the Performance Exception to those employees upon whose judgment and efforts the Company is largely dependent for the successful conduct of its operations. The Board believes that this is in the best interest of the Company.

If shareholders do not approve the material terms of the Performance Goals, management and the Committee will examine all of the available alternatives, including, but not limited to, granting equity compensation that does not qualify for the Performance Exception.

EQUITY COMPENSATION PLAN INFORMATION

The following table summarizes information about the Company’s equity compensation plans as of December 31, 2016. All outstanding awards relate to the Company’s common stock. Shares issued under all of the following plans may be from the Company’s treasury, newly issued or both.

Plan category		Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)		Weighted-average exercise price of outstanding options, warrants and rights (b)		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c)
Equity compensation plans approved by security holders		23,430,608(1)		$92.40		34,112,990
Equity compensation plans not approved by security holders		—		—		—
Total		23,430,608		$92.40		34,112,990

(1)	Includes 8,407,342 options granted under the McDonald’s Corporation 2001 Omnibus Stock Ownership Plan and 13,102,849 options and 1,920,417 restricted stock units granted under the McDonald’s Corporation 2012 Omnibus Stock Ownership Plan.

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AUDIT & FINANCE COMMITTEE MATTERS

AUDIT & FINANCE COMMITTEE REPORT

The role of the Audit & Finance Committee is to assist the Board of Directors in fulfilling its responsibility to oversee the Company’s financial reporting process. Management is primarily responsible for the Company’s financial statements, including the Company’s internal control over financial reporting. Ernst & Young LLP (Ernst & Young), the Company’s independent auditor, is responsible for performing an audit of the Company’s annual consolidated financial statements in accordance with generally accepted accounting principles and for issuing a report on those statements. Ernst & Young also reviews the Company’s interim financial statements in accordance with applicable auditing standards. The Audit & Finance Committee oversees the Company’s financial reporting process and internal control structure on behalf of the Board of Directors. The Audit & Finance Committee met regularly with Ernst & Young and the head of internal audit, both privately and with management present, during 2016.

In fulfilling its oversight responsibilities, the Audit & Finance Committee reviewed and discussed with management and Ernst & Young the audited and interim financial statements, including Management’s Discussion and Analysis, included in the Company’s Reports on Form 10-K and Form 10-Q.

In connection with its review of the Company’s annual consolidated financial statements, the Audit & Finance Committee also discussed with Ernst & Young other matters required to be discussed with the auditor under Auditing Standard 1301, as modified or supplemented (communication with audit committees), and those addressed by Ernst & Young’s written disclosures and its letter provided under the applicable requirements of the Public Company Accounting Oversight Board, as modified or supplemented (independence discussions with audit committees).

The Audit & Finance Committee is responsible for the engagement of the independent auditor and appointed Ernst & Young to serve in that capacity during 2016 and 2017. In that connection, the Audit & Finance Committee reviewed Ernst & Young’s independence from the Company and management, including Ernst & Young’s written disclosures described above.

Based on the reviews and discussions referred to above, the Audit & Finance Committee recommended to the Board of Directors that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 for filing with the SEC.

Respectfully submitted,

The Audit & Finance Committee

John Mulligan, Chair
Lloyd Dean
Margaret Georgiadis
Walter Massey
Sheila Penrose

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Audit & Finance Committee Matters

POLICY FOR PRE-APPROVAL OF AUDIT AND PERMITTED
NON-AUDIT SERVICES

The Audit & Finance Committee has a policy for the pre-approval of all audit and permitted non-audit services to be provided to the Company by its independent auditor. The Audit & Finance Committee may pre-approve engagements on a case-by-case basis or on a class basis if the relevant services are predictable and recurring.

Pre-approvals for classes of services are granted at the start of each fiscal year and are applicable for the year. In considering these pre-approvals, the Audit & Finance Committee reviews a description of the scope of services falling within each class and imposes budgetary estimates that are largely based on historical costs. Any audit or permitted non-audit service that is not included in an approved class, or for which total fees are expected to exceed the relevant budgetary estimate, must be pre-approved on an individual basis. Pre-approval of any individual engagement may be granted not more than one year before commencement of the relevant service. Pre-approvals of services that may be provided over a period of years must be reviewed for renewal each year.

The Chief Accounting Officer monitors services provided by the independent auditor and overall compliance with the pre-approval policy. The Chief Accounting Officer reports periodically to the Audit & Finance Committee about the status of outstanding engagements, including actual services provided and associated fees, and must promptly report any noncompliance with the pre-approval policy to the Chair of the Audit & Finance Committee.

In accordance with the policy, all services provided to the Company by Ernst & Young in 2015 and 2016 were pre-approved by the Audit & Finance Committee.

The policy is available on the Company’s website at http://corporate.mcdonalds.com/mcd/investors/corporate-governance/ governance-principles-policies-and-guidelines.html.

AUDITOR FEES AND SERVICES

The following table presents fees billed for professional services rendered for the audit of the Company’s annual financial statements for 2016 and 2015 and fees paid for other services provided by our independent auditor in those years:

(In millions)		2016		2015
Audit fees(1)		$12.0		$11.0
Audit-related fees(2)		1.7		0.5
Tax fees(3)		0.5		0.8
Total		$14.2		$12.3

(1)	Fees for services associated with the annual audit (including internal control reporting), statutory audits required internationally, reviews of Quarterly Reports on Form 10-Q and accounting consultations.
(2)	Fees for employee benefit plan audits and certain attestation services not required by statute or regulation. 2016 also includes audit-related fees associated with the Company’s refranchising related initiatives.
(3)	Primarily fees for tax compliance in various international markets.

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Audit & Finance Committee Matters

PROPOSAL NO. 5			Advisory vote to approve the appointment of Ernst & Young LLP as independent auditor for 2017

The Audit & Finance Committee is directly responsible for the appointment, compensation, retention, evaluation and termination of the independent external audit firm. The Committee has appointed Ernst & Young LLP as the Company’s independent external audit firm for 2017. In executing its responsibilities, the Committee engages in a thorough annual evaluation of Ernst & Young’s qualifications, performance and independence. Among other things, the Committee is informed by results of a comprehensive assessment survey of the firm by senior financial personnel from the Company’s headquarters and largest global markets, and discusses opportunities for improvement with the lead audit partner. The Committee has sole authority to approve all engagement fees to be paid to Ernst & Young. In assessing independence, the Committee reviews the fees paid, including those related to non-audit services, and annually reviews compliance with the Company’s Hiring Policy for Employees of External Audit Firm and Its Affiliates. The Committee regularly meets with the lead audit partner without members of management present, and in executive session with only the Committee members present, which provides the opportunity for continuous assessment of the firm’s effectiveness and independence and for consideration of rotating audit firms.

Ernst & Young or its predecessor, Arthur Young & Company, has been retained as the Company’s external audit firm continuously since 1964. In accordance with SEC rules and Ernst & Young policies, the firm’s lead engagement partner rotates every five years. The Audit & Finance Committee and its Chairman are directly involved in the selection of Ernst & Young’s lead engagement partner.

The Audit & Finance Committee and the Board of Directors believe that the continued retention of Ernst & Young LLP to serve as the Company’s independent external audit firm for 2017 is in the best interests of the Company and its shareholders, and the Board is asking shareholders to approve this appointment. A representative of the firm is expected to attend the Annual Shareholders’ Meeting and will be available to answer shareholders’ questions and have the opportunity to make a statement. If shareholders do not approve the appointment of Ernst & Young, the Audit & Finance Committee will reconsider the appointment.

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SHAREHOLDER PROPOSALS

The text of the shareholder proposals and supporting statements appear exactly as received by the Company unless otherwise noted. All statements contained in the shareholder proposals and supporting statements are the sole responsibility of the respective proponent(s). The shareholder proposals may contain assertions about the Company or other matters that the Company believes are incorrect, but the Company has not attempted to refute all such assertions. All website links included in the shareholder proposals, supporting statements and statements in opposition are not part of the Proxy Statement. The Board recommends a vote against all of the shareholder proposals based on the reasons set forth in the Board’s statements in opposition following each shareholder proposal.

The name and share ownership of each proponent of a shareholder proposal is set forth below. The address of each proponent, and the name and share ownership of any co-filer, are available, and will be provided promptly, upon request by calling 1-630-623-2553 or by sending a request to McDonald’s Corporation, Shareholder Services, Department 720, One McDonald’s Plaza, Oak Brook, IL 60523.

PROPOSAL NO. 6			Advisory vote on a shareholder proposal requesting a change to the vote-counting standard for shareholder proposals.

The Equality Network Foundation, represented by Investor Voice, SPC, has notified the Company that it intends to submit the following proposal at this year’s Annual Shareholders’ Meeting. As explained below, the Board recommends that you vote AGAINST this shareholder proposal. The proponent states that it beneficially owns 30 shares of McDonald’s common stock, and there were 816,753,115 shares outstanding as of the record date.

The proponent is responsible for the content of the following proposal, for which the Company and the Board accept no responsibility:

RESOLVED:

McDonald’s Corporation (“McDonald’s”) shareholders ask the Board to take or initiate steps to amend Company governing documents to provide that all non-binding matters presented by shareholders shall be decided by a