SEC Filings

DEFR14A
MEDTRONIC PLC filed this Form DEFR14A on 10/11/2017
Entire Document
 
MEDTRONIC PLC - DEFR14A

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. )

 

 Filed by the Registrant  Filed by a Party other than the Registrant

 

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EXPLANATORY NOTE

 

We have provided additional information with respect to Proposal 4 regarding the classes of individuals who are eligible to participate in the 2013 Plan.

 

PROXY STATEMENT and Notice of 2017 Annual General Meeting of Shareholders Friday, Dec. 8, 2017 ■ 8 a.m. local time ■ Dublin, Ireland

 

 

NOTICE OF ANNUAL GENERAL MEETING

 

Friday, December 8, 2017

8:00 a.m. local time

Conrad Dublin Hotel, Earlsfort Terrace, Dublin 2, Ireland

 

MEETING AGENDA

 

1. Electing, by separate resolutions, the twelve director nominees named in the proxy statement to hold office until the 2018 Annual General Meeting of the Company;
   
2. Ratifying, in a non-binding vote, the re-appointment of PricewaterhouseCoopers LLP as the Company’s independent auditor for Fiscal Year 2018 and authorizing, in a binding vote, the Board of Directors, acting through the Audit Committee, to set the auditor’s remuneration;
   
3. Approving on an advisory basis, the Company’s executive compensation;
   
4. Amending and restating the Medtronic plc Amended and Restated 2013 Stock Award and Incentive Plan;
   
5. Receiving and considering the Company’s Irish Statutory Financial Statements for the fiscal year ended April 28, 2017 and the reports of the directors and auditors thereon, and reviewing the affairs of the Company; and
   
6. Transacting any other business that may properly come before the meeting.

 

Proposals 1 to 4 above are ordinary resolutions requiring a simple majority of the votes cast at the meeting to be approved. All proposals are more fully described in this proxy statement. There is no requirement under Irish law that Medtronic’s Irish Statutory Financial Statements for the fiscal year ended April 28, 2017, or the directors’ and auditor’s reports thereon be approved by the shareholders, and no such approval will be sought at the Annual General Meeting.

 

RECORD DATE

 

Shareholders of record at the close of business on October 10, 2017, are entitled to vote at the meeting.

 

ONLINE PROXY DELIVERY AND VOTING

 

As permitted by the Securities and Exchange Commission, we are making this proxy statement, the Company’s annual report to shareholders, and our Irish statutory financial statements available to our shareholders electronically via the Internet. We believe electronic delivery expedites your receipt of materials, reduces the environmental impact of our Annual General Meeting and reduces costs significantly. The Notice Regarding Internet Availability of Proxy Materials (the “Notice”) contains instructions on how you can access the proxy materials and how to vote online. If you received the Notice by mail, you will not receive a printed copy of the proxy materials unless you request one in accordance with the instructions provided in the Notice. The Notice will be mailed to shareholders on or about October 24, 2017, and will provide instructions on how you may access and review the proxy materials on the Internet and how to vote.

 

ADMISSION TO THE ANNUAL GENERAL MEETING

 

If you wish to attend the Annual General Meeting, you must be a shareholder on the record date and either request an admission ticket in advance by visiting www.proxyvote.com and following the instructions provided (you will need the control number included on your proxy card, voter instruction form or Notice), or bring proof of ownership of ordinary shares to the meeting. Tickets will be issued to registered and beneficial owners and to one guest accompanying each registered or beneficial owner.

 

August 28, 2017

 

By order of the Board of Directors,

Bradley E. Lerman

Senior Vice President, General Counsel and Company Secretary

 

Important Notice Regarding the Availability of Proxy Materials for the Annual General Meeting of Shareholders to be held on December 8, 2017: This proxy statement, the Company’s 2017 Annual Report to Shareholders and our Irish Statutory Financial Statements for the year ended April 28, 2017, are available at www.proxyvote.com.

 

YOUR VOTE IS IMPORTANT. WE ENCOURAGE YOU TO VOTE.

If possible, please vote your shares over the Internet using the instructions found in the Notice. Alternatively, you may request a printed copy of the proxy materials and vote using the toll-free telephone number on the proxy card or by marking, signing, dating and mailing your proxy form in the postage-paid envelope that will be provided. All proxies will be forwarded to the Company’s registered office electronically. Voting by any of these methods will not limit your right to vote in person at the Annual General Meeting.

 

Under New York Stock Exchange rules, if you hold your shares in “street” name through a brokerage account, your broker will NOT be able to vote your shares on non-routine matters being considered at the Annual General Meeting unless you have given instructions to your broker prior to the meeting on how to vote your shares. Proposals 1, 3, and 4 are considered non-routine matters under New York Stock Exchange rules. This means that you must give specific voting instructions to your broker on how to vote your shares so that your vote can be counted.

 

TABLE OF CONTENTS

 

PROXY SUMMARY   05
     
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS   11
     
PROPOSAL 1 — ELECTION OF DIRECTORS   12
     
Directors and Nominees   12
     
CORPORATE GOVERNANCE   19
     
Our Corporate Governance Principles   19
Lead Independent Director and Chairman; Executive Sessions   19
Board Role in Risk Oversight   19
Compensation Risk Assessment   20
Committees of the Board and Meetings   20
Director Independence   26
Related Party Transactions and Other Matters   26
Complaint Procedure; Communications with Directors   27
Our Codes of Conduct   27
Director Compensation   28
     
SHARE OWNERSHIP INFORMATION   30
     
Significant Shareholders   30
Beneficial Ownership of Management   30
Section 16(a) Beneficial Ownership Reporting Compliance   31
     
COMPENSATION DISCUSSION AND ANALYSIS   32
     
Executive Summary   32
Participants in Executive Compensation Design and Decision-Making Process   35
Executive Compensation Philosophy   36
Executive Compensation Program Design   37
How We Establish Executive Compensation Levels   38
Fiscal Year 2017 Compensation Decisions   39
Fiscal Year 2017 Annual Incentive Plan Design   41
Fiscal Year 2017 Long-Term Incentive Plan (LTIP) Design   43
Fiscal Year 2017 Annual and Long-Term Incentive Plan Payouts   44
Other Benefits and Perquisites   46
Executive Compensation Governance Practices and Policies   48
     
COMPENSATION COMMITTEE REPORT   49
     
EXECUTIVE COMPENSATION   50
     
2017 Summary Compensation Table   50
2017 Grants of Plan-Based Awards   53
2017 Outstanding Equity Awards at Fiscal Year End   54
2017 Option Exercises and Stock Vested   57
2017 Pension Benefits   57
2017 Nonqualified Deferred Compensation   59
Potential Payments Upon Termination or Change of Control   62
Equity Compensation Plan Information   64
     
REPORT OF THE AUDIT COMMITTEE   65
     
AUDIT AND NON–AUDIT FEES   66
     
PROPOSAL 2 — NON–BINDING RATIFICATION OF INDEPENDENT AUDITOR AND BINDING AUTHORIZATION OF THE BOARD OF DIRECTORS, ACTING THROUGH THE AUDIT COMMITTEE, TO SET AUDITOR REMUNERATION   67
     
PROPOSAL 3 — ADVISORY RESOLUTION TO APPROVE NAMED EXECUTIVE OFFICER COMPENSATION (“SAY–ON–PAY”)   68
     
PROPOSAL 4 — TO APPROVE THE AMENDMENT AND RESTATEMENT OF THE MEDTRONIC PLC AMENDED AND RESTATED 2013 STOCK AWARD AND INCENTIVE PLAN   69
     
QUESTIONS AND ANSWERS ABOUT THE ANNUAL GENERAL MEETING   78
     
OTHER INFORMATION   80
     
Expenses of Solicitation   80
Shareholder Proposals and Director Nominations   80
Delivery of Documents to Shareholders Sharing an Address   80
Notice Regarding Adoption of Financial Reporting Standards (“FRS”) 102   81
Other   81
     
APPENDIX A — NON–GAAP RECONCILIATIONS   A-1
     
APPENDIX B — MEDTRONIC PLC AMENDED AND RESTATED  2013 STOCK AWARD AND INCENTIVE PLAN   B-1
 

PROXY SUMMARY

 

This summary highlights information described in more detail elsewhere in this proxy statement. It does not contain all of the information that you should consider, and you should read the entire proxy statement carefully before voting.

 

2017 Annual General Meeting of Shareholders

 

  Date and Time:  Friday, December 8, 2017, at 8:00 a.m. (Local Time)
    Conrad Dublin Hotel
  Place: Earlsfort Terrace
Dublin 2, Ireland
     
  Commence Mail Date: October 24, 2017
     
  Record Date: October 10, 2017

 

Advance Voting Methods and Deadlines

 

Method Instruction Deadline

 

Internet

  Go to http://www.proxyvote.com and follow the instructions (have your proxy card or internet notice in hand when you access the website)

Internet and telephone voting are available 24 hours a day, seven days a  week up to these deadlines:

■  Shares held through the Medtronic Savings and Investment Plan and the Medtronic Puerto Rico Employees’ Savings and Investment Plan – 11:59 p.m., Eastern Standard Time, on  December 5, 2017

  Registered Shareholders or Beneficial Owners – 11:59 p.m., Eastern Standard Time, on December 7, 2017

 

Telephone

  Dial 1-800-690-6903 and follow the instructions (have your proxy card or internet notice in hand when you call)

  Shares held through the Medtronic Savings and Investment Plan and the Medtronic Puerto Rico Employees’ Savings and Investment Plan – 11:59 p.m., Eastern Standard Time, on  December 5, 2017

  Registered Shareholders or Beneficial Owners – 11:59 p.m., Eastern Standard Time, on December 7, 2017

 

Mail

  Mark your selections on the enclosed proxy card

  Date and sign your name exactly as it appears on proxy card

  Promptly mail the proxy card in the enclosed postage-paid envelope

Return promptly to ensure it is received before the date of the Annual General Meeting

  Shares held through the Medtronic Savings and Investment Plan and the Medtronic Puerto Rico Employees’ Savings and Investment Plan – 11:59 p.m., Eastern Standard Time, on  December 5, 2017

  Registered Shareholders or Beneficial Owners – 11:59 p.m., Eastern Standard Time, on December 7, 2017

 

Questions and Answers About Attending our Annual General Meeting and Voting

 

We encourage you to review the questions and answers about our Annual General Meeting and voting beginning on page 78 to learn more about the rules and procedures surrounding the proxy and Annual General Meeting process, as well as the business to be conducted at our Annual General Meeting. If you plan to attend the Annual General Meeting in person, we direct your attention to the information following “Admission to the Meeting” on page 79.

 

IF YOU WISH TO ATTEND THE ANNUAL GENERAL MEETING, YOU MUST EITHER REQUEST AN ADMISSION TICKET IN ADVANCE OR BRING PROOF OF OWNERSHIP OF ORDINARY SHARES TO THE MEETING.
YOUR VOTE IS IMPORTANT! PLEASE CAST YOUR VOTE AND PLAY A PART IN THE FUTURE OF MEDTRONIC.

 

MEDTRONIC PLC   2017 Proxy Statement    5

 

Voting Matters and Board Recommendations

 

Proposal Board
Recommendation
For More
Information
Proposal 1 —  To elect, by separate resolutions, the twelve director nominees named in the proxy statement to hold office until the 2018 Annual General Meeting of the Company “FOR” all
nominees
Page 12
Proposal 2 — To ratify, in a non-binding vote, the re-appointment of PricewaterhouseCoopers LLP as Medtronic’s independent auditor for Fiscal Year 2018 and to authorize, in a binding vote, the Board of Directors, acting through the Audit Committee, to set the auditor’s remuneration “FOR” Page 67
Proposal 3 — To approve in a non-binding advisory vote, named executive officer compensation (a “Say-on-Pay” vote) “FOR” Page 68
Proposal 4 — To approve the amendment and restatement of the Medtronic plc Amended and Restated 2013 Stock Award and Incentive Plan “FOR” Page 69

 

Director Nominees

 

You are being asked to vote, by separate resolutions, on the election of the following twelve Directors. Each Director nominee is elected annually by a majority of votes cast. Detailed information about each Director’s background, skill sets and areas of expertise can be found beginning on page 13.

 

In December 2016, the Board decided to split the Quality and Technology Committee into two separate committees effective as of July 1, 2017, with the Quality Committee having a clear quality focus and the Technology Committee having a clear technology focus. In addition, effective March 10, 2017, the Board changed the name of the Finance Committee to the Finance and Financial Risk Committee and effective August 25, 2017, the Board changed the name of the Technology Committee to the Technology and Value Creation Committee.

 

    Director     Committee Memberships Other
Current
Public
Name Age(1) Since Principal Position Indep. AC CC FFRC NCGC QC TVCC Boards(1)
Richard H. Anderson 62 2002 President and Chief Executive Officer of Amtrak Y M M M M     0
Craig Arnold 57 2015 Chairman and Chief Executive Officer of Eaton Corporation Y   C M     M 1
Scott C. Donnelly(2) 55 2013 Chairman, President and Chief Executive Officer of Textron, Inc. Y   M   C   M 1
Randall J. Hogan, III 61 2015 Chairman & Chief Executive Officer of Pentair plc Y C M   M     1
Omar Ishrak 61 2011 Chairman and Chief Executive Officer of Medtronic plc N             1
Shirley Ann Jackson, Ph.D. 70 2002 President of Rensselaer Polytechnic Institute Y M       M M 3
Michael O. Leavitt 66 2011 Founder and Chairman of Leavitt Partners Y     M   M C 2
James T. Lenehan 68 2007 Financial Consultant and Retired Vice Chairman and President of Johnson & Johnson Y M       M M 0
Elizabeth Nabel, M.D. 65 2014 President of Brigham & Women’s Healthcare Y M       C M 0
Denise M. O’Leary 59 2000 Private Venture Capital Investor Y     C M M   2
Kendall J. Powell 63 2007 Chairman and Retired Chief Executive Officer of
General Mills, Inc.
Y   M M M     1
Robert C. Pozen 70 2004 Former Chairman of MFS Investment Management Y     M   M M 1

(1) As of July 1, 2017.
(2) Lead Independent Director.

 

AC: Audit Committee   NCGC: Nominating and Corporate Governance Committee   C: Chair
CC: Compensation Committee   QC: Quality Committee   M: Member
FFRC: Finance and Financial Risk Committee   TVCC: Technology and Value Creation Committee      

 

MEDTRONIC PLC   2017 Proxy Statement    6

 

Corporate Governance Highlights

 

Strong Lead Independent Director

See page 19

 

Annual Board and Committee
Evaluation Processes

See page 20

 

Robust Risk Management Program

See page 19

         

Stock Ownership Guidelines for
Named Executive Officers and Directors

See pages 20 and 47

 

Annual Board of Director Elections and
Majority Voting for Directors

See page 12

 

Regular Executive Sessions of
Independent Directors

See page 19

 

Realigned Board Committees and
Chair Assignments

See page 21

 

Sustainability and Citizenship Highlights

See page 10

  Proxy Access
         

High Ethical Standards Established in Written Policies and Actions (Includes Codes of Conduct, U.S. Patient Privacy Principles, Political Contribution Policy, and Policies Regarding Environmental, Health and Safety and the Use of Animals)

See page 27 and our investor relations website

 

2017 Board Composition

 

 

Shareholder Outreach on Governance

 

We recognize the value of shareholder engagement and take a proactive approach to shareholder outreach on governance matters. We continuously engage with our shareholders, including investment and governance specialists, to seek input on governance, executive compensation, strategic issues and to address their questions and concerns. We bring feedback from our shareholders to our Board; such feedback is instrumental to the Board’s decision-making process.

 

ENGAGEMENT CYCLE

 

 

MEDTRONIC PLC   2017 Proxy Statement    7

 

Performance Highlights

 

Medtronic is the global leader in medical technology – alleviating pain, restoring health, and extending life for millions of people around the world. Fiscal year 2017 was a solid year for Medtronic. The company delivered record revenue, made progress in each of its growth strategies, executed on its Covidien cost synergy commitments, generated strong free cash flow growth, and deployed its capital in line with its stated priorities, balancing the return of cash to our shareholders with disciplined reinvestment in its businesses.

 

During fiscal year 2017, Medtronic delivered record revenue of $29.7 billion, growing approximately 5 percent1, in the mid-single digits for the fifth consecutive year. The company made progress in each of its growth strategies. In Therapy Innovation, the company executed a steady cadence of meaningful product launches, as well as introduced some groundbreaking new technologies. In Globalization, the company expanded access to its therapies in emerging markets around the world, resulting in double-digit revenue growth1. In Economic Value, the company continued to extend its industry leadership in developing value-based healthcare solutions.

 

The integration of Covidien progressed as planned, and Medtronic has now realized over $600 million in synergy savings since the acquisition, and it remains on track to deliver its goal of $850 million of total cost savings by the end of fiscal year 2018. This operational productivity, coupled with Medtronic’s solid revenue growth, were key contributors to delivering double-digit diluted non-GAAP earnings per share growth1 and generating $5.6 billion in free cash flow2.

 

Medtronic strategically deployed its capital, meeting its commitment of returning 50 percent of its free cash flow to its shareholders in the form of dividends and net share repurchases. In addition, the company invested approximately $1.5 billion in several strategic investments and five tuck-in acquisitions, and these acquisitions are expected to further enhance Medtronic’s revenue growth and improve returns over time. Late in fiscal year 2017, the company announced the sale of a portion of its Patient Monitoring and Recovery division to Cardinal Health for $6.1 billion as part of its disciplined portfolio management strategy. The transaction closed early in Medtronic’s second quarter of fiscal year 2018.

 

Medtronic continues to create distinct competitive advantages and capitalize on the long-term trends in healthcare: namely, the desire to improve clinical outcomes; the growing demand for expanded access to care; and the optimization of cost and efficiency within healthcare systems. These trends, along with an aging population in most countries, produce secular growth tailwinds that Medtronic believes represent sustainable, long-term opportunities for the company. The company has a number of growth catalysts and is optimistic about its ability to deliver on its commitments and expand patient access to its products and services around the world.

 

Most importantly, in its fiscal year 2017, Medtronic served 70 million patients – more patients, in more places around the world, than in any year in its history. Two patients are benefitting from Medtronic therapies and services every second. This is a direct result of the dedication and passion of over 91,000 employees, collaborating with the company’s partners in healthcare, to fulfill the Medtronic Mission.

 

A few of our more notable fiscal year 2017 performance highlights include the following:

 

Achieved revenue of $29.7 billion and non-GAAP earnings of $6.4 billion.

 

  Grew revenue by approximately 5%.1
     
  Delivered solid operating margin improvement of approximately 100 basis points.1
     
  Grew non-GAAP diluted earnings per share by approximately 11-12%.1

 

Generated $6.9 billion cash flow from operations and $5.6 billion of free cash flow.2
   
Returned $5.5 billion to shareholders in the form of dividends and net share repurchases. Increased its cash dividend by 13 percent, the 39th consecutive year of increasing its dividend payment.
   
Delivered solid, balanced geographic revenue growth, with low-single digit growth1 in the United States, mid-single digit growth1 in Non-U.S. Developed Markets, and double-digit growth1 in Emerging Markets.
   
The Cardiac & Vascular Group (CVG) grew revenues in the mid-single digits1, as the group continued to leverage its breadth of products and services, as well as its strong positions in important, rapidly expanding markets to drive sustainable growth. Combined, its products in transcatheter aortic valve replacement, insertable diagnostics, AF ablation, left-ventricular assist devices, and drug-coated balloons are now annualizing at nearly $3 billion and growing over 20 percent.1
   
The Minimally Invasive Therapies Group (MITG) grew revenues in the mid-single digits1 and continued to benefit from five key growth drivers: Open-to-Minimally Invasive Surgery, or MIS, End Stage Renal Disease, Respiratory Compromise, Lung Cancer, and Gastrointestinal Disease. The group launched new products in Advanced Energy and Advanced Stapling, including new LigaSure™ instruments and Signia™, its new, single-handed powered surgical stapler that provides surgeons with real-time feedback during surgery.

 

1 Revenue growth, diluted earnings per share growth, and operating margin improvement are provided on a constant currency, constant week basis, or on a constant currency basis and are considered “non-GAAP” financial measures under applicable SEC rules and regulations. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are included in Appendix A of this proxy statement.
2 Free cash flow is operating cash flow minus capital expenditures, and is considered a “non-GAAP” financial measure under applicable SEC rules and regulations. Reconciliations of this non-GAAP financial measure to the most directly comparable GAAP financial measures are included in Appendix A of this proxy statement.

 

MEDTRONIC PLC   2017 Proxy Statement    8

 
The Restorative Therapies Group (RTG) grew revenues in the mid-single digits1, driven in part by an improvement in its Spine division as a result of its focus on its “Speed to Scale” initiative on new product launches, as well as strong focus on its “Surgical Synergy” strategy that combines spine implants with navigation, imaging, and powered capital equipment. The Brain Therapies division had a strong year, with continued solid growth in Neurovascular and Neurosurgery.
   
The Diabetes Group grew revenues in the mid-single digits.1 In the fourth quarter of fiscal year 2017, the group started the U.S. Customer Training Phase of the MiniMed® 670G, the world’s first hybrid closed loop insulin delivery system, which it intends to broadly launch in fiscal year 2018. The group also continued to see strong adoption of its continuous glucose monitor (CGM) sensors and MiniMed® 640G System outside the United States.

 

Executive Compensation Philosophy

 

Our performance-based compensation programs align the interests of our Named Executive Officers (NEOs) with those of our shareholders. When our shareholders do well, our NEOs receive performance pay. We have developed programs that enable us to attract, retain and engage highly talented executives with compensation packages established pursuant to the following principles:

 

Pay for Performance. We emphasize pay for performance by fixing at least 75% of target total direct compensation (base salary + target annual incentive + target long-term incentive) on the attainment of annual and long-term Company performance goals.

 

Market Competitive. We offer market-competitive total direct compensation consisting of base salary, an annual cash incentive and long-term cash and equity incentives. Our targets match the median of our peer group.

 

Market Median Pay. We calibrate each element of total direct compensation to fall within a market median range that is +/- 15% around median of our comparator group for base salary and annual incentive and +/- 20% around median for long-term incentives and total direct compensation. We use the median because at least 75% of NEO compensation is tied to annual and long-term Company performance; performance that is above or below the median of our Comparison Group will generate compensation that is above or below the median compensation for the same group.

 

Experience/Performance Adjustment. We leverage data from the market median of our compensation Comparison Group to identify our competitive market for talent. Then we make appropriate adjustments to ensure each NEO’s competitive compensation reflects the NEO’s experience and performance.

 

Comprehensive Benefit Programs. We enhance competitive total direct compensation with comprehensive employee benefit programs that support retirement, health and wellness. NEOs have the same health and retirement benefits as all employees.

 

Shareholder Value Alignment. We align incentive programs with shareholder value creation by using annual and three-year performance measures that drive shareholder value. Incentive goals are derived from our Board-approved annual operating plan and our Board-approved long-term strategic plan, both of which are shared with investors.

 

Focus on Quality. We emphasize quality; payouts under our annual incentive plan can be reduced if a quality compliance modifier performance threshold is not achieved. The quality modifier, which may reduce but not increase a payout, is designed to align Medtronic employees with the Medtronic Mission, “To strive without reserve for the greatest possible reliability and quality in our products...”. The modifier uses Food and Drug Administration inspection observation to provide a standardized and rigorous assessment of our product and process quality.

 

1 Revenue growth, diluted earnings per share growth, and operating margin improvement are provided on a constant currency, constant week basis, or on a constant currency basis and are considered “non-GAAP” financial measures under applicable SEC rules and regulations. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are included in Appendix A of this proxy statement.
2 Free cash flow is operating cash flow minus capital expenditures, and is considered a “non-GAAP” financial measure under applicable SEC rules and regulations. Reconciliations of this non-GAAP financial measure to the most directly comparable GAAP financial measures are included in Appendix A of this proxy statement.

 

MEDTRONIC PLC   2017 Proxy Statement    9

 

Sustainability and Citizenship Highlights

 

A tenet of the Medtronic Mission – to maintain good citizenship as a company – drives a sense of purpose and responsibility to not only deliver the highest-quality products, therapies and services to our patients, but also to support healthy communities in the areas in which we operate.

 

That is why we embrace our role in creating positive social impact. Our corporate citizenship activities – related to community involvement, philanthropy, and environmental and governance issues – strengthen our contribution to society.

 

As an integral part of our business strategy, our sustainability efforts improve operational efficiency, reduce our environmental footprint, deepen relationships with customers, and support new business.

 

We tackle the sustainability issues that are most important to our Company and shareholders. These material issues have the greatest potential to impact our business operations and patients. Addressing and reporting on these issues is critical to the long-term viability of our business.

 

MATERIAL SUSTAINABILITY ISSUES
Access to Care Product Quality Product Stewardship Responsible Sourcing Ethics in Sales and
Marketing
We work with health systems around the world, sharing technologies, services, resources and expertise to help remove barriers to affordable treatment of chronic diseases. We ensure that our products and services comply with the highest standards of safety and reliability. We minimize the lifecycle footprint of our products and packaging through design innovation. We collaborate with our supply chain to develop long-term, diverse relationships that enhance product quality, worker rights and environmental protection. We are committed to responsible marketing, communications and promotion of our products and services.

 

MEDTRONIC PLC   2017 Proxy Statement    10

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This proxy statement contains forward-looking statements within the meaning of the federal securities laws. Forward-looking statements may be identified by words like “anticipate,” “expect,” “project,” “believe,” “plan,” “may,” “estimate,” “intend” and other similar words. Forward-looking statements in this proxy statement include, but are not limited to, statements regarding individual and Company performance objectives and targets, statements relating to the benefits of Medtronic’s acquisitions, product launches and business strategies, and Medtronic’s intent to return capital to shareholders through dividends and share repurchases. These and other forward-looking statements are based on our beliefs, assumptions and estimates using information available to us at the time and are not intended to be guarantees of future events or performance. Factors that may cause actual results to differ materially from those contemplated by the statements in this proxy statement can be found in Medtronic’s periodic reports on file with the Securities and Exchange Commission. The forward-looking statements speak only as of the date of this proxy statement and undue reliance should not be placed on these statements. We disclaim any intention or obligation to publicly update or revise any forward-looking statements. This cautionary statement is applicable to all forward-looking statements contained in this document.

 

MEDTRONIC PLC   2017 Proxy Statement    11

 

PROPOSAL 1 – ELECTION OF DIRECTORS

 

Directors and Nominees

 

Our Board of Directors has twelve members, all of whom serve for a term of one year. All nominees are currently Medtronic directors who were elected by shareholders at the 2016 Annual General Meeting. In order to be elected as a director, each nominee must be appointed by an ordinary resolution and each must receive the affirmative vote of a majority of the votes cast by the holders of ordinary shares represented at the Annual General Meeting in person or by proxy. If a nominee becomes unable or declines to serve, the individuals named as proxies in the enclosed proxy form will have the authority to vote for any substitute who may be nominated in accordance with Medtronic’s Articles of Association. We have no reason to believe this will occur.

 

The Nominating and Corporate Governance Committee considers candidates for Board membership, including those suggested by shareholders, applying the same criteria to all candidates. Any shareholder who wishes to recommend a prospective nominee for the Board for consideration by the Nominating and Corporate Governance Committee must notify the Company Secretary in writing at Medtronic’s registered office at 20 on Hatch, Lower Hatch Street, Dublin 2, Ireland. Any such recommendations should provide whatever supporting material the shareholder considers appropriate, but should at a minimum include such background and biographical material as will enable the Nominating and Corporate Governance Committee to make an initial determination as to whether the nominee satisfies the criteria for directors set out in the Governance Principles.

 

If the Nominating and Corporate Governance Committee identifies a need to replace a current member of the Board, to fill a vacancy on the Board, or to expand the size of the Board, it considers candidates from a variety of sources, including third-party search firms that assist with identifying, evaluating and conducting due diligence on potential director candidates. The process followed to identify and evaluate candidates includes meetings to review biographical information and background material relating to candidates, and interviews of selected candidates by members of the Board. Recommendations of candidates for inclusion in the Board slate of director nominees are based upon the criteria set forth in the Governance Principles. These criteria include business experience and skills, judgment, honesty and integrity, the ability to commit sufficient time and attention to Board activities and the absence of potential conflicts with Medtronic’s interests. While the Nominating and Corporate Governance Committee does not have a formal diversity policy for Board membership, we seek directors who represent a mix of backgrounds and experiences that will enhance the quality of the Board’s deliberations and decisions. When evaluating candidates for Board membership, the Nominating and Corporate Governance Committee considers, among other factors, diversity with respect to viewpoint, skills, experience, and community involvement, and input from other members of the Board.

 

After completing the evaluation process, the Nominating and Corporate Governance Committee makes a recommendation to the full Board as to individuals who should be nominated by the Board. The Board determines the nominees after considering the recommendations and report of the Nominating and Corporate Governance Committee and such other nominees and evaluations as it deems appropriate.

 

Shareholders who intend to appear at the Annual General Meeting to nominate a candidate for election by the shareholders at the meeting (in cases where the Board does not intend to nominate the candidate or where the Nominating and Corporate Governance Committee was not requested to consider the candidacy) must comply with the procedures in Medtronic’s Articles of Association, which are described under “Other Information — Shareholder Proposals and Director Nominations” on page 80 of this proxy statement.

 

MEDTRONIC PLC   2017 Proxy Statement    12

 

Nominees for directors for one-year terms ending in 2018:

 

RICHARD H. ANDERSON

 

President and Chief Executive Officer
Amtrak




Director since 2002

Age 62

 

 

Mr. Anderson has been President and Chief Executive Officer of Amtrak, an intercity passenger rail service provider and high-speed rail operator, since July 12, 2017. From 2007 until May 2016, Mr. Anderson served as Chief Executive Officer and a director of Delta Air Lines, Inc., a commercial airline. Upon retiring as Chief Executive Officer of Delta Air Lines, Inc., he became the Executive Chairman of the board of directors of Delta Air Lines, Inc. until October 2016. He was Executive Vice President of UnitedHealth Group Incorporated, a diversified health care company, from 2004 until 2006. Mr. Anderson was Chief Executive Officer of Northwest Airlines Corporation from 2001 to 2004.

 

Committees: Audit, Compensation, Finance and Financial Risk, and Nominating and Corporate Governance

 

Other Public Company Directorships: None

 

Director Qualifications: Mr. Anderson’s qualifications to serve on our Board include his more than 25 years of business, operational, financial and executive management experience. He has also served on the board of directors of three other public companies. Mr. Anderson’s extensive experience, including within the health care industry and for Fortune 500 companies, allows him to contribute valuable strategic management and risk assessment insight to Medtronic. Additionally, Mr. Anderson qualifies as an “audit committee financial expert” as defined by SEC rules.

 

 

CRAIG ARNOLD

 

Chairman and Chief Executive Officer
Eaton Corporation




Director since 2015

Age 57

 

 

Mr. Arnold has been Chairman and Chief Executive Officer of Eaton Corporation, a power management company, since June 1, 2016. From September 2015 to May 2016, Mr. Arnold served as President and Chief Operating Officer of Eaton Corporation. Prior to that, Mr. Arnold served as the Vice Chairman and Chief Operating Officer, Industrial Sector, of Eaton Corporation. From 2000 to 2008 he served as Senior Vice President of Eaton Corporation and Group Executive of the Fluid Power Group of Eaton. Prior to joining Eaton, Mr. Arnold was employed in a series of progressively more responsible positions at General Electric Company from 1983 to 2000. Mr. Arnold was appointed to the Board of Directors of Eaton Corporation in 2015. Mr. Arnold is a former director of Covidien plc.

 

Committees: Compensation (Chair), Finance and Financial Risk, and Technology and Value Creation

 

Other Public Company Directorships: Eaton Corporation

 

Director Qualifications: With his years of managerial experience, both at Eaton and at General Electric, Mr. Arnold brings to the Board of Directors demonstrated management ability at senior levels. His position as Chief Executive Officer of the Eaton Industrial Sector gives Mr. Arnold critical insights into the operational requirements of a large, multinational company. In addition, in previously serving on the Audit Committee of another public company, Mr. Arnold gained valuable experience dealing with accounting principles and financial reporting rules and regulations, evaluating financial results, and generally overseeing the financial reporting process of a large corporation.

 

 

MEDTRONIC PLC   2017 Proxy Statement    13

 
SCOTT C. DONNELLY  
Chairman, President and Chief Executive Officer Textron, Inc.





Director since 2013

Age 55

 

 

Mr. Donnelly is Chairman, President and Chief Executive Officer of Textron, Inc., a producer of aircraft, defense and industrial products. Mr. Donnelly joined Textron in June 2008 as Executive Vice President and Chief Operating Officer and was promoted to President and Chief Operating Officer in January 2009. He was appointed to the Board of Directors in October 2009, and became Chief Executive Officer of Textron in December 2009 and Chairman of the Board in September 2010. Previously, Mr. Donnelly was the President and CEO of General Electric Company’s aviation business unit, GE Aviation, a leading maker of commercial and military jet engines and components as well as integrated digital, electric power and mechanical systems for aircraft. Prior to July 2005, Mr. Donnelly held various other management positions since joining General Electric in 1989.

 

Committees: Compensation, Nominating and Corporate Governance (Chair), and Technology and Value Creation

 

Other Public Company Directorships: Textron, Inc.

 

Director Qualifications: Mr. Donnelly’s qualifications to serve on our Board include more than two decades of business experience in innovation, manufacturing, sales and marketing, and business processes. Mr. Donnelly also serves on the board of directors of another public company. His extensive executive decision-making experience and corporate governance work make Mr. Donnelly a valuable director. Additionally, Mr. Donnelly qualifies as an “audit committee financial expert” as defined by SEC rules.

 

 

 

RANDALL J. HOGAN, III  
Chairman & Chief Executive Officer
Pentair plc




Director since 2015

Age 61

 

 

Mr. Hogan has been the Chief Executive Officer of Pentair plc, an industrial manufacturing company, since January 2001 and was appointed Chairman in May 2002. From December 1999 to December 2000, he was President and Chief Operating Officer of Pentair, from March 1998 to December 1999 he was Executive Vice President and President of Pentair’s Electrical and Electronic Enclosures Group. Prior to joining Pentair, he was President of the Carrier Transicold Division of United Technologies Corporation. Before that, he was with the Pratt & Whitney division of United Technologies, General Electric Company and McKinsey & Company. Mr. Hogan is the immediate past Chair of the board of the Federal Reserve Bank of Minneapolis. Mr. Hogan is a former director of Covidien plc.

 

Committees: Audit (Chair), Compensation, and Nominating and Corporate Governance

 

Other Public Company Directorships: Pentair plc

 

Director Qualifications: Having served in the roles of Chairman, Chief Executive Officer, President and Chief Operating Officer of Pentair, Mr. Hogan offers a wealth of management experience and business acumen. Running a public company gives Mr. Hogan front-line exposure to many of the issues facing public companies, particularly on the operational, financial and corporate governance fronts. Mr. Hogan’s service on the Board of Directors and Governance Committee of Unisys as well as on the Board of the Federal Reserve Bank of Minneapolis and service as former Chair of the Audit Committee of Covidien plc further augments his range of knowledge, providing experience on which he can draw while serving as a member of our Board and Audit Committee. Additionally, Mr. Hogan qualifies as an “audit committee financial expert” as defined by SEC rules.

 

 

MEDTRONIC PLC   2017 Proxy Statement    14

 
OMAR ISHRAK  
Chairman and Chief Executive Officer
Medtronic plc






Director since 2011

Age 61

 

 

Mr. Ishrak has been Chairman and Chief Executive Officer of Medtronic since 2011. Prior to joining Medtronic, Mr. Ishrak served as President and Chief Executive Officer of GE Healthcare Systems, a comprehensive provider of medical imaging and diagnostic technology, from 2009 to 2011. Before that, Mr. Ishrak was President and Chief Executive Officer of GE Healthcare Clinical Systems from 2005 to 2008 and President and Chief Executive Officer of GE Healthcare Ultrasound and BMD from 1995 to 2004.

 

Other Public Company Directorships: Intel Corporation

 

Director Qualifications: Mr. Ishrak’s qualifications to serve on our Board include his more than 30 years in the health care industry and more than 35 years of technology development and business management experience. Mr. Ishrak’s strong technical expertise and deep understanding of our customers, as well as his long history of success as a global executive in the medical technology industry, make him a valuable and qualified director with critical technical, leadership and strategic skills.

 

 

SHIRLEY ANN JACKSON, Ph.D.  
President
Rensselaer Polytechnic Institute




Director since 2002

Age 70

 

 

Dr. Jackson has been President of Rensselaer Polytechnic Institute, a technological research university, since 1999. She was Chair of the U.S. Nuclear Regulatory Commission under President Clinton from 1995 to 1999, and Professor of Physics at Rutgers University and consultant to AT&T Bell Laboratories from 1991 to 1995. In 2014, President Barack Obama appointed Dr. Jackson to The President’s Intelligence Advisory Board, where she served until 2017. She is a recipient of the National Medal of Science, a member of the National Academy of Engineering and the American Philosophical Society, and a Fellow of the American Academy of Arts and Sciences, the American Association for the Advancement of Science, the American Physical Society, and the Royal Academy of Engineering (U.K.). She is a Life Trustee of M.I.T., and a member of the Council on Foreign Relations. Dr. Jackson is a former director of Marathon Oil Corporation and a former trustee of The Brookings Institution.

 

Committees: Audit, Quality, and Technology and Value Creation

 

Other Public Company Directorships: FedEx Corporation, Public Service Enterprise Group and International Business Machines Corporation

 

Director Qualifications: Dr. Jackson’s qualifications to serve on our Board include her leadership experience in government, industry and within a number of educational organizations (President, Rensselaer Polytechnic Institute; Trustee, M.I.T.), including those that bring technological innovation to the marketplace. In addition, Dr. Jackson serves on the boards of directors of other public companies and has accumulated over 33 years of audit, compensation, and governance and nominating committee experience, including as chair. Her leadership and strategic and innovative insight make her a valuable contributor to our Board. Additionally, Dr. Jackson qualifies as an “audit committee financial expert” as defined by SEC rules.

 

 

MEDTRONIC PLC   2017 Proxy Statement    15

 
MICHAEL O. LEAVITT  
Founder and Chairman
Leavitt Partners




Director since 2011

Age 66

 

 

Governor Leavitt has been founder and Chairman of Leavitt Partners, a healthcare and food safety consulting firm, since 2009. Prior to that he was the United States Secretary of Health and Human Services from 2005 to 2009; Administrator of the Environmental Protection Agency from 2003 to 2005; and Governor of Utah from 1993 to 2003.

 

Committees: Finance and Financial Risk, Quality, and Technology and Value Creation (Chair)

 

Other Public Company Directorships: Health Equity, Inc. and American Express Company

 

Director Qualifications: Governor Leavitt’s qualifications to serve on our Board include his extensive management and leadership experience, including serving as the Governor of Utah, a large state with a diverse body of constituents, appointments to positions with the U.S. government, where he oversaw and advised on issues of national concern; and overseeing Leavitt Partners, LLC’s work advising clients in the health care and food safety sectors. Governor Leavitt’s decades of leadership experience with valuable knowledge of the governmental regulatory environment and corporate governance makes him a valuable member of our Board.

 

 

JAMES T. LENEHAN  
Financial Consultant and Retired Vice
Chairman and President of
Johnson & Johnson



Director since 2007

Age 68

 

 

Mr. Lenehan served as President of Johnson & Johnson, an international pharmaceutical company, from 2002 until 2004, when he retired after 28 years of service to Johnson & Johnson. During those 28 years, Mr. Lenehan also served as Vice Chairman of Johnson & Johnson from 2000 until 2004; Worldwide Chairman of Johnson & Johnson’s Medical Devices and Diagnostics Group from 1999 until he became Vice Chairman of the Board; and Worldwide Chairman, Consumer Pharmaceuticals & Professional Group. Mr. Lenehan has been a financial consultant since 2004, including serving as Senior Advisor of Cerberus Operations and Advisory Company, LLC, a private investment firm. Mr. Lenehan is a former director of Talecris Biotherapeutics Holding Corp.

 

Committees: Audit, Quality, and Technology and Value Creation

 

Other Public Company Directorships: None

 

Director Qualifications: Mr. Lenehan’s qualifications to serve on our Board include 32 years of business, operational and management experience in medical device, pharmaceutical, biotherapeutics and related industries. He also serves on the board of directors of private companies. His management ability at senior levels and financial experience make his input valuable to Medtronic. Additionally, Mr. Lenehan qualifies as an “audit committee financial expert” as defined by SEC rules.

 

 

MEDTRONIC PLC   2017 Proxy Statement    16

 
ELIZABETH G. NABEL, M.D.  
President of Brigham Health
Professor of Medicine, Harvard Medical School





Director since 2014

Age 65

 

 

Elizabeth Nabel, M.D., has been President of Brigham Health, hospitals and physician organisations operating inpatient and outpatient facilities, clinics, primary care health centers, and diagnostic and treatment technologies, research laboratories, and postgraduate medical and scientific education and training programs, as well as Harvard Medical School’s second largest teaching affiliate. Dr. Nabel has also been a Professor of Medicine at Harvard Medical School since 2010. Prior to that, Dr. Nabel held a variety of roles, including Director, at the National Heart, Lung and Blood Institute at the National Institutes of Health, a federal agency funding research, training, and education programs to promote the prevention and treatment of heart, lung, and blood diseases, from 1999 to 2009. Dr. Nabel is an elected member of the National Academy of Medicine of the National Academy of Sciences.

 

Committees: Audit, Quality (Chair), and Technology and Value Creation

 

Other Public Company Directorships: None

 

Director Qualifications: Dr. Nabel’s qualifications to serve on the Board include extensive experience in the health care field, including senior positions with a number of research universities and organizations. Dr. Nabel has a deep understanding of medical sciences and innovations, as well as physicians and other health care providers who are central to the use and development of our products. Additionally, Dr. Nabel qualifies as an “audit committee financial expert” as defined by SEC rules.

 

 

DENISE M. O’LEARY  
Private Venture Capital Investor





Director since 2000

Age 59

 

 

Ms. O’Leary has been a private venture capital investor in a variety of early stage companies since 1996. She was a member of the Stanford University Board of Trustees from 1996 through 2006, where she chaired the Committee of the Medical Center. Ms. O’Leary is a former director of US Airways Group, Inc.

 

Committees: Finance and Financial Risk (Chair), Nominating and Corporate Governance, and Quality

 

Other Public Company Directorships: American Airlines Group, Inc. and Calpine Corporation

 

Director Qualifications: Ms. O’Leary’s qualifications to serve on our Board include her extensive experience with companies at a variety of stages and her success as an investor. She also serves on the boards of directors of other public companies. Her financial expertise, experience in the oversight of risk management, and thorough knowledge and understanding of capital markets provide valuable insight with regard to corporate governance and financial matters.

 

 

MEDTRONIC PLC   2017 Proxy Statement    17

 
KENDALL J. POWELL  
Chairman and Retired Chief Executive Officer
General Mills, Inc.





Director since 2007

Age 63

 

 

Mr. Powell has been Chairman of General Mills, Inc., an international producer, marketer and distributor of cereals, snacks and processed foods, since 2008 and was Chief Executive Officer of General Mills, Inc. from 2007 until June 2017. He was President and Chief Operating Officer of General Mills, Inc. from 2006 to 2007, and became a director of General Mills, Inc. in 2006. He was Executive Vice President and Chief Operating Officer, U.S. Retail from 2005 to 2006; and Executive Vice President of General Mills, Inc. from 2004 to 2005. From 1999 to 2004, Mr. Powell was Chief Executive Officer of Cereal Partners Worldwide, a joint venture of General Mills, Inc. and the Nestle Corporation. Mr. Powell joined General Mills, Inc. in 1979.

 

Committees: Compensation, Finance and Financial Risk, and Nominating and Corporate Governance

 

Other Public Company Directorships: General Mills, Inc.

 

Director Qualifications: Mr. Powell’s qualifications to serve on our Board include more than three decades of business, operational and management experience. Mr. Powell also serves on the board of directors of another public company. His extensive marketing and executive decision-making experience and corporate governance work make Mr. Powell a valuable director. Additionally, Mr. Powell qualifies as an “audit committee financial expert” as defined by SEC rules.

 

 

 

ROBERT C. POZEN  
Former Chairman
MFS Investment Management




Director since 2004

Age 70

 

 

Mr. Pozen was Chairman of MFS Investment Management and a director of MFS Mutual Funds from 2004 to 2010, and Chairman Emeritus of MFS Investment Management from 2010 to 2011. He previously was Secretary of Economic Affairs for the Commonwealth of Massachusetts in 2003 and the John Olin Visiting Professor at Harvard Law School from 2002 to 2003. He also was Vice Chairman of Fidelity Investments from 2000 to 2001 and President of Fidelity Management & Research from 1997 to 2001. From 2007 to 2008, he was the chairman of the SEC Advisory Committee on Improvements to Financial Reporting; and from January 2008 through June 2015, he was a senior lecturer at Harvard Business School. Mr. Pozen currently serves on the board of Asset Management Company, a fund management subsidiary of The World Bank Group. As of July 2015, he is a senior lecturer at M.I.T. Sloan School of Management. As of October 2015, he is a member of the advisory board of Perella Weinberg Partners.

 

Committees: Finance and Financial Risk, Quality, and Technology and Value Creation

 

Other Public Company Directorships: Nielsen Holdings N.V.

 

Director Qualifications: Mr. Pozen’s qualifications to serve on our Board include his many successful investing experiences. He also served on President George W. Bush’s Commission to Strengthen Social Security and as Secretary of Economic Affairs for Massachusetts Governor Mitt Romney. His extensive financial knowledge, previous performance as a board member, and years of work in corporate governance make Mr. Pozen a qualified and valuable director. Additionally, Mr. Pozen qualifies as an “audit committee financial expert” as defined by SEC rules.

 

 

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE DIRECTOR NOMINEES.

 

MEDTRONIC PLC   2017 Proxy Statement    18

 

Corporate Governance

 

Our Corporate Governance Principles

 

The Board of Directors has adopted Principles of Corporate Governance (the “Governance Principles”), last amended March 2017. The Governance Principles describe Medtronic’s corporate governance practices and policies, and provide a framework for the governance of Medtronic. Among other things, the Governance Principles include the provisions below.

 

A majority of the members of the Board must be independent directors and no more than two directors may be Medtronic employees. Currently one director, Medtronic’s Chairman and Chief Executive Officer, is not independent.
   
Medtronic maintains Audit, Compensation, Finance and Financial Risk, Nominating and Corporate Governance, Quality, and Technology and Value Creation Committees, which consist entirely of independent directors.
   
The Nominating and Corporate Governance Committee oversees an annual evaluation of the Board.

 

Our Governance Principles, the charters of our Audit, Compensation, Finance and Financial Risk, Nominating and Corporate Governance, Quality, and Technology and Value Creation Committees and our codes of conduct are published on our website at www.medtronic.com/us-en/about/corporate-governance.html. These materials are available in print to any shareholder upon request. From time to time, the Board reviews and updates these documents as it deems necessary and appropriate to keep abreast of governance regulations.

 

Lead Independent Director and Chairman; Executive Sessions

 

Mr. Ishrak, our Chief Executive Officer, also serves as Chairman of the Board. The Board believes it is appropriate for Mr. Ishrak to serve as Chairman of the Board due to his extensive knowledge of, and experience in, the global health care industry generally and in the medical device industry specifically. This knowledge and experience is critical in identifying strategic priorities and providing unified leadership in the execution of strategy. We believe that Mr. Ishrak’s experience and knowledge as the CEO and Chairman is an asset to Medtronic and promotes efficient board functioning, with independent board leadership provided by our “Lead Independent Director”.

 

Under Medtronic’s Principles of Corporate Governance, the independent directors annually elect a Lead Independent Director to ensure periodic refreshment of Board leadership roles. Our current Lead Independent Director is Scott C. Donnelly who replaced Richard H. Anderson on July 1, 2017.

 

As Lead Independent Director, Mr. Donnelly’s duties include:

 

presiding as chair of regularly scheduled meetings of the independent directors, and presiding as chair of Board meetings at which Mr. Ishrak is not in attendance;
   
reviewing and approving the agenda for each meeting of the Board of Directors and each of its committees;
   
leading Board discussion;
   
overseeing the directors’ annual evaluation of the Board and each of its committees and advising Mr. Ishrak on the conduct of Board meetings;
   
facilitating teamwork and communications between the non-management directors and management, serving as a liaison between the two;
   
overseeing the process for identifying and evaluating Board nominees, as the chair of the Nominating and Corporate Governance Committee;
   
leading the process for assessing appropriate committee leadership and membership on a periodic basis;
   
recommending, as appropriate, changes to governance policies and practices;
   

 

 

reviewing all committee materials even for committees on which he does not serve; and
acting as the focal point on the Board for suggestions from non-management directors, especially on sensitive issues.

 

In keeping with Medtronic’s commitment to corporate governance best practices, Mr. Donnelly also takes the lead in both the Board’s ongoing, thoughtful evaluation of Medtronic’s governance structure and constructive shareholder engagement on emerging governance issues. Medtronic’s accountability to its shareholders is clearly indicated by its openness to their engagement, including through its proxy access policy and strong Lead Independent Director. In this role, Mr. Donnelly ensures that he is available, if appropriately requested by shareholders, for consultation and direct communication.

 

Four regular meetings of our Board were held in Fiscal Year 2017. At each Board meeting, our independent directors meet in executive session with no Company management present, as did each of our committees.

 

Board Role in Risk Oversight

 

Our Board of Directors, in exercising its overall responsibility to oversee the management of our business, considers risks when reviewing the Company’s strategic plan, financial results, merger and acquisition-related activities, legal and regulatory matters and its public filings with the Securities and Exchange Commission. The Board is also deeply engaged in the Company’s

 

MEDTRONIC PLC   2017 Proxy Statement    19

 

Enterprise Risk Management (“ERM”) program and has received briefings on the outcomes of the ERM program and the steps the Company is taking to mitigate risks that program has identified. The Board’s oversight of risk management includes full and open communications with management to review the adequacy and functionality of the risk management processes used by management. In addition, the Board of Directors uses its committees to assist in its risk oversight responsibility as follows:

 

Audit Committee: Assists the Board of Directors in its oversight of the integrity of the financial reporting of the Company and its compliance with applicable legal and regulatory requirements. It also oversees our internal controls and compliance activities. The Audit Committee periodically discusses policies with respect to risk assessment and risk management, including appropriate guidelines and policies to govern the process, as well as the Company’s major financial and business risk exposures and certain contingent liabilities and the steps management has undertaken to monitor and control such exposures. It also meets privately with representatives from the Company’s independent registered public accounting firm.
   
Finance and Financial Risk Committee: assists the Board of Directors in its oversight of risk relating to the Company’s assessment of its significant financial risks and certain contingent liabilities.
   
Compensation Committee: assists the Board of Directors in its oversight of risk relating to the Company’s assessment of its compensation policies and practices.
   
Quality Committee: assists the Board of Directors in its oversight of risk relating to product quality and safety, cybersecurity, and research.
   
Technology and Value Creation Committee: assists the Board of Directors in its oversight of risk relating to product technology and the Company’s position with regard to technological innovation.

 

Compensation Risk Assessment

 

We conducted a risk assessment of our compensation policies and practices and concluded that such policies and practices do not create risks that are reasonably likely to have a material adverse effect on our Company. The framework for the assessment was developed using materials from the Compensation Committee’s independent consultant, Frederic W. Cook & Co., Inc. This framework included an update to a comprehensive internal survey used in Fiscal Year 2010 that was designed to identify material policies and practices to be assessed, a review of the identified compensation plans and practices against the evaluation framework and identification of mitigating factors with respect to any risks.

 

In particular, as a result of the assessment, we noted that:

 

Base salaries at Medtronic are generally competitive in the median range of the executive compensation peer companies, not subject to any performance risk and act as a material component of total compensation for most Medtronic employees.
   
Incentive plans for senior management and executive officers are appropriately weighted between short-term and long-term performance and between cash and equity compensation. In addition, our practice of establishing long-term incentive performance targets at the beginning of each of our overlapping three-year performance periods reduces the incentive to maximize performance during any one year.
   
Short-term incentive performance goals are recalibrated annually, based upon Medtronic’s annual operating plan approved by the Board, and are different from the long-term performance measures.
   
Executives and directors are subject to stock ownership and retention guidelines that require directors to maintain ownership of Medtronic stock equal to five (5) times their annual retainer, Medtronic’s CEO to maintain ownership of Medtronic stock equal to six (6) times his annual salary, and the other NEOs to maintain Medtronic stock equal to three (3) times their annual salary. Until the ownership guideline is met, the CEO and directors must retain 75% of after-tax Medtronic shares received through settlement of equity compensation awards and other NEOs must retain 50% of such shares.
   
Medtronic has implemented policies designed to recoup payments or gains from incentive and equity compensation improperly paid or granted to executives

 

Committees of the Board and Meetings

 

Our standing Board committees consist solely of independent directors, as defined in the New York Stock Exchange (“NYSE”) Corporate Governance Standards. The Audit Committee was established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934 (the “Exchange Act”). Each director attended 75% or more of the total Board and Board committee meetings on which the director served in Fiscal Year 2017. In addition, it has been the longstanding practice of Medtronic for all directors to attend the Annual General Meeting of Shareholders. All directors attended the last Annual General Meeting.

 

The following table summarizes (i) the membership of the Board as of the end of Fiscal Year 2017, (ii) the members of each of the Board’s standing committees as of the end of Fiscal Year 2017, and (iii) the number of times each standing committee met during Fiscal Year 2017.

 

MEDTRONIC PLC   2017 Proxy Statement    20

 

As of the End of Fiscal Year 2017

 

    Board   Audit   Compensation   Finance   Nominating and
Corporate
Governance
  Quality and
Technology
Richard H. Anderson                  
Craig Arnold                  
Scott C. Donnelly                
Randall J. Hogan, III                  
Omar Ishrak                      
Shirley Ann Jackson, Ph.D.                  
Michael O. Leavitt                  
James T. Lenehan                  
Elizabeth Nabel, M.D.                  
Denise M. O’Leary                  
Kendall J. Powell                
Robert C. Pozen                  
Number of Fiscal Year 2017 meetings   5   11   6   4   4   4
  Member                        
  Chair                        

 

Effective on July 1, 2017, the Board refreshed its committee assignments in order to provide fresh perspective, facilitate diverse experiences and improve director engagement. In addition, in December 2016, the Board decided to split the Quality and Technology Committee into two separate Board committees effective July 1, 2017, in March 2017 the Board decided to rename the Finance Committee the Finance and Financial Risk Committee, and in August 2017 the Board decided to rename the Technology Committee the Technology and Value Creation Committee. The current committees and committee membership are as follows.

 

As of AUGUST 28, 2017

 

    Board   Audit   Compensation   Finance and
Financial Risk
  Nominating and
Corporate
Governance
  Quality   Technology and
Value Creation
Richard H. Anderson                  
Craig Arnold                    
Scott C. Donnelly                    
Randall J. Hogan, III                    
Omar Ishrak                          
Shirley Ann Jackson, Ph.D.                    
Michael O. Leavitt                    
James T. Lenehan                    
Elizabeth Nabel, M.D.                    
Denise M. O’Leary                    
Kendall J. Powell                    
Robert C. Pozen                    
  Member                            
  Chair                            

 

MEDTRONIC PLC   2017 Proxy Statement    21

 

The principal functions of our six standing committees — the Audit Committee, the Compensation Committee, the Finance and Financial Risk Committee, the Nominating and Corporate Governance Committee, the Quality Committee, and the Technology and Value Creation Committee — are described below.

 

Audit Committee1

Randall J. Hogan III (Chair)

Richard H. Anderson

Shirley Ann Jackson, Ph.D.

James T. Lenehan

Elizabeth Nabel, M.D.

 

Number of

meetings during

Fiscal Year 2017

11

 

Responsibilities:

 

  Overseeing the integrity of Medtronic’s financial reporting
     
  Overseeing the independence, qualifications and performance of Medtronic’s external independent registered public accounting firm and the performance of Medtronic’s internal auditors
     
  Overseeing Medtronic’s compliance with applicable legal and regulatory requirements, including overseeing Medtronic’s engagements with, and payments to, physicians and other health care providers
     
  Reviewing with the General Counsel and independent registered public accounting firm: legal matters that may have a material impact on the financial statements; any fraud involving management or other employees who have a significant role in Medtronic’s internal controls; compliance policies; and any material reports or inquiries received that raise material issues regarding Medtronic’s financial statements and accounting or compliance policies
     
  Reviewing annual audited financial statements with management and Medtronic’s independent registered public accounting firm and recommending to the Board whether the financial statements should be included in Medtronic’s Annual Report on Form 10-K
     
  Reviewing and discussing with management and Medtronic’s independent registered public accounting firm quarterly financial statements and earnings releases
     
  Reviewing major issues and changes to Medtronic’s accounting and auditing principles and practices, including analyses of the effects of alternative GAAP methods, regulatory and accounting initiatives and off-balance sheet structures on Medtronic’s financial statements
     
  Discussing policies with respect to risk assessment and risk management, including risks affecting Medtronic’s financial statements, operations, business continuity, and reputation and the reliability and security of our information technology and security systems, and the steps management has undertaken to monitor and control such exposures
     
  Undertaking the appointment, compensation (subject to the requirements of Irish corporate law), retention and oversight of the independent registered public accounting firm, which reports directly to the Audit Committee
     
  Pre-approving all audit and permitted non-audit services to be provided by the independent registered public accounting firm
     
  Reviewing, at least annually, a report by the independent registered public accounting firm describing its internal quality-control procedures and any material issues raised by the most recent internal quality-control review and any recent investigations by regulatory or professional agencies, and any steps taken to deal with any such issues, and all relationships between the independent registered public accounting firm and Medtronic
     
  Reviewing the experience and qualifications of the lead partner of the independent registered public accounting firm each year and considering whether there should be rotation of the lead partner or the independent auditor itself
     
  Establishing clear policies for hiring current and former employees of the independent registered public accounting firm
     
  Preparing the Report of the Audit Committee
     
  Meeting with the independent registered public accounting firm prior to the audit to review the scope and planning of the audit
     
  Reviewing the results of the annual audit examination
     
  Reviewing with the independent registered public accounting firm its evaluation of Medtronic’s identification of, accounting for, and disclosure of related party transactions
     
  Advising the Board with regard to Medtronic’s policies and procedures regarding compliance with laws and regulations
     
  Considering, at least annually, the independence of the independent registered public accounting firm
     
  Reviewing the adequacy and effectiveness of Medtronic’s internal control over financial reporting, including information technology and security systems related to internal controls, and disclosure controls and procedures
     
  Reviewing with the Vice President of Internal Audit the performance of Medtronic’s internal audit function and the results of any significant internal audits
     
  Reviewing candidates for the positions of Chief Financial Officer and Controller of Medtronic
     
  Establishing procedures concerning the receipt, retention and treatment of complaints regarding accounting, internal accounting controls or auditing matters
     
  Meeting privately in separate executive sessions periodically with management, internal auditors and the independent registered public accounting firm
     
  Meeting privately in executive session with the Chief Ethics and Compliance Officer, and approving any decisions with regard to hiring, terminating, disciplining, or compensating the Chief Ethics and Compliance Officer

 

1 The Board has determined that all members of the Audit Committee satisfy the applicable audit committee independence requirements of the New York Stock Exchange (NYSE) and the Securities and Exchange Commission (SEC). The Board also determined that all members have acquired the attributes necessary to qualify them as “audit committee financial experts” as defined by applicable SEC rules.

 

MEDTRONIC PLC   2017 Proxy Statement    22

 

Audit Committee Pre-Approval Policies

 

Rules adopted by the SEC require public company audit committees to pre-approve audit and non-audit services provided by a company’s independent registered public accounting firm. Our Audit Committee has adopted detailed pre-approval policies and procedures pursuant to which audit, audit-related, tax and other permissible non-audit services are pre-approved by category of service. The fees are budgeted, and actual fees versus the budget are monitored throughout the year. During the year, circumstances may arise when it becomes necessary to engage the independent registered public accounting firm for additional services not contemplated in the original pre-approval. In those instances, we obtain the approval of the Audit Committee before engaging the independent registered public accounting firm. The policies require the Audit Committee to be informed of each service, and do not permit any delegation of the Audit Committee’s responsibilities to management. The Audit Committee may delegate pre-approval authority to one or more of its members, but such member(s) must report any pre-approval decisions to the Audit Committee at its next scheduled meeting.

 

Compensation Committee1, 2

Craig Arnold (Chair)
Richard H. Anderson
Scott C. Donnelly
Randall J. Hogan, III
Kendall J. Powell
Number of
meetings during
Fiscal Year 2017
6

 

Responsibilities:

 

  Reviewing compensation philosophy and major compensation programs
     
  Annually reviewing executive compensation programs
     
  Annually reviewing and approving corporate goals and objectives relevant to the compensation of the Chief Executive Officer and, based on its own evaluation of performance in light of those goals and objectives, as well as input from the Nominating and Corporate Governance Committee; determining and approving the total compensation of the Chief Executive Officer
     
  Annually approving the total compensation of all other executive officers, including base salaries
     
  Administering and determining incentive compensation plans and equity-based compensation plans and approving stock and other long-term incentive awards
     
  Monitoring compliance by the Chief Executive Officer and senior management with the Company’s stock ownership guidelines
     
  Reviewing new compensation arrangements and reviewing and recommending to the Board severance arrangements for senior executive officers
     
  Reviewing and discussing with management the Compensation Discussion and Analysis required by the rules of the SEC and recommending to the Board the inclusion of the Compensation Discussion and Analysis in the Company’s annual proxy statement
     
  Assisting the Board in reviewing results of any shareholder advisory votes, responding to other shareholder communications that relate to the compensation of senior executive officers, and reviewing and recommending to the Board for approval the frequency with which Medtronic will conduct shareholder advisory votes
     
  Preparing the Committee’s report to be included in Medtronic’s annual proxy statement
     
  Assessing the Company’s risk relating to its compensation policies and practices
     
  The Compensation Committee may form and delegate authority to subcommittees as it deems appropriate. The Compensation Committee also may delegate certain of its responsibilities to one or more designated senior executives or committees in accordance with applicable laws, regulations, and plan requirements. Please refer to the Compensation Discussion and Analysis beginning on page 32 for additional discussion of the Compensation Committee’s processes and procedures relating to compensation.

 

1 The Board has determined that all members of the Compensation Committee satisfy the applicable compensation committee requirements of the NYSE and the SEC.
2 No member of the Compensation Committee during Fiscal Year 2017 was an officer or employee of Medtronic, and no executive officer of Medtronic during Fiscal Year 2017 served on the Compensation Committee or board of any company that employed any member of Medtronic’s Compensation Committee or Board. During Fiscal Year 2017, Sarah Powell, a daughter of director Kendall J. Powell, was employed by Medtronic as a Senior Leadership Development Rotation Program Associate as further described in this proxy statement under Corporate Governance - Related Party Transactions and Other Matters beginning on page 26. Mr. Powell had no involvement in the hiring of this role and has had no involvement in Ms. Powell’s performance assessments or compensation decisions.

 

 MEDTRONIC PLC   2017 Proxy Statement   23

 

Finance and Financial Risk Committee

Denise M. O’Leary (Chair)
Richard H. Anderson
Craig Arnold
Michael O. Leavitt
Kendall J. Powell
Robert C. Pozen
Number of
meetings during
Fiscal Year 2017
4

 

Responsibilities:

 

  Reviewing and approving management’s recommendations to the Board for significant capital expenditures
     
  Reviewing, approving and monitoring significant strategic transactions
     
  Reviewing and overseeing management’s plans and objectives for the capitalization of the Company
     
  Reviewing and approving management’s recommendations to the Board with respect to new offerings of debt and equity securities, stock splits, credit agreements, and Medtronic’s investment policies
     
  Reviewing and approving management’s recommendations to the Board regarding dividends
     
  Reviewing and approving management’s recommendations to the Board regarding authorization for repurchases of Medtronic’s stock
     
  Reviewing and approving management’s recommendations for the Corporate Cash Investment Policy
     
  Reviewing management’s decisions regarding certain financial aspects of the Company’s employee benefit plans
     
  Reviewing and overseeing the Company’s tax strategies
     
  Reviewing with management the Company’s strategies for management of significant financial risks and contingent liabilities
     
  Reviewing with management the financial aspects of the Company’s insurance and self-insurance programs
     
  Reviewing and recommending to the Board for approval authorization limits for the Committee and the Chief Executive Officer to approve expenditures

 

Nominating and Corporate Governance Committee

Scott C. Donnelly (Chair)
Richard H. Anderson
Randall J. Hogan III
Denise M. O’Leary
Kendall J. Powell
  Number of
meetings during
Fiscal Year 2017
4

 

Responsibilities:

 

  Formulating the Company’s policies and procedures for identifying a diverse pool of qualified director candidates and for evaluating and recommending candidates to the Board for nomination for election as directors
     
  Implementing the Committee’s policies to identify, evaluate and recommend to the Board individuals for the Board to nominate for election as directors
     
  Reviewing and making recommendations to the Board regarding whether members of the Board should stand for re-election
     
  Considering any resignation offered by a director
     
  Developing an annual evaluation process for the Board and its committees
     
  Recommending to the Board directors to serve as members of each committee and recommending any changes to the Board or standing committees that the Committee believes desirable
     
  Monitoring emerging corporate governance trends and overseeing and evaluating the Company’s corporate governance policies and programs to align with market best practices
     
  Reviewing the Company’s Principles of Corporate Governance at least annually and recommending changes to the Board to align with market best practices
     
  Reviewing shareholder proposals and recommending to the Board proposed Company responses to such proposals
     
  Reviewing, in accordance with the Company’s Related Party Transaction Policies and Procedures, transactions and relationships with related parties that are required to be approved or ratified thereunder
     
  Reviewing the Company’s Related Party Transactions Policies and Procedures on a periodic basis and recommending changes to the Board
     
  Reviewing the Company’s Standards for Director Independence, recommending any modifications to the standards deemed necessary for the proper governance of the Company, and providing at least annually to the Board the Committee’s assessment of which directors should be deemed independent directors
     
  Reviewing at least annually the requirements of a “financial expert” under the applicable rules of the SEC and NYSE and determining which directors are “financial experts”
     
  Overseeing and reviewing on a periodic basis the continuing education program for directors and the orientation program for new directors
     
  Providing advice to the Board regarding director compensation and benefits
     
  Reviewing the Company’s stock ownership guidelines for directors, monitoring compliance with such guidelines, and recommending changes to the Board
     
  Reviewing Medtronic’s corporate political contributions

 

 MEDTRONIC PLC   2017 Proxy Statement   24

 

Quality Committee

Elizabeth Nabel, M.D. (Chair)
Shirley Ann Jackson, Ph.D.
Michael O. Leavitt
James T. Lenehan
Denise O’Leary
Robert C. Pozen
  Number of
meetings during
Fiscal Year 2017
41

 

Responsibilities:

 

  Overseeing assessment and making recommendations to the Board regarding the Company’s overall quality strategies and systems to monitor and control product quality and safety, the Company’s response to quality and quality systems assessments conducted by the Company and external regulators, the Company’s response to material quality issues and field actions, and the Company’s technology and cybersecurity strategies, systems, and controls to ensure reliability and prevent unauthorized access.
     
  Overseeing risk management in the area of human and animal studies, including the periodic review of policies and procedures related to the conduct of such studies
     
  Staying informed of major regulatory changes both domestically and internationally to ensure the Company is poised to meet new standards

 

Technology and Value Creation Committee

Michael O. Leavitt (Chair)
Craig Arnold
Scott C. Donnelly
Shirley Ann Jackson, Ph.D.
James T. Lenehan
Elizabeth Nabel, M.D.
Robert C. Pozen
  Number of
meetings during
Fiscal Year 2017
42

 

Responsibilities:

 

  Overseeing assessment and making recommendations to the Board regarding the Company’s product, service, and technology portfolio and its effect on the Company’s growth and performance, emerging science and technology trends that will affect the Company, the Company’s approach to identifying and developing new markets, and the Company’s intellectual property portfolio
     
  Monitoring the overall direction, effectiveness, and competitiveness of the Company’s research and development programs and pipeline
     
  Evaluating the technological aspects of potential acquisitions as requested by the Board
     
  Reviewing and assessing the Company’s competitive standing from a technological point of view
     
  Providing updates to the Quality Committee, as requested, regarding technological advances in cybersecurity
     
  Evaluating the economic value of new and existing products and services

 

1 Effective July 1, 2017, the Quality and Technology Committee split into two separate committees – the Quality Committee and the Technology and Value Creation Committee. This number represents the number of meetings held by the Quality and Technology Committee in Fiscal Year 2017.
2 Effective July 1, 2017, the Quality and Technology Committee split into two separate committees – the Quality Committee and the Technology and Value Creation Committee. This number represents the number of meetings held by the Quality and Technology Committee in Fiscal Year 2017.

 

 MEDTRONIC PLC   2017 Proxy Statement   25

 

Director Independence

 

Under the NYSE Corporate Governance Standards, to be considered independent, the Board must affirmatively determine that the director has no material relationship with Medtronic, other than as a director. The Board of Directors has determined that the following directors, (all of our non-management directors), are independent under the NYSE Corporate Governance Standards: Messrs. Anderson, Arnold, Donnelly, Hogan, Lenehan, Powell and Pozen, Drs. Jackson and Nabel, Gov. Leavitt and Ms. O’Leary. In making this determination, the Board considered any current or proposed relationships that could interfere with a director’s ability to exercise independent judgment, including those identified by Medtronic’s Standards for Director Independence, which correspond to the NYSE standards on independence. These standards identify certain types of relationships that are categorically immaterial and do not, by themselves, preclude the directors from being independent. The types of relationships and the directors who have had such relationships include:

 

being a current employee, or having an immediate family member who is an executive officer, of an entity that has made or is expected to make immaterial payments to, or that has received or is expected to receive immaterial payments from, Medtronic for property or services, and each such relationship with Medtronic, through the relevant entity, is transactional in nature and is not a material transactional relationship (Messrs. Arnold, Donnelly, Hogan and Pozen, and Drs. Jackson and Nabel);
   
being an executive officer, director and less than 50% equity owner of an entity that receives immaterial payments from Medtronic for professional services, which relationship, through the relevant entity, relates to limited consulting services and is not a material relationship (Gov. Leavitt); and
   
being an employee or executive officer of a non-profit organization to which Medtronic or The Medtronic Foundation has made immaterial contributions (Mr. Pozen, and Drs. Jackson and Nabel).


All of the relationships of the types listed above were entered into, and payments were made or received, by Medtronic in the ordinary course of business and on competitive terms, and no director participated in negotiations regarding, nor approved, any such purchases or sales. Aggregate payments to, transactions with, or discretionary charitable contributions to each of the relevant organizations did not exceed the greater of $1,000,000 or 2% of that organization’s consolidated gross revenues for any of that organization’s last three fiscal years. The Board reviewed the transactions with each of these organizations and determined that the directors had no role with respect to the Company’s decision to make any of the purchases or sales or to engage in the relationship, and that the nature and amount of payments involved in the transactions would not influence the relevant director’s objectivity in the boardroom or have a meaningful impact on such director’s ability to satisfy fiduciary obligations on behalf of Medtronic’s shareholders.

 

In the course of fulfilling its duties, the Board of Directors also considered situations in which the director had a further removed relationship with the relevant third party, such as being a director or trustee (rather than an employee or executive officer) of an organization that engages in a business relationship with Medtronic or receives discretionary charitable contributions from Medtronic or its affiliates. The Board determined that no such further removed relationships impact the independence of its directors.

 

Related Party Transactions and Other Matters

 

The Board of Directors of Medtronic has adopted written related party transaction policies and procedures. The policies require that all “interested transactions” (as defined below) between Medtronic or any of its subsidiaries and a “related party” (as defined below) are subject to approval or ratification by the Nominating and Corporate Governance Committee. In determining whether to approve or ratify such transactions, the Nominating and Corporate Governance Committee will consider, among other factors it deems appropriate, whether the interested transaction is on the same terms as are generally available to an unaffiliated third-party under the same or similar circumstances, the extent of the related person’s interest in the transaction, and any other information regarding the interested transaction or the related party that would be material to investors in light of the circumstances. An interested transaction may be approved only if it is determined in good faith that, under all of the circumstances, the interested transaction is in the best interests of Medtronic and its shareholders. In addition, the Nominating and Corporate Governance Committee has reviewed certain categories of interested transactions and deemed them to be pre-approved or ratified. Also, the Board of Directors has delegated to the chair of the Nominating and Corporate Governance Committee (or another member if the chair is interested in the transaction) the authority to pre-approve or ratify any interested transaction in which the aggregate amount is not expected to exceed $1 million. Finally, the policies provide that no director shall participate in any discussion or vote regarding an interested transaction for which he or she is a related party, except that the director shall provide all relevant information concerning the interested transaction to the Nominating and Corporate Governance Committee.

 

Under the policies, an “interested transaction” is defined as any transaction, arrangement or relationship or series of similar transactions, arrangements or relationships (including any indebtedness or any guarantee of indebtedness) in which:

 

the aggregate amount involved will or may be expected to exceed $120,000 in any twelve-month period;
   
Medtronic or a subsidiary is a participant; and
   
any related party has or will have a direct or indirect interest (other than solely as a result of being a director and/or a less than ten percent beneficial owner of another entity).

 

 MEDTRONIC PLC   2017 Proxy Statement   26

 

An “interested transaction” includes a material amendment or modification to an existing interested transaction.

 

A “related party” is defined as any:

 

person who is or was (since the beginning of the last fiscal year for which Medtronic has filed a Form 10-K and proxy statement) an executive officer, director or nominee for election as a director (even if they do not presently serve in that role);
   
greater than five percent beneficial owner of Medtronic’s ordinary shares; or
   
immediate family member of any of the foregoing, as such terms are interpreted under Item 404 of Regulation S-K.

 

During Fiscal Year 2017, Sarah Powell, a daughter of director Kendall J. Powell, was employed by Medtronic as a Senior Leadership Development Rotation Program Associate. The Leadership Development Rotation Program is a three-year program designed to place high-potential, high-performing graduates of an MBA program in two 18-month assignments in different business units of Medtronic. The aggregate value of the compensation paid to Ms. Powell during Fiscal Year 2017 was approximately $160,700, which included salary, bonus and incentive payments and restricted stock units. In addition, Ms. Powell received the standard benefits provided to other non-executive Medtronic employees for her services during Fiscal Year 2017. Ms. Powell is not an executive officer of, and does not have a key strategic role within, Medtronic.

 

During Fiscal Year 2017, Christopher Ellis, a son of Gary Ellis, former Chief Financial Officer, became employed by Medtronic as a Senior Finance Program Manager after Gary Ellis retired as Chief Financial Officer. The aggregate value of the compensation paid to Christopher Ellis during Fiscal Year 2017 was approximately $139,292, which included salary and bonus. In addition, Christopher Ellis received the standard benefits provided to other non-executive Medtronic employees for his services during Fiscal Year 2017. Christopher Ellis is not an executive officer of, and does not have a key strategic role within, Medtronic.

 

Complaint Procedure; Communications with Directors

 

The Sarbanes-Oxley Act of 2002 requires companies to maintain procedures to receive, retain and treat complaints received regarding accounting, internal accounting controls or auditing matters and to allow for the confidential and anonymous submission by employees of concerns regarding questionable accounting or auditing matters. We currently have such procedures in place. Our 24-hour, toll-free confidential compliance line is available for the submission of concerns regarding accounting, internal controls or auditing matters.

 

Our Lead Independent Director may be contacted via e-mail at leaddirector@medtronic.com. Shareholders may also communicate with our independent directors via e-mail at independentdirectors@medtronic.com. Communications received from shareholders may be forwarded directly to Board members as part of the materials sent before the next regularly scheduled Board meeting, although the Board has authorized management, in its discretion, to forward communications on a more expedited basis if circumstances warrant or to exclude a communication if it is illegal, unduly hostile or threatening or otherwise inappropriate. Advertisements, solicitations for periodical or other subscriptions and other similar communications generally will not be forwarded to the directors.

 

Our Codes of Conduct

 

All Medtronic employees, including our Chief Executive Officer and other senior executives, are required to comply with our Code of Conduct to help ensure that our business is conducted in accordance with the highest standards of ethical behavior. Our Code of Conduct covers all areas of professional conduct, including customer relationships, conflicts of interest, insider trading, intellectual property and confidential information, as well as requiring strict adherence to all laws and regulations applicable to our business. Employees are required to bring any violations and suspected violations of the Code of Conduct to the attention of Medtronic through management or our legal counsel or by using Medtronic’s confidential compliance line. In addition, our Code of Ethics for Senior Financial Officers provides specific policies applicable to our Chief Executive Officer, Chief Financial Officer, Treasurer and Controller and to other senior financial officers designated from time to time by our Chief Executive Officer.

 

These policies relate to internal controls, the public disclosures of Medtronic, violations of the securities or other laws, rules or regulations, and conflicts of interest. The members of the Board of Directors are subject to a Code of Business Conduct and Ethics relating to director responsibilities, conflicts of interest, strict adherence to applicable laws and regulations, and promotion of ethical behavior.

 

Our codes of conduct are published on our website, at www.medtronic.com under the About Medtronic — Corporate Governance section, and are available in print to any shareholder who requests them. We intend to disclose future amendments to, or waivers for, directors and executive officers of, our codes of conduct on our website promptly following the date of such amendment or waiver.

 

 MEDTRONIC PLC   2017 Proxy Statement   27

 

Director Compensation

 

The Nominating and Corporate Governance Committee conducts a biennial review of our non-employee director compensation program and makes recommendations for adjustments, as appropriate, to the Board. In connection with the review conducted in Fiscal Year 2016, the Nominating and Corporate Governance Committee’s outside consultant on director compensation, Towers Watson, assessed the compensation paid to our non-employee directors against non-employee director compensation trends and data from our 28-company peer group, which includes both Irish and non-Irish companies. After consultation with Towers Watson, the Nominating and Corporate Governance Committee found the compensation program to be appropriate and no changes were made to the program in the last two fiscal years.

 

The principal features of the compensation received by our non-employee directors for Fiscal Year 2017 are described below.

 

Non-employee Directors are eligible for the following compensation:

 

Annual Cash Retainer – Non-employee directors are entitled to receive an annual cash retainer for their service on the Board. Committee chairs and the Lead Independent Director are entitled to a supplemental annual cash stipend, and non-chair Audit Committee members are entitled to an additional cash stipend. Directors who are also Medtronic employees receive no fees for their services as directors. Our objective in using annual cash retainers and stipends is to recognize the stewardship role of non-employee directors with respect to our success and the increasing demands and responsibilities of our non-employee directors. The annual cash retainer and stipend fees are paid according to the following schedule:

 

Director Compensation     
Annual Cash Retainer  $175,000 
Committee Chair Stipends:     
Audit  $25,000 
Compensation  $20,000 
Nominating & Corporate Governance  $20,000 
Finance  $20,000 
Quality & Technology  $20,000 
Lead Independent Director Stipend  $40,000 
Member Audit Committee  $15,000 

 

Annual Stock Awards – Each non-employee director receives an annual restricted stock unit award equal in value to $175,000, which vests as described in the Stock Awards section below. We use full-value awards and a fixed dollar value for setting equity levels to compensate our non-employee directors in a manner that is consistent with majority practice and that is competitive with our peers. We believe that the annual equity grant to our non-employee directors, in combination with our stock ownership guidelines (described in the Stock Holdings section below), further aligns the interests of our non-employee directors with the interests of our shareholders.

 

The Director Compensation table reflects all compensation awarded to, earned by, or paid to the Company’s non-employee directors during Fiscal Year 2017. No additional compensation was provided to Mr. Ishrak for his service as a director on the Board.

 

Non-Employee Director  Fees Earned or
Paid in Cash
   Stock Awards   Total 
Richard H. Anderson  $235,000   $175,046   $410,046 
Craig Arnold  $175,000   $175,046   $350,046 
Scott C. Donnelly  $190,000   $175,046   $365,046 
Randall Hogan, III  $190,000   $175,046   $365,046 
Shirley Ann Jackson  $200,000   $175,046   $375,046 
Michael O. Leavitt  $175,000   $175,046   $350,046 
James T. Lenehan  $195,000   $175,046   $370,046 
Elizabeth Nabel  $175,000   $175,046   $350,046 
Denise M. O’Leary  $175,000   $175,046   $350,046 
Kendall J. Powell  $210,000   $175,046   $385,046 
Robert C. Pozen  $210,000   $175,046   $385,046 
Preetha Reddy(1)  $108,500   $280,604   $389,104 

 

(1) Ms. Reddy’s stock compensation includes an additional pro-rated grant, which vested immediately, for time on the Medtronic Board through her resignation on December 9, 2016.

 

Fees Earned or Paid in Cash

 

The fees earned or paid in cash column represents the amount of the annual retainer and annual cash stipend for Board and committee service.

 

The annual cash retainer, annual cash stipend and special committee fees are paid in two installments — in the middle and at the end of a fiscal year. The annual cash retainer and annual cash stipend are reduced by 25% if a non-employee director does not attend at least 75% of the total meetings of the Board and Board committees on which such director served during the relevant year. The table on page 21 of this proxy statement under the section entitled “Committees of the Board and Meetings” shows the committees on which the individual directors serve.

 

 MEDTRONIC PLC   2017 Proxy Statement   28

 

Stock Awards

 

Directors are annually granted restricted stock units on the first day of the fiscal year in an amount equal to $175,000 divided by the fair market value of a share of Medtronic ordinary shares on the date of grant. Grants are made on a pro rata basis for participants who are directors for less than the entire preceding fiscal year and are reduced by 25% for any directors who failed to attend at least 75% of the applicable meetings during such fiscal year. The restricted stock units vest on the one-year anniversary of the grant date. Dividends paid on Medtronic ordinary shares are credited to a director’s stock unit account in the form of additional units.

 

Prior to the Covidien acquisition in January 2015, directors were granted deferred stock units rather than restricted stock units. The balance in a director’s stock unit account will be distributed to the director in the form of Medtronic ordinary shares upon resignation or retirement from the Board in a single distribution or, at the director’s option, in five equal annual distributions.

 

Stock Holdings

 

Non-employee directors held the following restricted stock units, stock options, and deferred stock units as of April 28, 2017:

 

Non-Employee Director   Restricted
Stock Units
  Stock
Options
  Deferred
Stock Units
Richard H. Anderson   2,254       27,706
Craig Arnold   2,254       0
Scott C. Donnelly   2,254       2,078
Randall Hogan, III   2,254       0
Shirley Ann Jackson   2,254       28,541
Michael O. Leavitt   2,254       7,358
James T. Lenehan   2,254   7,084   21,397
Elizabeth Nabel   2,254       0
Denise M. O’Leary   2,254   7,084   29,849
Kendall J. Powell   2,254       20,509
Robert C. Pozen   2,254   4,484   25,087

 

To align directors’ interests more closely with those of shareholders, the Nominating and Corporate Governance Committee approved the Medtronic plc Stock Ownership and Retention Guidelines pursuant to which non-employee directors are expected to own stock of Medtronic in an amount equal to five times the annual Board retainer. Until the ownership guideline is met, the directors must retain 75% of after-tax Medtronic shares received through settlement of equity compensation awards. Once the guideline is met, the directors must retain 75% of after-tax shares for one year following grant of equity compensation awards. For stock options, net after-tax profit shares are those shares remaining after payment of the option’s exercise price and income taxes. For share issuances, net gain shares are those remaining after payment of income taxes. Shares retained may be sold on the later of one year after grant or when the ownership guidelines are met. In the case of retirement or termination, shares may be sold after the shorter of the remaining retention period or one year following retirement or termination, as applicable. As of July 7, 2017, all directors were in compliance with the stock ownership and retention policy; however, due to their more recent appointments, Mr. Donnelly and Dr. Nabel are continuing to make progress towards the required ownership guidelines.

 

Deferrals

 

Prior to the Covidien acquisition in January 2015, directors were able to defer all or a portion of their cash compensation through participation in the Medtronic Capital Accumulation Plan Deferral Program. This was a nonqualified plan designed to allow participants to defer a portion of their pre-tax compensation, and to earn returns or incur losses on those deferred amounts based upon allocation of their balances to one or more investment alternatives, which were the same investment alternatives that Medtronic offers its employees through its 401(k) Plan. Director contributions in the deferred compensation program were discontinued effective as of the close of the Covidien acquisition in January 2015.

 

 MEDTRONIC PLC   2017 Proxy Statement   29

 

SHARE OWNERSHIP INFORMATION

 

Significant Shareholders

 

The following table shows information as of July 7, 2017, concerning each person who is known by us to beneficially own more than 5% of our ordinary shares.

 

Name of Beneficial Owner  Amount and Nature of
Beneficial Ownership of
Ordinary Shares
  Of Shares Beneficially
Owned, Amount that
May Be Acquired
Within 60 Days
  Percent
of Class
The Vanguard Group, 100 Vanguard Blvd., Malvern, PA 19355(1)  97,909,120  N/A  7.21
BlackRock, Inc., 55 East 52nd Street, New York, NY 10055(2)  85,265,752  N/A  6.28
Wellington Management Group LLP, 280 Congress St, Boston, MA 02210(3)  74,882,071  N/A  5.51
   
(1) The information for security ownership of this beneficial owner is based on a Schedule 13G filed by The Vanguard Group on February 10, 2017. On such date, Vanguard, together with its affiliates, held indirect voting power over ordinary shares. Based upon shares outstanding as of July 7, 2017, the shareholder beneficially owns approximately 7.21% of our shares outstanding.
(2) The information for security ownership of this beneficial owner is based on a Schedule 13G filed by BlackRock, Inc. on January 25, 2017. On such date, BlackRock, together with its affiliates, held indirect voting power over ordinary shares. Based upon shares outstanding as of July 7, 2017, the shareholder beneficially owns approximately 6.28% of our shares outstanding.
(3) The information for security ownership of this beneficial owner is based on a Schedule 13G filed by Wellington Management Group LLP on February 9, 2017. On such date, FMR LLC, together with its affiliates, held indirect voting power over ordinary shares. Based upon shares outstanding as of July 7, 2017, the shareholder beneficially owns approximately 5.51% of our shares outstanding.

 

Beneficial Ownership of Management

 

The following table shows information as of July 7, 2017, concerning beneficial ownership of Medtronic’s ordinary shares by Medtronic’s directors, named executive officers identified in the Summary Compensation Table under “Executive Compensation,” and all directors and executive officers as a group.

 

Name of Beneficial Owner Amount and Nature of
Beneficial Ownership of
Ordinary Shares(8)
Of Shares Beneficially
 Owned, Amount that May Be
Acquired Within 60 Days
Richard H. Anderson(1)   77,100   27,706
Craig Arnold   25,295   0
Michael J. Coyle(2)   478,100   419,896
Scott C. Donnelly(3)   5,752   2,078
Bryan Hanson   375,355   321,692
Randall Hogan, III   32,107   0
Omar Ishrak   1,259,941   1,145,664
Shirley Ann Jackson   34,058   28,541
Michael O. Leavitt   11,603   7,358
James T. Lenehan   50,338   28,481
Elizabeth Nabel   2,694   0
Denise M. O’Leary   59,373   36,933
Karen Parkhill(4)   22,413   11,640
Kendall J. Powell(5)   29,092   20,509
Robert C. Pozen(6)   71,382   29,571
Rob ten Hoedt   124,445   109,064
Gary L. Ellis   771,997   649,962
Directors and executive officers as a group (22 persons)(7)   4,253,244   3,565,437
(1) Mr. Anderson disclaims beneficial ownership of 25 shares that are owned by his adult son. Includes 4,800 shares held by Mr. Anderson’s spouse’s trust.
(2) Includes 4,105 shares held by Mr. Coyle’s spouse and 250 shares held by family trust.
(3) Includes 245 shares held by Mr. Donnelly’s spouse’s trust.

 

 MEDTRONIC PLC   2017 Proxy Statement   30

 
(4) Includes 86 shares held by Ms. Parkhill’s trust.
(5) Includes 3,000 shares held by Mr. Powell’s spouse’s trust.
(6) Includes 24,700 shares owned jointly with Mr. Pozen’s spouse.
(7) As of July 7, 2017, no director or executive officer beneficially owns more than 1% of the shares outstanding. Medtronic’s directors and executive officers as a group beneficially own approximately .31% of the shares outstanding.
(8) Amounts include the shares shown in the last column, which are not currently outstanding but are deemed beneficially owned because of the right to acquire shares pursuant to options exercisable or RSUs vesting and payable within 60 days (on or before December 9, 2017) and the right to receive shares for deferred stock units within 60 days (on or before December 9, 2017) upon a director’s resignation.

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Based upon a review of reports and written representations furnished to it, Medtronic believes that during Fiscal Year 2017, all filings with the SEC by its executive officers and directors complied with requirements for reporting ownership and changes in ownership of Medtronic’s ordinary shares pursuant to Section 16(a) of the Exchange Act.

 

 MEDTRONIC PLC   2017 Proxy Statement   31

 

COMPENSATION DISCUSSION AND ANALYSIS

 

This Compensation Discussion and Analysis (“CD&A”) describes the compensation program and compensation decisions made by the Compensation Committee in regard to the compensation of the following named executive officers (“NEOs”) for Fiscal Year 2017:

 

Name Title
Omar Ishrak Chairman and Chief Executive Officer
Karen L. Parkhill Executive Vice President and Chief Financial Officer (Effective June 20, 2016)
Michael J. Coyle Executive Vice President and Group President, Cardiac and Vascular Group
Bryan C. Hanson Executive Vice President and Group President, Minimally Invasive Therapies Group
Rob ten Hoedt Executive Vice President and Group President, Europe, Middle East, and Africa
Gary L. Ellis Former Executive Vice President and Chief Financial Officer (Through June 20, 2016)

 

Executive Summary

 

Business Context

 

Fiscal Year 2017 Highlights

 

During Fiscal Year 2017, we achieved solid results across all of our business groups and geographies. At the same time, we produced meaningful operating profit growth based on our synergy capture from the Covidien integration and our operating excellence initiatives. Performance with respect to our differentiated growth platforms was as follows: (i) revenue growth was mid-single digit range on a constant currency, constant week basis, (ii) diluted non-GAAP EPS growth was in the double digits on a constant currency, constant week basis, and (iii) free cash flow was $5.6 billion. Nevertheless, our performance fell slightly below the financial goals we set for Fiscal Year 2017, as illustrated below. As a result, our payout for the annual incentive plan was below target and paid out at 94.41%.

 

 

(1) You should refer to page 42 for more information.
(2) You should refer to page 44 for a definition of Revenue Growth and ROIC.

 

The Company is committed to deliver mid-single digit constant currency revenue growth and double-digit constant currency EPS growth over the long-term. With our diverse growth platforms and leadership in growth markets, we expect to create long-term value growth for our shareholders.

 

The Compensation Committee made the following compensation decisions for Fiscal Year 2017:

 

Base salary increases ranged from 3% to 10%, including promotions
   
Target annual incentive opportunities remained the same year-over-year
   
Long-term incentive opportunities increased 0% to 26%, including promotions

 

In addition, award payouts for the annual incentive plan and the three-year long-term performance plan were at 94.41% and 100% of target award opportunities, respectively, as summarized below.

 

MEDTRONIC PLC   2017 Proxy Statement    32

 

ACTUAL PERFORMANCE AS A PERCENT OF PLAN PERFORMANCE &
ACTUAL AWARD PAYOUT AS A PERCENT OF TARGET AWARD PAYOUT

 

 

Finally, business group and region NEOs received special equity grants in conjunction with their Fiscal Year 2017 compensation reviews to strengthen long-term retention of key executives to support leadership continuity.

 

Compensation of our Chief Executive Officer

 

The compensation of our CEO is positioned within the median range of our Compensation Comparison Group and is based on the same design elements and performance standards that are applicable to the other NEOs. For Fiscal Year 2017, the Compensation Committee determined to increase the CEO’s base salary by 3%, maintain his target annual incentive opportunity at 175% of base salary, and increase his long-term incentive opportunity from $13.0 million to $13.5 million, which will be equally allocated to stock options, restricted stock units, and long-term performance plan awards.

 

The following chart presents the increase in target total direct compensation for our CEO for Fiscal Year 2017 as determined following Fiscal Year 2016, as well as the total shareholder return for Fiscal Year 2016 for the Company, our compensation comparison group, and our industry peers.

 

CHANGE IN FY 2017 CEO TOTAL DIRECT COMPENSATION
RELATIVE TO FY 2016 TSR PERFORMANCE

 

 

MEDTRONIC PLC   2017 Proxy Statement    33

 

Target total direct compensation represents base salary + target annual incentive + target long-term incentive

 

    FY 2016   FY 2017   % Change  
Base Salary (000s) $ 1,549 $ 1,596   3.0  
Target Annual Bonus (000s) $ 2,711 $ 2,792   3.0  
Long-Term Incentives (000s) $ 13,000 $ 13,500   3.8  
Target Total Direct Compensation (000s) $ 17,260 $ 17,888   3.6 %

 

NEO Pay Versus Performance

 

The Compensation Committee annually evaluates how the amount of annual cash compensation aligns with the Company’s performance when ranked against the comparison companies. For purposes of this analysis, annual size and performance is evaluated based on company size, profitability, and growth; annual cash compensation represents the actual base salaries and annual bonuses paid for each fiscal year. As illustrated below, total annual compensation for the NEOs has been directionally aligned with the Company’s size and performance over the last five fiscal years.

 

PERFORMANCE VERSUS TOTAL ANNUAL COMPENSATION
MEDTRONIC VERSUS COMPENSATION COMPARISON GROUP OF COMPANIES

 

 

Consideration of “Say-on-Pay” Voting Results

 

For Fiscal Year 2016, the Medtronic advisory vote on “say-on-pay” garnered shareholder support of 95%. The Compensation Committee reviewed shareholder and other stakeholder feedback along with the results of the shareholder “say-on-pay” vote in making compensation decisions during Fiscal Year 2016.

 

At our 2016 annual meeting, shareholders again showed strong support for our executive compensation programs with 95% of the votes cast approving our executive compensation

 

Efforts to gather stakeholder feedback included periodic outreach to our largest shareholders. Based on this feedback and the 95% say-on-pay approval by shareholders in 2016, shareholders support our compensation policies and practices. Therefore, the Compensation Committee continued to apply the same principles in determining Fiscal Year 2017 compensation actions. The Medtronic advisory “say-on-pay” vote is held on an annual basis.

 

MEDTRONIC PLC   2017 Proxy Statement    34

 

Corporate Governance

 

The Compensation Committee has incorporated the following market-leading governance features into our programs:

 

Summary of Key Compensation Practices
What We Do   Double-trigger change of control vesting of compensation and benefits, including equity
  Comprehensive clawback policy that applies to annual incentive, long-term incentives and equity compensation
  Rigorous stock ownership requirements and holding periods on portions of after-tax shares until guidelines are met
  Targets for performance metrics aligned to financial goals communicated to shareholders
  Multiple performance metrics under our short- and long-term performance-based plans discourage short-term risk-taking at the expense of long-term results
  Forfeiture policy providing forfeiture of stock awards when a NEO terminates employment for any reason other than retirement, disability, death, or termination under specific circumstances related to a change-of-control
  Responsible use of shares under our long-term incentive program
  Align pay and shareholder performance
  Engagement of an independent compensation consultant
  Limited perquisites
What We Do Not Do   No supplemental executive retirement plans or special healthcare coverage for NEOs
  No “single-trigger” vesting of equity awards in event of a change of control
  No dividends or dividend equivalents on unearned stock options
  No hedging and pledging of Company stock permitted for executives
  No “golden parachute” excise tax gross-ups
  No backdating or repricing of stock option awards
  No multi-year compensation guarantees

 

Participants in Executive Compensation Design and Decision-Making Process

 

Role of Compensation Committee

 

The Compensation Committee establishes our compensation philosophy, program design and administration rules, and is the decision-making body on all compensation matters related to our NEOs. The Committee solicits input from an independent outside compensation consultant and relies on the consultant’s advice. For more information on the Compensation Committee, its members and its duties as identified in its charter, please refer to the section entitled “Committees of the Board and Meetings — Compensation Committee” beginning on page 23 of this proxy statement.

 

Independent Compensation Consultant

 

The Compensation Committee has engaged Frederic W. Cook & Co., Inc., an independent outside compensation consulting firm (the “Independent Consultant”), to advise the Compensation Committee on all matters related to executive officer compensation. Specifically, the Independent Consultant conducts an annual competitive market analysis of total compensation for NEOs, provides relevant market data, updates the Compensation Committee on compensation trends and regulatory developments, and counsels the Committee on program designs and specific compensation decisions related to our CEO and other executives. This is the only work completed by Frederic W. Cook & Co., Inc. for Medtronic and the services of that firm are at the discretion and direction of the Compensation Committee.

 

In June 2013, the Compensation Committee adopted enhanced independence standards for outside consultants that mirror the NYSE listing standards. This policy established an assessment framework to confirm and report on a consultant’s independence. The policy also requires a consultant to confirm its independent status according to the Compensation Committee’s standards. The Compensation Committee reviews and confirms the independence of its outside consultants on an annual basis.

 

MEDTRONIC PLC   2017 Proxy Statement    35

 

In light of the NYSE listing standards, the Compensation Committee has considered the independence of the Independent Consultant. In connection with this process, the Compensation Committee has reviewed, among other items, a letter from the Independent Consultant addressing its independence and the members of the consulting team serving the Committee, including the following factors: (i) other services provided to us by the Independent Consultant, (ii) fees paid by us as a percentage of the Independent Consultant’s total revenue, (iii) policies or procedures of the Independent Consultant that are designed to prevent conflicts of interest, (iv) any business or personal relationships between the senior advisor of the consulting team with a member of the Compensation Committee, (v) any Company stock owned by the senior advisor or any member of that individual’s immediate family, and (vi) any business or personal relationships between our executive officers and the senior advisor. The Compensation Committee discussed these considerations and concluded that the work performed by the Independent Consultant and its senior advisor involved in the engagement did not raise any conflict of interest.

 

Role of Chief Executive Officer in Compensation Decisions

 

In making compensation decisions for executive officers reporting to the CEO, the Compensation Committee solicits the views of our CEO and the Independent Consultant. The CEO is not present during Compensation Committee executive sessions and does not make recommendations to the Compensation Committee about his own compensation.

 

Executive Compensation Philosophy

 

Our compensation programs align the interests of our NEOs with those of our shareholders. We provide market-competitive programs that enable us to attract, retain and engage highly talented executives with compensation packages established pursuant to the following principles:

 

Market Competitive. We offer market-competitive total direct compensation consisting of base salary, an annual cash incentive and long-term cash and equity incentives.
   
Pay for Performance. We emphasize pay for performance by fixing at least 75% of target total direct compensation (base salary + target annual incentive + target long-term incentive) on the attainment of annual and long-term Company performance goals.
   
Market Median Pay. We calibrate each element of total direct compensation to fall within a market median range that is +/- 15% around median for base salary and annual incentive and +/- 20% around median for long-term incentives and total direct compensation. We use the median because at least 75% of NEO compensation is tied to annual and long-term Company performance; performance that is above or below the median of our Comparison Group will generate compensation that is above or below the median compensation for the same group.
   
Experience/Performance Adjustment. We leverage data from the market median of our compensation Comparison Group to identify our competitive market for talent. Then we make appropriate adjustments to ensure each NEO’s competitive compensation reflects the NEO’s experience and performance.
   
Comprehensive Benefit Programs. We enhance competitive total direct compensation with comprehensive employee benefit programs that support retirement, health and wellness. NEOs have the same health and retirement benefits as all Medtronic U.S.-based employees.
   
Shareholder Value Alignment. We align incentive programs with shareholder value creation by using annual and three-year performance measures that drive shareholder value. Incentive goals are derived from our Board-approved annual operating plan and our Board-approved long-term strategic plan, both of which are shared with investors.
   
Focus on Quality. We emphasize quality: payouts under our annual incentive plan can be reduced if a quality compliance modifier performance threshold is not achieved. The quality modifier, which may reduce but not increase a payout, is designed to align Medtronic employees with the Medtronic Mission, “To strive without reserve for the greatest possible reliability and quality in our products...”. The modifier uses Food and Drug Administration inspection observation to provide a standardized and rigorous assessment of our product and process quality.
   

MEDTRONIC PLC   2017 Proxy Statement    36

 

Executive Compensation Program Design

 

The design of our executive compensation program is illustrated below:

 

  Component Performance
Period (yrs.)
Basic Design Purpose
Fixed Base Salary 1

  Calibrated with the Comparison Group market median range

■  Compensates for carrying out basic duties of the job  

  Recognizes individual experiences, skills, and sustained performance  

Benefits 1

  Health, retirement, and other life events

  Market-competitive benefits  

  Same benefits available to Medtronic employees except for the Non-Qualified Deferred Compensation Program

Perquisites 1

■  Allowance covering expenses such as financial and tax planning, memberships, etc.

  No tax gross-up  

■  Provide a modest allowance to be used in lieu of Company-provided perquisites

Variable At Risk Annual Incentive Plan 1

■  Actual payout for performance below threshold is zero. Payout for performance between threshold and maximum is 50-200%

  Uses revenue growth, diluted earnings per share growth, cash flow indicator, and quality compliance performance measures  

  Rewards the accomplishment of annual operating plan based on Company performance and it is driven by performance for our shareholders

Restricted Stock Units 3

■  Granted annually

  Vest 100% on the 3rd anniversary of grant date

  Vesting is dependent on achieving a three-year diluted earnings per share cumulative compound annual growth threshold  

  Promotes long-term stock ownership in Medtronic

  Provides retention

  Includes a long-term performance based threshold that must be achieved for award vesting  

Stock Options 4

■  Granted annually

  Vest 25% per year starting on the 1st anniversary of grant date  

  Aligns pay with performance by linking value to stock price appreciation and shareholder value creation

Long-Term Performance Plan 3

■  Granted annually

  Actual pay varies between 50% and 200% of target

  Uses cumulative revenue growth, and return on invested capital performance measures over a three-year performance period

  Payable in cash if performance criteria satisfied  

■  Aligns a portion of cash compensation to longer-term strategic financial goals not influenced by variability in the stock market

 

The mix of total direct compensation for our NEOs is weighted 83% to 91% at risk with 67% to 75% allocated to long-term incentives, as illustrated below:

 

CHIEF EXECUTIVE OFFICER TARGET TOTAL DIRECT
COMPENSATION COMPONENTS
  AVERAGE OTHER NAMED EXECUTIVE OFFICER TARGET TOTAL
DIRECT COMPENSATION COMPONENTS
     
     

 

MEDTRONIC PLC   2017 Proxy Statement    37

 

How We Establish Executive Compensation Levels

 

The Compensation Committee considers relevant market pay practices when establishing executive compensation levels and evaluating compensation programs, including base salary and annual and long-term incentives. To facilitate our ability to benchmark competitive compensation levels and practices, the Compensation Committee established a 27-company compensation comparison group (“Comparison Group”). The Compensation Committee selected the companies that constitute the Comparison Group after discussing various recommendations from the Independent Consultant. The Comparison Group is selected using Compensation Committee-approved criteria designed to identify companies that reflect our size (measured by revenue, market capitalization, and other size measures), our complexity, and our global footprint and to ensure we include companies that represent our Medical Device and Life Sciences industry.

 

The Compensation Committee uses data from the Comparison Group to establish a competitive market median range within which individual pay can be positioned to reflect each NEO’s experience and performance. Consistent with our pay-for-performance philosophy, we establish an award range for short-term and long-term incentives that generates above-market pay for above-market performance and below-market pay for below-market performance. In addition to the competitive market information, the Compensation Committee also reviews information about performance, potential, expertise, and experience for each NEO.

 

The following table summarizes the selection criteria used by the Compensation Committee to select the Compensation Comparison Group.

 

Selection Criteria
Start with the 200 largest U.S. companies on revenue (Fortune 200) and market capitalization

Limit to 6 Global Industry Classification Standard Sectors

1. Health Care

2. Consumer Discretionary

3. Consumer Staples

4. Industrials

5. Information Technology

6. Materials

Consider the following criteria for selecting companies

1. Overall company size

2. Health care company

3. Global operations

4. Manufacturer

5. Government contractor

6. Information technology hardware

7. Geographic competitor

 

During Fiscal Year 2017, the Independent Consultant recommended the removal of St. Jude Medical from the Comparison Group because they were acquired by Abbott Laboratories in January 2017 and Abbott Laboratories is in our Comparison Group. The Compensation Committee approved that change. Summarized below is a comparison of the Company to the Comparison Group in various measures of financial and market size at the middle of Fiscal Year 2017:

 

COMPARISON GROUP SIZE COMPARISONS

 

 

 

27-Company Comparison Group
3M IBM
Abbott Laboratories Intel
AbbVie Johnson & Johnson
Amgen Lilly
Biogen Idec Lockheed Martin
Boeing Merck
Boston Scientific Monsanto
Bristol-Myers Squibb Pepsico
Cisco Systems Pfizer
Coca-Cola Procter & Gamble
Du Pont Qualcomm
General Electric United Technologies
Gilead Sciences UnitedHealth Group
Honeywell  
-- All financial and market data are taken from Standard & Poor’s Capital IQ
   


 

MEDTRONIC PLC   2017 Proxy Statement    38

 

Fiscal Year 2017 Compensation Decisions

 

Transition of Gary Ellis from Chief Financial Officer Role

 

Medtronic announced on May 4, 2016, Gary Ellis’ intent to retire from his Chief Financial Officer (“CFO”) role effective June 20, 2016, concurrent with the appointment of Karen Parkhill to the CFO role. Mr. Ellis continued to be employed until December 31, 2016, to assist with the CFO transition as well as to continue leading Medtronic’s Global Operations, Real Estate Management, and Information Technologies functions.

 

The table below shows the Fiscal Year 2016 and 2017 compensation for Mr. Ellis.

 

  FY2016 FY2017   % Increase
Base Salary (000s) $ 875 $ 915   4.6 %
Annual Incentive (MIP) Target - % of Base Salary   120%   120%   0.0 %
Long-Term Incentive Plan (LTIP) Target (000s) $ 4,375 $ 4,375   0.0 %
Target Total Direct Compensation (000s) $ 6,300 $ 6,388   1.4 %

 

The base salary increase of 4.6% for Mr. Ellis was in recognition of strong performance in FY16, and the overall compensation package reflected Mr. Ellis’ agreement to continue leading Medtronic’s Global Operations, Real Estate, and Information Technologies functions until a successor was appointed and to provide CFO transition support for Ms. Parkhill.

 

Appointment of Karen Parkhill to Chief Financial Officer Role

 

Medtronic announced on May 4, 2016, the appointment of Karen Parkhill as Executive Vice President and Chief Financial Officer of Medtronic. She serves on the Company’s Executive Committee and is responsible for leading Medtronic’s global finance organization and key supporting functions, including Treasury, Controller, Tax, Internal Audit, Investor Relations, Corporate Strategy, and Business Development.

 

Ms. Parkhill joined Medtronic from Comerica Incorporated, where she was Vice Chairman and Chief Financial Officer. She was a member of Comerica’s Management Executive Committee and the Comerica Bank Board of Directors. As Chief Financial Officer at Comerica, Ms. Parkhill had direct management of Finance, overseeing Accounting, Business Finance, Corporate Planning and Development, Investor Relations, and Treasury, as well as Economics, with responsibility for all financial reporting. She previously had administrative responsibilities for Comerica’s Service Company, Corporate Compliance and Financial Intelligence. Ms. Parkhill’s full professional biography can be found on Medtronic.com.

 

The table below shows the Fiscal Year 2017 compensation for Ms. Parkhill.

 

  FY2017
Base Salary (000s) $ 750
Annual Incentive (MIP) Target - % of Base Salary   110%
Long-Term Incentive Plan (LTIP) Target (000s) $ 3,000
Target Total Direct Compensation (000s) $ 4,575

 

One-Time, New Hire Compensation

 

Ms. Parkhill forfeited certain compensation following her termination of employment with Comerica. Medtronic compensated Ms. Parkhill for this loss by providing a $1 million cash bonus, paid 50% within 30 calendar days of the effective date of her employment and 50% six months following the effective date (in each case subject to the Company’s standard claw-back policy), as well as a one-time restricted stock unit award (“New Hire RSU”) on the effective date of her employment. The New Hire RSU had a grant date value of $4.4 million and vests in 33-1/3% increments on each of the first three anniversaries of the grant date, subject to the Company attaining a diluted earnings per share threshold for the fiscal year ending prior to each vesting date. The Compensation Committee reviews benchmark data provided by the Independent Consultant when assessing one-time, new hire compensation arrangements and determined that Ms. Parkhill’s one-time, new hire compensation is consistent with competitive market practice.

 

Fiscal Year 2017 Annual Base Salaries for Other Named Executive Officers

 

Our philosophy is to maintain base salary within a +/- 15% range around the median base salary paid by our Comparison Group. The range allows for pay decisions to take into account individual factors such as performance, potential, expertise, and experience. At the beginning of each fiscal year, the Independent Consultant presents to the Committee an analysis that identifies the median base salary ranges for the CEO and each NEO based on their respective, or substantially similar, positions in the Compensation Comparison

 

MEDTRONIC PLC   2017 Proxy Statement    39

 

Group. For example, the Independent Consultant analyzes Messrs. Coyle and Hanson’s compensation compared to compensation of the median base salary range for business group leaders of companies in the Comparison Group. Using this market data for each of the NEOs, the Compensation Committee approves base pay increases to maintain base salary within the market median range, again, taking into account individual factors such as performance, potential, expertise, and experience.

 

The table below shows the Fiscal Year 2017 base salary increases for the CEO and each NEO (excluding Mr. Ellis and Ms. Parkhill with respect to the CFO role, which is discussed on the previous page).

 

Name

FY2016
Salary

(000s)

FY2017
Salary

(000s)

%
Increase
Omar Ishrak $ 1,549 $ 1,596 3.0 %
Michael J. Coyle $ 800 $ 880 10.0 %
Bryan C. Hanson $ 765 $ 840 9.8 %
Rob ten Hoedt $ 775 $ 800 3.2 %

 

Fiscal Year 2017 Annual Incentive Target Pay

 

Using the same analytical approach described for the annual base salary, the Independent Consultant identifies the median for annual incentive target pay for the CEO and each NEO, which is set as a percentage of annual base salary. No changes were made to Fiscal Year 2017 annual incentive target pay. The table below shows Fiscal Year 2017 CEO and NEO annual incentive target pay as a percentage of base salary (Mr. Ellis and Ms. Parkhill were discussed on previous page).

 

Name

FY2016
MIP

Target

FY2017
MIP

Target

%

Increase/

(Decrease)

Omar Ishrak   175 %   175 % 0 %
Michael J. Coyle   100 %   100 % 0 %
Bryan C. Hanson   100 %   100 % 0 %
Rob ten Hoedt   100 %   100 % 0 %

 

Fiscal Year 2017 Long-Term Incentive Plan (LTIP) Target Pay

 

Using the same analytical approach described for the annual base salary and annual target incentive, the Independent Consultant identifies the median for long-term incentive plan target pay for the CEO and each NEO, which is set as target value. For Fiscal Year 2017, changes made to the long-term incentive plan target pay for the CEO and NEOs were based on changes in the market median value. The table below shows Fiscal Year 2017 CEO and NEO target long-term incentive pay as a percentage of base salary (Mr. Ellis and Ms. Parkhill were discussed on previous page).

 

Name

FY2016 LTIP

Target
(000s)

FY2017 LTIP

Target
(000s)

%

Increase

Omar Ishrak $ 13,000 $ 13,500 3.8 %
Michael J. Coyle $ 3,650 $ 4,100 12.3 %
Bryan C. Hanson $ 2,900 $ 3,650 25.9 %
Rob ten Hoedt $ 2,300 $ 2,300 0.0 %

 

MEDTRONIC PLC   2017 Proxy Statement    40

 

Fiscal Year 2017 Special Retention Restricted Stock Unit (RSU) Grants

 

The Compensation Committee monitors the retentive value of all unvested, long-term incentive plan components. The Committee uses a target value of two (2) times target total direct compensation (TTDC) which is equal to annual base salary plus annual incentive target plus long-term incentive target as a best practice method to quantify the sufficiency of retentive financial incentives. Infrequently, the Committee will grant special RSUs as part of our retention program of high performing, in-demand key executives. Median TTDC values have increased following the FY15 integration of Covidien and Medtronic, resulting in outstanding, unvested LTIP values dropping significantly below the two times TTDC target.

 

Additionally, Fiscal Year 17 was a critical year to ensure retention of key business group and region executives to support leadership continuity. Based on these factors, the Committee approved special RSUs for the NEOs noted in the following table as well as for other executive business group and region leaders.

 

Name

FY2017

Special

RSU

(000s)

Michael J. Coyle $ 4,000
Bryan C. Hanson $ 4,000
Rob ten Hoedt $ 1,000

 

The special RSUs vest over three years.

 

Fiscal Year 2017 Annual Incentive Plan Design

 

Annual incentive compensation supports the Compensation Committee’s pay-for-performance philosophy and aligns individual goals with Company goals as set forth in the Company’s annual operating plan. Under the Medtronic Incentive Plan, executives are eligible for cash awards based on the Company’s attainment of performance measures established by the Compensation Committee and the Board of Directors as part of the annual and strategic planning process. Consistent with past practice, the Compensation Committee structured the 2017 annual incentive plan as follows:

 

At the beginning of the fiscal year, the Compensation Committee established performance measures and goals based on the Board approved annual operating and longer-term strategic plans, which included the financial and strategic measures being assessed and threshold, target and maximum performance targets for each measure.

 

Also at the beginning of the fiscal year, the Compensation Committee set individual target awards for each executive, expressed as a percentage of base salary, based on the executive’s level of responsibility and an examination of compensation information from our Comparison Group and market data.

 

After the close of the fiscal year, the Compensation Committee received a report from management regarding Company and business unit performance against the pre-established performance goals. Awards were based on each NEO’s individual target award percentage and the overall Company results relative to the specific performance goals, as certified by the Compensation Committee.

 

In establishing the annual incentive plan design, the Compensation Committee, in consultation with its Independent Consultant and management, considered shareholder feedback, competitive comparisons and the Company’s strategic imperatives. When considering the 2017 plan design, the Compensation Committee considered the 95% support expressed by shareholders for the Fiscal Year 2016 say-on-pay proposal. Additionally, the Compensation Committee continues to use performance measures that come directly from the Company’s annual operating plan (which is formally approved by the Board of Directors) and that represent the best financial measures of annual executive performance expectations. Accordingly, the key design elements of the Fiscal Year 2017 annual incentive plan, which are substantially the same as our Fiscal Year 2016 plan, are as follows:

 

The performance measures, which were weighted equally (1/3 each), were diluted earnings per share, revenue growth and cash-flow indicator (see the table on the following page for details about each performance measure). The diluted earnings per share measure was also designated to be the plan threshold performance measure that had to be achieved in order for any payout to be made under the plan. If the minimum performance goal for the diluted earnings per share measure was not satisfied, then the plan provided no payout regardless of the results of the other performance measures.

 

In addition to setting these three performance measures, the Compensation Committee also established minimum, target and maximum performance requirements for each measure. If the minimum performance requirement for a measure was not met, then no award for that particular measure was payable (and no payout was made at all if the diluted earnings per share minimum performance requirement was not met). If the maximum performance requirement for a measure was exceeded, then any payout associated with that measure was capped at the maximum performance level, which was 200% of target.

 

Although not a performance measure, the Compensation Committee included a Quality Compliance Modifier as part of the plan design to foster a culture of compliance and reinforce the importance of quality. Accordingly, if the Company did not meet the requisite quality score, the payout is reduced by five (5) percentage points. The Quality Compliance Modifier may only reduce a payout and cannot increase a payout.

 

MEDTRONIC PLC   2017 Proxy Statement    41

 

Fiscal Year 2017 Annual Incentive Plan Calculation Methodology

 

In calculating the annual incentive plan results, if the minimum performance for a measure is met, then a performance multiplier for each performance measure is determined and the overall performance score is calculated. For each performance measure, the performance multiplier would be 0 if performance is below the minimum, 0.5x if performance is at threshold, 1x if performance is at target and 2x if performance is at or above the maximum performance level. The performance multiplier for each performance measure is multiplied by the weighted percentage to obtain a performance score for that measure. The performance scores for each measure are added together for an overall performance score, taking into account the Quality Compliance Modifier. That overall performance score is then multiplied by the applicable NEO’s individual target award and eligible earnings to arrive at the actual payment amount, as illustrated below:

 

MEDTRONIC INCENTIVE PLAN PERFORMANCE EQUALS:

 

 

Fiscal Year 2017 Annual Incentive Plan Performance Measures

 

At the Compensation Committee’s June 2016 meeting, the Committee approved the target performance goal and performance range for each of the three equally weighted performance measures. The targets come directly from the Company’s Board-approved annual operating plan and the performance range is derived from the median performance range structure used by our compensation Comparison Group. The Committee also strives to ensure the three measures are aligned with each other.

 

The following provides details about the performance measures, targets, and performance range.

 

Measure Rationale Performance Targets Weight
Revenue Growth Over Prior Year (Constant Currency, Constant Week) Top line growth continues to be a key Company strategy, reflecting market development, market penetration, and market share performance

Minimum

(95% of Plan)

Target

(100% of Plan)

Maximum

(105% of Plan)

1/3 of Payout
(0.2%) 5.0% 10.3%
Diluted Earnings Per Share Growth (Non-GAAP) Earnings both from operating efficiency and financial management is a key driver of returns to shareholders

Minimum

(92% of Plan)

Target

(100% of Plan)

Maximum

(110% of Plan)

1/3 of Payout
$4.27 $4.62 $5.08
Cash-Flow Indicator Cash flow generated from operations plus management of short-term receivables, inventory, and payables is a key driver of the Company’s ability to re-invest and provide returns to shareholders (in millions)

Minimum

(90% of Plan)

Target

(100% of Plan)

Maximum

(110% of Plan)

1/3 of Payout
$5,701 $6,334 $6,968
Quality Compliance Modifier Performance Threshold We endeavor to maintain high quality system compliance measured through FDA inspection results A score of 30 points or less A score of more than 30 points reduces payout by five (5) percentage points

 

For purposes of the annual incentive calculation, “diluted earnings per share” refers to non-GAAP diluted earnings per share as reported to shareholders. A reconciliation of the GAAP to non-GAAP diluted earnings per share is included in Appendix A to this proxy statement. Revenue growth is defined as the annual growth rate in revenue excluding the effects of foreign exchange rates, and is expressed as a percentage. Cash Flow Indicator is defined as profit after tax exclusive of special charges, plus or minus changes in accounts receivable, inventories, and accounts payable. The Cash Flow Indicator only includes changes in assets and liabilities that best reflect annual operations. This calculation excludes the effects of foreign exchange rates. Quality Compliance Modifier Performance Threshold uses a score calculated as follows:

 

FDA Inspections = Average Number of Findings per Inspection X 10 points

 

Non-Material FDA Warning Letter = 1 point per finding

 

Material FDA Warning Letter = 20 points

 

MEDTRONIC PLC   2017 Proxy Statement    42

 

Fiscal Year 2017 Long-Term Incentive Plan (LTIP) Design

 

Using the same analytical approach described for annual base salary and short-term incentives, the Independent Consultant identifies a +/- 20% median range for long-term incentive target pay for the CEO and each NEO. Target LTIP is expressed as a fixed dollar value from which the underlying shares subject to the LTIP award are determined based on the market price at the close of business on the grant date.

 

The target is split equally among three LTIP components; stock options, restricted stock units, and a three-year cash incentive plan called the Long-Term Performance Plan (LTPP). For example, the hypothetical target LTIP of $2,400,000 would be granted as $800,000 stock options (full-value equivalent), $800,000 restricted stock units, and $800,000 under the LTPP. Note that stock options are stated in a full-value equivalent, using a four-to-one conversion ratio for the purposes of setting the LTIP target. This value conversion ratio will differ slightly from the Company’s Black-Scholes grant date valuation used for accounting expense purposes under FASB ASC Topic 718.

 

Fiscal Year 2017 Long-Term Incentive Plan Components

 

Stock Options

 

Stock options are a performance-based compensation component that tie one-third of the target LTIP value to stock price appreciation and shareholder value creation. Stock options only have value when the market price exceeds the exercise price. All stock option grants have an exercise price that is equal to the market close stock price on the date of grant. Stock options have a ten-year term and vest in equal increments of 25% per year beginning one year after the date of grant.

 

Restricted Stock Units (RSU)

 

Restricted stock units represent the second one-third of the target LTIP value, and are intended to assist in retaining high performing executives and align executives’ compensation with shareholders through long-term stock ownership. The RSU grants cliff vest (100%) on the third anniversary of the grant date. Unlike the more commonly used time-based RSUs used by our Comparator Group, Medtronic’s RSUs include a three-year minimum performance threshold that must be met before the RSUs vest. For Fiscal Year 2017 RSU grants, the performance threshold was set as the diluted earnings per share cumulative compound annual growth rate (cumulative CAGR) of 3%.

 

Long-Term Performance Plan (LTPP)

 

Our LTPP is a three-year cash incentive plan that is based on long-term measures of Company performance. Our LTPP design was established following an extensive review completed by the Compensation Committee, Independent Consultant, and management. The review considered shareholder feedback, competitive benchmarking, and the Company’s short-term and long-term strategic imperatives. The LTPP has different measures than our short-term incentive plan as it is tied to longer term financial performance measures that are not influenced by variability in the stock market. The LTPP pays in cash after the end of the three fiscal year performance period, provided a minimum level of diluted earnings per share is attained. A new LTPP award grant and performance period is established at the beginning of each fiscal year. Because three-year performance periods overlap, performance goals are established at the start of each performance period and, once established, do not change.

 

Fiscal Year 2017 Long-Term Performance Plan Calculation Methodology

 

For each performance measure, the performance multiplier would be 0 if performance is below the minimum, 0.5x if performance is at threshold, 1x if performance is at target, and 2x if performance is at or above the maximum performance level. The performance multiplier for each performance measure is multiplied by the weighted percentage to obtain a performance score for that measure. The performance scores for each measure are added together for an overall performance score. That overall performance score is then multiplied by the applicable NEO’s individual target award to arrive at the actual payment amount.

 

LONG-TERM INCENTIVE PLAN PAYOUT EQUALS:

 

 

MEDTRONIC PLC   2017 Proxy Statement    43

 

Fiscal Year 2017 Long-Term Performance Plan Performance Measures

 

At the Compensation Committee’s June 2016 meeting, the Committee approved the LTPP performance measures and targets for the Fiscal Year 2017 – 2019 performance cycle. The targets were established based on Medtronic’s strategic plan and aligned with the goals disclosed to investors. The revenue growth measure, target, and performance range are different from those applicable to the annual incentive plan because the LTPP measures cumulative CAGR over a three-year performance period. Cumulative CAGR requires that each year’s growth is counted. In contrast, standard CAGR measures only the beginning and end points.

 

The following table provides detailed information about each performance measure.

 

Measure   Rationale   Targets   Weight
Three-year Revenue Growth   Uses a cumulative compound annual growth rate (Cumulative CAGR) over three fiscal years, which is a more rigorous measure of sustained revenue growth.  

Minimum

0%

Target

5%

Maximum

10%

  50%
ROIC   ROIC measures all components of management’s responsibility to generate sustained, long-term returns on invested capital.  

Minimum

10%

Target

13%

Maximum

18%

  50%

 

Revenue growth is defined as Medtronic’s three-year cumulative compounded annual revenue growth measured at constant currency, but otherwise including all other components (acquisitions, divestitures, etc.).

 

Return on Invested Capital is defined as Net Cash Earnings plus Interest Expense net of Tax, divided by Invested Capital for each year, averaged over the 3-year period. Net Cash Earnings is defined as non-GAAP earnings (adjusted to exclude the impact of non-recurring items) after the removal of the after-tax impact of Amortization. Invested Capital is defined as Total Equity Plus Interest-Bearing Liabilities less Cash and Cash Equivalents for each year.

 

Fiscal Year 2017 Annual and Long-Term Incentive Plan Payouts

 

Fiscal Year 2017 Annual Incentive Plan Results and Payouts

 

At the Compensation Committee’s June 2017 meeting, the Committee reviewed performance against the incentive plan targets for Fiscal Year 2017 and approved the resulting CEO and NEO annual incentive plan payout percentages and payments as shown below.

 

Annual Incentive Plan Financial Results:

 

  Non-GAAP
Diluted EPS(2)

Revenue

Growth

Cash Flow

Indicator(3)

Total Payout

Percent

FY17 Actual $ 4.60     4.83 % $ 6,180      
FY17 Target $ 4.62     5.0 % $ 6,344      
Payout Level   97.1 %   98.4 %   87.9 %    
Objective Weight   33.33 %   33.33 %   33.33 %    
Award Level   32.38 %   32.79 %   29.24 % = 94.41  
Quality Compliance Modifier(1)                
Award Level             = 94.41 %

(1) The Quality Compliance Modifier performance threshold was achieved, resulting in no reduction to the annual incentive plan payout.
(2) Diluted EPS is considered a non-GAAP financial measure under applicable SEC rules and regulations. A reconciliation of this non-GAAP financial measure to the most directly comparable GAAP financial measure is included in Appendix A of this proxy statement.
(3) $ in millions.

 

Annual Incentive Plan Quality Compliance Modifier:

 

      Score
  Multiplier   FY15   FY16   FY17
Material Warning Letters   20   0   0   0
Non-material Warning Letter Findings   1   0   0   11
Average Findings per inspection   10   5.00   14.36   7.30
FY Total       5.00   14.36   18.30
Goal – Not to exceed               30.00

 

MEDTRONIC PLC   2017 Proxy Statement    44

 

Annual Incentive Plan Payments:

 

Participant

FY2017

Actual Performance

FY2017

MIP Target

FY2017

MIP Award

Omar Ishrak   94.41%     175%   $ 2,636,139.39
Karen L. Parkhill   94.41%     110%   $ 778,882.50
Michael J. Coyle   94.41%     100%   $ 830,808.00
Bryan C. Hanson   94.41%     100%   $ 793,044.00
Rob ten Hoedt   94.41%     100%   $ 719,846.70
Gary L. Ellis(1)   94.41%     120%   $ 734,757.53

(1) Represents a pro-rated value due to retirement.

 

Fiscal Year 2015 — 2017 Restricted Stock Unit Payout Results

 

At the Compensation Committee’s June 2017 meeting, the Committee certified the attainment of the 3% cumulative CAGR diluted earnings per share performance threshold results for the restricted stock unit performance period that began in Fiscal Year 2015 and was completed at the end of Fiscal Year 2017.

 

The following table shows the results for fiscal year 2015-2017 Restricted Stock Unit Performance Threshold:

 

Fiscal Year EPS(1)
FY2014 (Baseline) $ 4.05  
FY2015 $ 4.31 (3) 
FY2016 $ 4.33 (4) 
FY2017 $ 4.60  
3-year CCAGR(2) $ 4.36 %

(1) EPS data for FY2014-FY2017 is adjusted for one-time items and acquisitions as well as including the impact of the Convertible Debt Accounting Rule Change and switch to non-GAAP diluted EPS reporting.
(2) Calculated as a CCAGR.
(3) FY2015 Non-GAAP Diluted EPS excluded the impact of the Covidien acquisition in Q4 of FY2015 per Medtronic’s standard practice for treatment of large acquisitions on in-flight incentive plans.
(4) FY2016 Non-GAAP Diluted EPS was adjusted due to the determination of the Compensation Committee and Medtronic management that the special charge recorded in connection with the impairment of a debt investment should not be included in the Non-GAAP earnings adjustment used for the purposes of FY2016 Annual Incentive Plan (MIP) and Restricted Stock Unit performance threshold calculations.

 

Fiscal Year 2015 — 2017 Long-Term Performance Plan Payout Results

 

At the Compensation Committee’s June 2017 meeting, the Committee certified the results for the LTPP performance period that began in Fiscal Year 2015 and was completed at the end of Fiscal Year 2017. Payments of awards for this LTPP performance period were made during the first fiscal quarter of 2018 and can be found in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table on page 50.

 

Fiscal Year 2015 — 2017 Long-Term Performance Plan Results

 

The following table shows the results for Fiscal Year 2015 – 2017 LTPP and the resulting total payout percentage:

 

Year

Revenue

Growth(1)(3)

  ROIC(2)(4)
FY2015   22.8 %   10.5 %
FY2016   49.0 %   7.8 %
FY2017   3.2 %   8.5 %
Total/Average   26.95 %   8.96 %
2015-2017 LTPP Target   5.0 %   14.0 %
Payout Level   200.0 %   0.0 %
Objective Weight   50 %   50 %
Weighted Payout Percent   100.0 %   0.0 %
Total Payout Percent   100.00%  

(1) Results are reported using net sales at planned foreign currency exchange rates.
(2) Results are reported using net earnings plus amortization (net of tax).
(3) Calculated as a cumulative compound annual growth rate.
(4) Calculated as a three-year average.

 

MEDTRONIC PLC   2017 Proxy Statement    45

 

Long-Term Performance Plan Payments:

 

Participant

FY15-FY17

Actual

Performance

FY15-FY17

 Targets

FY15-FY17

Awards

Omar Ishrak   100.00 % $ 3,500,000 $ 3,500,000
Karen Parkhill(1)        
Michael J. Coyle   100.00 % $ 891,000 $ 891,000
Bryan C. Hanson(1)        
Rob ten Hoedt   100.00 % $ 325,000 $ 325,000
Gary L. Ellis(2)   100.00 % $ 1,116,000 $ 995,026

(1) Ms. Parkhill and Mr. Hanson were not eligible for the FY15-FY17 plan.
(2) Amounts in this row represent a pro-rated value due to retirement.

 

Other Benefits and Perquisites

 

Medtronic provides broad-based benefit plans to all of its employees, including the same programs for NEOs. All employees participate in the same health care plans, and we do not provide NEOs with any different or additional benefit plans, except for a business allowance of $24,000 for U.S.-based NEOs and $40,000 for the CEO. Our business allowance policy is described in detail below.

 

United States Tax-Qualified Retirement Plans

 

Medtronic sponsors a number of United States tax-qualified retirement plans for its employees, including the NEOs. The Company maintains the Medtronic Retirement Plan (“MRP”), which consists of two types of benefits – the Final Average Pay Pension (“FAPP”) benefit and the Personal Pension Account (“PPA”) benefit. Employees hired before May 1, 2005 could elect to receive the FAPP and either the PPA or the Personal Investment Account (“PIA”) feature in the Medtronic Savings and Investment Plan – our 401(k) plan. Employees hired or rehired on or after May 1, 2005 but prior to January 1, 2016 are not eligible for the FAPP benefit as that particular benefit has been closed to new entrants, but may elect either the PPA benefit under the MRP or the PIA feature under the 401(k) plan. Employees hired or rehired on or after January 1, 2016 are eligible for the Medtronic Core Contribution (“MCC”) feature in the 401(k) plan. Additional details regarding the MRP and 401(k) plan are provided on page 57 of this proxy statement.

 

Supplemental Retirement Plans

 

The Company offers a Nonqualified Retirement Plan Supplement (“NRPS”) designed to provide all eligible employees, including the NEOs, with benefits that supplement those provided under certain of our tax-qualified plans. The NRPS is designed to restore benefits lost under the PPA, PIA, FAPP or MCC due to covered compensation limits prescribed by the Internal Revenue Code. The NRPS also restores benefits for otherwise eligible compensation deferred into the Medtronic Capital Accumulation Plan Deferral Program (the “Capital Accumulation Plan”). The NRPS provides employees with no greater benefit than they would have received under the qualified plan in which they participate were it not for the covered compensation limits and deferrals into the Capital Accumulation Plan.

 

Nonqualified Deferred Compensation Plan

 

The Company provides all employees at the vice president level or above, including our NEOs, and highly-compensated employees with a market-competitive nonqualified deferred compensation plan through the Capital Accumulation Plan. Our plan allows these employees to make voluntary deferrals from their base pay and incentive payments, which are then credited with gains or losses based on the performance of selected investment alternatives. These alternatives are the same as those offered in our tax-qualified 401(k) Plan for all employees. There are no Company contributions to the plan or Company subsidized returns or Company guaranteed returns.

 

MEDTRONIC PLC   2017 Proxy Statement    46

 

Business Allowance

 

Medtronic does not provide any perquisites such as automobiles, club memberships, or financial and tax advisors. Instead, we provide NEOs with a market-competitive business allowance. The NEOs may spend their business allowance at their discretion for expenses such as financial and tax planning, automobiles or club memberships. The business allowance is paid as taxable income, and we do not track how executives use their respective business allowances. The annual business allowances provided to our U.S.-based NEOs in Fiscal Year 2017 ranged from $24,000 to $40,000. Additionally, it is occasionally appropriate for NEOs to be accompanied during business travel by their spouses. The expenses associated with such travel, while rare, are considered taxable income. The business allowances and travel expenses are included in the “All Other Compensation” column of the Summary Compensation Table.

 

Corporate Aviation Service

 

The Medtronic Aviation service provides air transportation for use primarily by the CEO and members of the Board of Directors. Other executives may occasionally use the aviation services for business purposes based on availability and approval by the CEO or General Counsel. The service will help facilitate more effective and efficient travel planning and limited personal use is deemed appropriate in conjunction with scheduled business travel.

 

Change of Control Policy

 

Compensation in a change of control situation is designed to protect the compensation already earned by executives and to ensure that they will be treated fairly in the event of a change of control, and to help ensure the retention and dedicated attention of key executives critical to the ongoing operation of the Company. Our change of control policy supports these principles. We believe shareholders will be best served if the interests of our executive officers are aligned with shareholders’ interests, and we believe providing change of control benefits should motivate senior management to objectively evaluate potential mergers or transactions that may be in the best interests of shareholders. Our change of control agreements are discussed in more detail in the “Potential Payments Upon Termination or Change of Control” section of “Executive Compensation.”

 

Our Change of Control (COC) Policy requires a “double trigger” and only applies if a participant is involuntarily terminated without cause or the participant terminates employment for good reason within three years after a COC event. Our COC policy also does not provide for any “golden parachute” excise tax gross-ups.

 

Compensation Risk Assessment

 

Compensation policies and practices are also designed to discourage inappropriate risk-taking. While you should refer to the section entitled “Governance of Medtronic — Board Role in Risk Oversight” beginning on page 19 of this proxy statement for a discussion of the Company’s general risk assessment of compensation policies and practices, mitigating factors with respect to our NEOs include the following:

 

The NEOs are subject to stock ownership guidelines that require our CEO to maintain ownership of stock equal to six (6) times annual salary and the other NEOs to maintain ownership of stock equal to three (3) times annual salary. As of July 7, 2017, all NEOs are in compliance with the stock ownership and retention guidelines.
   
Incentive plans are more heavily weighted toward long-term performance to reduce the incentive to impair the prospects for long-term performance in favor of maximizing performance in one year.
   
Improper payments or gains from incentives and equity compensation are subject to clawback.
   
Short-term and long-term cash incentive payments are capped at 200% of target payout.
   
Short-term and long-term cash incentive performance targets are established at the beginning of each performance period and are not subject to change. Short- and long-term incentive programs use different measures of performance. Short-term cash incentives focus on annual operating plan financial measures such as revenue growth, diluted earnings per share, and cash flow. Long-term cash incentives measure shareholder three-year ROIC and three-year revenue growth relative to our long-term strategic expectations communicated to shareholders.
   
The Compensation Committee retains discretionary authority to override any incentive plan’s formulaic outcome in the event of unforeseen circumstances.

 

MEDTRONIC PLC   2017 Proxy Statement    47

 

Executive Compensation Governance Practices and Policies

 

Equity Holding

 

Medtronic’s executive stock ownership and retention guidelines are meant to align management and shareholder incentives, at the highest levels of Medtronic’s organization. Those guidelines require the CEO to maintain ownership of stock equal to six (6) times annual salary and other NEOs to maintain stock equal to three (3) times annual salary. Until the ownership guideline is met, the CEO must retain 75% of after-tax profit shares received through settlement of equity compensation awards and other NEOs must retain 50% of such shares. Once the guideline is met, the CEO must retain 75% of after tax profit shares and other NEO’s must retain 50% of such shares, for one year following grant of equity compensation awards. For purposes of complying with the guidelines, stock is not considered owned if pledged as collateral for a loan. Shares owned outright, legally or beneficially, by an officer or the officer’s immediate family members, after-tax “in the money” vested but unexercised stock options, after-tax unvested restricted stock units, and shares held in the tax-qualified and nonqualified retirement and deferred compensation plans count toward the guideline. For stock options, net after-tax profit shares are those shares remaining after payment of the option’s exercise price and income taxes. For share issuances (restricted stock unit vesting), net gain shares are those shares remaining after payment of income taxes.

 

Compliance with our ownership and retention guidelines is measured at the beginning of the first fiscal month of a new fiscal year by the internal team at the Company responsible for handling executive compensation matters and the results of such measurement are reported to the Nominating and Corporate Governance Committee or Compensation Committee, as applicable, after the measurement. On each measurement date, compliance is measured using each executive officer’s base salary then in effect and the average closing price per share of the Company’s ordinary shares on the NYSE for the six (6) calendar months preceding the measurement date. As of July 7, 2017, all NEOs are in compliance with the stock ownership and retention policy.

 

Hedging and Pledging Policy

 

Our insider trading policy prohibits our NEOs and directors (along with others) from engaging in short sales of Medtronic securities (including short sales against the box) or engaging in purchases or sales of puts, calls or other derivative securities based on Medtronic securities. The policy also prohibits our NEOs from purchasing Medtronic securities on margin, borrowing against Medtronic securities held in a margin account or pledging Medtronic securities as collateral for a loan (unless the officer can clearly demonstrate the financial capacity to repay the loan without resorting to the pledged securities).

 

Sale and Transfer of Awards

 

All stock option, restricted stock, restricted stock unit, and performance-based restricted stock/restricted stock unit awards are granted under plans that specifically prohibit the sale, assignment and transfer of awards with limited exceptions such as the death of the award recipient. In addition, the Compensation Committee may allow an award holder to assign or transfer an award.

 

Incentive Compensation Forfeiture (“Clawback”)

 

The Company has a comprehensive Incentive Compensation Forfeiture Policy, which is designed to recoup improper awards or gains paid to executive officers. If the Board determines that any executive officer has received an improper payment or gain, which is an incentive payment or grant mistakenly paid or awarded to the executive officer as a result of misconduct (as defined below), the executive officer must return the improper payment or gain to the extent it would not have been paid or awarded had the misconduct not occurred, including interest on any cash payments. “Misconduct” means any material violation of our Code of Conduct or other fraudulent or illegal activity for which an executive officer is personally responsible as determined by the Board. All executive officers are required to agree to this policy in writing.

 

MEDTRONIC PLC   2017 Proxy Statement    48

 

Equity Compensation Forfeiture

 

The Company may require the return or forfeiture of cash and shares received or receivable in certain circumstances in which an employee has a termination of employment from the Company or any affiliate. The Company may exercise its ability to require forfeiture of awards if the employee receives or is entitled to receive delivery of shares or proceeds under an equity award program within six (6) months prior to or twelve (12) months following the date of termination of employment if the current or former employee engages in any of the following activities: (a) performing services for or on behalf of any competitor of, or competing with, the Company or any affiliate; (b) unauthorized disclosure of material proprietary information of the Company or any affiliate; (c) a violation of applicable business ethics policies or business policies of the Company or any affiliate; or (d) any other occurrence that is consistent with the intent noted in items a – c, as determined by the Compensation Committee.

 

Tax and Accounting Implications

 

In evaluating compensation programs applicable to our NEOs (including the Company’s annual and long-term incentive plans), the Compensation Committee considers the potential impact on the Company of Section 162(m) of the Internal Revenue Code while maintaining maximum flexibility in the design of our compensation programs and in making appropriate payments to NEOs that, in some cases, may not be deductible by the Company.

 

The Compensation Committee also considers accounting treatment in the design of the long-term incentive plan.

 

COMPENSATION COMMITTEE REPORT

 

The Compensation Committee has reviewed and discussed with management the section of this proxy statement entitled “Compensation Discussion and Analysis” required by Item 402(b) of Regulation S-K. Based on such review and discussions, the Compensation Committee recommended to the Board that the section entitled “Compensation Discussion and Analysis” be included in this proxy statement.

 

COMPENSATION COMMITTEE (as of June 22, 2017):

 

Kendall J. Powell, Chair Richard H. Anderson
Craig Arnold Scott C. Donnelly
Denise M. O’Leary  

 

MEDTRONIC PLC   2017 Proxy Statement    49

 

EXECUTIVE COMPENSATION

 

2017 Summary Compensation Table

 

The following table summarizes all compensation for each of the last three fiscal years awarded to, earned by, or paid to the Company’s Chief Executive Officer, Chief Financial Officers, and three other most highly compensated executive officers during Fiscal Year 2017 (collectively, the named executive officers or “NEOs”). Please refer to the section entitled “Compensation Discussion and Analysis” beginning on page 32 of this proxy statement for a description of the compensation components for Medtronic’s NEOs. A narrative description of the material factors necessary to understand the information in the table is provided below, following the table.

 

Name and
Principal Position
Fiscal
Year
Salary
($)
Bonus
($)
Stock
Awards
($)
Option
Awards
($)
Non-Equity
Incentive Plan
Compensation
($)
Change in
Pension Value
and Nonqualified
Deferred
Compensation
Earnings
($)

All Other

Compensation(1)

($)

Total
($)
  Total
Without
Excise Tax
Gross-up
($)
Omar Ishrak
Chairman and Chief Executive Officer
2017 1,593,770 0 4,500,042 3,037,488 6,136,139 245,561 173,858 15,687,287   15,686,858
2016 1,548,216 0 4,333,368 3,017,788 6,070,758 212,185 90,299 15,272,615   15,272,615
2015 1,503,123 0 3,500,062 3,078,407 5,607,741 192,470 24,661,275 38,543,078   13,936,288
Karen L. Parkhill
Executive Vice President and Chief Financial Officer
2017 620,192 1,000,000 5,400,052 691,882 778,883 934,554 9,425,993   9,425,563
Michael J. Coyle
Executive Vice President & Group President Cardiac and Vascular Group
2017 876,923 0 5,366,729 939,375 1,721,808  — 123,725 9,028,989   9,028,560
2016 799,000 0 1,216,722 864,734 1,653,720  — 110,221 4,644,397   4,644,397
2015 747,577 0 892,008 806,555 1,517,824  — 5,650,445 9,614,410   4,070,276
Bryan C. Hanson
Executive Vice President & Group President, Minimally Invasive Therapies Group
2017 837,116 0 5,216,762 838,134 793,044 85 86,050 7,771,620   7,771,191
2016 775,789 25,000 966,732 690,624 847,926 614 115,411 3,422,096   3,422,096
2015 (partial) 400,758 1,000,000 3,800,104 1,411,736 480,727  — 4,844,490 11,937,815   7,182,656
2014 595,285 0 1,610,042 963,739 736,501 535 80,688 3,986,790   3,986,790
Rob ten Hoedt(2)
Executive Vice President & President Europe, Middle East and Africa Region
2017 781,417 0 1,766,748 534,380 1,044,847 1,068,942 187,227 5,383,561   5,383,561
Gary L. Ellis(3)
Former Executive Vice President and Chief Financial Officer
2017 649,519 0 1,458,362 1,001,252  1,729,783  520,673 34,270 5,394,099   5,393,859
2016 874,135 0 1,458,366 1,033,031 1,996,820 667,106 35,528 6,064,985   6,064,985
2015 828,962 0 1,117,002 1,004,447 1,782,587 734,266 9,061,703 14,528,967   5,504,302

 

(1) Fiscal Year 2015 includes the cost to Medtronic for the Covidien acquisition-related excise tax gross-up payments, which were payable on behalf of Medtronic’s NEOs. The values for Fiscal Year 2015 have been updated to represent actual cost to Medtronic. The proxy statement filed on July 24, 2015 included estimated values.

 

Name  Fiscal
Year
   Excise Tax
Reimbursement
(a)   All Other Compensation
Excluding Excise Tax
Reimbursement
   Total All Other
Compensation
 
Omar Ishrak   2015   $24,606,790   $54,485   $24,661,275 
Michael J. Coyle   2015   $5,544,134   $106,311   $5,650,445 
Bryan C. Hanson   2015   $4,755,159   $89,331   $4,844,490 
Gary L. Ellis(3)   2015   $9,024,665   $37,038   $9,061,703 
  (a) This total only includes excise tax gross up payments related to the Covidien acquisition.

 

(2) Mr. ten Hoedt was not a Named Executive Officer for Fiscal Year 2015 or 2016. For Mr. ten Hoedt, amounts paid in Swiss francs were translated to U.S. dollars as of April 28, 2017 at a rate of 1 Swiss Franc = 1.01389 U.S. Dollars.
   
(3) Mr. Ellis retired from Medtronic effective December 31, 2016.

 

MEDTRONIC PLC   2017 Proxy Statement    50

 

Fiscal Year

 

The fiscal year column represents the last three fiscal years for Medtronic, with the exception of Mr. Hanson. Mr. Hanson’s Fiscal Year 2015 represents September 27, 2014, through Medtronic’s fiscal year end on April 24, 2015 and includes compensation received from Covidien prior to January 26, 2015. Mr. Hanson’s Fiscal Year 2014 aligns with Covidien’s fiscal year end date September 26, 2014.

 

Salary

 

The salary column represents the base salary earned by the NEO during the applicable fiscal year. This column includes any amounts that the officer may have deferred under the Capital Accumulation Plan, which deferred amounts also are included in the 2017 Nonqualified Deferred Compensation Table on page 59 of this proxy statement. Each of the NEOs also contributed a portion of salary to the SIP. Mr. Hanson contributed a portion of his salary to the Covidien Supplemental Savings Plan prior to January 26, 2015.

 

Bonus

 

Ms. Parkhill’s 2017 amount represents a one-time $1,000,000 bonus following the commencement of her employment with the Company. Mr. Hanson’s 2016 amount of $25,000 represents a bonus payment following his one-year anniversary with Medtronic. Mr. Hanson’s 2015 amount represents a one-time $1,000,000 bonus following the commencement of his employment with the Company.

 

Stock Awards

 

The stock awards column represents aggregate grant date fair value of restricted stock unit awards and performance-based restricted stock units assuming full (maximum) achievement of applicable performance criteria over the performance period (collectively, the “restricted stock awards”) granted in the respective fiscal year as computed in accordance with FASB ASC Topic 718, Compensation— Stock Compensation. Accordingly, the grant date fair value was determined by multiplying the number of restricted stock awards by the closing stock price on the date of grant. For a description of the vesting terms of the stock awards, see the narrative disclosure following the 2017 Grants of Plan-Based Awards table on page 53 and the footnotes to the 2017 Outstanding Equity Awards at Fiscal Year End table on page 54 of this proxy statement. Additional information regarding the assumptions used to calculate these amounts are incorporated by reference to Note 14 to the Company’s Form 10-K for Fiscal Year 2017.

 

Option Awards

 

The option awards column represents the aggregate grant date fair value of stock option awards granted in the respective fiscal year as computed in accordance with FASB ASC Topic 718, Compensation— Stock Compensation. The fair value of each stock option award is estimated on the date of grant using the Black-Scholes option valuation model. The following table provides the assumptions underlying this estimate.

 

   Stock Option Grant Date
   July 28, 2014  February 18, 2015  August 3, 2015  August 1, 2016
Fair value of options granted  $13.80   $18.47   $13.58   $14.86 
Assumption used:                    
Risk-free rate(1)   2.09%   1.81%   1.77%   1.22%
Expected volatility(2)   24.71%   25.57%   20.82%   21.15%
Expected life(3)   6.4 yrs   6.4 yrs   5.9 yrs   6.2 yrs
Dividend yield(4)   1.94%   1.55%   1.95%   1.95%
(1) The risk-free rate is based on the grant date yield of a zero-coupon U.S. Treasury bond whose maturity period equals or approximates the expected term of the option.
(2) The expected volatility is based on a blend of historical volatility and an implied volatility of the Company’s ordinary shares. Implied volatility is based on market traded options of the Company’s ordinary shares.
(3) The Company analyzes historical employee stock option exercise and termination data to estimate the expected life assumption. The Company calculates the expected life assumption using the midpoint scenario, which combines historical exercise data with hypothetical exercise data, as the Company believes this data currently represents the best estimate of the expected life of a new employee option.
(4) The dividend yield rate is calculated by dividing the Company’s annual dividend, based on the most recent quarterly dividend rate, by the closing stock price on the grant date.

 

For a description of the vesting terms of the option awards, see the narrative disclosure following the 2017 Grants of Plan-Based Awards table on page 53 and the footnotes to the 2017 Outstanding Equity Awards at Fiscal Year End table on page 54 of this proxy statement. Additional information regarding the assumptions used to calculate these amounts are incorporated by reference to Note 14 to the Company’s Form 10-K for Fiscal Year 2017.

 

Non-Equity Incentive Plan Compensation

 

This column reflects the Medtronic MIP and LTPP payments earned by the NEOs during the applicable fiscal year and payable subsequent to fiscal year end. It includes any amounts deferred under the Capital Accumulation Plan (as stated in the 2017 Nonqualified Deferred Compensation table on page 59 of this proxy statement). The table below reflects compensation received by the NEO under each plan for the performance period ending through Fiscal Year 2017.

 

MEDTRONIC PLC   2017 Proxy Statement    51

 
Name  FY17 MIP   2015-2017
LTPP
   Total Non-Equity
Incentive Plan
Compensation
 
Omar Ishrak  $2,636,139   $3,500,000   $6,136,139 
Karen L. Parkhill  $778,883   $0   $778,883 
Michael J. Coyle  $830,808   $891,000   $1,721,808 
Bryan C. Hanson  $793,044   $0   $793,044 
Rob ten Hoedt  $719,847   $325,000   $1,044,847 
Gary L. Ellis  $734,757   $995,026   $1,729,783 

 

For a more detailed description of the terms of the non-equity incentive plan awards, see page 40 of the Compensation Discussion and Analysis and the narrative disclosure following the 2017 Grants of Plan-Based Awards on page 53 of this proxy statement.

 

Change in Pension Value and Nonqualified Deferred Compensation Earnings

 

This column includes the estimated aggregate increase in the accrued pension benefit under Medtronic’s defined benefit pension plans and Covidien’s Kendall Pension Plan. The change in the present value of the accrued pension benefit is influenced by variables such as additional years of service, age, pay and the discount rate used to calculate the present value of the change. In determining the present value of accrued pension benefits under Medtronic’s plans, a discount rate of 4.30% was used for both Fiscal Year 2017 and Fiscal Year 2016.

 

In determining the present value of accrued pension benefits for Mr. Hanson under Covidien’s Kendall Pension Plan, a discount rate of 3.8% for Fiscal Year 2017 (up from 3.71% in Fiscal Year 2016) was used. The pension values are calculated based on the accrued pension benefits (qualified plan, the nonqualified NRPS and Covidien’s Kendall Pension Plan) as of April 28, 2017, and the fiscal year-end 2017 ASC 715 disclosure assumptions. Assumptions are described in Note 17 to the Company’s Form 10-K for Fiscal Year 2017.

 

All Other Compensation

 

The all other compensation column includes the following:

 

Name  Fiscal
Year
   Perquisites
and Other
Personal
Benefits
(1)   Tax
Reimbursement
(2)   Registrant
Contributions
to Defined
Contribution
Plans
(3)   Total 
Omar Ishrak   2017   $162,315   $47   $11,496   $173,858 
Karen L. Parkhill   2017   $792,484   $111,969   $30,101   $934,554 
Michael J. Coyle   2017   $24,000   $47   $99,678   $123,725 
Bryan C. Hanson   2017   $24,000   $3   $62,047   $86,050 
Rob ten Hoedt   2017   $124,817   $62,411   $0   $187,227 
Gary L. Ellis   2017   $27,797   $37   $6,436   $34,270 
(1) This column represents the aggregate incremental cost of the executives’ business allowances, physical exams, automobile leases, travel expenses and other benefits. The value of perquisites and other personal benefits for each NEO are as follows:
   
  Mr. Ishrak includes a $40,000 business allowance and $122,315 attributable to personal use of Company aircraft. The amount disclosed does not include de minimis incremental costs incurred by the Company in connection with guests accompanying Mr. Ishrak on the Company aircraft during business flights.
  Ms. Parkhill includes a $19,846 business allowance, an executive physical exam of $655, and reimbursement of relocation expenses of $771,983.
  Mr. Coyle includes a $24,000 business allowance.
  Mr. Hanson includes a $24,000 business allowance. The amount disclosed does not include de minimis incremental costs incurred by the Company in connection with guests accompanying Mr. Hanson on the Company aircraft during business flights.
  Mr. ten Hoedt includes $15,208 of financial planning services, an automobile lease of $39,752 and reimbursement of schooling of $69,857.
  Mr. Ellis includes a $17,077 business allowance and an executive physical exam of $160 and $10,560 for services rendered per the terms of the consulting agreement between Medtronic plc and Mr. Ellis approved on December 8, 2016 by the Compensation Committee of the Board of Directors.
     
    The Company occasionally allows its executives to use tickets for sporting and special events previously acquired by the Company when no other business use has been arranged. There is no incremental cost to the Company for such use.
     
(2) For Ms. Parkhill, this amount includes a gross-up of taxes on relocation expense reimbursement. For Mr. ten Hoedt, this amount represents a gross-up of taxes on schooling reimbursement.
   
(3) This amount reflects the contribution by Medtronic to match contributions NEOs elected to make to the SIP. Medtronic provides an automatic matching contribution equal to 50% of a participant’s elective deferrals up to 6% of eligible compensation. The Company also may provide a discretionary matching contribution based on our financial performance during the fiscal year that, when combined with the automatic matching contribution, will not exceed 150% of a participant’s elective deferrals up to 6% of eligible compensation. The Fiscal Year 2017 discretionary matching contribution was based on diluted EPS achievement of $4.60 and equaled an additional $0.223 matching contribution for every $1 elective deferral a participant contributed to the plan up to 6% of eligible compensation. The amount for Ms. Parkhill includes $18,606 in Company contributions to the qualified Medtronic Core Contribution Plan (“MCC”) ($7,950) and the nonqualified MCC ($10,656). Participants in the MCC receive a contribution from Medtronic equal to 3% of eligible pay at the end of the fiscal year. The amount for Mr. Coyle includes $90,213 in Company contributions to the qualified PIA ($13,250) and nonqualified PIA ($76,963). The amount for Mr. Hanson includes $50,551 in Company contributions to the qualified MCC ($7,950) and nonqualified MCC ($42,601). For additional information on the nonqualified MCC plan, see the 2017 Nonqualified Deferred Compensation table on page 59.

 

MEDTRONIC PLC   2017 Proxy Statement    52

 

2017 Grants of Plan-Based Awards

 

The following table summarizes all plan-based award grants to each of the NEOs during Fiscal Year 2017. Threshold amounts assume attainment of plan performance thresholds. You should refer to the Compensation Discussion and Analysis sections entitled “Fiscal Year 2017 Annual Incentive Plan Design” on page 41 and “Fiscal Year 2017 Long-Term Incentive Plan Components” beginning on page 43 to understand how plan-based awards are determined. A narrative description of the material factors necessary to understand the information in the table is provided below.

 

            Estimated Future Payouts under
Non-Equity Incentive Plan Awards ($)
  Estimated
Future
Payouts Under
Equity
  All Other
Option Awards:
Number of
Securities
  Exercise
or Base
Price of
  Grant
Date Fair
Value of
Stock and
Name  Award
Type
  Grant
Date
  Approval
Date
  Threshold
($)
  Target
($)
  Maximum
($)
  Incentive Plan
Awards Target
(# of shares)
  Underlying
Options
(#)
  Option
Awards
($/Sh)
  Option
Awards
($)
Omar Ishrak  MIP        465,371  2,792,225  5,584,450            
   LTPP        1,125,000  4,500,000  9,000,000            
   OPT  08/01/2016  06/29/2016              204,407  88.06  3,037,488
   PBRSU  08/01/2016  06/29/2016           51,102        4,500,042
Karen L. Parkhill  MIP        137,500  825,000  1,650,000            
   LTPP        250,000  1,000,000  2,000,000            
   RSU  06/20/2016  06/01/2016           52,090        4,400,042
   OPT  08/01/2016  06/29/2016              46,560  88.06  691,882
   PBRSU  08/01/2016  06/29/2016           11,356        1,000,010
Michael J. Coyle  MIP        146,667  880,000  1,760,000            
   LTPP        341,667  1,366,668  2,733,336            
   RSU  08/01/2016  06/29/2016           45,424        4,000,037
   OPT  08/01/2016  06/29/2016              63,215  88.06  939,375
   PBRSU  08/01/2016  06/29/2016           15,520        1,366,691
Bryan C. Hanson  MIP        140,000  840,000  1,680,000            
   LTPP        304,167  1,216,668  2,433,336            
   RSU  08/01/2016  06/29/2016           45,424        4,000,037
   OPT  08/01/2016  06/29/2016              56,402  88.06  838,134
   PBRSU  08/01/2016  06/29/2016           13,817        1,216,725
Rob ten Hoedt  MIP        127,078  762,469  1,524,937            
   LTPP        191,667  766,668  1,533,336            
   RSU  08/01/2016  06/29/2016           11,356        1,000,009
   OPT  08/01/2016  06/29/2016              35,961  88.06  534,380
   PBRSU  08/01/2016  06/29/2016           8,707        766,739
Gary L. Ellis  MIP        183,000  1,098,000  2,196,000            
   LTPP        364,584  1,458,334  2,916,668            
   OPT  08/01/2016  06/29/2016              67,379  88.06  1,001,252
   PBRSU  08/01/2016  06/29/2016           16,561        1,458,362

 

MIP = Annual performance-based plan award granted under the Medtronic Incentive Plan

 

LTPP = Long-term performance plan award granted under the Medtronic plc Amended and Restated 2013 Stock Award and Incentive Plan

 

OPT = Nonqualified stock options granted under the Medtronic plc Amended and Restated 2013 Stock Award and Incentive Plan

 

PBRSU = Performance-based restricted stock unit granted under the Medtronic plc Amended and Restated 2013 Stock Award and Incentive Plan

 

RSU = Restricted stock unit granted under the Medtronic plc Amended and Restated 2013 Stock Award and Incentive Plan  

 

Estimated Future Payouts Under Non-Equity Incentive Plan Awards

 

Amounts in these columns represent 2017 MIP at threshold, target and maximum performance and future cash payments under the FY2017-FY2019 LTPP. The LTPP provides for annual grants that are earned over a three-year period. Earned payouts under the LTPP can range from 25% to 200% of the target grant based on the Company’s performance relative to the following metrics: three-year cumulative compounded annual revenue growth rate and ROIC (12-month non-GAAP earnings after the removal of after-tax impact of amortization and excluding non-recurring items, plus interest expense net of tax all divided by Total Equity plus Interest-Bearing Liabilities less Cash and Cash Equivalents for each year averaged over the three-year period). Earned payouts under the MIP for each individual performance measure (annual revenue growth, diluted EPS, and cash flow indicator) can range from 50% to 200% of the target grant based on Company performance and

 

MEDTRONIC PLC   2017 Proxy Statement    53

 

a quality compliance modifier performance threshold as described on page 42 of this proxy statement. The threshold payout levels described above reflect threshold performance achievement for one performance metric in the respective LTPP and MIP. The maximum dollar value that may be paid to any participant in qualified performance-based awards denominated in cash in any fiscal year is $20 million for the Chief Executive Officer and $10 million for each other participant. Both the MIP and LTPP have separate diluted EPS goals.

 

Estimated Future Payouts Under Equity Incentive Plan Awards

 

Amounts in this column represent grants of performance-based restricted stock units (PBRSUs). PBRSUs vest 100% on the third anniversary of the date of grant provided Medtronic achieves a minimum three-year cumulative diluted EPS threshold growth rate. However, the PBRSU grant to Ms. Parkhill on June 20, 2016, in connection with her hiring will vest ratably over three years (1/3 on each of the first, second and third anniversaries of the grant date), provided Medtronic achieves a minimum EPS threshold for each fiscal year during the vesting period. Unvested PBRSUs receive dividend equivalent units (DEUs), which are credited and added to the share balance. DEUs are only paid to the extent the underlying PBRSUs are earned. This column also includes restricted stock units (RSUs) granted to Messrs. Coyle, Hanson and ten Hoedt on August 1, 2016 for retention purposes. RSU grants will vest in three years.

 

All Other Option Awards/Exercise or Base Price of Option Awards

 

The exercise or base price of the stock option grant represents the closing market price of Medtronic ordinary shares on the date of grant. Option awards vest 25% on each anniversary of the date of grant over a four-year period.

 

Grant Date Fair Value of Stock and Option Awards

 

This column represents the grant date fair value of each equity award granted in Fiscal Year 2017 computed in accordance with FASB ASC Topic 718, Compensation — Stock Compensation. For a discussion of the assumptions used in calculating the amount recognized for stock options granted on August 1, 2016 see page 51 of this proxy statement. Additional information regarding the assumptions used to calculate these amounts are incorporated by reference to Note 14 to the Company’s Form 10-K for Fiscal Year 2017.

 

2017 Outstanding Equity Awards at Fiscal Year End

 

The table below reflects all outstanding equity awards made to each of the NEOs that were outstanding at the end of Fiscal Year 2017. The market or payout value of unearned shares, units or other rights that have not vested equals $83.09, which was the closing price of Medtronic’s ordinary shares on the New York Stock Exchange on April 28, 2017, and for performance-based restricted stock units and for performance share plan awards presumes that the target performance goals are met.

 

   Option Awards  Stock Awards
      Number of Securities
Underlying Unexercised
Options (#)
           Shares or Units of
Stock That Have
Not Vested
  Equity Incentive Plan
Awards: Unearned
Shares, Units or Other
Rights That Have
Not Vested
Name  Option
Grant Date
  Exercisable  Unexercisable  Option
Exercise Price
($)
  Option
Expiration
Date
  Grant
Date
  Number
(#)
(1)  Market
Value
($)
  Number
(#)
(1)  Market or
Payout Value
Omar Ishrak  07/30/2012  215,338  0  38.81  07/30/2022  07/28/2014        58,858     4,890,511
   07/29/2013  166,323  55,442  55.32  07/29/2023  08/03/2015        57,607  4,786,566
   07/28/2014  111,536  111,537  62.76  07/28/2024  08/01/2016        51,936  4,315,362
   08/03/2015  55,555  166,668  78.00  08/03/2025               
   08/01/2016  0  204,407  88.06  08/01/2026               
Karen L. Parkhill  08/01/2016  0  45,424  88.06  08/01/2026  06/20/2016  53,200  4,420,388      
   08/01/2016  0  1,136  88.06  08/01/2026  08/01/2016        11,542  959,025
Michael J. Coyle  02/01/2010  23,175  0  43.15  02/01/2020  07/28/2014        15,001  1,246,433
   08/02/2010  70,984  0  37.53  08/02/2020  08/03/2015        16,175  1,343,981
   08/01/2011  84,060  0  34.88  08/01/2021  08/01/2016        15,774  1,310,662
   07/30/2012  75,548  0  38.81  07/30/2022  08/01/2016  46,166  3,835,933      
   10/29/2012  2,404  0  41.60  10/29/2022               
   07/29/2013  41,580  13,861  55.32  07/29/2023               
   07/29/2013  1,356  452  55.32  07/29/2023               
   07/28/2014  28,426  28,426  62.76  07/28/2024               
   07/28/2014  797  797  62.76  07/28/2024               
   08/03/2015  15,598  46,796  78.00  08/03/2025               
   08/03/2015  320  963  78.00  08/03/2025               
   08/01/2016  0  62,079  88.06  08/01/2026               
   08/01/2016  0  1,136  88.06  08/01/2026               

 

MEDTRONIC PLC   2017 Proxy Statement    54

 
   Option Awards  Stock Awards
      Number of Securities
Underlying Unexercised
Options (#)
           Shares or Units of
Stock That Have
Not Vested
  Equity Incentive Plan
Awards: Unearned
Shares, Units or Other
Rights That Have
Not Vested
Name  Option
Grant Date
  Exercisable  Unexercisable  Option
Exercise Price
($)
  Option
Expiration
Date
  Grant
Date
  Number
(#)
(1)  Market
Value
($)
  Number
(#)
(1)  Market or
Payout Value
Bryan C. Hanson  07/01/2011  8,299  0  34.46  06/30/2021  12/01/2014  17,169  1,426,572        
   12/01/2011  21,802  0  29.52  11/30/2021  02/18/2015  5,022  417,278        
   12/03/2012  68,765  0  36.58  12/02/2022  08/03/2015        12,851     1,067,790
   12/02/2013  70,727  23,578  47.00  12/01/2023  08/01/2016        14,043  1,166,833
   02/18/2015  57,325  19,109  78.50  02/18/2025  08/01/2016  46,166  3,835,933        
   08/03/2015  12,393  37,180  78.00  08/03/2025                 
   08/03/2015  320  963  78.00  08/03/2025                 
   08/01/2016  0  55,266  88.06  08/01/2026                 
   08/01/2016  0  1,136  88.06  08/01/2026                 
Rob ten Hoedt  08/01/2011  7,168  0  34.88  08/01/2021  07/28/2014        5,466  454,170
   10/29/2012  2,404  0  41.60  10/29/2022  08/03/2015        10,193  846,937
   07/29/2013  1,356  452  55.32  07/29/2023  08/01/2016        8,850  735,347
   07/29/2013  0  3,706  55.32  07/29/2023  08/01/2016  11,542  959,025        
   07/28/2014  797  797  62.76  07/28/2024                 
   07/28/2014  0  10,357  62.76  07/28/2024                 
   08/03/2015  9,829  29,488  78.00  08/03/2025                 
   08/03/2015  320  963  78.00  08/03/2015                 
   08/01/2016  0  34,825  88.06  08/01/2026                 
   08/01/2016  0  1,136  88.06  08/01/2026                 
Gary L. Ellis  10/27/2008  55,188  0  36.24  10/27/2018  07/28/2014        18,784  1,560,763
   08/03/2009  50,112  0  35.92  08/03/2019  08/03/2015        19,388  1,610,949
   08/02/2010  70,984  0  37.53  08/02/2020  08/01/2016        16,832  1,398,571
   08/01/2011  91,744  0  34.88  08/01/2021                 
   07/30/2012  82,453  0  38.81  12/30/2021                 
   10/29/2012  2,404  0  41.60  12/30/2021                 
   07/29/2013  60,250  0  55.32  12/30/2021                 
   07/29/2013  1,808  0  55.32  12/30/2021                 
   07/28/2014  71,192  0  62.76  12/30/2021                 
   07/28/2014  1,594  0  62.76  12/30/2021                 
   08/03/2015  74,787  0  78.00  12/30/2021                 
   08/03/2015  1,283  0  78.00  12/30/2021                 
   08/01/2016  66,243  0  88.06  12/30/2021                 
   08/01/2016  1,136  0  88.06  12/30/2021                 

 

(1)Amounts in these columns may include dividend equivalents that will be distributed upon distribution of the underlying awards.

 

The amounts shown in the column entitled “Shares or Units of Stock That Have Not Vested” of the 2017 Outstanding Equity Awards at Fiscal Year-End table that correspond to a June 20, 2016, grant date for Ms. Parkhill reflect a time-based restricted stock unit award that vests 1/3 on each of the first, second, and third anniversaries of the grant date. For Mr. Hanson, the December 1, 2014 grant reflects a time-based restricted stock unit award that vests 25% on each of the first four anniversaries of the grant date and the February 18, 2015 grant reflects a time-based restricted stock unit award that vests 50% on the first anniversary and 25% on each of the second and third anniversaries of the date of grant. For Mr. Coyle in the amount of 46,166, Mr. Hanson in the amount of 46,166, and Mr. ten Hoedt in the amount of 11,542, the August 1, 2016 grants vest over three years. The amounts shown in the column entitled “Equity Incentive Plan Awards: Unearned Shares, Units or Other Rights That Have Not Vested” of the 2017 Outstanding Equity Awards at Fiscal Year End table that correspond to July 28, 2014, August 3, 2015, and August 1, 2016 grant dates reflect performance-based restricted stock or restricted stock unit awards that vest on the third anniversary of the date of grant provided the established performance threshold for each award is achieved.

 

MEDTRONIC PLC   2017 Proxy Statement    55

 

The table below shows the vesting schedule for all exercisable options. All options for Gary Ellis accelerated and vested upon his retirement on December 31, 2016.

 

      Vesting Schedule For Unexercisable Options
Name  Grant Date  2017  2018  2019  2020
Omar Ishrak  07/29/2013  55,442         
   07/28/2014  55,768  55,769      
   08/03/2015  55,556  55,556  55,556   
   08/01/2016  51,101  51,102  51,102  51,102
Karen L. Parkhill  08/01/2016  11,356  11,356  11,356  11,356
   08/01/2016  284  284  284  284
Michael J. Coyle  07/29/2013  13,861         
   07/29/2013  452         
   07/28/2014  14,213  14,213      
   07/28/2014  398  399      
   08/03/2015  15,599  15,598  15,599   
   08/03/2015  321  321  321   
   08/01/2016  15,519  15,520  15,520  15,520
   08/01/2016  284  284  284  284
Bryan C. Hanson  12/02/2013  23,578         
   02/18/2015     19,109      
   08/03/2015  12,393  12,393  12,394   
   08/03/2015  321  321  321   
   08/01/2016  13,816  13,816  13,817  13,817
   08/01/2016  284  284  284  284
Rob ten Hoedt  07/29/2013  452         
   07/29/2013  3,706         
   07/28/2014  5,178  5,179      
   07/28/2014  398  399      
   08/03/2015  9,829  9,829  9,830   
   08/03/2015  321  321  321   
   08/01/2016  8,706  8,706  8,706  8,707
   08/01/2016  284  284  284  284

 

      Vesting Schedule For Unvested Restricted Stock and RSUs
Name  Grant Date  2017  2018  2019  2020
Omar Ishrak  07/28/2014  58,858         
   08/03/2015     57,607      
   08/01/2016        51,936   
Karen L. Parkhill  06/20/2016  17,734  17,733  17,733   
   08/01/2016        11,542   
Michael J. Coyle  07/28/2014  15,001         
   08/03/2015     16,175      
   08/01/2016        15,774   
   08/01/2016        46,166   
Bryan C. Hanson  12/01/2014  8,585  8,584      
   02/18/2015     5,022      
   08/03/2015     12,851      
   08/01/2016  23,082  11,542  11,542   
   08/01/2016        14,043   
Rob ten Hoedt  07/28/2014  5,466         
   08/03/2015     10,193      
   08/01/2016        8,850   
   08/01/2016        11,542   
Gary L. Ellis  07/28/2014  18,784         
   08/03/2015     19,388      
   08/01/2016        16,832   

 

Mr. Ishrak also owns 270,596 and Mr. Ellis owned 35,505 vested and deferred stock units including associated dividend equivalents, which will be distributed following their retirement.

 

MEDTRONIC PLC   2017 Proxy Statement    56

 

2017 Option Exercises and Stock Vested

 

The table below includes information related to options exercised by each of the NEOs and restricted stock awards that vested during Fiscal Year 2017. The table also includes the value realized for such options and restricted stock awards. For options, the value realized on exercise is equal to the difference between the market price of the underlying shares at exercise and the exercise price of the options. For stock awards, the value realized on vesting is equal to the market price of the underlying shares at vesting.

 

   Option Awards  Stock Awards
Name  Number of Shares
Acquired on Exercise
(#)
  Value Realized
on Exercise
($)
  Number of Shares
Acquired on Vesting
(#)
  Value Realized
on Vesting
($)
Omar Ishrak  75,000  3,300,720  58,701  5,143,969
Karen L. Parkhill  0  0  0  0
Michael J. Coyle  0  0  14,680  1,286,408
Bryan C. Hanson  45,272  2,637,971  13,483  1,004,116
Rob ten Hoedt  61,173  2,213,209  3,924  343,860
Gary L. Ellis  82,936  3,077,223  15,944  1,397,173

 

2017 Pension Benefits

 

The table below includes information with respect to Medtronic’s and Legacy Covidien’s pension plans for each of the NEOs as of April 28, 2017, which is the measurement date used for financial statement reporting purposes. A narrative description of the material factors necessary to understand the information in the table is provided below.

 

                 
Name  Plan Name  Number of Years of
Credited Service
  Present Value of
Accumulated
Benefit
($)

 

 

(1)
  Payments During Last Fiscal Year
($)

 

 

(2)
Omar Ishrak  Medtronic, Inc. Personal
Pension Account
(Personal Pension Account)
  5.83  81,123    0  
   Medtronic, Inc. NRPS  5.83  991,680    0  
Karen L. Parkhill(3)               
Michael J. Coyle(3)               
Bryan C. Hanson(4)  Kendall Pension Plan  2.7  9,027    0  
Rob ten Hoedt(5)  Medtronic Pension Fund  10.33  3,684,216    803,919  
Gary L. Ellis  Medtronic, Inc. Retirement Plan (Medtronic Retirement Plan)  27.08  868,235    0  
   Medtronic, Inc. NRPS  27.08  4,128,927    0  
(1) The present value of the accumulated benefits is calculated using the assumptions described in Note 17 to our consolidated financial statements in our annual report for Fiscal Year 2017 accompanying this proxy statement. Further, in accordance with the disclosure requirements, the accumulated benefit is calculated using the retirement age at which the benefit is unreduced under the plan (i.e., age 65). Only the Medtronic Retirement Plan component of the Medtronic, Inc. Retirement Plan is reduced for early commencement if the benefit is commenced before the normal retirement age of 65. The Personal Pension Account Plan is an account-based plan and therefore is not reduced for early commencement. Please see below for additional detail.
(2) The amount for Mr. ten Hoedt represents ordinary contributions and a voluntary purchase into the pension plan. Both amounts are shown as a negative payment. The increase in the Present Value of Accumulated Benefit includes these amounts.
(3) Ms. Parkhill and Mr. Coyle do not participate in the Company’s defined benefit pension plans.
(4) Mr. Hanson participates in the Legacy Covidien pension plan. The Payments During the Last Fiscal Year column describes ordinary contributions and voluntary purchases into the pension plan.
(5) Mr. ten Hoedt participates in a pension plan for Swiss employees.

 

The Medtronic, Inc. Retirement Plan consists of two types of benefits, the Medtronic Retirement Plan (MRP) and the Personal Pension Account (PPA). Effective May 1, 2005, the Company froze the MRP to new entrants and provided all eligible employees the option of continuing to accrue retirement benefits under the MRP or to participate in one of two new options being offered. Employees hired before May 1, 2005 had the option of continuing in the MRP or electing to participate in either the PPA or PIA described below. Effective January 1, 2016, the Company froze the PIA and the PPA to new entrants. All eligible employees continue to accrue retirement benefits under the PIA or PPA. New employees hired on or after January 1, 2016 earn the Medtronic Core Contribution (MCC). The MCC provides a 3% employer contribution. The MRP is the final average pay component of the Medtronic, Inc. Retirement Plan. Employees hired on or after May 1, 2005 chose within 60 days of their hire date to participate in either the PPA or the Personal

 

MEDTRONIC PLC   2017 Proxy Statement    57

 

Investment Account (PIA). The PPA is a cash balance component of the Medtronic, Inc. Retirement Plan, and the PIA is a component of the Medtronic, Inc. 401(k) Plan.

 

Mr. Ishrak is a participant in the PPA. The PPA is a tax-qualified cash balance defined benefit pension plan available to employees hired on or after May 1, 2005. The Company contributes 5% of eligible compensation for each year of participation into the participant’s account. Eligible compensation under the PPA matches the MRP discussed above. Additionally, each year a participant’s account will earn interest at a rate equal to the 10-year U.S. Treasury bond rate. For the fiscal year ended April 29, 2016 the interest rate was equal to 2.04%. Each participant’s account has a three-year vesting requirement. The PPA value will be forfeited if the participant leaves the Company before that three-year vesting period is finished. Vested benefits in the PPA are portable and participants may receive distributions for any purpose, but may then be subject to taxation. A PPA participant leaving the Company may receive distributions in the following ways: 1) roll over benefit into another tax-qualified plan or certain IRAs; 2) lump-sum cash payment; 3) leave the PPA balance in the plan (which will continue to earn returns equal to the 10-year U.S. Treasury bond rate); and 4) various monthly annuity options, including single life, ten-year certain, and joint and survivor options.

 

The benefits currently paid under the Medtronic, Inc. Retirement Plan are limited to an annual maximum of $210,000, in accordance with IRS requirements. The Company also has an unfunded Nonqualified Retirement Plan Supplement (the “NRPS”) that provides an amount substantially equal to the difference between the amount that would have been payable to the executive under the Medtronic, Inc. Retirement Plan in the absence of legislation limiting pension benefits and earnings that may be considered in calculating pension benefits and the amount actually payable under the plan. The NRPS is available to all participating employees whose income or benefits exceed the IRS maximum, not just the executive officers. Compensation used in the calculation of the NRPS benefit includes eligible compensation in excess of the IRS limitation and amounts deferred (excluding amounts paid and deferred under the LTPP or the performance share plan) pursuant to the Capital Accumulation Plan. NRPS benefits are determined based on the qualified plan formula (MRP or PPA) in which the executive elected to participate. The NRPS benefit calculated on the MRP formula is reduced based on the participant’s age at the end of the month following separation from service (within the meaning of Section 409A of the Internal Revenue Code, generally retirement, termination of employment, or significant reduction in work schedule). The monthly benefit is the sum of the monthly principal amount and the monthly interest. The monthly interest is determined based on a declining balance schedule using an interest rate of 6%. The amount of retirement benefit earned under the NRPS is calculated upon separation from service. If the aggregate value is less than $100,000, it is paid out as a lump sum six months after separation from service. If the aggregate value exceeds $100,000, the value is paid out over a 15-year period in the form of a monthly annuity commencing six months after the separation from service. In the event of the employee’s death prior to the completion of the 15-year payment cycle, any remaining benefits from the NRPS are payable per the beneficiary designation on record. If a beneficiary is not named, the benefit is payable to the employee’s surviving spouse, or if there is no surviving spouse, to the children, or if there are no survivors, to the estate.

 

Mr. Hanson participates in the Kendall Pension Plan, which was frozen with respect to all future benefit accruals (except interest crediting on the cash balance benefit) as of July 1, 1995. The Pension Plan has two components:

 

a final average pay benefit, which was frozen as of May 31, 1990; and
a cash balance benefit.

 

Participants retiring on their normal retirement date (age 65) are entitled to a monthly pension calculated as the sum of:

 

the benefit accrued under the provisions of the plan as in effect on June 1, 1990, including the value of the benefit derived from employee contributions; and
with respect to accruals on or after June 1, 1990, the actuarial equivalent of the participant’s current account.

 

The current account is credited with interest at the one-year Treasury bill rate in effect on January 1 for each calendar year and service credits as follows:

 

Tier  Years of
Benefit Service
  Percent of
Compensation
I  0-2  4.75%
II  3-9  5.25%
III  10-14  6.00%
IV  15-19  7.00%
V  20+  7.50%

 

Participants desiring to retire before normal retirement age may do so after attaining age 55 and completing five years of continuous service. If a participant chooses to retire before normal retirement age, the applicable accrued benefit as of June 1, 1990 will be reduced by 0.33% for each month by which the participant’s age is less than 60.

 

Mr. ten Hoedt participates in the Medtronic Pension Fund (“MPF”). The MPF is a qualified cash balance pension plan available to all eligible employees working for Medtronic entities in Switzerland. The Company and employee contributions vary by age. For Mr. ten Hoedt specifically, the annual contributions during Fiscal Year 2017 were 15.5% for the Company and 9% for the employee. Pensionable salary includes base salary and paid annual incentive. Additionally, each year a participant’s account will earn interest, as set by the Pension Board, credited at the end of the calendar year. For Fiscal Year 2017, interest of 3% was credited. The MPF also provides risk benefits in case of a participant’s death or disability, which are fully insured. There is no vesting, meaning that the full pension account is granted to the participant on termination of employment. A participant leaving the Company may receive the accrued pension fund in the following ways: (1) transfer the fund to a block account; (2) receive the fund in cash, subject to taxation; or (3) in the case of a retirement, receive the funds as an annual pension, either in cash or a combination of pension and cash.

 

Mr. Ellis participates in the MRP component of the Medtronic, Inc. Retirement Plan. The Medtronic, Inc. Retirement Plan is a funded, tax-qualified, noncontributory defined-benefit pension plan that covers all eligible employees employed with the Company prior to May 1, 2005 who elected to remain in the MRP. Effective May 1, 2005, the Company froze the MRP to new entrants and provided all eligible employees the option of continuing to accrue retirement benefits under the MRP or to participate in one of two new options being offered. All eligible NEOs hired prior to May 1, 2005, elected to continue participation in the MRP. Benefits under the MRP are based upon the employee’s years of credited service

 

MEDTRONIC PLC   2017 Proxy Statement    58

 

and the average of the employee’s highest five consecutive years of covered compensation during the employee’s career while covered under the MRP. Employees have the option of providing for a survivorship benefit upon the employee’s death by making the appropriate election at the time of retirement. Covered compensation includes base salary, bonus and incentive plan payments, sales commissions, salary reduction contributions (such as to a cafeteria plan or medical plan) and salary continuation payments for short-term disability, but excludes compensation paid under the LTPP or the performance share plan (the predecessor to the LTPP). In addition, the IRS limits the amount of covered compensation that can be used in the benefit calculation ($265,000 for 2015 and 2016). Normal retirement age under the plan is age 65. Eligible employees may retire upon reaching age 55 with at least ten years of service or upon reaching age 62 without regard to years of service. Any retirement prior to normal retirement age is considered “early retirement” and the benefit includes a reduction for early commencement of benefits.

 

Benefits under the MRP are calculated as a monthly annuity by taking 40% of the final average covered compensation less a social security allowance (which varies by individual based upon year of birth) and multiplying this result by years of credited service under the MRP. That result is then divided by 30 to yield the benefit at normal retirement age, with an early retirement factor applied to calculate the early retirement benefit. The age at the time that benefits are commenced is used to determine the early retirement reduction amount. The maximum reduction amount is 50% and applies if benefits are commenced at age 55. Employees with over 30 years of service receive 0.5% for every year of credited service in excess of 30 years.

 

On December 31, 2016, Mr. Ellis retired from his role as Executive Vice President and Chief Financial Officer of Medtronic. Commencing on September 1, 2021, Mr. Ellis will receive payments from the MRP in the form of an annuity that will pay $6,562.02 per month to Mr. Ellis for life. The present value of the benefit is shown in the table above. Mr. Ellis will also receive payments from the NRPS. Per the terms of the NRPS, Mr. Ellis will receive monthly payments over a 15-year period that began in July 2017. The total distribution will be $4,128,928 plus interest.

 

2017 Nonqualified Deferred Compensation

 

Name     Executive
Contributions
in Last FY
($)
(2) 

 

  Registrant’s
Contributions
in Last FY
($)
(3) 

 

  Aggregate
Earnings
in Last FY ($)
(4) 

 

  Aggregate
Withdrawals/
Distributions
($)
  Aggregate
Balance at
Last FYE
($)
(5) 

 

Omar Ishrak(1)