COMPENSATION DISCUSSION AND ANALYSIS
This section includes information regarding, among other things, the overall objectives of our compensation program for our NEOs and each element of compensation that we provide. Please read this section in conjunction with the detailed tables and narrative descriptions of our NEO compensation under "Executive Compensation" beginning on page 22.
The names and titles of our NEOs for purposes of this Proxy Statement are:
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Name
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Title
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Kevin A. Lobo
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Chairman, President and Chief Executive Officer
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Glenn S. Boehnlein
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Vice President, Chief Financial Officer
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Timothy J. Scannell
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Group President, MedSurg and Neurotechnology
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David K. Floyd
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Group President, Orthopaedics
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Lonny J. Carpenter
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Group President, Global Quality and Business Operations
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Stryker has a history of delivering solid financial results. Our executive pay programs have played a significant role in our ability to attract and retain the experienced executive team that has successfully driven our financial results over time.
The primary elements of compensation for our NEOs in 2017 were salary, bonus and stock awards consisting of stock options and performance stock units. Our savings and retirement plans are typically defined contribution plans that match a portion of employee contributions and have historically included an annual discretionary contribution of 7% of salary and bonus for all eligible U.S.-based employees. We do not maintain any defined benefit pension plans for our NEOs. We believe the limited perquisites and personal benefits we provide to our NEOs are conservative to market.
Our Compensation Committee believes that our compensation practices for our NEOs are appropriate in the context both of Stryker's performance and the interests of our shareholders. Among the considerations in this regard are:
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An important part of our executive compensation philosophy is the alignment of the compensation of our NEOs with the interests of our shareholders and achievement of key business objectives;
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In 2017, the value of the variable, performance and stock-based compensation elements for the NEOs — bonuses, stock option grants valued using the Black-Scholes method and performance stock units — averaged 85% of the total value of the primary compensation elements (salary, actual bonus and stock awards). See "Summary Compensation Table" on page 22;
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•
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Our NEO bonus plans are based on challenging performance goals that, if met, should result in profitable, sustained business performance over the long term and be reflected in stock price increases over time. The NEOs' payouts for 2017 (116% of target on average) were less than the 2016 levels (143% of target on average) as a result of performance that, overall, was above 2017 bonus plan goals that were generally more challenging than prior year actual results;
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•
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Stock-based compensation realized by our NEOs is tied directly to the interests of our shareholders via stock price performance and, for performance stock units, based on financial performance relative to pre-established financial goals for a three-year performance period. The payout related to the 2015 grant of performance stock units, which is discussed under "2015 Performance Stock Units: Results for the 2015-2017 Performance Period" beginning on page 17, was 200% of target as a result of performance that reached the maximum goal for both sales growth relative to a comparison group of companies and average adjusted diluted net earnings per share growth;
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•
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We monitor a comparison group of medical technology and related companies to ensure that our compensation programs are within observed competitive practices, review trends and practices with assistance from the Compensation Committee's independent compensation consultant and make adjustments as deemed appropriate by the Compensation Committee; and
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We evaluate key risk issues related to compensation and, in this regard, engaged a third-party independent consultant to conduct a risk assessment of executive compensation programs in 2016 as discussed under "Compensation Risks" on page 8 and believe that our executive compensation practices do not create risks that are reasonably likely to have a material adverse effect on Stryker.
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The Compensation Committee considered the results of the advisory shareholder vote on executive compensation at our 2017 annual meeting of shareholders at which the executive compensation program for our NEOs as disclosed in the proxy statement for that meeting was approved by 97% of the votes cast. The Compensation Committee continues to believe that our executive compensation policies, practices and programs are appropriate and, in light of the results of the advisory vote, believes our shareholders feel the same. In addition, at our 2017 annual meeting, our shareholders voted to continue to hold an advisory vote on executive compensation on an annual basis, consistent with the Board's recommendation.
We believe that our executive compensation program, which is a key component of our ability to attract and retain talented, qualified executives, should be designed to provide a meaningful level of total compensation that is aligned with organizational and individual performance and with the interests of our shareholders. The Compensation Committee believes that, consistent with the emphasis on rewarding executives for enhancing the Company's growth and profitability (as described more fully in "Why We Chose Particular Performance Metrics and Goals" on page 14), the Company's bonus plans should focus executives on a mix of financially-oriented as well as qualitative goals that reinforce a balance in achieving short-term and long-term goals and are aligned with shareholder returns over time. The bonus plans contain maximums on the payouts that can be earned in any year. The Company's long-term equity incentive
compensation program likewise is intended to provide executives with a personal financial interest in the Company's long-term success (as described more fully in "Long-Term Incentive Compensation" beginning on page 17). The Compensation Committee believes that the Company's incentive programs balance risk and the potential reward to executives in a manner that is appropriate to the circumstances and in the best interests of the Company's shareholders over the long term.
The principal objectives of our executive compensation policies and practices are to:
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Attract, retain and motivate talented executives who drive the Company's success;
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Structure compensation packages with a significant percentage of compensation earned as variable pay based on performance, which balances risk with the potential reward;
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Align incentives with measurable corporate, business area and individual performance, both financial and non-financial;
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Provide flexibility to adapt to changing business needs;
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Align total compensation with shareholder value creation; and
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Establish compensation program costs that are reasonable, affordable and appropriate.
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Executive Compensation Philosophy
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In setting compensation levels for our executives, the Committee considers information from our comparison companies and broader compensation surveys. We position total pay opportunities for our senior executive roles with the intent they be competitive relative to comparable roles in the market, taking into account a range of factors, including: (i) the Company’s or business unit’s general performance relative to competitors; (ii) the difficulty of the Company’s or business unit’s performance targets; (iii) the scope of the executive’s role relative to the normal scope of this role at comparable companies; and (iv) the executive’s tenure, experience, level of individual performance, and potential to contribute to our future growth. Although we review and consider the compensation provided by our comparison companies, broader compensation surveys and the results of the benchmarking studies described below under "The Role of Benchmarking in Our Executive Compensation Decisions," we do not benchmark our NEOs' compensation to a specific percentile of the market or of our comparison companies. Rather, we consider such data in addition to the factors described in (i) through (iv) above.
Individual compensation elements, along with an explanation of how we make decisions about each element, are described in detail under "2017 Compensation Elements" beginning on page 13.
Underlying our executive compensation philosophy is the desire to facilitate and encourage long-term ownership of our Common Stock. Our stock ownership guidelines reinforce this element of our philosophy by requiring senior management to accumulate and retain significant stock ownership positions over time. For more information, see "Executive and Non-Employee Director Stock Ownership Guidelines" on page 20.
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The Role of Benchmarking in Our Executive Compensation Decisions
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We regularly review our compensation policies, practices and programs to determine if they are both appropriate and responsive to our business needs. Factors that were considered in determining the NEO compensation adjustments for 2017 included the results of the Company as a whole and, where applicable, the specific business areas of the Company for which each NEO was responsible, the individual's performance, changes in compensation levels over recent years, performance against bonus plan goals, comparisons among roles internally, cost to the Company and market comparison data. Although we monitor the competitive landscape closely and our current practice is to conduct an external market benchmarking of our NEO compensation levels and practices annually, we have not focused solely on market comparison data when establishing compensation levels. The Compensation Committee applies judgment and discretion when evaluating the appropriateness of using market comparison data as it does when determining any compensation amount or outcome.
In mid-2016, Semler Brossy conducted a market benchmarking study in connection with establishing NEO compensation and the results were among the factors considered when 2017 compensation decisions were made, which are discussed in detail under "2017 Compensation Decisions" beginning on page 12. The data provided to the Compensation Committee by Semler Brossy showed compensation levels consisting of the primary elements of total compensation: salary, bonus and long-term incentive awards. The study concluded that, for the NEOs who were serving in an NEO position at the time of the study and for which a sufficient number of comparable benchmark positions at comparison companies could be identified, target cash compensation levels and the grant value of long-term incentive awards were, on average, generally consistent with our executive compensation philosophy.
The comparison group companies used in the 2016 benchmarking study were:
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Abbott Laboratories
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Johnson & Johnson
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St. Jude Medical, Inc.
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Baxter International Inc.
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Laboratory Corporation of America Holdings
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Thermo Fisher Scientific Inc.
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Becton, Dickinson and Company
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Medtronic plc
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Zimmer Biomet Holdings, Inc.
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Boston Scientific Corporation
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Quest Diagnostics Incorporated
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C.R. Bard, Inc.
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Smith & Nephew plc
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The comparison group was developed by Semler Brossy and members of our Human Resources department and approved by the Compensation Committee and consisted of publicly traded companies that generally met the following criteria:
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Product competitors or companies in the medical technology industry with which we compete for executive talent;
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Significant global operations; and
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Comparable size – i.e., similar sales, market capitalization and/or growth rates in revenue and earnings.
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Semler Brossy conducted an additional benchmarking study in mid-2017. The Compensation Committee, with input from our Human Resources department, worked with Semler Brossy to develop an updated comparison group to be used in this benchmarking study. The industry screening criteria were modestly expanded in order to identify additional suitable comparators in light of: (i) the limited number of
companies of relevant size in the medical technology industry, and (ii) the continuing acquisition activity and consolidation within the comparison group. Similar to the comparison companies used in the 2016 study, the comparison companies used in the 2017 study were selected based on comparability to Stryker in terms of business focus and company size. The 2017 comparison group, overall, encompasses the following:
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Product competitors or companies in the medical technology industry, as well as within adjacent industries, with which we compete for executive talent;
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Companies with significant global operations; and
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Companies with revenues and market capitalizations of similar scale to Stryker.
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The comparison group companies used in the 2017 benchmarking study were:
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Abbott Laboratories
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Bristol-Myers Squibb Company
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Medtronic plc
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Agilent Technologies, Inc.
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Cerner Corporation
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Quest Diagnostics Incorporated
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Allergan plc
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C.R. Bard, Inc.
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Thermo Fisher Scientific Inc.
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Baxter International Inc.
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Danaher Corporation
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Varian Medical Systems, Inc.
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Becton, Dickinson and Company
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Eli Lilly and Company
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Zimmer Biomet Holdings, Inc.
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Boston Scientific Corporation
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Laboratory Corporation of America Holdings
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The results of the 2017 study indicated that for the NEOs who were serving in an NEO position at the time of the study and for which a sufficient number of comparable benchmark positions at comparison companies could be identified, target cash compensation levels and the grant value of long-term incentive awards were, on average, generally consistent with our executive compensation philosophy. The results of the 2017 benchmarking study were one of the factors considered when the 2018 compensation decisions for the NEOs were made in February 2018. Those decisions are summarized on page 21 and will be discussed in further detail in the proxy statement for our 2019 meeting.
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Management's Role in Determining Executive Compensation
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The Compensation Committee makes all final decisions regarding NEO compensation, except that the compensation of the Chief Executive Officer is subject to final approval by the independent members of the Board. The Chief Executive Officer's role in determining executive compensation includes making recommendations on compensation decisions for the Company's executives other than himself after reviewing information provided by our Vice President, Chief Human Resources Officer and other members of that department. Management's role in determining executive compensation includes:
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Developing, summarizing and presenting information and analyses to enable the Compensation Committee to execute its responsibilities, as well as addressing specific requests for information from the Committee;
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Attending Compensation Committee meetings as requested to provide information, respond to questions and otherwise assist the Committee;
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Developing individual NEO bonus plans for consideration by the Compensation Committee and reporting to the Committee regarding achievement against the bonus plans; and
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Preparing stock-based award recommendations for the Compensation Committee's approval, which includes providing the Committee with regular updates on run rate (the rate at which stock awards are being awarded under our equity plans) and overhang (a measure of potential earnings dilution from stock awards) levels, and reporting to the Committee at the end of the performance period regarding the number of performance stock units earned based on achievement of the pre-established goals.
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Semler Brossy performs a similar role for the Board with respect to compensation recommendations for the Chief Executive Officer and the non-employee directors.
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2017 Compensation Decisions
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The Compensation Committee reviewed and approved the 2017 cash compensation levels for our NEOs other than Mr. Lobo after receiving recommendations from Mr. Lobo and our Vice President, Chief Human Resources Officer. The 2017 cash compensation levels for Mr. Lobo were reviewed and approved by the Compensation Committee and independent directors of the Board after receiving recommendations from Semler Brossy. The 2017 cash compensation levels for all of the NEOs reflected subjective evaluations and decisions based on the scope of each NEO's responsibilities in his current role, the level of performance in 2016 of the business areas for which he was responsible, his time and proficiency in the job, comparisons of pay levels relative to similar positions within the Company (if applicable) and consideration of the other factors described under "Executive Compensation Philosophy" on page 11. The following table summarizes the annualized 2017 base salary (effective as of March 1, 2017), the 2017 target bonus and the respective percentage increase relative to 2016 for both of those amounts for each NEO:
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Name
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2017 Annualized Base Salary ($)
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% Increase Relative to 2016
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2017 Target Bonus ($)
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% Increase Relative to 2016
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Kevin A. Lobo
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1,169,000
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3.0
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%
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1,636,600
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3.0
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%
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Glenn S. Boehnlein
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570,000
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3.6
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%
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456,000
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3.6
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%
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Timothy J. Scannell
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635,000
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3.3
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%
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539,750
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9.7
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%
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David K. Floyd
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620,000
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6.9
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%
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527,000
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13.6
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%
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Lonny J. Carpenter
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520,000
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4.0
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%
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442,000
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10.5
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%
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In addition, stock options and performance stock units were awarded to all of the NEOs in February 2017. See "Long-Term Incentive Compensation" beginning on page 17.
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2017 Compensation Elements
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Each of the compensation elements and its purpose is described below.
Base Salary:
Base salary is provided to our NEOs to compensate them for the basic value of their job, their time and proficiency in the position and the value of their job relative to other positions in the Company. We review each NEO's salary and performance annually and make decisions about amounts and adjustments. Factors that are considered in determining the executive's salary include performance, job experience, individual role responsibilities, comparisons among positions internally and market comparison data. Base salary levels for 2017 were approved by the Compensation Committee or, in the case of Mr. Lobo, the independent members of the Board.
Annual Bonus:
The individually structured short-term bonus plans are intended to motivate and reward our NEOs for achieving and exceeding specific annual performance goals. For Mr. Lobo, Mr. Boehnlein and Mr. Carpenter, the primary focus of the 2017 bonus goals was total Stryker performance. In the case of Mr. Scannell and Mr. Floyd, the main focus was on performance of the groups for which they were responsible, with consolidated adjusted operating income and specified qualitative measures being additional factors. For 2017, each NEO's bonus plan designated a threshold level of performance for each measure that had to be achieved before any bonus could begin to be earned for that measure. Each 2017 bonus plan included an opportunity to earn an overachievement bonus of up to an additional 100% of target bonus, which is included in the "Maximum Bonus Opportunity" column in the table below, if 2017 goals for sales on a constant currency basis, adjusted operating income and adjusted diluted net earnings per share were achieved.
Sales on a constant currency basis excludes the impact of changes in foreign currency exchange rates that affect the comparability and trend of sales. Sales on a constant currency basis is calculated by translating the actual results at the foreign currency exchange rate used when establishing the target amounts at the beginning of the year. When calculating payouts related to sales on a constant currency basis and adjusted operating income, the impact of acquisitions that occur during the year is typically excluded as values related to potential acquisitions are not included in the bonus targets established early in the year.
In order for any payout to occur related to the overachievement bonus metrics, 95% of the adjusted operating income goal for the respective business unit (consolidated or group) must have been achieved. If achieved, 50% of the target amount for each overachievement metric would be eligible for payout. In order to be eligible for the remaining 50% of target for each overachievement metric, 98% of the adjusted operating income margin goal for the respective business unit (consolidated or group) must have been achieved. Adjusted operating income and adjusted operating income margin are both non-GAAP financial measures.
The individual NEO bonus plans are discussed in detail under "2017 Bonus Plans" beginning on page 14. The following table provides the target bonus, maximum potential bonus reflecting the overachievement award opportunity discussed above, actual bonus payment and actual payment as a percentage of target for each NEO in 2017:
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Name
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Target Bonus ($)
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Maximum Bonus Opportunity ($)
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Actual Bonus Payment ($)
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Payment as Percentage of Target
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Kevin A. Lobo
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1,636,600
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3,273,200
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1,891,746
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116
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%
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Glenn S. Boehnlein
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456,000
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912,000
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527,090
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116
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%
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Timothy J. Scannell
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539,750
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1,079,500
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636,851
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118
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%
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David K. Floyd
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527,000
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1,054,000
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606,419
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115
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%
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Lonny J. Carpenter
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442,000
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884,000
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510,908
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116
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%
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Under our Executive Bonus Plan, the Board and Compensation Committee may make adjustments to final bonus determinations within the framework of the maximum bonuses that can be awarded under the terms of the Executive Bonus Plan. The 2017 bonus payments for Mr. Scannell and Mr. Floyd include an upward adjustment of $10,795 and $21,080, respectively. In the case of Mr. Scannell, the adjustment is in recognition of his efforts related to driving excellent progress on commercial model innovation. In the case of Mr. Floyd, the adjustment is in recognition of his efforts related to the successful launch of the Company's Mako total knee application.
Our Executive Bonus Plan has a recoupment provision that is applicable in the event of either a material restatement of our financial statements as a result of misconduct or an officer's material misconduct or negligence that results in a material violation of a law or regulation or material Company policy. See "Recoupment Policy" on page 20 for information regarding our recoupment policy that applies to all cash and equity incentive payments made pursuant to awards granted to elected corporate officers after 2014.
The Compensation Committee recommended the bonus plan target opportunity and goals for the Chief Executive Officer position and the independent directors approved them at meetings in February 2017. The actual payment for Mr. Lobo was approved by the independent directors in February 2018 based on his accomplishments as measured under his individual bonus plan. The Compensation Committee reviewed and approved the bonus targets and actual payments for the other NEOs after receiving recommendations from the Chief Executive Officer.
Why We Chose Particular Performance Metrics and Goals
We generally established our 2017 bonus goals with a focus on our budget and growth over actual prior year outcomes. Stryker used sales and earnings goals as the primary measures in the NEO bonus plans for the following reasons:
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These are key measures that are the objectives of our strategic plan;
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These metrics focus our NEOs on growth and profitability, which are key to our long-term success;
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The goals for these metrics generally align with our annual budget; and
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We believe these are the primary measures our investors monitor in evaluating our performance and making investment decisions regarding Stryker stock.
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2017 Bonus Plans
The 2017 annual bonus goals and weightings for each NEO are shown in the tables on pages 15 through 17. The following information is relevant to an understanding of those tables:
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Threshold is the performance required before any bonus accrues. Performance below the threshold level results in no bonus payment for that performance measure. Results for all quantitative measures are prorated between threshold and target. Meeting the target goal results in the payment of 100% of bonus opportunity for the particular measure.
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The tables express the goals for quantitative performance measures as a percentage change from 2016 actual results to show the degree of improvement required relative to the prior year to achieve bonus plan payment levels.
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Bonus plan goals are based on the Company's financial results as reported in conformance with GAAP but may be adjusted at the Committee's discretion to reflect the impact of specified corporate transactions, changes in foreign currency exchange rates, accounting or tax changes and other extraordinary or nonrecurring events so that the operating results of the Company or the applicable business unit are calculated on a comparable basis from year to year. Information with respect to adjustments made to GAAP consolidated operating income in 2017 that resulted in the adjusted consolidated operating income used in the calculation of the NEOs' bonus awards is set forth below (dollar values in millions), with adjustments made on a similar basis when determining the adjusted group operating income used in the calculation of the 2017 bonus awards for Mr. Scannell and Mr. Floyd:
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Item
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Year Ended
December 31, 2017
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Operating income, as reported
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$2,290
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Acquired inventory stepped up to fair value
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22
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Other acquisition and integration-related charges
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42
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Amortization of purchased intangible assets
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371
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Restructuring-related and other charges
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194
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Rejuvenate and other recall matters
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173
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Regulatory and legal matters
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39
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Net currency adjustments
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42
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Operating income attributable to acquisitions that occurred during 2017
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17
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Adjusted operating income for bonus calculation
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$3,190
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•
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Information with respect to adjustments made to GAAP diluted net earnings per share in 2017 that resulted in the adjusted diluted net earnings per share used in the calculation of the NEOs' bonus awards is set forth below:
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Item
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Year Ended
December 31, 2017
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Diluted net earnings per share, as reported
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$2.68
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Acquired inventory stepped up to fair value
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0.05
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Other acquisition and integration-related charges
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0.09
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Amortization of purchased intangible assets
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0.67
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Restructuring-related and other charges
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0.41
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Rejuvenate and other recall matters
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0.34
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Regulatory and legal matters
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0.06
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Tax matters
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2.19
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Adjusted diluted net earnings per share for bonus calculation
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$6.49
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•
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For performance measures that are qualitative in nature, the determination of performance requires subjective evaluations rather than quantifiable calculations of achievement to the goal. These subjective performance evaluations for 2017 were made by the Compensation Committee after considering recommendations from Mr. Lobo in the case of each of the other NEOs and by the independent directors in the case of Mr. Lobo, in each case after consideration was given to the individual's performance with respect to the goal. The threshold payment for qualitative measures is zero percent.
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•
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Payout for each overachievement metric generally begins when performance exceeds the budgeted value for the respective metric.
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Mr. Lobo — Chairman, President and Chief Executive Officer
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2017 Threshold
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2017 Target
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Threshold
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Threshold as Percentage Change Over 2016 Actual
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Potential Payment as Percentage of Total Target Bonus (%)
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Target
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Target as Percentage Change Over 2016 Actual
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Potential Payment as Percentage of Total Target Bonus (%)
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Core Bonus Potential:
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Adjusted operating income
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$2.885 bil.
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(0.1
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)%
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20
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$3.206 bil.
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11.0
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%
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40
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Constant currency sales
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$11.534 bil.
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1.8
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%
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20
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$12.270 bil.
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8.3
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%
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40
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Functional goal
(1)
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—
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—
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0
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—
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—
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20
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40
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100
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Overachievement Bonus Potential:
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Adjusted operating income
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$3.206 bil.
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11.0
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%
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0
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$3.366 bil.
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16.6
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%
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50
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Constant currency sales
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$12.270 bil.
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8.3
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%
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0
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$12.761 bil.
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12.7
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%
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25
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Adjusted diluted net earnings per share
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$6.40
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10.3
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%
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0
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$6.78
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16.9
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%
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25
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0
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100
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______________
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(1)
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Qualitative assessment of his efforts in leading the Company's multi-year cost transformation initiative, driving commercial model innovation, strengthening the Company's leadership bench strength, and driving robust product performance processes and results.
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Mr. Boehnlein — Vice President, Chief Financial Officer
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2017 Threshold
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2017 Target
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Threshold
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Threshold as Percentage Change Over 2016 Actual
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Potential Payment as Percentage of Total Target Bonus (%)
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Target
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Target as Percentage Change Over 2016 Actual
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Potential Payment as Percentage of Total Target Bonus (%)
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Core Bonus Potential:
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|
|
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|
Adjusted operating income
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$2.885 bil.
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(0.1
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)%
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20
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$3.206 bil.
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11.0
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%
|
40
|
Constant currency sales
|
$11.534 bil.
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1.8
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%
|
20
|
|
$12.270 bil.
|
8.3
|
%
|
40
|
Functional goal
(1)
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—
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—
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|
0
|
|
—
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—
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|
20
|
|
|
|
40
|
|
|
|
100
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Overachievement Bonus Potential:
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|
|
|
|
|
|
Adjusted operating income
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$3.206 bil.
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11.0
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%
|
0
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$3.366 bil.
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16.6
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%
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50
|
Constant currency sales
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$12.270 bil.
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8.3
|
%
|
0
|
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$12.761 bil.
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12.7
|
%
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25
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Adjusted diluted net earnings per share
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$6.40
|
10.3
|
%
|
0
|
|
$6.78
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16.9
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%
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25
|
|
|
|
0
|
|
|
|
100
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______________
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|
(1)
|
Qualitative assessment of his contributions to the execution of the Company's cost transformation initiative, with a focus on shared services and enterprise resource planning platform, and strengthening the leadership bench strength of the Company's Finance function.
|
Mr. Scannell — Group President, MedSurg and Neurotechnology
|
|
|
|
|
|
|
|
|
|
|
|
2017 Threshold
|
|
2017 Target
|
|
Threshold
|
Threshold as Percentage Change Over 2016 Actual
|
Potential Payment as Percentage of Total Target Bonus (%)
|
|
Target
|
Target as Percentage Change Over 2016 Actual
|
Potential Payment as Percentage of Total Target Bonus (%)
|
Core Bonus Potential
(1)
:
|
|
|
|
|
|
|
|
Adjusted operating income - group
|
$1.734 bil.
|
8.8
|
%
|
10
|
|
$1.926 bil.
|
20.9
|
%
|
20
|
Adjusted operating income - consolidated
|
$2.885 bil.
|
(0.1
|
)%
|
10
|
|
$3.206 bil.
|
11.0
|
%
|
20
|
Constant currency sales - group
|
$6.151 bil.
|
5.5
|
%
|
20
|
|
$6.614 bil.
|
13.5
|
%
|
40
|
Functional goal
(2)
|
—
|
—
|
|
0
|
|
—
|
—
|
|
20
|
|
|
|
|
40
|
|
|
|
|
100
|
Overachievement Bonus Potential
(1)
:
|
|
|
|
|
|
|
|
|
|
Adjusted operating income - group
|
$1.926 bil.
|
20.9
|
%
|
0
|
|
$2.080 bil.
|
30.5
|
%
|
25
|
Adjusted operating income - consolidated
|
$3.206 bil.
|
11.0
|
%
|
0
|
|
$3.366 bil.
|
16.6
|
%
|
25
|
Constant currency sales - group
|
$6.614 bil.
|
13.5
|
%
|
0
|
|
$6.945 bil.
|
19.1
|
%
|
25
|
Adjusted diluted net earnings per share
|
$6.40
|
10.3
|
%
|
0
|
|
$6.78
|
16.9
|
%
|
25
|
|
|
|
0
|
|
|
|
100
|
______________
|
|
(1)
|
Goals are specific to the MedSurg and Neurotechnology Group reporting to Mr. Scannell, except the goals related to adjusted operating income - consolidated and adjusted diluted net earnings per share, which are total Company goals.
|
|
|
(2)
|
Qualitative assessment of his contributions to the execution of the Company's cost transformation initiative and deployment of the enterprise resource planning platform and driving commercial model innovation.
|
Mr. Floyd — Group President, Orthopaedics
|
|
|
|
|
|
|
|
|
|
|
|
2017 Threshold
|
|
2017 Target
|
|
Threshold
|
Threshold as Percentage Change Over 2016 Actual
|
Potential Payment as Percentage of Total Target Bonus (%)
|
|
Target
|
Target as Percentage Change Over 2016 Actual
|
Potential Payment as Percentage of Total Target Bonus (%)
|
Core Bonus Potential
(1)
:
|
|
|
|
|
|
|
|
Adjusted operating income - group
|
$1.455 bil.
|
(0.7
|
)%
|
10
|
|
$1.617 bil.
|
10.3
|
%
|
20
|
Adjusted operating income - consolidated
|
$2.885 bil.
|
(0.1
|
)%
|
10
|
|
$3.206 bil.
|
11.0
|
%
|
20
|
Constant currency sales - group
|
$4.152 bil.
|
(0.2
|
)%
|
20
|
|
$4.464 bil.
|
7.3
|
%
|
40
|
Functional goal
(2)
|
—
|
—
|
|
0
|
|
—
|
—
|
|
20
|
|
|
|
|
40
|
|
|
|
|
100
|
Overachievement Bonus Potential
(1)
:
|
|
|
|
|
|
|
|
|
|
Adjusted operating income - group
|
$1.617 bil.
|
10.3
|
%
|
0
|
|
$1.746 bil.
|
19.1
|
%
|
25
|
Adjusted operating income - consolidated
|
$3.206 bil.
|
11.0
|
%
|
0
|
|
$3.366 bil.
|
16.6
|
%
|
25
|
Constant currency sales - group
|
$4.464 bil.
|
7.3
|
%
|
0
|
|
$4.687 bil.
|
12.7
|
%
|
25
|
Adjusted diluted net earnings per share
|
$6.40
|
10.3
|
%
|
0
|
|
$6.78
|
16.9
|
%
|
25
|
|
|
|
|
0
|
|
|
|
100
|
______________
|
|
(1)
|
Goals are specific to the Orthopaedics Group reporting to Mr. Floyd, except the goals related to adjusted operating income - consolidated and adjusted diluted net earnings per share, which are total Company goals.
|
|
|
(2)
|
Qualitative assessment of his contributions to the execution of the Company's cost transformation initiative and deployment of the enterprise resource planning platform, driving a successful launch of the Company's Mako total knee application and driving commercial model innovation.
|
Mr. Carpenter — Group President, Global Quality and Business Operations
|
|
|
|
|
|
|
|
|
|
|
|
2017 Threshold
|
|
2017 Target
|
|
Threshold
|
Threshold as Percentage Change Over 2016 Actual
|
Potential Payment as Percentage of Total Target Bonus (%)
|
|
Target
|
Target as Percentage Change Over 2016 Actual
|
Potential Payment as Percentage of Total Target Bonus (%)
|
Core Bonus Potential:
|
|
|
|
|
|
|
|
Adjusted operating income
|
$2.885 bil.
|
(0.1
|
)%
|
20
|
|
$3.206 bil.
|
11.0
|
%
|
40
|
Constant currency sales
|
$11.534 bil.
|
1.8
|
%
|
20
|
|
$12.270 bil.
|
8.3
|
%
|
40
|
Functional goal
(1)
|
—
|
—
|
|
0
|
|
—
|
—
|
|
20
|
|
|
|
|
40
|
|
|
|
|
100
|
Overachievement Bonus Potential:
|
|
|
|
|
|
|
|
|
|
Adjusted operating income
|
$3.206 bil.
|
11.0
|
%
|
0
|
|
$3.366 bil.
|
16.6
|
%
|
50
|
Constant currency sales
|
$12.270 bil.
|
8.3
|
%
|
0
|
|
$12.761 bil.
|
12.7
|
%
|
25
|
Adjusted diluted net earnings per share
|
$6.40
|
10.3
|
%
|
0
|
|
$6.78
|
16.9
|
%
|
25
|
|
|
|
0
|
|
|
|
100
|
______________
|
|
(1)
|
Qualitative assessment of his contributions to the execution of the Company's cost transformation initiative with a focus on reduced product cost, execution of Company-wide cost reduction initiative and deployment of the enterprise resource planning platform and accelerating the optimization of the Company's global supply chain.
|
Long-Term Incentive Compensation:
In 2017, all of our NEOs were awarded stock options and performance stock units. The stock options granted on February 8, 2017 to our NEOs have an exercise price of $122.51 per share, the closing price of our Common Stock as reported for NYSE Composite Transactions on the last trading day before the grant date. Such stock options have ten-year terms, vest as to 20% of the underlying shares on each of the first five anniversaries of the grant date and are subject to the other terms and conditions generally applicable to stock options granted to other officers and key employees. Our plans prohibit repricing stock options without shareholder approval.
The performance stock units granted to the NEOs in 2017 will be earned based on the achievement of a pre-established threshold level of three-year average adjusted diluted net earnings per share growth, with the actual number of shares earned being determined based on the actual average adjusted diluted net earnings per share growth as well as sales growth performance relative to a comparison group of companies over the 2017 to 2019 performance period. The performance stock units will vest and be settled in Common Stock in March 2020 following completion of the three-year performance period. The number of performance stock units ultimately earned can range from 0% to 200% of the target award. In addition, recipients of performance stock units are entitled to dividend equivalents on vested awards that will be converted into additional performance stock units based on the fair market value of a share of Common Stock on the dividend payment date.
The details of the 2017 stock awards grants to the NEOs are provided in the "2017 Grants of Plan-Based Awards" table on page 23. Stock awards in 2017 for other key employees generally consisted of stock options and restricted stock units. Stock options, performance stock units and restricted stock units are granted to provide employees with a personal financial interest in Stryker's long-term success, encourage retention through vesting provisions and enable us to compete for the services of employees in an extremely competitive market and industry. Objectives of the long-term incentive portion of our compensation package include:
|
|
•
|
Aligning the personal and financial interests of management and other employees with shareholder interests;
|
|
|
•
|
Balancing near-term considerations with a focus on improving the business and creating shareholder value over the long-term; and
|
|
|
•
|
Providing a means to attract, reward and retain a skilled management team.
|
Management made recommendations to the Compensation Committee about the stock award levels and terms for the NEOs other than the Chief Executive Officer, recommendations for whom were made by Semler Brossy to the Compensation Committee. The stock award levels for the NEOs other than the Chief Executive Officer were approved by the Compensation Committee after receiving recommendations from the Chief Executive Officer, and for the Chief Executive Officer were approved by the Compensation Committee subject to final approval by the independent members of the Board, which subsequently occurred. A number of factors are considered in determining the stock award levels for the NEOs, but the final award is ultimately a subjective decision. While the Compensation Committee did not apply specific performance measures or weightings to determine the individual NEO awards of stock options and performance stock units in 2017, factors considered included the level of responsibility and position within the Company, demonstrated performance over time, value to our future success, the level of retention value from prior awards, Company or business area performance in recent years, comparisons among positions internally, market comparison data and the other factors described under "Executive Compensation Philosophy" on page 11. The Compensation Committee also considered, in the aggregate for the Company, share availability under our equity plans, annual run rate, the financial expense of stock awards and potential shareholder dilution. The terms and conditions of our stock awards include recoupment provisions that are applicable in the event of a violation of the non-compete agreement to which each recipient has agreed. See "Recoupment Policy" on page 20 for information regarding our recoupment policy that applies to all cash and equity incentive payments made pursuant to awards granted to elected corporate officers after 2014.
2015 Performance Stock Units: Results for the 2015-2017 Performance Period
In 2015, the Company granted performance stock units to members of our then executive leadership team. The vesting of all 2015 performance stock units ("2015 PSUs") was contingent on the achievement of certain specified performance metrics over a three-year performance period from January 1, 2015 to December 31, 2017. The 2015 PSUs were subject to a threshold performance target of the
Company’s achievement of average adjusted diluted net earnings per share growth of 3.0% or greater as of the last day of the performance period (the "Threshold Performance Target"). The Compensation Committee chose this measure as the Threshold Performance Target for the 2015 PSUs in order to require that a minimum level of earnings growth be achieved before any portion of the 2015 PSUs would vest. If the Threshold Performance Target was achieved, grantees would become eligible to vest in up to 200% of their 2015 PSUs, subject to further achievement of two equally weighted financial measures (average adjusted diluted net earnings per share growth and average sales growth relative to a comparison group of companies) over the same three-year performance period. The Compensation Committee chose these as measures for the 2015 PSUs in order to focus the executive leadership team on longer-term growth and profitability. The Committee also believed that it was important to have a measure that assessed the Company's growth on a relative basis, which resulted in the use of average sales growth relative to a comparison group. We believe our investors monitor these measures in evaluating our performance and making investment decisions regarding Stryker stock.
Following the completion of the three-year performance period, the Committee determined in March 2018 that the Threshold Performance Target had been achieved and, accordingly, our NEOs were eligible to vest in up to 200% of their 2015 PSUs. For purposes of Section 162(m) of the Internal Revenue Code, once the Threshold Performance Target is achieved, the Committee can exercise negative discretion to reduce the number of 2015 PSUs that vest for our NEOs.
Under the terms of the 2015 PSUs, if the Threshold Performance Target was achieved, then vesting of 50% of each NEO’s 2015 PSUs was based on the Company’s achievement of average sales growth relative to a comparison group of companies and the remaining 50% of each NEO’s 2015 PSUs was based on the Company’s achievement of average adjusted diluted net earnings per share growth. The 2015 PSUs will vest and be settled in Common Stock, along with any dividend equivalents associated with the vested 2015 PSUs, on March 21, 2018.
The following is the comparison group of 16 companies used to determine the relative average sales growth performance for the 2015 PSUs:
|
|
|
|
Abbott Laboratories
|
Johnson & Johnson (Medical & Diagnostics)
|
Smith & Nephew plc
|
Baxter International Inc.
|
Laboratory Corporation of America Holdings
|
Thermo Fisher Scientific Inc.
|
Becton, Dickinson and Company
|
Medtronic plc
|
3M Company (Healthcare Segment)
|
Boston Scientific Corporation
|
Quest Diagnostics Inc.
|
Zimmer Biomet Holdings, Inc.
|
Fresenius Medical Care AG& Co. KGaA
|
Royal Philips (Healthcare Segment)
|
|
General Electric (Healthcare Segment)
|
Siemens Aktiengesellschaft (Healthcare)
|
|
The foregoing companies were selected as they were identified at the time the 2015 PSUs were granted as competitors in the medical technology industry with which we compete for market share and/or executive talent. Consistent with the terms of the 2015 PSUs, C.R. Bard, Inc., CareFusion Corporation and St. Jude Medical, Inc., which were originally included in the comparison group when the 2015 PSUs were granted, were not included in the performance calculation because those companies were acquired and did not report sales growth data for the entire performance period. In addition, as permitted by the terms and conditions applicable to the 2015 PSUs, the Committee modified the calculation of average sales growth to adjust for distortions caused by significant acquisitions and divestitures involving companies in the comparison group.
The table below presents the performance goals, the performance results for average adjusted diluted net earnings per share growth (to which no changes were made) and for relative average sales growth, as adjusted by the Committee as described above, and the calculated payouts for the 2015 PSUs:
|
|
|
|
|
|
|
Average Adjusted Diluted Net Earnings Per Share Growth
|
Below Minimum
|
Minimum
|
Target
|
Maximum
|
Actual
|
Goal
|
< 5.0%
|
5.0%
|
8.0%
|
11.0%
|
11.1%
|
Earned 2015 PSUs, as % of Target
|
0
|
50
|
100
|
200
|
200
|
Weighted-Average (50%) Earned 2015 PSUs, as % of Target
|
|
|
|
|
100
|
|
|
|
|
|
|
Relative Average Sales Growth
|
Percentile Ranking
|
Actual
|
Goal
|
Below 33rd
|
33rd
|
50th
|
75th and Above
|
94th
|
Earned 2015 PSUs as % of Target
|
0
|
50
|
100
|
200
|
200
|
Weighted-Average (50%) Earned 2015 PSUs, as % of Target
|
|
|
|
|
100
|
|
|
|
|
|
|
Total 2015 PSUs earned, as % of Target
(1)
|
|
|
|
|
200
|
______________
(1) The 2015 PSUs earned exclude dividend equivalents, which cannot be calculated until the date of vesting.
For those NEOs who were granted 2015 PSUs, the number and market value of the 2015 PSUs that have been earned but remain unvested until March 21, 2018 are included in the "Number of Shares or Units of Stock That Have Not Vested" and "Market Value of Shares or Units of Stock That Have Not Vested" columns of the "Outstanding Equity Awards at 2017 Fiscal Year-End" table on page 25.
Retirement Plans:
We offer a defined contribution 401(k) plan — the Stryker Corporation 401(k) Savings and Retirement Plan ("401(k) Plan") — that is available to all eligible U.S. employees, including the NEOs, as well as a nonqualified supplemental defined contribution plan — the Stryker Corporation Supplemental Savings and Retirement Plan ("Supplemental Plan") — in which certain employees, including the NEOs, may participate. The purpose of these plans is to assist our employees and executives with retirement income savings and increase the attractiveness of employment at Stryker. The Supplemental Plan is designed to provide a consistent level of benefit as a percentage of current compensation by restoring benefits that would otherwise be limited due to the covered compensation limits under the tax-qualified 401(k) Plan. The amounts of the Company's matching contribution to the accounts of each NEO are determined by the NEO's eligible compensation and individual contribution rate. Participants may contribute up to 75% of total eligible compensation (salary and bonus for the NEOs) under the 401(k) Plan and Supplemental Plan. Under the 401(k) Plan, we match fifty cents per dollar of the first 8% of compensation contributed by the employee up to the Internal Revenue Code limits ($18,000 annual deferral and $270,000 compensation in 2017). In addition to the Company match, the Company has historically made a discretionary contribution in March of each year equal to 7% of the prior year's eligible compensation for all employees eligible under the 401(k) Plan and Supplemental Plan, including the NEOs. The amounts contributed under the 401(k) Plan and the Supplemental Plan for 2017 on behalf of each NEO are included in the "All Other Compensation" column of the "Summary Compensation Table" on page 22. Additionally, the amounts contributed under the Supplemental Plan for 2017 on behalf of each NEO and his account balance under the Supplemental Plan, along with a description of the 401(k) Plan and Supplemental Plan, are provided in the table at the bottom of page 26 and the associated narrative.
We have defined benefit pension programs for some employees in certain international locations; however, no NEO participates in any defined benefit pension plan sponsored by Stryker.
Health and Welfare Benefits Plans:
We provide benefits, such as medical, prescription, dental, vision, life insurance and disability coverage, to each NEO under the same benefits plans that we offer to all our eligible U.S.-based employees. The benefits plans are part of our overall total compensation offering and provide appropriate healthcare coverage and security for our employees and their families at costs affordable to the Company. The Company does not pay for any form of post-retirement healthcare benefits for any employee.
Perquisites:
We provide limited perquisites and personal benefits based on considerations unique to each NEO position. We believe our practices regarding perquisites are conservative to market. In 2017, we paid for costs associated with an executive physical examination for all of our NEOs. In December 2016, the Board, excluding Mr. Lobo, approved a policy regarding the personal use of Company aircraft by Mr. Lobo and his immediate family members. The Board believes the policy maximizes the efficient use of Mr. Lobo's travel time and helps to ensure his personal safety and security. Mr. Lobo is the only Stryker executive officer allowed to use Company aircraft for personal use. Such personal use is subject to an annual hour limitation, currently 40 hours, that will be determined and reviewed annually by the Board. The benefit to Mr. Lobo associated with personal use of Company aircraft is imputed as income for tax purposes at Standard Industry Fare Level rates and he is responsible for paying the associated taxes. In accordance with SEC disclosure requirements, the values of the above perquisites and other personal benefits are included in the "All Other Compensation" column of the "Summary Compensation Table" (see page 22) for 2017 for Mr. Lobo, who was the only NEO for whom the total value was $10,000 or greater.
|
|
Impact of Decisions Regarding One Compensation Element on Decisions Regarding Other Compensation Elements
|
Our practice is to review each NEO's compensation elements individually and monitor the total of the various elements. We consider each element and the total against our compensation objectives as stated in our executive compensation philosophy. Decisions related to one compensation element (e.g., bonus payment earned) generally do not materially affect decisions regarding any other element (e.g., stock award grants) because the objectives of each element differ. For example, we intend bonus payments to reward short-term performance for achievement of annual bonus plan goals, while we make decisions related to stock awards to align the interests of the recipients with the Company's long-term performance and enhance our retention hold on recipients.
Our 401(k) Plan and Supplemental Plan are funded on an annual basis and do not result in potential future liabilities to the Company. Decisions about these plans do not impact outcomes related to salary or bonus decisions for our NEOs and vice versa.
Positions at higher levels at Stryker generally have a greater emphasis on variable pay elements of bonus and stock awards, although no specific formula, schedule or structure is currently applied in establishing the percentage of total compensation delivered through any compensation element.
|
|
Equity Plans and Equity-Based Compensation Award Granting Policy
|
We have adopted a granting policy covering all stock awards, both off-cycle (including hire-on) and ongoing annual grants. Under the policy, stock awards are granted by the Compensation Committee, subject to approval by the Board in the case of grants to non-employee directors, and approval by the independent directors of the Board in the case of grants to the Chief Executive Officer. The Compensation Committee has delegated to the Chief Executive Officer the authority to make "off-cycle grants" to new employees as a result of the acquisition of another company, in situations where we are seeking to attract a senior level hire or recognize an employee for significant achievements or in other special circumstances. In 2017, we made off-cycle grants to new hires, including those who became employees as a result of an acquisition, and to select employees to recognize significant achievements and create retention incentives. Annual limits for off-cycle grants are defined both per individual employee (20,000 shares) and in the aggregate (300,000 shares), with shares issuable in connection with awards other than stock options being counted against such limits as 2.86 shares under our 2011 Long-Term Incentive Plan.
The fair market value of Stryker stock used to establish the exercise price of all options will be the closing sales price per share as reported for NYSE Composite Transactions for the last trading day prior to the grant date. No stock grant will be backdated and the timing of the public release of material information or the grant of any stock award will not be established with the intent of unduly benefiting a grantee
under a stock award. Each annual grant and off-cycle grant of equity-based compensation will be awarded on a pre-determined date as follows:
|
|
•
|
The annual grant of stock awards for employees will generally be made on the date of the February meeting of the Board. Beginning in 2018, the annual grant of stock awards for non-employee directors will generally be made on the date of the Board meeting that coincides with our annual meeting of shareholders. Any change in the annual grant date for employees or non-employee directors must be made with the prior approval of the Board.
|
|
|
•
|
Off-cycle awards may be granted by the Chief Executive Officer, pursuant to delegated authority from the Compensation Committee, on the first business day of May, August or November following the date of hire or the determination that an award is warranted in other circumstances. Off-cycle awards are reported to the Compensation Committee and the Board at their next regular meetings.
|
Where permissible by law, we require U.S. employees who receive stock awards to sign a version of the Company's confidentiality, non-competition and non-solicitation agreement. The terms and conditions of our stock awards include recoupment provisions that are applicable in the event of a violation of the non-compete agreement to which each of our NEOs has agreed.
|
|
Executive and Non-Employee Director Stock Ownership Guidelines
|
Encouraging long-term ownership of Stryker stock among our management and directors is an important aspect of our executive compensation policies and practices. This reflects our conviction that all senior executives and non-employee directors should have meaningful share ownership positions in the Company to reinforce the alignment of the interests of management and our shareholders. Stryker has a stock ownership guideline policy in place for all non-employee directors, corporate officers, operating division presidents and select other senior management positions in the Company. The policy provides that 25% of the net shares from option exercises not be sold until the participant exceeds the applicable ownership guideline. Executives and non-employee directors in compliance with the ownership guidelines may generally exercise stock options and sell the underlying shares, once vested, as long as they continue to meet the ownership guidelines. In 2017, our stock ownership requirements for our non-employee directors and NEOs were:
|
|
|
|
Position
|
Market Value of Stock Owned
|
Expected Time Period to Comply
|
Non-Employee Directors
|
5 times annual Board retainer
|
5 years
|
Chief Executive Officer
|
5 times salary
|
5 years
|
Other NEOs
|
3 times salary
|
5 years
|
For stock ownership guideline calculation purposes, stock owned includes shares owned outright, including 401(k) Plan shares, as well as restricted stock units awarded (for employees, using an estimate of the net number of shares to be received after taxes; for non-employee directors, using the entire awarded amount as the Company generally does not withhold taxes upon vesting for non-employee directors), but does not include stock options or outstanding performance stock units. The Compensation Committee receives an annual update from management on compliance with the ownership guidelines. As of the Company's last annual measurement date of September 30, 2017, all of our non-employee directors and all of the NEOs subject to the ownership guidelines at that time were at or above the applicable stock ownership guideline requirement or projected to be by their targeted compliance date. The Compensation Committee periodically reviews the guideline requirements to ensure they continue to be appropriate. In that regard, the Compensation Committee recommended in December 2017, and the full Board subsequently approved, an increase in the ownership guideline for our non-employee directors to an absolute dollar value of $500,000 (greater than the prior five times the annual Board retainer amount, which was equal to $300,000). This new ownership guideline became effective in January 2018.
Our Insider Trading Guidelines prohibit short sales of and option trading on Stryker stock.
In February 2015, our Board adopted a recoupment policy that applies uniformly to all cash and equity incentive payments made pursuant to awards granted to our elected corporate officers after 2014. Under this policy, the Compensation Committee may require recoupment from an elected officer if it determines that it is in the best interest of the Company to do so and the amount of the incentive compensation was based upon the achievement of certain financial results that were subsequently reduced due to a material restatement as a result of misconduct and would have been lower had it been based upon the restated financial results or the elected officer engaged in material misconduct or was negligent in exercising his or her supervisory responsibility to manage or monitor conduct or risks, in each case that resulted in a material violation of a law or regulation or a material Company policy relating to manufacturing, sales or marketing of our products, including improper payments to foreign officials to obtain or retain business, that caused significant harm to the Company. We will publicly disclose recoupment of compensation under this policy in situations where the Board determines that it is in the best interests of the Company and our shareholders to do so.
|
|
Employment Agreements and Severance Policy
|
We generally do not provide employment agreements, with the exception of unique circumstances or if such agreements are customary in foreign countries. We have no employment or severance agreement in place with any NEO. We have in the past made, and are likely in the future to make, separation payments to persons who were NEOs based on the specific facts and circumstances.
|
|
Company Tax and Accounting Issues
|
In general, consideration is given to the tax and accounting treatment of our compensation plans at the time of developing the plans, when making changes to plans, in light of any regulatory changes or when making specific compensation decisions related to individual elements. The accounting treatments considered include any that may apply to amounts awarded or paid to our NEOs. The tax considerations include Sections 162(m) and 409A of the Internal Revenue Code.
Deductibility of Executive Compensation:
In evaluating the compensation programs covering our NEOs and making decisions related to payments, the Compensation Committee generally has considered the potential impact on the Company of Section 162(m) of the Internal
Revenue Code. Prior to December 22, 2017, Section 162(m) generally eliminated the deductibility of compensation over $1 million paid to NEOs, other than the principal financial officer, excluding "performance-based compensation" meeting certain requirements. However, the Tax Cuts and Jobs Act (the “Act”), which became law on December 22, 2017, significantly amended Section 162(m). Pursuant to the Act, the definition of "covered employees" under Section 162(m) was amended to include a company's chief financial officer. The Act also eliminated the performance-based compensation exception with respect to tax years beginning January 1, 2018, provided that, the Act includes a transition rule with respect to compensation that is provided pursuant to a written binding contract that was in effect on November 2, 2017 and not materially modified after that date. Accordingly, commencing in 2018, the Company’s tax deduction with regard to compensation of “covered employees” is limited to $1 million per taxable year for each officer. The Compensation Committee generally intends to maximize deductibility of compensation under Section 162(m) to the extent consistent with our overall compensation program objectives and permitted under the Act's transition rule, but may authorize compensation that does not meet the requirements of Section 162(m), as amended by the Act, if it determines such payments are appropriate.
Share-Based Compensation:
We account for compensation expense from our stock awards in accordance with the
Compensation
—
Stock Compensation
Topic of the Financial Accounting Standards Board Accounting Standards Codification ("FASB Codification") that requires companies to measure the cost of employee stock awards based on the grant date fair value and recognize that cost over the period during which a recipient is required to provide services in exchange for the stock awards, typically the vesting period. We consider the impact on the Company's compensation expense when determining and making stock awards.
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2018 Compensation Decisions
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The table below summarizes the 2018 compensation decisions that were made in February 2018 for the 2017 NEOs. These decisions will be more fully discussed in the proxy statement for our 2019 annual meeting.
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Name
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Annualized Base Salary ($)
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Target Bonus ($)
(1)
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Number of Stock Options (#)
(2)
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Number of Performance
Stock Units at Target (#)
(3)
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Kevin A. Lobo
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1,200,000
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1,800,000
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162,190
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32,438
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Glenn S. Boehnlein
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600,000
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510,000
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38,925
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7,786
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Timothy J. Scannell
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655,000
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556,750
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50,280
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10,056
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David K. Floyd
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640,000
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544,000
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45,415
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9,082
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Lonny J. Carpenter
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545,000
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463,250
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38,925
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7,786
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______________
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(1)
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Each NEO bonus plan for 2018 includes an opportunity to earn an overachievement bonus of up to an additional 100% of target bonus based on sales on a constant currency basis and adjusted earnings metrics.
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(2)
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Stock options to purchase shares of the Company's Common Stock were granted at an exercise price of $154.14 per share (the closing price as reported for NYSE Composite Transactions on February 6, 2018, the last trading day before the grant date).
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(3)
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Key design features for the 2018 performance stock units include the following:
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In order to earn any shares, a pre-established threshold level of three-year average adjusted diluted net earnings per share growth must be achieved, with the actual number of shares earned based on actual average adjusted diluted net earnings per share growth and sales growth relative to a comparison group of companies over the three-year performance period;
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Payout range of 0% to 200% of the target award; and
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•
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Settled in Common Stock in early 2021 following the completion of the three-year performance period.
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