DEF 14A 1 d370352ddef14a.htm DEFINITIVE PROXY STATEMENT Definitive Proxy Statement

 

 

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

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

Check the appropriate box:

 

¨  

Preliminary Proxy Statement

 

¨  

Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

 

x Definitive Proxy Statement

 

¨  

Definitive Additional Materials

 

¨  

Soliciting Material Pursuant to §240.14a-12

Medtronic, Inc.

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

 

þ No fee required.

 

¨  

Fee computed on table below per Exchange Act Rules 14a-60(i)(l) and 0-11.

 

  (1) Title of each class of securities to which transaction applies:

 

 

 

  (2) Aggregate number of securities to which transaction applies:

 

 

 

  (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

 

 

 

  (4) Proposed maximum aggregate value of transaction:

 

 

 

  (5) Total fee paid:

 

 

 

¨  

Fee paid previously with preliminary materials.

 

¨  

Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

 

  (1) Amount Previously Paid:

 

 

 

  (2) Form, Schedule or Registration Statement No.:

 

 

 

  (3) Filing Party:

 

 

 

  (4) Date Filed:

 

 

 

 

 


 

LOGO

710 Medtronic Parkway

Minneapolis, Minnesota 55432

Telephone: 763-514-4000

July 13, 2012

Dear Shareholder:

Please join us for our Annual Meeting of Shareholders on Thursday, August 23, 2012, at 10:30 a.m. (Central Daylight Time) at Medtronic’s World Headquarters, 710 Medtronic Parkway, Minneapolis (Fridley), Minnesota.

The accompanying Notice of Annual Meeting of Shareholders and Proxy Statement describe the business to be conducted at the Annual Meeting and details regarding admission to the Annual Meeting. We also will report on matters of current interest to our shareholders.

We invite you to join us beginning at 9:30 a.m. to view Medtronic’s interactive product displays. Product specialists will be available to answer your questions before and after the Annual Meeting.

Your vote is important. Whether you own a few shares or many, it is important that your shares are represented. If you cannot attend the Annual Meeting in person, you may vote your shares by internet or by telephone, or, if this proxy statement was mailed to you, by completing and signing the accompanying proxy card and promptly returning it in the envelope provided.

We look forward to seeing you at the Annual Meeting.

Sincerely,

 

LOGO

Omar Ishrak

Chairman and Chief Executive Officer

Alleviating Pain, Restoring Health, Extending Life


MEDTRONIC, INC.

NOTICE OF ANNUAL MEETING

OF SHAREHOLDERS

 

TIME

10:30 a.m. (Central Daylight Time) on Thursday, August 23, 2012.

 

PLACE

Medtronic World Headquarters

710 Medtronic Parkway

Minneapolis (Fridley), Minnesota 55432

 

ITEMS OF BUSINESS

1.

To elect ten directors for a one year term.

 

  2. To ratify the appointment of PricewaterhouseCoopers LLP as Medtronic’s independent registered public accounting firm for fiscal year 2013.

 

  3. To approve, in a non-binding advisory vote, named executive officer compensation (a “Say-on-Pay” vote).

 

  4. To amend and restate the Company’s Articles of Incorporation to provide for a majority vote in uncontested elections of directors.

 

  5. To consider and vote upon a shareholder proposal entitled “Proxy Access.”

 

  6. To consider and vote upon a shareholder proposal entitled “Adopt Simple Majority Vote.”

 

  7. To consider such other business as may properly come before the Annual Meeting and any adjournment or postponement thereof.

 

RECORD DATE

You may vote at the Annual Meeting if you were a shareholder of record at the close of business on June 25, 2012.

 

VOTING BY PROXY

It is important that your shares be represented and voted at the Annual Meeting. Please vote in one of these three ways:

 

  1. VOTE BY INTERNET, by going to the web address http://www.proxyvote.com and following the instructions (have your proxy card or internet notice in hand when you access the website);

 

  2. VOTE BY TELEPHONE, by dialing 1-800-690-6903 and following the instructions (have your proxy card or internet notice in hand when you call); or

 

  3. VOTE BY PROXY CARD, if you received a paper copy of the proxy statement, by completing, signing, dating and mailing the accompanying proxy card in the envelope provided. If you vote by internet or telephone, please do not mail your proxy card.

 

ANNUAL REPORT

Medtronic’s 2012 Annual Report is available at http://www.proxyvote.com and at http://www.medtronic.com/annualmeeting.

 

ADMISSION POLICY

If you wish to attend the Annual Meeting and you are a record holder, you must bring a proof of identification and for “street name” holders, proof of ownership to gain entrance to the meeting. Shareholders may obtain directions to the Annual Meeting at http://www.medtronic.com/annualmeeting.

By Order of the Board of Directors,

 

LOGO

D. Cameron Findlay

Corporate Secretary

Important Notice Regarding the Availability of Proxy Materials for the Shareholder Meeting to Be Held on August 23, 2012. The Proxy Statement, Notice of Annual Meeting and 2012 Annual Report to Shareholders are available at http://www.medtronic.com/annualmeeting.


TABLE OF CONTENTS

 

      Page  

General Information About the Meeting and Voting

     1   

Proposal 1 — Election of Directors

     6   

Directors and Nominees

     6   

Director Independence

     11   

Related Transactions and Other Matters

     13   

Governance of Medtronic

     14   

Our Corporate Governance Principles

     14   

Lead Director and Chairman; Transition Advisor; Executive Sessions

     14   

Board Role in Risk Oversight

     15   

Committees of the Board and Meetings

     15   

Audit Committee

     16   

Compensation Committee

     18   

Finance Committee

     19   

Nominating and Corporate Governance Committee

     19   

Quality and Technology Committee

     21   

Annual Meeting of the Shareholders

     21   

Director Compensation

     21   

Complaint Procedure; Communications with Directors

     23   

Our Codes of Conduct

     23   

Share Ownership Information

     24   

Significant Shareholders

     24   

Beneficial Ownership of Management

     24   

Section 16(a) Beneficial Ownership Reporting Compliance

     25   

Compensation Discussion and Analysis (CD&A)

     26   

Overview

     26   

Executive Summary

     26   

CEO Compensation Developments

     30   

Components of Total Compensation

     34   

Base Salaries

     35   

Annual Performance-Based Incentives

     35   

Long-Term Incentive Program

     36   

Adjustment of EPS Targets Applicable to Short and Long-Term Incentives

     38   

Other Benefits and Perquisites

     40   

Compensation Decision-Making Process

     41   

Role of Compensation Committee

     41   

Independent Compensation Consultant

     41   

Role of Chief Executive Officer in Compensation Decisions

     41   

Executive Compensation Peer Companies and Competitive Market

     41   

Risk Assessment

     43   

Share Ownership, Share Retention, and Clawback Policies

     43   

Tax and Accounting Implications

     44   

Compensation Committee Report

     44   

Executive Compensation

     45   

Summary Compensation Table

     45   

2012 Grants of Plan-Based Awards

     49   

2012 Outstanding Equity Awards at Fiscal Year End

     51   

2012 Option Exercises and Stock Vested

     53   

2012 Pension Benefits

     54   

2012 Nonqualified Deferred Compensation

     56   

Potential Payments Upon Termination or Change of Control

     59   

Equity Compensation Plan Information

     63   

Report of the Audit Committee

     64   

Audit and Non-Audit Fees

     65   

Proposal 2 — Ratification of Selection of Independent Registered Public Accounting Firm

     65   

Proposal 3 — Advisory Resolution to Approve Named Executive Officer Compensation (“Say-on-Pay”)

     66   

Proposal 4 — Amendment and Restatement of the Company’s Articles of Incorporation to provide for a Majority Vote in Uncontested Elections of Directors

     67   

Proposal 5 —Shareholder Proposal Entitled “Proxy Access”

     68   

Proposal 6 —Shareholder Proposal Entitled “Adopt Simple Majority Vote”

     71   

Other Information

     75   

Expenses of Solicitation

     75   

Shareholder Proposals and Director Nominations

     75   

Delivery of Documents to Shareholders Sharing an Address

     75   

Other

     76   

Appendix A — Amended and Restated Articles of Incorporation of Medtronic, Inc.

     A-1   


 

LOGO

710 Medtronic Parkway

Minneapolis, Minnesota 55432

Telephone: 763-514-4000

 

 

PROXY STATEMENT

Annual Meeting of Shareholders

August 23, 2012

 

 

We are providing these proxy materials in connection with the solicitation by the Board of Directors of Medtronic, Inc. (“Medtronic”) of proxies to be voted at Medtronic’s Annual Meeting of Shareholders to be held on August 23, 2012, and at any adjournment or postponement of the meeting. The proxy materials were either made available to you over the internet or mailed to you beginning on or about July 13, 2012.

GENERAL INFORMATION ABOUT THE MEETING AND VOTING

What am I voting on?

There are six proposals scheduled to be voted on at the meeting:

 

   

Election of ten directors, each for a one year term;

 

   

Ratification of the appointment of PricewaterhouseCoopers LLP as Medtronic’s independent registered public accounting firm for fiscal year 2013;

 

   

To approve, in a non-binding advisory vote, named executive officer compensation (a “Say-on-Pay” vote);

 

   

Amendment and restatement of Medtronic’s Articles of Incorporation to provide for a majority vote in uncontested elections of directors;

 

   

A shareholder proposal entitled “Proxy Access;” and

 

   

A shareholder proposal entitled “Adopt Simple Majority Vote.”

How can I receive proxy materials?

Under rules adopted by the U.S. Securities and Exchange Commission (“SEC”), we are furnishing proxy materials to our shareholders primarily via the internet, instead of mailing printed copies of proxy materials to each shareholder. On or about July 13, 2012, we began mailing to our shareholders (other than those who previously requested electronic or paper delivery) a “Notice of Internet Availability of Proxy Materials” (the “Notice”) containing instructions on how to access this proxy statement, the

 

1


accompanying notice of annual meeting and our annual report for the fiscal year ended April 27, 2012 online. If you received the Notice by mail, you will not automatically receive a printed copy of the proxy materials in the mail. Instead, the Notice instructs you on how to access and review all of the important information contained in the proxy materials. The Notice also instructs you on how you may submit your proxy via the internet. If you previously requested electronic delivery, you will still receive an e-mail providing you the Notice, and if you previously requested paper delivery, you will still receive a paper copy of the proxy materials by mail.

Finally, you can receive a copy of our proxy materials by following the instructions (contained in the Notice) regarding how you may request to receive your materials electronically or in printed form on a one-time or ongoing basis. Requests for printed copies of the proxy materials can be made by internet at http://www.proxyvote.com, by telephone at 1-800-579-1639 or by email at sendmaterial@proxyvote.com by sending a blank email with your control number in the subject line. Please also see “Can I receive future proxy materials electronically?” below.

Who is entitled to vote?

Shareholders as of the close of business on June 25, 2012 (the “Record Date”), may vote at the Annual Meeting. You have one vote for each share of common stock you held on the Record Date, including shares:

 

   

Held directly in your name as “shareholder of record” (also referred to as registered shareholder);

 

   

Held for you in an account with a broker, bank or other nominee (shares held in “street name”). Street name holders generally cannot vote their shares directly and must instead instruct the brokerage firm, bank or nominee how to vote their shares; and

 

   

Credited to your account in the Medtronic, Inc. Savings and Investment Plan.

What constitutes a quorum?

A majority of the outstanding shares entitled to vote, present or represented by proxy, constitutes a quorum for the Annual Meeting. Proxies received but marked as abstentions and “broker non-votes” (described below) are counted as present and entitled to vote for purposes of determining a quorum. On the Record Date, 1,025,039,711 shares of Medtronic common stock were outstanding and entitled to vote.

How many votes are required to approve each proposal?

Election of Directors.    The ten candidates for election who receive a plurality vote of the shares present and entitled to vote in the affirmative will be elected. There is no cumulative voting.

Ratification of the Appointment of the Auditors.    The ratification of the appointment of PricewaterhouseCoopers LLP as Medtronic’s independent registered public accounting firm for fiscal year 2013 requires the affirmative vote of a majority of the shares present and entitled to vote.

Say-on-Pay.    The Say-on-Pay vote is a non-binding advisory vote. The Board of Directors will consider our executive compensation to have been approved by shareholders if the Say-on-Pay proposal receives the affirmative vote of a majority of the shares present and entitled to vote. The effect of the vote on this non-binding advisory vote is discussed on page 67.

Amendment and Restatement of Medtronic’s Articles of Incorporation.    Amending and restating our Articles of Incorporation to provide for a majority vote in uncontested elections of directors requires the affirmative vote of not less than 75 percent of the votes entitled to be cast by all holders of shares of our common stock.

Proxy Access Shareholder Proposal.    The Proxy Access Shareholder Proposal requires the affirmative vote of a majority of the shares present and entitled to vote.

 

2


Adopt Simple Majority Shareholder Proposal.    The Adopt Simple Majority Shareholder Proposal requires the affirmative vote of a majority of the shares present and entitled to vote.

How are votes counted?

In the election of directors, your vote may be cast “FOR” all of the nominees or your vote may be “WITHHELD” with respect to one or more of the nominees.

In the ratification of the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm, your vote may be cast “FOR” or “AGAINST” or you may “ABSTAIN.” If you “ABSTAIN,” it has the same effect as a vote against the proposal.

In the advisory Say-on-Pay vote, your vote may be cast “FOR” or “AGAINST” or you may “ABSTAIN.” If you “ABSTAIN,” it has the same effect as a vote against the proposal.

In the vote on the amendment and restatement of Medtronic’s Articles of Incorporation to provide for a majority vote in uncontested elections of directors, your vote may be cast “FOR,” “AGAINST” or you may “ABSTAIN.” If you “ABSTAIN,” it has the same effect as a vote against the proposal.

In the vote on the Proxy Access Shareholder Proposal, your vote may be cast “FOR” or “AGAINST” or you may “ABSTAIN.” If you “ABSTAIN,” it has the same effect as a vote against the proposal.

In the vote on the Adopt Simple Majority Shareholder Proposal, your vote may be cast “FOR” or “AGAINST” or you may “ABSTAIN.” If you “ABSTAIN,” it has the same effect as a vote against the proposal.

For all of the votes, if you grant a proxy by telephone or internet without voting instructions, or sign and submit your proxy card without voting instructions, your shares will be voted in accordance with the recommendation of the Board.

What is a broker non-vote?

If you hold your shares in street name and do not provide voting instructions to your broker, your shares will not be voted on any proposal for which your broker does not have or does not exercise discretionary authority to vote (a “broker non-vote”). Shares constituting broker non-votes are not counted or deemed to be present in person or by proxy for the purpose of voting on a non-routine matter at the Annual Meeting and, therefore, are not counted for the purpose of determining whether shareholders have approved the election of directors in proposal 1, the Say-on-Pay in proposal 3, the amendment and restatement of our Articles of Incorporation in proposal 4, the Proxy Access Shareholder Proposal in proposal 5 or the Adopt Simple Majority Shareholder Proposal in proposal 6 because such proposals are considered non-routine matters. If you do not provide voting instructions to your broker, your broker will have discretion to vote your shares on proposal 2, because the ratification of auditor appointment is considered a routine matter. Broker non-votes are counted as present for the purpose of determining a quorum at the Annual Meeting.

How does the Board recommend that I vote?

Medtronic’s Board recommends that you vote your shares:

 

   

“FOR” each of the ten nominees to the Board for a one year term;

 

   

“FOR” the ratification of the appointment of PricewaterhouseCoopers LLP as Medtronic’s independent registered public accounting firm for fiscal year 2013;

 

   

“FOR” approval of the resolution in the non-binding Say-on-Pay advisory vote;

 

   

“FOR” amending and restating our Articles of Incorporation to provide for a majority vote in uncontested elections of directors;

 

3


   

“AGAINST” approval of the Proxy Access Shareholder Proposal; and

 

   

“AGAINST” approval of the Adopt Simple Majority Shareholder Proposal.

How do I vote my shares without attending the meeting?

If you are a shareholder of record or hold shares through a Medtronic stock plan, you may vote by granting a proxy. For shares held in street name, you may vote by submitting voting instructions to your broker or nominee. In most circumstances, you may vote:

 

   

By Internet or Telephone — If you have internet or telephone access, you may submit your proxy by following the voting instructions in the Notice of Annual Meeting no later than 11:59 p.m., Eastern Daylight Time, on August 22, 2012 (or, for shares held through the Medtronic, Inc. Savings and Investment Plan and the Medtronic Puerto Rico Employees’ Savings and Investment Plan, no later than 11:59 p.m., Eastern Daylight Time, on August 20, 2012). If you vote by internet or telephone, you need not return your proxy card.

 

   

By Mail — If you received a paper copy of the proxy statement, you may vote by mail by signing, dating and mailing your proxy card in the envelope provided. You should sign your name exactly as it appears on the proxy card. If you are signing in a representative capacity (for example, as guardian, executor, trustee, custodian, attorney or officer of a corporation), you should indicate your name and title or capacity.

How do I vote my shares in person at the meeting?

If you are a shareholder of record and prefer to vote your shares at the meeting, bring the accompanying proxy card (if you received a paper copy of the proxy statement) and proof of identification. You may vote shares held in street name only if you obtain a “legal” proxy from the record holder (broker or other nominee) giving you the right to vote the shares.

Even if you plan to attend the meeting, we encourage you to vote in advance by internet, telephone or mail so that your vote will be counted in the event you are unable to attend.

How do I gain admission to the meeting?

If you wish to attend the Annual Meeting and you are a record holder, you must bring a valid state or federal ID or a passport to register before entering the meeting. All invited guests will need a valid ID to enter the meeting. If you hold shares through an intermediary, such as a bank or broker, and you plan to attend, you must bring proof of share ownership, such as a recent bank or brokerage firm account statement or a letter from the broker, trustee, bank or nominee holding your shares, confirming ownership to gain entrance to the meeting.

What does it mean if I receive more than one proxy card or Notice?

It generally means you hold shares registered in more than one account. If you received a paper copy of the proxy statement and you vote by mail, sign and return each proxy card. Or, if you vote by internet or telephone, vote once for each proxy card and/or Notice you receive. If you have received more than one Notice, vote once for each Notice that you receive.

May I change my vote?

Yes. Whether you have voted by mail, internet or telephone, you may change your vote and revoke your proxy, prior to the Annual Meeting, by:

 

   

Sending a written statement to that effect to the Corporate Secretary of Medtronic;

 

   

Voting by internet or telephone at a later time;

 

4


   

Submitting a properly signed proxy card with a later date; or

 

   

Voting in person at the Annual Meeting and by filing a written notice of termination of the prior appointment of a proxy with Medtronic, or by filing a new written appointment of a proxy with Medtronic.

Can I receive future proxy materials electronically?

Yes. If you are a shareholder of record or hold shares through a Medtronic stock plan and you have received a paper copy of the proxy materials, you may elect to receive future proxy statements and annual reports online as described in the next paragraph. If you elect this feature, you will receive an email message notifying you when the materials are available, along with a web address for viewing the materials. If you received this proxy statement electronically, you do not need to do anything to continue receiving proxy materials electronically in the future.

Whether you hold shares registered directly in your name, through a Medtronic stock plan, or through a broker or bank, you can enroll for future delivery of proxy statements and annual reports by following these easy steps:

 

   

Go to our website at www.medtronic.com;

 

   

Click on Investors;

 

   

In the Shareholder Services section, click on Electronic Delivery of Proxy Materials; and

 

   

Follow the prompts to submit your electronic consent.

Generally, brokers and banks offering this choice require that shareholders vote through the internet in order to enroll. Street name shareholders whose broker or bank is not included on this website are encouraged to contact their broker or bank and ask about the availability of electronic delivery. As is customary with internet usage, the user must pay all access fees and telephone charges. You may view this year’s proxy materials at www.medtronic.com/annualmeeting.

What are the costs and benefits of electronic delivery of Annual Meeting materials?

There is no cost to you for electronic delivery. You may incur the usual expenses associated with internet access as charged by your internet service provider. Electronic delivery ensures quicker delivery, allows you to print the materials at your computer and makes it convenient to vote your shares online. Electronic delivery also conserves natural resources and saves Medtronic significant printing, postage and processing costs.

 

5


PROPOSAL 1 — ELECTION OF DIRECTORS

Directors and Nominees

Under Medtronic’s amended Articles of Incorporation, directors whose term of office is expiring are elected annually for terms of one year or until their respective successors are elected and qualified, subject to prior death, resignation, retirement, disqualification or removal from office. Each of Richard H. Anderson, Victor J. Dzau, M.D., Omar Ishrak, Shirley Ann Jackson, Ph.D., Michael O. Leavitt, James T. Lenehan, Denise M. O’Leary, Kendall J. Powell, Robert C. Pozen and Jack W. Schuler has been nominated for re-election to the Board to serve until the 2013 Annual Meeting and until their successors are elected and qualified, subject to prior death, resignation, retirement, disqualification or removal from office. All of the nominees are currently directors, and, other than Governor Leavitt, all were previously elected to the Board of Directors by shareholders. Governor Leavitt was elected to the Board by the Board of Directors effective in December 2011 following recommendation by the Nominating and Corporate Governance Committee. David L. Calhoun chose not to stand for re-election to the Board of Directors due to his other board and executive commitments. Jean-Pierre Rosso was not re-nominated because he has reached the mandatory retirement age for directors.

All of the nominees have consented to being named as a nominee in this proxy statement and have indicated a willingness to serve if elected. However, if any nominee becomes unable to serve before the election, the shares represented by proxies may be voted for a substitute designated by the Board, unless a contrary instruction is indicated on the proxy.

A plurality of votes cast is required for the election of directors. However, under the Medtronic Principles of Corporate Governance, any nominee for director in an uncontested election (i.e., an election where the only nominees are those recommended by the Board of Directors) who receives a greater number of votes “withheld” from his or her election than votes “for” such election (a “Majority Withheld Vote”) will, within five business days of the certification of the shareholder vote by the inspector of elections, tender a written offer to resign from the Board of Directors. The Nominating and Corporate Governance Committee will promptly consider the resignation offer and recommend to the Board of Directors whether or not to accept it. The Nominating and Corporate Governance Committee will consider all factors its members deem relevant in considering whether to recommend acceptance or rejection of the resignation offer, including, without limitation:

 

   

the perceived reasons why shareholders withheld votes;

 

   

the length of service and qualifications of the director;

 

   

the director’s contributions to Medtronic;

 

   

Medtronic’s compliance with securities exchange listing standards;

 

   

possible contractual ramifications in the event the director in question is a management director;

 

   

the purpose and provisions of the Medtronic Principles of Corporate Governance; and

 

   

the best interests of Medtronic and its shareholders.

If a director’s resignation is accepted, the Nominating and Corporate Governance Committee will recommend to the Board of Directors whether to fill the vacancy on the Board created by the resignation or reduce the size of the Board. Any director who tenders his or her offer to resign pursuant to this policy cannot participate in the Nominating and Corporate Governance Committee or Board deliberations regarding whether to accept the resignation offer. The Board will act on the Nominating and Corporate Governance Committee’s recommendation within 90 days following the certification of the shareholder vote, which may include, without limitation:

 

   

acceptance of the resignation offer;

 

   

adoption of measures intended to address the perceived issues underlying the Majority Withheld Vote; or

 

6


   

rejection of the resignation offer.

Thereafter, the Board of Directors will disclose its decision to accept the resignation offer or the reasons for rejecting the offer, if applicable, on a Current Report on Form 8-K to be filed with the SEC within four business days of the date of the Board’s final determination.

NOMINEES FOR DIRECTORS FOR ONE-YEAR TERMS ENDING IN 2013:

 

LOGO

  

RICHARD H. ANDERSON

Chief Executive Officer

Delta Air Lines, Inc.

  

Director since 2002

age 57

  

Mr. Anderson has been Chief Executive Officer of Delta Air Lines, Inc. since 2007. He was Executive Vice President of UnitedHealth Group Incorporated and President, Commercial Services Group, of UnitedHealth Group Incorporated from 2006 to 2007, Executive Vice President of UnitedHealth Group and Chief Executive Officer of its Ingenix subsidiary from 2004 until 2006. Mr. Anderson was Chief Executive Officer of Northwest Airlines Corporation from 2001 to 2004. Northwest Airlines Corporation and Delta Air Lines, Inc. filed for bankruptcy in 2005, which is within two years of Mr. Anderson serving as an executive officer of each company. Mr. Anderson serves on the board of directors of Delta Air Lines, Inc.

 

Qualifications: Mr. Anderson’s qualifications to serve on our Board include his more than 22 years of business, operational, financial and executive management experience. He also serves on the board of directors of another public company. 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.

LOGO

  

VICTOR J. DZAU, M.D.

Chancellor of Health Affairs

Duke University

  

Director since 2008

age 66

  

Dr. Dzau has served as Chancellor for Health Affairs at Duke University and President and Chief Executive Officer of the Duke University Health System since 2004. From 1996 until 2004, he was the Hersey Professor of Theory and Practice of Medicine at the Harvard Medical School and Chair of the Department of Medicine, Physician in Chief and Director of Research at Brigham and Women’s Hospital. He is the previous Chairman of the National Institutes of Health (NIH) Cardiovascular Disease Advisory Committee and served on the Advisory Committee to the Director of the NIH. Dr. Dzau is a member of the Institute of Medicine. He currently serves as a director of Alnylam Pharmaceuticals, Inc., Duke University Health System and PepsiCo, Inc. Within the past five years, Dr. Dzau also served as a director of Genzyme Corporation.

 

Qualifications: Dr. Dzau’s qualifications to serve on our Board include extensive experience in the health care field, including senior positions with a number of research universities and organizations. He also serves on the boards of directors of a number of public companies. Dr. Dzau has a deep understanding of medical sciences and innovation, as well as physicians and other health care providers who are central to the use and development of our products.

 

7


LOGO

  

OMAR ISHRAK

Chairman and Chief Executive Officer

Medtronic, Inc.

  

Director since 2011

age 56

  

Mr. Ishrak has been Chairman and Chief Executive Officer of Medtronic since June 2011. Prior to joining Medtronic, Mr. Ishrak served as President and Chief Executive Officer of GE Healthcare Systems, a division of GE Healthcare, from 2009 to 2011. Before that, Mr. Ishrak was President and Chief Executive Officer of GE Healthcare Clinical Systems from 2005 to 2008, Vice President and General Manager of GE Healthcare Ultrasound and BMD from 2000 to 2004 and General Manager of GE Global Ultrasound from 1995 to 2000.

Qualifications: Mr. Ishrak’s qualifications to serve on our Board include his more than 17 years in the health care industry and more than 30 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.

LOGO

  

SHIRLEY ANN JACKSON, Ph.D.

President

Rensselaer Polytechnic Institute

  

Director since 2002

age 65

  

Dr. Jackson has been President of Rensselaer Polytechnic Institute 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. Dr. Jackson currently serves as a member of the President’s Council of Advisors on Science and Technology, appointed by President Obama in 2009. She is 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, and the American Physical Society. She is a trustee of the Brookings Institution, a Life Trustee of M.I.T. and a member of the Council on Foreign Relations. She is also a director of FedEx Corporation, Marathon Oil Corporation, Public Service Enterprise Group and International Business Machines Corporation. Within the past five years, Dr. Jackson also served as a director of NYSE Euronext.

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 a number of public companies and has accumulated over 31 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.

 

8


LOGO

  

MICHAEL O. LEAVITT

Founder and Chairman

Leavitt Partners

  

Director since 2011

age 61

  

Governor Leavitt has been founder and Chairman of Leavitt Partners 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.

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. Mr. Leavitt brings to the Board decades of leadership experience with valuable knowledge of the governmental regulatory environment and corporate governance, and this experience makes him a valuable member of our Board.

LOGO

  

JAMES T. LENEHAN

Financial Consultant and Retired Vice

Chairman and President of

Johnson & Johnson

  

Director since 2007

age 63

  

Mr. Lenehan served as President of Johnson & Johnson from 2002 until 2004 when he retired after 28 years of service to Johnson & Johnson, including 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 was previously Worldwide Chairman, Consumer Pharmaceuticals & Professional Group. Mr. Lenehan has been a financial consultant since 2004. Within the past five years, Mr. Lenehan served as a director of Talecris Biotherapeutics Holding Corp.

Qualifications: Mr. Lenehan’s qualifications to serve on our Board include 29 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 leadership and financial experience makes his input valuable to Medtronic. Additionally, Mr. Lenehan qualifies as an “audit committee financial expert’ as defined by SEC rules.

 

9


LOGO

  

DENISE M. O’LEARY

Private Venture Capital Investor

  

Director since 2000

age 55

  

Ms. O’Leary has been a private venture capital investor in a variety of early stage companies since 1996. Ms. O’Leary is also a director of US Airways Group, Inc. and Calpine Corporation. She was a member of the Stanford University Board of Trustees from 1996 through 2006, where she chaired the Committee of the Medical Center. Within the past five years, Ms. O’Leary also served as a director of Chiron Corporation, which was acquired by Novartis in 2006.

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. Additionally, Ms. O’Leary qualifies as an “audit committee financial expert” as defined by SEC rules.

LOGO

  

KENDALL J. POWELL

Chairman and Chief Executive Officer

General Mills, Inc.

  

Director since 2007

age 58

  

Mr. Powell has been Chairman of General Mills, Inc. since 2008 and Chief Executive Officer of General Mills, Inc. since 2007. 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; 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.

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.

 

10


LOGO

  

ROBERT C. POZEN

Former Chairman

MFS Investment Management

    

 

Director since 2004

age 65

  

  

  

Mr. Pozen was Chairman of MFS Investment Management and a director of MFS Mutual Funds from 2004 until 2011. He previously was Secretary of Economic Affairs for the Commonwealth of Massachusetts in 2003, and John Olin Visiting Professor, 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 since 2008 he has been a senior lecturer at Harvard Business School. Mr. Pozen currently serves on the board of Nielsen Holdings N.V. Within the past five years, Mr. Pozen also served as a director of MFS Investment Management, MFS Mutual Funds, and BCE Inc., the parent company of Bell Canada.

 

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.

            

        

LOGO

  

JACK W. SCHULER

Co-Founder of

Crabtree Partners

    

 

Director since 1990

age 71

  

  

  

Mr. Schuler has been a director of Stericycle, Inc. since 1990; President and Chief Operating Officer of Abbott Laboratories from 1987 to 1989; and a director of Abbott Laboratories from 1985 to 1989. Mr. Schuler is a director of Quidel Corporation and a co-founder of Crabtree Partners. Within the past five years, Mr. Schuler also served as a director of Ventana Medical Systems, Inc., ICOS Corporation and Elan Corporation, plc.

 

Qualifications: Mr. Schuler’s qualifications to serve on our Board include his nearly 40 years of management and strategic experience as a successful investor, entrepreneur and executive in the health care industry. He also serves on the boards of directors of other public companies. His extensive knowledge of corporate leadership, governance and the health care industry make Mr. Schuler a valuable director. Additionally, Mr. Schuler qualifies as an “audit committee financial expert” as defined by SEC rules.

       

        

THE BOARD RECOMMENDS A VOTE FOR THE DIRECTOR NOMINEES.

Director Independence

Under the New York Stock Exchange Corporate Governance Standards, to be considered independent, a director must be determined to have no material relationship with Medtronic, other than as a director. The Board of Directors has determined that the following directors, comprising all of our non-management directors, are independent under the New York Stock Exchange Corporate Governance Standards: Messrs. Anderson, Calhoun, Lenehan, Powell, Pozen, Rosso and Schuler, Drs. Dzau and Jackson, Governor Leavitt and Ms. O’Leary. In making this determination, the Board considered its Director Independence Standards, which correspond to the New York Stock Exchange standards on independence. These standards identify certain types of relationships that are

 

11


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:

 

   

having an immediate family member who is, or has recently been, employed by Medtronic other than as an executive officer (Mr. Schuler);

 

   

Mr. Schuler’s son, Tino Schuler, is an employee of Medtronic, but there are no factors that the Company believes could raise additional concern regarding Mr. Schuler’s independence (Tino Schuler is not a Section 16 officer and does not have a key strategic role at Medtronic).

 

   

being a current employee of an entity that has made payments to, or received payments from, Medtronic for property or services (Messrs. Anderson, Calhoun, Powell, Pozen and Rosso and Drs. Dzau and Jackson);

 

   

Mr. Anderson’s relationship with Medtronic, through the relevant entity, is transactional in nature and is not a material transactional relationship.

 

   

Mr. Calhoun’s relationship with Medtronic, through the relevant entity, is transactional in nature and is not a material transactional relationship.

 

   

Mr. Powell’s relationship with Medtronic, through the relevant entity, is transactional in nature and is not a material transactional relationship.

 

   

Mr. Pozen’s relationship with Medtronic, through the relevant entity, is transactional in nature and is not a material transactional relationship.

 

   

Mr. Rosso’s relationship with Medtronic, through the relevant entity, is transactional in nature and is not a material transactional relationship.

 

   

Dr. Dzau’s relationships with Medtronic, through the relevant entities, are transactional in nature and are not material transactional relationships.

 

   

Dr. Jackson’s relationship with Medtronic, through the relevant entity, is transactional in nature and is not a material transactional relationship.

and

 

   

being an employee of a non-profit organization to which Medtronic or The Medtronic Foundation has made contributions (Mr. Pozen and Drs. Dzau and Jackson).

 

   

The Medtronic Foundation’s contributions to the relevant non-profit entities are not material grants.

 

   

The directors are not executive officers of the relevant non-profit organizations.

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 that organization’s last three fiscal years. The Board reviewed the transactions with each of these organizations and determined that they were made in the ordinary course of business, the directors had no role with respect to the Company’s decision to make any of the purchases or sales and the aggregate amounts in each case were less than 1% of the consolidated gross revenues of the other organization and the Company, except for one transaction discussed below.

The Board of Directors also considered relationships consistent with its Director Independence Standards in which the director had a further removed relationship with the relevant third party. This included the director being a director (rather than an employee or executive officer) of a Medtronic vendor or purchaser of Medtronic’s products in which payments were made or received by Medtronic in the ordinary course of business on competitive terms, and aggregate payments to, transactions with or discretionary charitable contributions to the relevant third party did not exceed the greater of

 

12


$1,000,000 or 1% of that organization’s consolidated gross revenues for that organization’s last three fiscal years. This also included a director’s spouse who was a consultant to, but not an employee of, The Medtronic Foundation where payments to the spouse did not exceed $120,000. The Board of Directors further determined that none of the relationships were material.

In addition, the Board of Directors has evaluated relationships which are consistent with its Director Independence Standards but which are not categorically pre-approved thereunder. Dr. Dzau is Chancellor of Health Affairs at Duke University. Medtronic is party to an agreement with Duke University to collaboratively research, develop and commercialize therapies to treat Hepatitis C, which was entered into before Dr. Dzau became a director of Medtronic. In November 2011, a Medtronic subsidiary entered into a sponsorship agreement with International Partnership for Innovative Healthcare Delivery, Inc. (IPIHD), a non-profit organization founded in part by Duke University, managed by Duke University, and for which Dr. Dzau serves as Chairman of the Board. In order to further IPIHD’s mission to increase global access to cost-effective and high-quality health care delivery solutions, Medtronic International, Ltd. expects to make contributions over a three-year period which will fall below $1,000,000 in the aggregate, but which will, on an aggregate basis, exceed 2% of IPIHD’s annual gross revenues. Medtronic’s business relationships with Duke University and IPIHD are maintained on an arm’s-length basis. Neither Dr. Dzau nor Duke University are given special treatment in these relationships, Dr. Dzau does not participate in negotiations or approvals regarding these relationships, and Medtronic makes no payments to Dr. Dzau other than in connection with his service as a director. In addition, pursuant to the New York Stock Exchange Corporate Governance Standards for evaluating director independence, the Board determined that none of the amounts paid in connection with these relationships are at a level that would compromise Dr. Dzau’s independence.

Mr. Pozen is the former Chairman of MFS Investment Management (“MFS”), which manages money for MFS mutual funds and other accounts, any of which may from time to time buy or sell Medtronic stock. The Board determined that this relationship is not material. Mr. Pozen has no involvement with these transactions, and there is an informational barrier between him and the rest of MFS with regard to Medtronic stock.

Related Transactions and Other Matters

In January 2007, the Board of Directors of Medtronic adopted written related party transaction policies and procedures and amended such policies and procedures in March 2011. The policies require that all “interested transactions” (as defined below) between Medtronic 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 take into account, 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 and the extent of the related person’s interest in the transaction. In addition, the Nominating and Corporate Governance Committee has reviewed a list 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 the authority to pre-approve or ratify any interested transaction in which the aggregate amount is expected to be less than $1 million. Finally, the policies provide that no director shall participate in any discussion or approval of an interested transaction for which he or she is a related party, except that the director shall provide all material 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;

 

13


   

Medtronic 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 or a less than ten percent beneficial owner of another entity).

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, even if they do not presently serve in that role) an executive officer, director or nominee for election as a director;

 

   

greater than five percent beneficial owner of Medtronic’s common stock; or

 

   

immediate family member of any of the foregoing.

During fiscal year 2012, Tino Schuler, a son of director Jack W. Schuler, was employed by Medtronic as one of a number of marketing directors focused on Medtronic’s core ear, nose, and throat product lines reporting to a Vice President, Marketing of Medtronic’s core ear, nose, and throat product lines. Mr. Tino Schuler worked for Xomed Surgical Products, Inc. (“Xomed”) beginning in August 1993, and Xomed, the predecessor to our core ear, nose, and throat business, was acquired by Medtronic in 1999. In fiscal year 2012, Medtronic’s Surgical Technologies business, which includes the core ear, nose, and throat product lines, represented approximately 8% of Medtronic world-wide revenue. Mr. Tino Schuler was paid an aggregate salary and bonus of $246,410 and the standard benefits provided to other non-executive Medtronic employees for his services during fiscal year 2012. Mr. Tino Schuler is not an executive officer of, and does not have a key strategic role within, Medtronic.

GOVERNANCE OF MEDTRONIC

Our Corporate Governance Principles

The Board of Directors first adopted Principles of Corporate Governance (the “Governance Principles”) in fiscal 1996 and revises these Governance Principles from time to time, most recently in June 2012. 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, Nominating and Corporate Governance and Quality and Technology Committees, which consist entirely of independent directors.

 

   

The Nominating and Corporate Governance Committee consists of all independent directors and oversees an annual evaluation of the Board.

Our Governance Principles, the charters of our Audit, Compensation, Finance, Nominating and Corporate Governance and Quality and Technology Committees and our codes of conduct are published on our website at www.medtronic.com/corporate-governance/index.htm. 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.

Lead Director and Chairman; Transition Advisor; Executive Sessions

Mr. Ishrak, our Chief Executive Officer, also serves as Chairman of the Board. The Board believes that 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 will be critical in identifying strategic priorities and providing unified leadership in the execution of strategy.

 

14


Our designated “Lead Director” is Mr. Kendall J. Powell and he presides as chair at regularly scheduled meetings of the independent directors. Mr. Powell also suggests agenda items for Board meetings and reviews and approves the agendas for each meeting of the Board of Directors and its Committees. He also presides over the directors’ annual evaluation of the Board and advises 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. As Lead Director, Mr. Powell also receives all committee materials in addition to those committees upon which he serves. In addition, Mr. Powell acts as the focal point on the Board issues such as corporate governance and suggestions from non-management directors, especially on sensitive issues.

In June 2011, the Board of Directors appointed Mr. Pozen to serve as the Board of Directors’ Transition Advisor to Mr. Ishrak until April 27, 2012. Mr. Pozen was appointed because of his significant knowledge and experience on a broad range of issues relevant to the Company, including investor relations and public affairs. Mr. Pozen served as a resource available to Mr. Ishrak during Mr. Ishrak’s initial period as Chairman and Chief Executive. As compensation for his services, Mr. Pozen was paid a special stipend of $30,000 paid in the same manner as the compensation to the Board Committee chairs.

Six regular meetings of our Board are held each year, and at each Board meeting our independent directors meet in executive session with no Company management present.

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 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 identified through the ERM program. 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:

 

   

The 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.

 

   

The Finance 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.

 

   

The Compensation Committee assists the Board of Directors in its oversight of risk relating to the Company’s assessment of its compensation policies and practices.

 

   

The Quality and Technology Committee assists the Board of Directors in its oversight of risk relating to product quality and safety and the areas of human and animal studies.

Committees of the Board and Meetings

Our five standing Board committees — Audit, Compensation, Finance, Nominating and Corporate Governance and Quality and Technology — consist solely of independent directors, as defined in the New York Stock Exchange Corporate Governance Standards. Each director attended 75% or more of

 

15


the total Board and Board committee meetings on which the director served in fiscal year 2012. The Audit Committee was established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The following table summarizes the current membership of the Board and each of its standing committees and the number of times each standing committee met during fiscal year 2012.

 

     Board   Audit   Compensation   Finance   Nominating and
Corporate
Governance
  Quality and
Technology

Mr. Anderson

  X     Chair     X    

Mr. Calhoun

  X   X       X        

Dr. Dzau

  X           X   X

Mr. Ishrak

  Chair                    

Dr. Jackson

  X     X   X     Chair

Gov. Leavitt

  X               X   X

Mr. Lenehan

  X         X     X

Ms. O’Leary

  X   Chair   X            

Mr. Powell

  X     X     Chair    

Mr. Pozen

  X   X       Chair        

Mr. Rosso

  X           X   X

Mr. Schuler

  X   X   X        

Number of fiscal year
2012 meetings        

  8   12   7   4   8   5

 

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

Audit Committee

 

   

Oversees the integrity of Medtronic’s financial reporting

 

   

Oversees the independence, qualifications and performance of Medtronic’s external independent registered public accounting firm and the performance of Medtronic’s internal auditors

 

   

Oversees Medtronic’s compliance with applicable legal and regulatory requirements, including overseeing Medtronic’s engagements with, and payments to physicians and other health care providers

 

   

Reviews annual audited financial statements with management and Medtronic’s independent registered public accounting firm and recommends to the Board whether the financial statements should be included in Medtronic’s Annual Report on Form 10-K

 

   

Reviews the results of independent third party reviews of payments made to health care providers and oversees payments made to health care providers

 

   

Reviews and discusses with management and Medtronic’s independent registered public accounting firm quarterly financial statements and earnings releases

 

   

Reviews major issues and changes to Medtronic’s accounting and auditing principles and practices

 

16


   

Discusses policies with respect to risk assessment and risk management as well as the major financial and business risk exposures and the steps management has undertaken to monitor and control such exposures

 

   

Undertakes the appointment, compensation, retention and oversight of the independent registered public accounting firm, which reports directly to the Audit Committee

 

   

Pre-approves all audit and permitted non-audit services to be provided by the independent registered public accounting firm

 

   

Reviews, 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

 

   

Reviews the experience and qualifications of the lead partner of the independent registered public accounting firm each year and considers whether there should be rotation of the lead partner or the independent auditor itself

 

   

Prepares the Report of the Audit Committee

 

   

Meets with the independent registered public accounting firm prior to the audit to review the scope and planning of the audit

 

   

Reviews the results of the annual audit examination

 

   

Considers, at least annually, the independence of the independent registered public accounting firm

 

   

Reviews the adequacy and effectiveness of Medtronic’s internal controls over financial reporting and disclosure controls and procedures

 

   

Establishes procedures concerning the receipt, retention and treatment of complaints regarding accounting, internal accounting controls or auditing matters

 

   

Meets privately in separate executive sessions periodically with management, internal auditors and the independent registered public accounting firm

Audit Committee Independence and Financial Experts

In accordance with New York Stock Exchange Corporate Governance Standards and SEC Rule 10A-3, all members of the Audit Committee meet the additional independence standards applicable to Audit Committee members. In addition, the Board has determined that all of our current Audit Committee members are audit committee financial experts, as that term is defined in SEC rules.

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 the policies do not include any delegation of the Audit Committee’s responsibilities to management. The Audit Committee may also delegate pre-approval authority to one or more of its members. The member to whom such authority is delegated will report any pre-approval decisions to the Audit Committee at its next scheduled meeting.

 

17


Compensation Committee

 

   

Reviews compensation philosophy and major compensation programs

 

   

Annually reviews executive compensation programs; annually reviews and approves 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 entire Board, determines and approves the total compensation of the Chief Executive Officer and annually approves the total compensation of all other executive officers, including base salaries

 

   

Administers and determines incentive compensation plans and equity-based compensation plans and approves stock and other long-term incentive awards

 

   

Monitors compliance by the Chief Executive Officer and senior management with the Company’s stock ownership guidelines

 

   

Reviews new compensation arrangements and reviews and recommends to the Board employment agreements and severance arrangements for senior executive officers

 

   

Reviews and discusses with management the Compensation Discussion and Analysis required by the rules of the SEC and recommends to the Board the inclusion of the Compensation Discussion and Analysis in the Company’s annual proxy statement

 

   

Assists the Board in reviewing results of any shareholder advisory votes and responding to other shareholder communications as such relate to the compensation of senior executive officers

 

   

Assesses the Company’s risk relating to its compensation policies and practices

Please refer to the Compensation Discussion and Analysis beginning on page 26 for additional discussion of the Compensation Committee’s processes and procedures relating to compensation.

Compensation Committee Interlocks and Insider Participation

The members of our Compensation Committee are Richard H. Anderson (Chair), Denise M. O’Leary, Kendall J. Powell and Jack W. Schuler. No member of the Compensation Committee during fiscal year 2012 was ever an officer or employee of Medtronic, and no executive officer of Medtronic during fiscal year 2012 served on the Compensation Committee or board of any company that employed any member of Medtronic’s Compensation Committee or Board.

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., and 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 an identification of mitigating factors with respect to any such 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; between cash and equity compensation; and

 

18


 

with long-term incentive performance targets being established at the beginning of each of our overlapping three year performance periods to reduce 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 than the long-term performance measures

 

   

Executives and directors are subject to stock ownership and retention guidelines which 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. As of July 13, 2012, all directors and NEOs are in compliance with the stock ownership and retention guidelines;

 

   

Medtronic has in place policies designed to recoup improper payments or gains from incentive and equity compensation paid or granted to executives

Finance Committee

 

   

Reviews and approves management’s recommendations to the Board for significant capital expenditures

 

   

Reviews, approves and monitors significant strategic transactions

 

   

Reviews and oversees management’s plans and objectives for the capitalization of the Company

 

   

Reviews and approves management’s recommendations to the Board with respect to new debt and equity offerings, dividends, authorizations for repurchases of the Company’s stock and the Corporate Cash Investment Policy

 

   

Reviews management’s decisions regarding certain financial aspects of the Company’s employee benefit plans

 

   

Reviews and oversees the Company’s tax strategies

 

   

Reviews with management the Company’s strategies for management of significant financial risks and contingent liabilities

 

   

Reviews and recommends to the Board for approval authorization limits for the Committee and the Chief Executive Officer to approve expenditures

Nominating and Corporate Governance Committee

 

   

Identifies, evaluates and recommends to the Board individuals for the Board to nominate for election as directors

 

   

Formulates and administers policies and procedures for identifying, evaluating and recommending director candidates, including nominees recommended by shareholders

 

   

Reviews and makes recommendations to the Board whether members of the Board should stand for re-election

 

   

Considers any resignation offered by a director

 

   

Develops an annual evaluation process for the Board and its committees

 

   

Recommends to the Board directors to serve as members of each committee and recommends any changes to the Board or standing committees that the Committee believes desirable

 

19


   

Monitors emerging corporate governance trends and oversees and evaluates the Company’s corporate governance policies and programs

 

   

Recommends to the Board corporate governance guidelines

 

   

Reviews shareholder proposals and recommends to the Board proposed Company responses to such proposals

 

   

Reviews at least annually the Company’s Standards for Director Independence, recommends any desirable modifications to the standards, and provides to the Board the Committee’s assessment of which directors should be deemed independent directors

 

   

Reviews at least annually the requirements of a “financial expert” under the applicable rules of the SEC and NYSE and determines which directors are “financial experts”

 

   

Oversees and reviews on a periodic basis the continuing education program for directors and the orientation program for new directors

 

   

Determines director compensation and benefits

 

   

Reviews at least annually the leadership succession plan

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 Corporate Secretary in writing at Medtronic’s offices at 710 Medtronic Parkway, Minneapolis, MN 55432. 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 in the Board or to expand the size of the Board, it considers candidates from a variety of sources, including third-party search firms. The process followed to identify and evaluate candidates includes meetings to evaluate 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 Principles of Corporate Governance. 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, the Nominating and Corporate Governance Committee seeks directors who represent a mix of backgrounds and experiences that will enhance the quality of the Board’s deliberations and decisions. The Nominating and Corporate Governance Committee considers, among other factors, diversity with respect to viewpoint, skills, experience and community involvement in its evaluation of candidates for Board membership.

After completing the evaluation process, the Nominating and Corporate Governance Committee makes a recommendation to the full Board as to persons 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 evaluations as it deems appropriate.

Alternatively, shareholders intending to appear at the Annual 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 his or her candidacy) must comply with the procedures in Medtronic’s amended articles of incorporation, which are described under “Other Information — Shareholder Proposals and Director Nominations” on page 75 of this proxy statement.

 

20


Quality and Technology Committee

 

   

Provides assistance to the Board in its oversight of product quality and safety, scientific and technical direction, and human and animal studies

 

   

Oversees risk management in the area of product quality and safety, including review of Medtronic’s overall quality strategy and processes in place to monitor and control product quality and safety; periodic review of results of product quality and quality system assessments by Medtronic and external regulators (including the U. S. Food and Drug Administration (“FDA”) and various notified bodies); and review of important product quality issues and field actions

 

   

Oversees the scientific and technical direction of Medtronic, including monitoring of overall effectiveness of research and development and periodic review of Medtronic’s intellectual property strategy and portfolio

 

   

Oversees risk management in the area of human and animal studies, including the periodic review of policies and procedures related to the conduct of human and animal studies

Annual Meeting of the Shareholders

It has been the longstanding practice of Medtronic for all directors to attend the Annual Meeting of Shareholders. All directors, except Jean-Pierre Rosso, attended the last Annual Meeting.

Director Compensation

The Director Compensation table reflects all compensation awarded to, earned by or paid to the Company’s non-employee directors during fiscal year 2012. 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(1)
     Stock
Awards
     Total  

Richard H. Anderson

   $ 90,000       $ 140,003       $ 230,003   

David L. Calhoun

   $ 85,000       $ 140,003       $ 225,003   

Victor J. Dzau

   $ 80,000       $ 140,003       $ 220,003   

Shirley Ann Jackson

   $ 91,602       $ 140,003       $ 231,605   

Michael O. Leavitt(2)

   $ 31,429       $ 55,008       $ 86,437   

James T. Lenehan

   $ 81,602       $ 140,003       $ 221,605   

Denise M. O’Leary

   $ 99,000       $ 140,003       $ 239,003   

Kendall J. Powell

   $ 110,000       $ 140,003       $ 250,003   

Robert C. Pozen

   $ 121,796       $ 140,003       $ 261,799   

Jean-Pierre Rosso

   $ 80,000       $ 140,003       $ 220,003   

Jack Schuler

   $ 83,398       $ 140,003       $ 223,401   

 

 

(1) 

These numbers reflect pro-rata payments as a result of changes in committee assignments during the fiscal year.

 

(2) 

Governor Leavitt’s compensation was pro-rated as a result of his appointment to the Board effective December 2011.

Fees Earned or Paid in Cash. The fees earned or paid in cash column represents the amount of annual retainer and annual cash stipend for Board and committee service (prorated for partial year’s service). For fiscal year 2012, the Board’s annual cash retainer was $80,000.

In addition, the Chairs of each of the Nominating and Corporate Governance, Compensation, Finance and Quality and Technology Committees received an annual cash stipend of $10,000. The Chair of the Audit Committee received a cash stipend of $19,000, while all non-chair members of the Audit Committee received an annual cash stipend of $5,000. Mr. Pozen also received a one-time

annual cash stipend of $30,000 for acting as the Transition Advisor to Mr. Ishrak. Finally, the Lead Director received an annual cash stipend of $20,000.

 

21


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 plan year. The table on page 16 of this proxy statement under the section entitled “Committees of the Board and Meetings” shows on which committees the individual directors serve.

Stock Awards. Directors are granted deferred stock units on the first business day of the fiscal year in an amount equal to $140,000 (on a pro-rata basis for participants who are directors for less than the entire preceding plan year and reduced by 25% for those directors who failed to attend at least 75% of the applicable meetings during such fiscal year) divided by the fair market value of a share of Medtronic common stock on the date of grant. Dividends paid on Medtronic common stock are credited to a director’s stock unit account in the form of additional stock units. The balance in a director’s stock unit account will be distributed to the director in the form of shares of Medtronic common stock upon resignation or retirement from the Board in a single distribution or, at the director’s option, in five equal annual distributions. The stock awards column represents aggregate grant date fair value of the deferred stock units granted in the respective fiscal year as computed in accordance with Financial Accounting Standards Board (“FASB”) ASC Topic 718, Compensation — Stock Compensation.

Stock Holdings.    Non-employee directors held the following shares of restricted stock, stock options, and deferred stock units as of April 27, 2012:

 

Non-Employee Director

   Restricted
Stock
     Stock
Options
     Deferred
Stock Units
 

Richard H. Anderson

        27,560         16,129   

David L. Calhoun

        10,061         9,597   

Victor J. Dzau

        9,636         8,559   

Shirley Ann Jackson

        21,432         16,882   

Michael O. Leavitt

        0         0   

James T. Lenehan

        10,471         10,438   

Denise M. O’Leary

        33,382         18,062   

Kendall J. Powell

        10,061         9,637   

Robert C. Pozen(1)

        4,484         13,766   

Jean-Pierre Rosso

        34,885         19,367   

Jack W. Schuler

     14,702         36,666         20,798   

 

 

(1) 

Does not include 13,080 stock options transferred to adult children.

To align directors’ interests more closely with those of shareholders, the Nominating and Corporate Governance Committee approved the Medtronic, Inc. 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 fees. In addition, each director must retain, for a period of one year, 75% of the net after-tax profit shares realized from option exercises or share issuances resulting from grants made after such director has achieved an investment position in the Company’s common stock in excess of the ownership 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, net gain shares are those remaining after payment of income taxes. Shares retained may be sold on the later of one year after receipt of the shares or until the ownership guidelines are met. In the case of retirement or termination, the shares may be sold after the shorter of the remaining retention period or one year following retirement or termination, as applicable. As of April 27, 2012, all directors were in compliance with the stock ownership and retention policy; however, due to their more recent appointments, Mr. Leavitt and Dr. Dzau are continuing to make progress towards the required ownership guidelines.

 

22


Deferrals. Directors may defer all or a portion of their cash compensation through participation in the Medtronic Capital Accumulation Plan Deferral Program, a nonqualified deferred compensation plan designed to allow participants to make contributions of their compensation before taxes are withheld, and to earn returns or incur losses on those contributions based upon allocations of their balances to one or more investment alternatives, which are also investment alternatives that Medtronic offers its employees through its 401(k) Plan.

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 independent directors may also be contacted via e-mail at independentdirectors@medtronic.com. Our Lead Director may be contacted via e-mail at leaddirector@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 long-standing Code of Conduct to help ensure that our business is conducted in accordance with the highest standards of moral and 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. Our Code of Ethics for Senior Financial Officers, which is a part of the Code of Conduct, includes certain 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 Corporate Governance caption in the Investors 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.

 

23


SHARE OWNERSHIP INFORMATION

Significant Shareholders.    The following table shows information as of June 25, 2012, concerning each person who is known by us to beneficially own more than 5% of our common stock.

 

Name of Beneficial Owner

   Amount and Nature of
Beneficial  Ownership of
Common Stock
     Of Shares Beneficially
Owned, Amount that
May Be Acquired
Within 60 Days
     Percent
of Class
 

BlackRock, Inc., 40 East 52nd Street, New York, NY 10022(1)

     62,916,301         N/A         6.14

 

 

(1) 

The information for security ownership of this beneficial owner is based on a Schedule 13G/A filed by BlackRock, Inc. on February 13, 2012. Based upon 1,025,039,711 shares outstanding as of June 25, 2012, the shareholder beneficially owns approximately 6.14% of our shares outstanding.

Beneficial Ownership of Management.    The following table shows information as of June 25, 2012 concerning beneficial ownership of Medtronic’s common stock 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
Common Stock(7)
     Of Shares Beneficially
Owned, Amount  that May Be
Acquired Within 60 Days
 

Richard H. Anderson(1)

     58,059         47,354   

David L. Calhoun

     22,713         12,713   

Michael J. Coyle(2)

     72,083         68,094   

Victor J. Dzau, M.D.

     21,860         21,860   

Gary L. Ellis

     583,344         510,296   

D. Cameron Findlay

     71,514         71,324   

William A. Hawkins

     2,056,847         1,546,776   

Omar Ishrak

     119,925         80,753   

Shirley Ann Jackson, Ph.D.

     42,179         41,979   

Michael O. Leavitt

     1,440         1,440   

James T. Lenehan

     37,574         24,574   

Christopher J. O’Connell

     327,284         281,225   

Denise M. O’Leary

     55,109         55,109   

Kendall J. Powell(3)

     26,363         23,363   

Robert C. Pozen(4)

     46,615         21,915   

Jean-Pierre Rosso

     65,539         57,917   

Jack W. Schuler(5)

     711,950         61,129   

Directors and executive officers as a group (20 persons)(7)

     4,801,179         3,290,382   

 

 

(1) 

Mr. Anderson disclaims beneficial ownership of 25 shares that are owned by his adult son.

 

(2) 

Includes 250 shares held by family trust and 3,739 shares held by Mr. Coyle’s spouse.

 

(3) 

Includes 3,000 shares held by Mr. Powell’s spouse’s trust.

 

(4) 

Includes 24,700 shares owned jointly with Mr. Pozen’s spouse.

 

(5) 

Mr. Schuler disclaims beneficial ownership of 30,000 shares held by the Schuler Family Foundation.

 

(6) 

As of June 25, 2012, 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 0.5% of the shares outstanding.

 

24


(7) 

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 within 60 days (on or before August 24, 2012) and the right to receive shares for deferred stock units within 60 days (on or before August 24, 2012) 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 2012 all filings with the SEC by its executive officers and directors complied with requirements for reporting ownership and changes in ownership of Medtronic’s common stock pursuant to Section 16(a) of the Exchange Act, except that due to Medtronic’s administrative oversight, each of Messrs. Butel, Coyle, Dallas, Ellis, Findlay, O’Connell, Ms. Stockdale and Dr. Kuntz, each failed to file timely a Form 4 reflecting annual equity award grants. In addition, due to an error in the calculation of dividend equivalents by Medtronic’s external stock administrator, Messrs. Butel, Dallas, Ellis and O’Connell and Dr. Kuntz each underreported shares withheld for taxes. The amended reports were filed promptly when the errors were discovered.

 

25


COMPENSATION DISCUSSION AND ANALYSIS (CD&A)

Overview

The Compensation Discussion and Analysis (“CD&A”) provides information about Medtronic’s executive compensation philosophy and the material components of the compensation programs for Medtronic’s Named Executive Officers (“NEOs”) during fiscal year 2012. The focus of the CD&A is to provide background and information that is relevant regarding Committee decisions about compensation for the following NEOs:

 

Omar Ishrak

   Chairman and Chief Executive Officer

Gary Ellis

   Senior Vice President and Chief Financial Officer

D. Cameron Findlay

   Senior Vice President, General Counsel and Corporate Secretary

Michael J. Coyle

   Executive Vice President and Group President, Cardiac and Vascular Group

Christopher J. O’Connell

   Executive Vice President and Group President, Restorative Therapies Group

William A. Hawkins

   Former Chairman and Chief Executive Officer

Additional information can also be found in the Summary Compensation Table and other tables located in the Executive Compensation section of this proxy statement.

Executive Summary

Compensation Principles and Practices

Medtronic has carefully designed its executive compensation programs to align its executives’ interests with the interests of its shareholders and other important stakeholders. Specifically, Medtronic has put in place compensation programs that emphasize pay for performance through short-term and long-term incentives that use different performance measures, and which are designed to avoid problematic pay practices. The following highlights important compensation principles and practices at Medtronic:

 

   

The Medtronic Mission drives compensation program design including the highest standards of integrity and rigor;

 

   

The Compensation Committee’s independent outside compensation consulting firm, Frederic W. Cook & Co., Inc., advised us that going forward we do not have any problematic pay practices;

 

   

Compensation and benefit programs are designed to attract, motivate and retain a diverse spectrum of top talent;

 

   

NEO compensation is targeted within the median range of our executive compensation peer companies (detailed on page 42), with actual compensation delivered based on Company performance;

 

   

Compensation programs align the interests of its executives with the interests of shareholders by linking a meaningful portion of compensation to the value of Medtronic common stock and requiring executives to maintain ownership of Medtronic stock;

 

   

Incentive programs are designed to drive annual operating performance as well as sustained profitable growth over the longer term. The Medtronic Annual Incentive Plan (“MIP”) aligns with the Company’s annual performance objectives that are approved by the Board of Directors. The Long-Term Incentive Plan (“LTIP”) aligns with the Company’s long-term strategic objectives as approved by the Board of Directors. In fiscal year 2010, the Compensation Committee eliminated duplication of performance measures that previously existed between the two plans;

 

26


   

MIP is aligned with the Company’s annual objectives by using three key measures of annual financial performance: revenue growth, diluted earnings per share growth, and cash flow.

 

   

Medtronic’s LTIP is 100% performance-based and aligned with longer-term strategic objectives by utilizing a target compensation opportunity consisting of one-third stock options, one-third performance-based restricted stock units, and one-third long-term performance plan (a three-year cash incentive program). The stock options are performance-based as there is no value delivered to executives unless value is created for shareholders. The performance-based restricted stock units include a performance threshold of diluted earnings per share growth, and the long-term performance plan incorporates the performance of three-year return on capital goal established by the Compensation Committee, and revenue growth relative to a peer group of companies (detailed on page 42).

 

   

Consistent with the views of many institutional shareholders, Medtronic’s change of control programs, which also include equity awards granted under the Medtronic, Inc. 2008 Stock Award and Incentive Plan that are replaced in connection with a change of control, are not triggered merely on the occurrence of a change of control (a so-called “single trigger”). Instead, the change of control, compensation and benefits only apply in the event of a change of control where a participant is involuntarily terminated, without cause, or where a participant terminates employment for good reason, within a limited period following the change of control (a “double trigger”);

 

   

Medtronic’s change of control policy does not provide for any “golden parachute” excise tax gross-up;

 

   

Medtronic does not provide NEOs with perquisites or executive benefits such as company cars, club memberships, and the like. Instead, Medtronic provides a moderate business expense allowance (ranging from $24,000 to $40,000 annually), to be used in the executive’s discretion, and with no income-tax gross-ups provided on this business expense allowance;

 

   

NEOs are provided with the same health and retirement benefits that are provided to all Medtronic employees, with the exception that Medtronic executives are required to complete a physical exam as recommended in American Medical Association guidelines and, in the event that requirement exceeds regular plan coverage, the executives can receive reimbursement for up to $2,000 of the cost that exceeds the regular plan coverage;

 

   

Compensation programs are designed to discourage inappropriate risk taking by aligning the majority of compensation with long-term incentives and by using stock ownership and retention guidelines. Compensation policies include significant penalties for misconduct including a broad clawback policy that allows the Company to recapture equity compensation and other incentive awards paid to an executive who engages in misconduct. Misconduct includes, among other things, a violation of the Medtronic Code of Conduct, other fraudulent or illegal activity, violation of post-termination non-competition covenants, unauthorized disclosure of confidential information, and violation of business ethics or other business policies of Medtronic; and

 

   

NEOs (along with others) are prohibited from engaging in short sales of Medtronic securities (including share 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 officers can clearly demonstrate the financial capacity to repay the loan without resorting to the pledged securities).

Consideration of “Say-on-Pay” and “Say-on-Frequency” Voting Results

The Compensation Committee reviewed shareholder and other stakeholder feedback along with the results of the 2011 shareholder “say-on-pay vote” in making compensation decisions during fiscal

 

27


year 2012. For fiscal year 2011, no consistent problematic pay practices were identified by any stakeholder group. An institutional investment advisory firm identified one concern specifically with the separation agreement for the former Chairman and Chief Executive Officer, William Hawkins. Because the agreement was a critical component of the CEO transition plan, (see page 32 for details), Medtronic addressed this concern by increasing the scope of its outreach process with shareholders to obtain feedback and answer questions. Based on the feedback and the say-on-pay approval by shareholders, the Compensation Committee believes that shareholders generally support our compensation policies and practices. Therefore, the Compensation Committee continued to apply the same principles in determining fiscal year 2012 compensation actions.

The Compensation Committee and the Board also considered the results of the shareholder “say-on-frequency” vote at our 2011 annual meeting of shareholders in adopting a frequency policy for future say-on-pay votes. Because voters holding a substantial majority of shares expressed a preference for having a say-on-pay vote every year, the Board adopted an annual frequency policy. Therefore, our next say-on-pay vote will be held at our 2012 annual meeting of shareholders. We welcome the input of our shareholders on our compensation policies and compensation program at any time.

Business Environment

The Company continued to face a challenging business environment during fiscal year 2012; with top-line growth of 3% (constant currency) and diluted earnings per share growth of 3% (non-GAAP), both at the low-end of the potential performance payout. In light of these business results, the Company’s annual incentive plan paid NEOs (excluding Mr. Ishrak, see footnote 1 in the “Annual Performance-Based Incentives” section) at 52.22% of target and the long-term performance plan paid at 60.18% of target, as summarized below:

 

LOGO

 

28


The chart above shows that fiscal year 2012 incentive plan payouts are strongly aligned with Medtronic’s pay-for-performance philosophy. In addition, the chart below shows that Medtronic’s fiscal year 2012 base salaries and annual bonuses are strongly aligned with Medtronic’s performance relative to its comparator group of companies.

 

One-Year Average Size and Performance Composite Rank

 

 

 

Total Annual Compensation (TAC) Rank*

 

Size

  Profitability   Growth  

Shareholder
Return

 

 

 

CEO

   

CFO

   

Other NEO**

 

Pfizer (PFE)

  GILD   COV   GILD     AMGN   $ 6,673      PFE   $ 2,640      AMGN   $ 3,163   

Johnson & Johnson (JNJ)

  LLY   MRK   AMGN     ABT   $ 6,100      BMY   $ 2,217      PFE   $ 2,222   

Merck (MRK)

  BMY   AGN   BMY     BMY   $ 5,731      ABT   $ 2,217      BMY   $ 2,217   

Abbott Laboratories (ABT)

  BAX   BMY   ABT     PFE   $ 5,200      MRK   $ 2,165      MRK   $ 2,159   

3M (MMM)

  MMM   CFN   AGN     JNJ   $ 4,972      LLY   $ 2,091      JNJ   $ 2,097   

Bristol-Myers Squibb (BMY)

  MDT   SYK   LLY     MRK   $ 4,597      AMGN   $ 2,045      LLY   $ 1,924   

Eli Lilly (LLY)

  JNJ   ABT   MRK     BAX   $ 4,309      JNJ   $ 1,744      ABT   $ 1,816   

Medtronic (MDT)

  SYK   PFE   PFE     GILD   $ 4,212      COV   $ 1,641      GILD   $ 1,708   

Amgen [AMGN)

  AGN   ZMH   JNJ     LLY   $ 4,125      STJ   $ 1,286      BSX   $ 1,514   

Baxter International (BAX)

  BDX   GILD   COV     MMM   $ 4,110      BAX   $ 1,179      BAX   $ 1,413   

Covidien (COV)

  COV   BAX   BAX     MDT (Incl Sign-On)   $ 3,708      BCR   $ 1,174      BCR   $ 1,257   

Gilead Sciences (GILD)

  AMGN   MMM   ZMH     AGN   $ 3,167      GILD   $ 1,170      BDX   $ 1,197   

Stryker (SYK)

  ABT   BDX   MMM     CFN   $ 2,529      BDX   $ 1,125      COV   $ 1,124   

Boston Scientific (BSX)

  ZMH   MDT   MDT     BCR   $ 2,522      AGN   $ 1,074      STJ   $ 998   

Becton Dickinson (BDX)

  PFE   STJ   SYK     SYK   $ 2,417      MMM   $ 1,061      AGN   $ 997   

Allergan (AGN)

  MRK   BCR   BCR     BDX   $ 2,403      BSX   $ 1,016      CFN   $ 991   

St. Jude Medical (STJ)

  STJ   AMGN   BDX     MDT(Excl Sign-On)   $ 2,155      MDT (52.22%)   $ 1,013      ZMH   $ 927   

Zimmer Holdings (ZMH)

  BCR   JNJ   CFN     STJ   $ 2,055      ZMH   $ 898      MDT (52.22%)   $ 873   

CareFusion (CFN)

  CFN   BSX   BSX     COV   $ 1,972      SYK   $ 828      MMM   $ 858   

C.R. Bard (BCR)

  BSX   LLY   STJ     ZMH   $ 1,917      CFN   $ 820      SYK   $ 653   
          BSX   $ 1,191           

MDT Rank = 64%

  MDT Rank
= 61%
  MDT Rank
= 43%
 

MDT Rank = 28%

   

MDT Rank (Incl Sign - on) = 48%

   

 

MDT Rank (52.22%)

    = 17%

 

  

 

MDT Rank (52.22%)

    = 7%

  

  

         

MDT Rank (Excl Sign - on)

    = 18%

  

  

   
Medtronic Composite Rank = 49%     Medtronic Composite Rank (CEO Including Sign-On, MIP 52.22%) = 24%   
    Medtronic Composite Rank (CEO Excluding Sign-On, MIP 52.22%) = 14%   

 

* Total annual compensation (TAG) consists of base salary plus annual bonus earned for fiscal year 2011 (MDT fiscal year 2012); amounts exclude long-term incentives
** Reflects the average of the named executive officers (NEOs) based on TAG, excluding the CEO and CFO

The chart above shows that total annual compensation for the CFO and other NEOs is in the bottom quartile of the compensation peer companies, while performance ranged from the second to the third quartile.

Summary of Fiscal Year 2012 Compensation Actions

The following summarizes the NEO compensation actions taken by the Compensation Committee in fiscal year 2012:

 

   

Effective for fiscal year 2012, the Compensation Committee approved base salary increases of 2% for Messrs. Coyle, Ellis, and O’Connell. Mr. Findlay received a base salary increase of 3%. These increases were designed to ensure that base salary is positioned within the median salary range of Medtronic’s peer group of companies (see page 42), taking into consideration performance factors for each NEO;

 

29


   

Effective for fiscal year 2012, the Compensation Committee approved an increase in the Medtronic Annual Incentive Plan (MIP) target for Messrs. Coyle, Ellis, and O’Connell. The MIP target for Messrs. Coyle and O’Connell increased from 80% to 85% of annual base salary. Mr. Ellis’s MIP target increased from 85% to 90% of annual base salary. These increases were made to ensure that the MIP target aligned the target compensation opportunity with the median range of Medtronic’s peer group of companies;

 

   

Effective for fiscal year 2012, the Compensation Committee also approved an increase in the Long-Term Incentive Plan (LTIP) targets for Messrs. Coyle, Ellis, and O’Connell. The LTIP target for Messrs. Coyle and O’Connell increased from an estimated fair market value of $2.0 million to $2.2 million. Mr. Ellis’s LTIP target increased from an estimated fair market value of $2.0 million to $2.4 million. As with the increases to the MIP target, these increases were made to ensure that the LTIP targets align the target compensation opportunity with the median range of Medtronic’s peer group of companies;

 

   

In fiscal year 2012, the CEO, Compensation Committee, and its independent consultant, completed an extensive review of Medtronic’s Annual (MIP) and Long-Term Incentive Plans (LTIP). As part of the review, the Committee determined that in future annual incentive plans, the guaranteed plan payout floor of 50% of target would be eliminated. Effective starting fiscal year 2013, the Committee approved: a re-weighting of the MIP measures to equal among revenue growth, diluted earnings per share growth, and cash flow; a re-weighting of the Long-Term Performance Plan (LTPP) measures (the cash portion of the LTIP) to equal weight between relative revenue growth and return on invested capital; and a change to payout range for both the MIP and LTPP, using a range from 50% to 200% of the target payout, which aligns with competitive market practice; and

 

   

In fiscal year 2012, Medtronic implemented executive stock ownership and retention guidelines that require the CEO to maintain ownership of Medtronic stock equal to six (6) times annual salary and other NEOs to maintain Medtronic stock equal to three (3) times annual salary. Until the ownership guideline is met, the CEO must retain 75% of after-tax Medtronic shares received through settlement of equity compensation awards and other NEOs must retain 50% of such shares. Once the guideline is met, after tax shares must be retained for one year following settlement of equity compensation awards. As of July 13, 2012, all Medtronic executives are in compliance with the stock ownership and retention guidelines.

CEO Compensation Developments

Omar Ishrak: The Board elected Omar Ishrak, an experienced executive in the medical device industry who served as CEO of GE Healthcare, an $18 billion global business, to serve as Chairman of the Board of Directors and Chief Executive Officer (“CEO”) of the Company, effective as of June 13, 2011. In connection with Mr. Ishrak’s hiring, the Company entered into a letter agreement (the “Agreement”) with Mr. Ishrak whereby Mr. Ishrak’s employment is on an at-will basis and may be terminated by either party. As described in further detail on page 31 of this proxy statement, Mr. Ishrak is entitled to compensation and benefits consistent with the Company’s compensation philosophy and policies for its CEO. In addition, Mr. Ishrak was awarded certain sign-on and make-whole cash and equity compensation intended to replace a portion of the value of unvested compensation and other benefits at his prior employer that Mr. Ishrak was required to forfeit in order to come to Medtronic. When establishing the value of Mr. Ishrak’s ongoing total compensation opportunity, the Board relied on median market data about pay and pay practices for the Company’s compensation peer group provided by the independent compensation consultant, including the use of the sign-on and make-whole cash and equity awards.

 

30


The following table is intended to show Mr. Ishrak’s total compensation as reported in the Summary Compensation Table for the last completed fiscal year, both excluding and including the effect of the sign-on and make-whole cash and equity awards:

Fiscal Year 2012 Total Compensation as Reported in Summary Compensation Table

 

Salary

   $ 1,168,269   

Non-Equity Incentive Plan Compensation - Short-Term

   $ 966 958   

Non-Equity Incentive Plan Compensation - Long-Term

   $   

Stock Awards - Performance-Based

   $ 2,816,700   

Option Awards

   $ 2,150,585   

Change in Pension Value

   $   

Nonqualified Deferred Compensation Earnings

   $   

All Other Compensation

   $ 97,221   

Total Compensation Excluding Sign-On and Make- Whole Awards

   $ 7,219,732   

—    Percentage of equity awards that are performance-based assuming option awards are performance-based

     100

—    Percentage of total compensation that is performance-based assuming option awards are performance-based

     82

Fiscal Year 2012 Sign-On and Make Whole Awards as

Reported in Summary Compensation Table

 

Bonus

   $ 1,553,042   

Stock Awards - Time-Based

   $ 9,480,841   

Stock Awards - Performance-Based

   $ 6,772,024   

Total Compensation Including Sign-On and Make- Whole Awards

   $ 25,025,639   

—    Percentage of sign-on and make whole equity awards that are performance-based

     42

The chart above shows that 100% of Mr. Ishrak’s ongoing stock awards and 82% of his total compensation are performance-based consistent with other NEOs, and approximately 42% of his sign-on and make-whole stock awards are performance-based, with vesting subject to achievement of $1.00 minimum diluted EPS threshold in each performance year. The chart below is intended to show the relationship of the Company’s total shareholder return over the past 5 fiscal years relative to the

 

31


past and present CEO total compensation opportunities for each respective fiscal year, both excluding and including Mr. Ishrak’s sign-on and make-whole cash and equity awards in fiscal year 2012:

 

LOGO

The chart above shows that the Company’s past and present CEO ongoing total compensation opportunities (excluding for Mr. Ishrak the effect of the sign-on and make-whole cash and equity awards in fiscal year 2012) for the last completed 5 fiscal years were reasonable relative to the Company’s total shareholder return over that same time period and the total compensation opportunities at the peer companies.

William Hawkins: As described in the 2011 Proxy Statement, the Company’s former Chairman and Chief Executive Officer, William Hawkins, announced in December 2010 that he intended to step down from those roles and to retire from Medtronic. While the Board of Directors completed an exhaustive search for the best candidate to succeed Mr. Hawkins, the Board asked Mr. Hawkins to continue to engage in his responsibilities as CEO until the global search was complete and the new CEO was ready to join Medtronic. Because the Board did not know in December 2010 how long the search for a highly qualified CEO would last, it was necessary to enter into a separation agreement with Mr. Hawkins to ensure that Mr. Hawkins would continue to serve as CEO until the new CEO was appointed, and to remain with the Company in a non-executive role to assist with the transition thereafter, at the discretion of the Board. Accordingly, the Company entered into a separation agreement with Mr. Hawkins pursuant to which he remained employed by the Company through April 27, 2012. The separation agreement contained terms the independent compensation consultant advised were appropriate in this situation and was a critical component to help ensure a smooth CEO transition for Medtronic.

 

32


During the transition period, Mr. Hawkins, among other things, assisted with the transition of responsibilities, key initiatives, and key relationships at the Company. As a result, during this period, Mr. Hawkins continued to receive base salary, annual bonus, and employee benefits, but did not receive any new long-term incentive compensation grants. In addition, subject to Mr. Hawkins’ execution and non-revocation of a mutual release of claims, the Company paid to Mr. Hawkins a lump sum cash severance payment (see “All Other Compensation” below) equal to (1) 1.25 times the sum of his annual base salary and annual cash bonus (calculated based on his target bonus for the Company’s 2011 fiscal year), plus (2) the value of 24 months of continued health and dental benefits. The table below is intended to show the total compensation and benefits paid to Mr. Hawkins for the last completed fiscal year as reported in the Summary Compensation Table and described in further detail on page 45 of this proxy statement:

Fiscal Year 2012 Total Compensation as

Reported in the Summary Compensation Table

 

Salary

   $ 1,250,000   

Non-Equity Incentive Plan Compensation - Short-Term

   $ 913,850   

Non-Equity Incentive Plan Compensation - Long-Term

   $ 1,715,130   

Stock Awards

   $   

Option Awards

   $   

Change in Pension Value

   $ 78,880   

Nonqualified Deferred Compensation Earnings

   $   

All Other Compensation

   $ 4,065,957   

Total Compensation

   $ 8,023,817   

 

33


Executive Compensation Program Design

Components of Total Compensation

The following is an illustration of the major components of Medtronic’s compensation programs and their targeted values as applied to each named executive officer.

 

 

LOGO

 

• Objective: Provide a base salary that is competitive and reflective of individual performance

• Targeted at approximately the median of the executive compensation peer group (page 42)

• Generally represents 11% to 25% of total compensation(1)

• Objective: Motivate achievement of annual business operating plan goals

• Targeted at approximately the median of market competitive levels

• Generally represents 15% to 17% of total compensation provided annual financial objectives are achieved

• Annual incentives are based on Company-wide business goals, which are established by Medtronic’s Annual Operating Plan reviewed and approved by the Board of Directors

 

• Objective: Motivate executives to focus on long-term shareholder value creation and strategic financial performance

• Core long-term incentive program consists of three distinct components weighted at 1/3 each, with the sum targeting delivery of long-term compensation at approximately the median of market competitive levels

• Generally represents 57% to 74% of total compensation

• Performance Based Restricted Stock Units vest only if Medtronic achieves a minimum Earnings Per Share compound annual growth rate

• The Long-Term Performance Plan (LTPP) is a long-term incentive that measures performance over a three fiscal year time period. The current performance metrics are return on invested capital and revenue growth relative to peers

 

 

 

 

• Objective: Ensure impartiality and objectivity in the event of a change-in-control situation to protect shareholder interests

• Policy is consistent with design provisions and benefit levels at other similar companies; excise tax and all other gross-ups have been eliminated; includes a “double trigger”

• Objective: Provide reimbursement of some personal and business-related expenses such as memberships, financial and tax planning services in lieu of perquisites and aid in the attraction and retention of top talent

• Represents less than 1% of total compensation

 

 

 

 

 

• Objective: Supports retention, succession planning and recruitment

• Used judiciously, no grants made to executive officers in fiscal year 2012

 

 

 

 

 

(1) 

Total compensation is defined as the sum of base salary, target annual cash incentives, target long-term cash incentives, and the grant date estimated fair market value of long-term equity incentives. It does not necessarily correlate to the values disclosed in the Summary Compensation Table and other tables. The chart is not drawn to scale for any particular named executive officer.

 

34


Base Salaries

Fiscal Year 2012 salary increases for all NEOs were designed to maintain base salary within the median range of Medtronic’s executive compensation peer group. Mr. Ishrak joined Medtronic on June 13, 2011. Mr. Hawkins did not receive a base salary increase for fiscal year 2012. Final base pay decisions for all NEOs were made by the Compensation Committee for fiscal year 2012 at the June 2011 Committee meeting and are summarized in the table below:

 

Name

   FY2011 Salary
(000’s)
     FY2012 Salary
(000’s)
     %
Incr.
 

Omar Ishrak

     n/a       $ 1,350         n/a   

Gary Ellis

   $ 675       $ 689         2

Michael J. Coyle

   $ 615       $ 627         2

Christopher J. O’Connell

   $ 578       $ 590         2

D. Cameron Findlay

   $ 590       $ 608         3

William A. Hawkins

   $ 1,250       $ 1,250         0

Annual Performance-Based Incentives

Award Targets.    The Compensation Committee reviews and approves MIP award targets for NEOs each year in June, after review and approval by the Board of Directors of the Company’s annual operating plan. The MIP award targets at 100% payout align to the Board approved annual operating plan. No incentives are earned unless a minimum (threshold) diluted earnings per share target is achieved.

Fiscal Year 2012 Performance Measures.    MIP performance measures were reviewed and approved at the Compensation Committee’s June 2011 meeting and are based upon the annual operating plan approved by the Board. Fiscal year 2012 performance measures for our NEOs were: 1) growth in diluted earnings per share, 2) revenue growth, and 3) cash flow; with weights of 40%, 40% and 20%, respectively. Diluted earnings per share is an aggregate measure that focuses on earnings growth and equity management. For purposes of the MIP, diluted earnings per share refers to non-GAAP diluted earnings per share, a measure which includes adjustments for certain charges. A reconciliation of non-GAAP diluted earnings per share to GAAP diluted earnings per share as reported in our financial statements is included in the “Adjustment of EPS Targets applicable to Short and Long-Term Incentives” section on page 38 of this proxy statement. The cash flow measure is defined as Medtronic’s net earnings plus or minus changes in accounts receivable, inventory, and accounts payable.

In determining the target levels for the revenue growth and diluted earnings per share performance measures, the Committee reviewed a number of historical and forward-looking factors including the competitive market, changes in the regulatory environment and economic trends. The Committee considered historical data from our executive peer group, analyst consensus data for both our executive compensation peer companies and the medical technology subset of those companies, and Medtronic’s annual operating plan for fiscal year 2012. In fiscal year 2012, the Company performance measures and actual performance were as follows:

 

Performance Measures

   Weight     Minimum
50%
Payout
    Target
100%
Payout
    Maximum
225%
Payout
    Actual
Performance
    Weighted
Payout

Percent
 

Diluted Earnings Per Share

     40   $ 3.30      $ 3.45      $ 3.57      $ 3.39        32.0

Revenue Growth

     40     2.00     5.10     7.00     2.0     20.2

Cash Flow Indicator

     20   $ 3.443B      $ 3.702B      $ 3.998B      $ 3.350B        0
             Payout        52.22

Once actual performance against each measure is established, the achievement percentage is determined by interpolating actual performance within the performance range for each measure. These results are then weighted based on the plan weightings and summed to arrive at an overall achievement percentage for the plan year.

 

35


Approval of Fiscal Year 2012 MIP Payments:     At the Compensation Committee’s May 2012 meeting, results for fiscal year 2012 were reviewed and approved. Medtronic exceeded the diluted earnings per share threshold of $3.30. A summary of NEO MIP information for fiscal year 2012 is shown in the table below:

 

Name

   FY12 Actual
Performance
    FY12 MIP
Target
    FY12 MIP
Budgeted
Award at
AOP Goal
     FY12 MIP
Actual
Award
 

Omar Ishrak

     100 (1)      140     1,890,000         1,890,000   

Gary Ellis

     52.22     90     620,100         323,816   

Michael J. Coyle

     52.22     85     532,950         278,306   

Christopher J. O’Connell

     52.22     85     501,500         261,883   

D. Cameron Findlay

     52.22     80     486,400         253,998   

Williams A. Hawkins (2)

     52.22     140     1,750,000         913,850   

 

(1) 

Per Mr. Ishrak’s letter agreement, FY12 MIP was to be paid at the full target as one of the cash components designed to help mitigate vested compensation and benefits that Mr. Ishrak forfeited with his previous employer (see the CEO Compensation Developments section on page 30 of this proxy statement)

(2) 

Former Section  16 Officer

Long-Term Incentive Program

Target award values for Medtronic’s Long-Term Incentive grants are denominated in three equally weighted components (1/3 each): stock options, performance-based restricted stock units, and a three-year cash incentive under Medtronic’s Long-Term Performance Plan. Special restricted stock unit and/or stock option grants are used only in limited circumstances for special recognition and retention purposes. No special grants were made in fiscal year 2012. Long-Term Incentive Program components are discussed in more detail below followed by fiscal year 2012 grants and payout approvals.

Stock Options:    Stock options provide value only when the price of the stock appreciates over the grant price. This helps ensure alignment between the interests of executives and shareholders. The target grant date value is estimated using the Black-Scholes method of stock option valuation. Information on the Black-Scholes valuation for our fiscal year 2012 stock option awards is presented as part of the discussion of items in the Summary Compensation Table on page 45 of this proxy statement.

All stock option grants have an exercise price that is equal to the Medtronic market close stock price on the date of grant, which is the first business day of the second fiscal quarter. Stock options have a term of ten years and vest in equal increments of 25% each year beginning one year after the date of grant.

Performance-Based Restricted Stock Units:    Performance-based restricted stock units are granted with a performance threshold. When the performance threshold is achieved, the awards will “cliff vest” in full on the third anniversary of the date of grant. If the Company does not meet the threshold then the restricted stock units will not vest. The performance period for the fiscal year 2012 grant is the three year period ending on the last day of fiscal year 2014. The performance threshold is cumulative diluted earnings per share compound annual growth of 3%, as determined by the Compensation Committee.

Additional information about stock option and performance-based restricted stock unit awards granted to the NEOs in fiscal year 2012 can be found in the 2012 Grants of Plan-Based Awards table on page 49 of this proxy statement.

Cash-Based Long-Term Performance Plan (“LTPP”).    Medtronic’s LTPP provides a long-term cash incentive based on achievement of critical long-term Company-wide financial targets, which are

established at the beginning of each fiscal year for the ensuing three fiscal year performance period.

 

36


Financial targets are not changed during the performance period. New LTPP grants are made each fiscal year such that participating NEOs will participate in up to three overlapping LTPP performance periods. LTPP awards are typically approved at target levels with actual payouts based on Company performance over the ensuing three-year performance period. These performance targets are different from the performance targets used for the MIP.

The FY2012 LTPP incentive program uses two measures: three-year relative revenue growth and return on invested capital (ROIC), which are weighted 66% and 33%, respectively. These two measures align well with the key, long-term success factors for Medtronic and our shareholders: topline growth and superior cash returns. These two measures complement the annual operating plan measures used for the annual Medtronic Incentive Plan.

Three-year relative revenue growth is ranked against a select peer group of 19 companies. These 19 companies include the same companies as the Executive Compensation Peer Companies except that pharmaceutical companies and companies not in the health care industry are excluded. The target performance for the three-year relative revenue growth measure is set at the 50th percentile of the comparator companies. Results are interpolated to pay the maximum award at the 75th percentile and the minimum award at the 25th percentile. Performance below the 25th percentile results in no payout for this component.

Three-year average ROIC is measured against an absolute target, which is established based on Medtronic’s AOP and analysis of Medtronic comparator companies. Target performance is set at the 50th percentile with maximum at the 75th percentile and minimum at the 25th percentile.

 

FY2012-FY2014 ROIC (payout)

     20     40     60     80     100     120     140     160     180

RETURN ON INVESTED CAPITAL

     7     9     11     12     13     14     15     16     17

Fiscal Year 2012 Long-Term Incentive Program Grants.    At the June 2011 Compensation Committee meeting, the Compensation Committee reviewed recommendations for fiscal year 2012 Long-Term Incentive Program grants for the NEOs excluding the CEO(1). Recommendations were based on competitive market analysis presented by the independent consultant. The Compensation Committee approved the Long-Term Incentive Program grants to the NEOs at target levels, which are shown in the table below. As described on the previous page, the grants are denominated in equal thirds among stock options, performance-based restricted stock, and the Long-Term Performance Plan. No special long-term compensation awards were made to the NEOs.

 

Name

   FY2012 LTI
Grant Date
FMV (000s)
 

Omar Ishrak(1)

   $ 8,450   

Gary Ellis

   $ 2,400   

Michael J. Coyle

   $ 2,200   

Christopher J. O’Connell

   $ 2,200   

D. Cameron Findlay

   $ 1,800   

William A. Hawkins(2)

     —     

 

 

(1) 

Specified in Mr. Ishrak’s letter agreement

 

(2) 

Former Section 16 Officer

Certification of Achievement for Fiscal Year 2010 — 2012 Performance-Based Restricted Stock Unit Threshold.     Under the terms set forth in the award agreements, these awards will vest on the third anniversary of the date of grant provided that the Company’s cumulative diluted EPS growth equals or exceeds a 5% compound annual growth rate over a three-year performance period beginning on the first day of fiscal year 2010 and ending on the last day of fiscal year 2012. At its May 2012 meeting, the Compensation Committee certified that the three-year cumulative compound annual growth rate of 5% for diluted EPS growth had been met. As a result, these awards will vest as scheduled on August 3, 2012, the third anniversary of the date of grant. These awards are reflected in the “Equity Incentive Plan

 

37


Awards: Unearned Shares, Units or Other Rights That Have Not Vested” column of the 2012 Outstanding Equity Awards at Fiscal Year End table on page 51 of this proxy statement.

Approval of Fiscal Year 2010 — 2012 LTPP Results:     Payment of awards for the LTPP covering the fiscal year 2010-2012 plan were made during the first fiscal quarter of 2013 and can be found in the Non-Equity Incentive Plan Compensation column of the Summary Compensation Table on page 45 of this proxy statement.

Once actual performance for the three-year performance period has been determined, the achievement percentage is calculated by interpolating actual performance relative to the performance range for each measure. These achievement percentages are then weighted based on the appropriate plan weightings and summed to arrive at an overall achievement percent for the plan year. Actual payouts are determined by multiplying the executive officer’s grant target by the plan’s overall achievement percent.

Performance results for the three-year performance period covered by the 2010-2012 LTPP were:

 

Year    Diluted
EPS
    ROIC     Revenue
Growth
 

FY2010

   $ 3.13        16.13     7.7

FY2011

   $ 3.27        13.84     0.0

FY2012

   $ 3.40        12.91     2.0
  

 

 

   

 

 

   

 

 

 

Total/Average

   $ 9.80        14.3     3.3

2010-2012 LTPP Target

   $ 10.10        16     6.0

Payout Level

     67     66     45

Objective Weight

     50     20     30

Weighted Payout Percent

     33.39     13.18     13.61
  

 

 

   

 

 

   

 

 

 

Total Payout Percent

         60.18

Over the fiscal year 2010 — 2012 performance period, the Company exceeded the performance thresholds, and exceeded the minimum performance levels for both cumulative diluted EPS and average ROIC. The Company’s actual cumulative diluted EPS was 67% of target, the actual revenue growth was 45% of target and the ROIC was 66% of target, resulting in an overall payout percentage of 60.18%.

Adjustment of EPS Targets applicable to Short and Long-Term Incentives

Medtronic’s short and long-term incentive plans require that when acquisitions or non-recurring items significantly impact operating income, this impact will be reviewed and evaluated by the Compensation Committee and potentially excluded in determining financial performance for the incentive plans. The plans define “significant” as an impact in the “general amount of 5% of operating income in the year incurred.” In addition, the Company has developed a set of principles to guide treatment of acquisitions and non-recurring items. Specifically:

 

   

Non-recurring charges from acquisitions and other non-recurring items are generally excluded from the calculation of performance regardless of whether the impact is greater than or less than 5% of operating income. This exclusion occurs regardless of whether the effect is positive or negative.

 

   

Operating results from acquisitions which impact operating income below the 5% threshold can be included in the calculation of performance at the discretion of the Compensation Committee.

The Compensation Committee originally reviewed this policy and a summary of competitive practices presented by its independent consultant during its June 2008 meeting. The policy is re-evaluated for each fiscal year. The Compensation Committee determined that Medtronic’s practice is consistent with competitive practice and recommended no changes to the current practice and

 

38


guidelines. This provision benefits shareholders by allowing management to make decisions of material strategic importance without undue concern for impact on compensation. When such adjustments have been applied, they have had both a positive and negative impact on past awards.

In accordance with Medtronic’s policy, for fiscal year 2012 the Compensation Committee excluded a number of items from Medtronic’s results for the purposes of calculating performance on short-term and long-term incentive programs and the Medtronic Savings and Investment Plan (the “401(k) Plan”). The following table reconciles the adjustments made in fiscal year 2012 and provides a brief description of each adjustment:

Fiscal Year 2012 Non-Recurring Items

Excluded from Fiscal Year 2012 MIP and LTPP Calculations

 

     Twelve Months Ended
April 27, 2012
   

Explanation of Non-Recurring Adjustments

Diluted EPS, as reported

   $ 3.41      Includes additional interest expense from Convertible Debt.

Significant Non-Recurring Adjustments

    

Restructuring charges

     0.06      After-tax charges related to the restructuring initiative that began in the fourth quarter of fiscal year 2012, partially offset by the reversal of previous restructuring charges related to the fiscal year 2011 restructuring initiative.

Certain litigation charges, net

     0.05      After-tax certain litigation charges related to the settlement involving the Minneapolis Firefighters’ Relief Association.

Certain Acquisition-related items

     0.04      After-tax charges related to the change in fair value of contingent milestone payments.

Physio-Control divestiture-related items

     (0.16   Gain on sale of Physio-Control, net of certain transaction costs.

Discretionary Adjustments

    

Discretionary adjustments to exclude divestitures and acquisitions

  

 

(0.02

 

After-tax results from operations of Physio-Control through Q3 and results from operations and acquisition-related items from the fiscal year 2012 acquisitions of PEAK and Salient.

Diluted EPS used for MIP

   $ 3.39     
  

 

 

   

The data in this schedule has been intentionally rounded to the nearest $0.01, and therefore may not sum.

 

39


Other Benefits and Perquisites

Medtronic provides broad-based benefit plans to all of its employees, including the NEOs. All employees participate in the same health care plans and Medtronic does not provide NEOs with any different or additional health care or retirement plans. Medtronic executives are required to complete a physical exam as recommended in American Medical Association guidelines and, in the event that requirement exceeds regular plan coverage, the executives can receive reimbursement for up to $2,000 of the cost that exceeds the regular plan coverage. The broad-based benefit plans include:

Qualified Retirement Plans.    Medtronic sponsors a number of tax qualified retirement plans for its employees. In the United States, Medtronic changed its retirement plans effective May 1, 2005 in order to provide then current employees and employees hired after that date a choice of retirement plans. Employees hired prior to May 1, 2005 had the option of continuing in a defined benefit pension plan (the “Medtronic Retirement Plan”) or electing to participate in one of the new plans. Employees hired after that date choose to participate in one of the new plans: the Personal Pension Account or the Personal Investment Account. The Personal Pension Account is a cash balance component of the previous Medtronic Retirement Plan and the Personal Investment Account is a cash balance component of the Company’s tax qualified 401(k) Plan. Additional details regarding these plans are provided on page 54 of this proxy statement.

Supplemental Retirement Plans.    The Company offers a Nonqualified Retirement Plan Supplement (“NRPS”) designed to provide all eligible employees, including but not limited to the NEOs, with benefits which supplement those provided under certain of the tax qualified plans maintained by Medtronic. The NRPS is designed to restore benefits lost under the Personal Pension Account, Personal Investment Account or the Medtronic Retirement Plan due to covered compensation limits established by the Internal Revenue Code. The NRPS also restores benefits for otherwise eligible compensation deferred into the Medtronic, Inc. 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 vice presidents, including our NEOs, and highly-compensated sales 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.

Business Allowance.    Medtronic does not provide any perquisites such as Company-provided automobiles, aircraft, country-club memberships, financial and tax advisors, etc. Medtronic provides NEOs with a market competitive business allowance, unless they are on an expatriate assignment, as discussed below. The NEOs may spend their business allowance at their discretion for expenses related to such things as financial and tax planning, automobiles or club memberships. The business allowance is paid as taxable income and Medtronic does not track an executive’s use of his or her business allowance. The annual business allowances provided to our NEOs in fiscal year 2012 ranged from $24,000 to $40,000. For NEOs on expatriate assignments, rather than providing a business allowance, the Company pays for certain housing and related living costs. These amounts are sometimes a significant part of an expatriate’s total compensation. 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 referenced amounts are included in the “All Other Compensation” column of the Summary Compensation Table.

Change of Control.    Compensation in a change of control situation is designed: (1) to protect the compensation already earned by executives and to ensure that they will be treated fairly in the event of

 

40


a change of control; and (2) 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 encourage senior management to pursue 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.” Other than Messrs. Coyle, Findlay and Ishrak’s agreements, we do not have individual employment contracts with our NEOs relating to compensation other than those associated with a change of control.

Compensation Decision-Making Process

Role of Compensation Committee

The Compensation Committee of the Board of Directors (the “Compensation Committee” or the “Committee”) establishes Medtronic’s 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 “Governance of Medtronic — Compensation Committee” beginning on page 18 of this proxy statement.

Independent Compensation Consultant

The Compensation Committee has engaged Frederic W. Cook & Co., Inc., an independent outside compensation consulting firm, to advise the Compensation Committee on all matters related to executive officer and director compensation. Specifically, Frederic W. Cook & Co., Inc. conducts annual competitive market analysis of total compensation for NEOs, provides relevant market data, updates on compensation trends and counsel on program design and specific compensation decisions related to our CEO and other executives.

During fiscal year 2010, the Compensation Committee adopted independence standards for the outside consultant that remain in effect for fiscal year 2012. This policy established an assessment framework to confirm and report on the consultant’s independence. It also requires the consultant to confirm its independent status according to the Compensation Committee’s standards. The Compensation Committee reviews and confirms the independence of Frederic W. Cook & Co., Inc. on an annual basis. The consultant has been engaged directly by the Committee, only provides services or undertakes work for the Company at the direction of the Committee, and does not provide any unrelated products or services to the Company.

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 independent outside compensation 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 Peer Companies and Competitive Market

The Compensation Committee considers relevant market pay practices when establishing executive compensation levels and evaluating compensation programs including base salary, short-term and long-term incentives. In order to ensure the competitiveness of compensation programs, the Committee has established a peer group of companies for benchmarking purposes. The identification

 

41


of these companies is based on discussions with, and recommendations from, Frederic W. Cook & Co., Inc. The selection criteria were based on companies in the health care equipment, pharmaceutical, and biotechnology industries that position Medtronic in the median range of the group, on average, in various measures of company size. The following table lists Medtronic’s executive compensation peer group for fiscal year 2012, including Medtronic’s ranking relative to these companies based on financial data available at the time of consideration:

 

     Latest Available Four Quarters ($Mil.]      2/28/2011
Market
Capital
     Composite
Percentile
Rank
 

Company Name

   Net
Revenue
     Operating
Inc. (EBIT)
     Total
Assets
     Total
Equity
     Total
Employees
       

Pfizer

   $ 67,791       $ 18,279       $ 191,415       $ 87,635         116,500       $ 154,111         99

Johnson & Johnson

   $ 61,587       $ 16,527       $ 98,247       $ 57,261         115,500       $ 168,819         95

Merck

   $ 45,987       $ 13,741       $ 107,840       $ 55,593         100,000       $ 100,416         90

Abbott Laboratories

   $ 35,167       $ 8,039       $ 59,462       $ 22,388         73,000       $ 74,439         82

3M

   $ 26,662       $ 5,918       $ 30,156       $ 15,663         74,835       $ 65,666         74

Eli Lilly

   $ 23,076       $ 6,772       $ 31,001       $ 12,420         40,360       $ 40,009         68

Bristol-Myers Squibb

   $ 19,484       $ 6,136       $ 31,076       $ 15,713         28,000       $ 43,980         63

Amgen

   $ 15,053       $ 5,662       $ 43,486       $ 23,944         17,200       $ 47,863         67

Medtronic

   $ 15,834       $ 4,995       $ 30,597       $ 15,358         43,000       $ 42,853         66

Covidien

   $ 10,429       $ 2,261       $ 20,387       $ 8,974         41,800       $ 25,408         53

Baxter International

   $ 13,056       $ 3,043       $ 17,489       $ 6,567         49,700       $ 30,866         53

Stryker

   $ 7,320       $ 1,851       $ 10,895       $ 7,174         18,682       $ 24,750         39

Gilead Sciences

   $ 7,949       $ 4,138       $ 11,593       $ 5,706         3,852       $ 31,262         39

Boston Scientific

   $ 7,806       $ 1,046       $ 22,126       $ 11,296         26,000       $ 10,907         39

Becton Dickinson

   $ 7,372       $ 1,677       $ 9,651       $ 5,435         29,116       $ 17,689         34

Genzyme

   $ 4,049       $ 461       $ 11,141       $ 7,001         12,000       $ 19,751         24

St Jude Medical

   $ 5,165       $ 1,381       $ 8,584       $ 4,372         14,000       $ 16,401         22

Allergan

   $ 4,919       $ 1,306       $ 8,308       $ 4,758         8,300       $ 22,612         21

Zimmer Holdings

   $ 4,220       $ 1,232       $ 7,998       $ 5,771         8,200       $ 12,312         17

CareFusion

   $ 3,929       $ 542       $ 7,943       $ 4,704         15,000       $ 6,095         1o

C.R. Bard

   $ 2,720       $ 770       $ 3,172       $ 1,632         11,000       $ 8,314         5

75th Percentile

   $ 23,973       $ 6,295       $ 34,179       $ 17,382         55,525       $ 52,314      

Mean

   $ 18,687       $ 5,039       $ 36,599       $ 18,202         40,147       $ 46,084      

Median

   $ 9,189       $ 2,652       $ 18,938       $ 8,074         27,000       $ 28,137      

25th Percentile

   $ 5,103       $ 1,287       $ 9,384       $ 5,638         13,500       $ 17,367      

Our objective is to establish market competitive compensation, including base salary, short-term, and long-term incentives, within a range of 15% (20% for LTI) on either side of the market median benchmark established for each position compared to our executive compensation peer group. 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 career and job experience, job tenure, and job performance for each NEO. Base salary decisions are based on these factors to ensure that salaries are market competitive as specified in Medtronic’s compensation philosophy.

 

42


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 15 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 which require Medtronic’s CEO to maintain ownership of Medtronic stock equal to six (6) times annual salary and the other NEOs to maintain Medtronic stock equal to three (3) times annual salary. As of July 13, 2012, all directors and NEOs are in compliance with the stock ownership and retention guidelines;

 

   

Incentive plans are more heavily weighted towards long-term performance to reduce the incentive to adversely impact 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; and

 

   

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, earnings per share, and cash flow. Long-term cash incentives measure shareholder 3-year return on invested capital and 3-year revenue growth relative to a selected peer group of Medtronic’s competitors.

Share Ownership, Share Retention, and Clawback Policies

Equity Holding.    In fiscal year 2012, Medtronic implemented executive stock ownership and retention guidelines that require the CEO to maintain ownership of Medtronic stock equal to six (6) times annual salary and other NEOs to maintain Medtronic stock equal to three (3) times annual salary. Until the ownership guideline is met, the CEO must retain 75% of after-tax Medtronic 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 shares for one year following settlement of equity compensation awards and other NEO’s must retain 50% of such shares for one year following settlement of equity compensation awards. Compliance with these 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 common stock on the New York Stock Exchange for the six calendar months preceding the measurement date. As of July 13, 2012, all Medtronic executives are in compliance with the stock ownership and retention policy; however, due to their more recent appointments, Messrs. Coyle and Findlay and Ms. Stockdale are continuing to make progress towards the required ownership guidelines. For share issuances (restricted stock unit vesting), net gain shares are those shares remaining after payment of income taxes.

Hedging Policy.    Our insider trading policy prohibits our NEOs and directors (along with others) from engaging in shorts sales of Medtronic securities (including share 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 officers can clearly demonstrate the financial capacity to repay the loan without resorting to the pledged securities).

 

43


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 which specifically prohibit the sale, assignment and transfer of awards granted under the plan with limited exceptions such as the death of the award recipient. In addition, the Compensation Committee of the Board of Directors may allow an award holder to assign or transfer an award.

Incentive Compensation Forfeiture.    Medtronic has a comprehensive Incentive Compensation Forfeiture Policy, which is designed to recoup improper payments 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 paid or awarded to the executive officer due to misconduct, 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 the Medtronic, Inc. 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.

Equity Compensation Forfeiture.    The Company may require the return or forfeiture of cash and/or 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 months prior to or twelve 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 determined by the Compensation Committee of the Board of Directors.

Tax and Accounting Implications

The Compensation Committee structures all compensation to be compliant with the $1 million deduction limitation of Section 162(m) of the Internal Revenue Code, which limits the amount of remuneration that Medtronic may deduct for our Chief Executive Officer and the three highest-paid NEOs other than the Chief Executive Officer and Chief Financial Officer, unless the Compensation Committee determines that compliance in a specific situation would not be in the best interests of Medtronic and its shareholders. In addition, the Compensation Committee structures all deferred compensation within the meaning of Section 409A of the Internal Revenue Code such that all NEOs are not subject to the excise tax under Section 409A.

COMPENSATION COMMITTEE REPORT

The Compensation Committee of the Company 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:

 

Richard H. Anderson, Chair      Kendall J. Powell
Denise M. O’Leary      Jack W. Schuler

 

44


EXECUTIVE COMPENSATION

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 Officer, three other most highly compensated executive officers during fiscal year 2012, and William A. Hawkins, the Company’s former Chief Executive Officer (collectively, the named executive officers or “NEOs”). Please refer to the section entitled “Compensation Discussion and Analysis” beginning on page 26 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
    Total  

Omar Ishrak

    2012      $ 1,168,269      $ 1,553,042      $ 19,069,565      $ 2,150,585      $ 986,958      $ 0      $ 97,221      $ 25,025,639   

Chairman and Chief

Executive Officer

                 

Gary L. Ellis

    2012      $ 688,731      $ 0      $ 800,008      $ 632,116      $ 654,806      $ 424,302      $ 150,449      $ 3,350,412   

Senior Vice President

and Chief Financial

Officer

   
 
2011
2010
  
  
  $

$

675,000

604,200

  

  

  $

$

0

0

  

  

  $

$

667,021

500,006

  

  

  $

$

579,939

443,627

  

  

  $

$

616,985

859,964

  

  

  $

$

461,287

564,666

  

  

  $

$

32,566

37,818

  

  

  $

$

3,032,798

3,010,281

  

  

D. Cameron Findlay

    2012      $ 607,654      $ 400,000      $ 600,006      $ 474,087      $ 474,658      $      $ 94,634      $ 2,651,040   

Senior Vice President,

General Counsel and

Secretary

    2011      $ 590,000      $ 400,000      $ 600,030      $ 522,463      $ 236,000             $ 580,481      $ 2,928,974   

Michael J. Coyle

    2012      $ 626,769      $ 0      $ 734,015      $ 579,173      $ 544,938      $      $ 115,317      $ 2,600,212   

Executive Vice

President and Group

President, Cardiac and Vascular Group

    2011      $ 615,000      $ 0      $ 667,021      $ 579,939      $ 246,000             $ 385,245      $ 2,493,205   

Christopher J. O’Connell

    2012      $ 589,769      $ 0      $ 734,015      $ 579,173      $ 382,243      $ 239,509      $ 124,710      $ 2,649,420   

Executive Vice

President & President,

Restorative Therapies Group

   

 

2011

2010

  

  

  $

$

576,981

478,820

  

  

  $

$

0

1,400,000

  

  

  $

$

667,021

500,026

  

  

  $

$

579,939

530,091

  

  

  $

$

351,240

508,589

  

  

  $

$

160,467

200,903

  

  

  $

$

112,296

361,211

  

  

  $

$

2,447,943

3,979,640

  

  

William A. Hawkins

    2012      $ 1,250,000      $ 0      $ 0      $ 0      $ 2,628,980      $ 78,880      $ 4,065,957      $ 8,023,817   

Former Chairman and

Chief Executive

Officer

   
 
2011
2010
  
  
  $

$

1,250,000

1,118,150

  

  

  $

$

0

0

  

  

  $

$

2,850,028

2,850,001

  

  

  $

$

2,394,619

2,711,024

  

  

  $

$

2,375,500

2,334,858

  

  

  $

$

706,036

529,462

  

  

  $

$

48,526

62,856

  

  

  $

$

9,624,709

9,606,351

  

  

NEO Transitions.    Mr. Ishrak became Chairman of the Board and Chief Executive Officer effective June 13, 2011. Mr. Ishrak does not receive any compensation for his services as a director of the Company. Mr. Hawkins ceased being Chairman and Chief Executive Officer effective June 13, 2011 but remained an employee of the Company through April 27, 2012.

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 2012 Nonqualified Deferred Compensation Table on page 56 of this proxy statement. Each of the NEOs also contributed a portion of his salary to the Medtronic, Inc. Savings and Investment Plan, also referred to as the 401(k) Plan.

Bonus.    The bonus column represents the bonus payments made to certain NEOs. For fiscal year 2012, Mr. Ishrak’s amount represents a $650,000 make-whole sign-on payment intended to replace foregone incentive compensation at his previous employer plus $903,042 that represents the difference between Mr. Ishrak’s earned fiscal year 2012 MIP award and the minimum amount provided in the Letter Agreement (see page 30 of this proxy statement for more information). Mr. Findlay’s amount represents a special $400,000 bonus intended to reflect the fact that he did not participate in the Company’s LTPP until the fiscal year 2010 – 2012 performance cycle (payable in early fiscal 2013).

 

45


Stock Awards.    The stock awards column represents aggregate grant date fair value of restricted stock and restricted stock unit awards (including performance-based restricted stock and performance-based restricted stock units) (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 numbers 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 2012 Grants of Plan-Based Awards table on page 49 and the footnotes to the 2012 Outstanding Equity Awards at Fiscal Year End table on page 51 of this proxy statement.

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 estimation:

 

     Stock Option Grant Date    

 

     August 3,
2009
    November 2,
2009
    August 2,
2010
    August 1,
2011
    August 24,
2011
   

 

Fair value of options granted

   $ 8.85      $ 8.46      $ 8.17      $ 6.89      $ 6.53     

Assumption used:

            

Risk-free rate(1)

     3.21     2.88     2.25     1.83     1.83  

Expected volatility(2)

     26.90     26.18     26.03     25.95     25.95  

Expected life(3)

     6.2 yrs        6.2 yrs        6.3 yrs        6.4 yrs        6.4 yrs     

Dividend yield(4)

     2.28     2.27     2.40     2.78     2.78  

 

 

(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 option’s expected term.

 

(2) 

The expected volatility is based on a blend of historical volatility and an implied volatility of the Company’s common stock. Implied volatility is based on market traded options of the Company’s common stock.

 

(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 2012 Grants of Plan-Based Awards table on page 49 and the footnotes to the 2012 Outstanding Equity Awards at Fiscal Year End table on page 51 of this proxy statement.

 

46


Non-Equity Incentive Plan Compensation.    This column reflects the MIP and LTPP payments earned by the NEOs during the applicable fiscal year(s) and payable subsequent to fiscal year end, including any amounts deferred under the Capital Accumulation Plan (which are included in the 2012 Nonqualified Deferred Compensation table on page 56 of this proxy statement). The table below reflects the compensation received by the NEO under each plan for fiscal year 2012.

 

Name

   MIP      2010-2012 LTPP      Total Non-Equity
Incentive Plan
Compensation
 

Omar Ishrak

   $ 986,958       $ 0       $ 986,558   

Gary L. Ellis

   $ 323,816       $ 330,990       $ 654,806   

D. Cameron Findlay

   $ 253,998       $ 220,660       $ 474,658   

Michael J. Coyle

   $ 278,307       $ 266,631       $ 544,938   

Christopher J. O’Connell

   $ 261,883       $ 120,360       $ 382,243   

William A. Hawkins

   $ 913,850       $ 1,715,130       $ 2,628,980   

For a more detailed description of the terms of the non-equity incentive plan awards, see page 35 of the Compensation Discussion and Analysis and the narrative disclosure following the 2012 Grants of Plan-Based Awards on page 49 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 plan. The change in the present value of the accrued pension benefit is impacted by variables such as additional years of service, age and the discount rate used to calculate the present value of the change. The pension values are calculated based on the accrued pension benefits (qualified plan and NRPS) as of April 27, 2012, and the fiscal year-end 2012 ASC 715 disclosure assumptions. For fiscal year 2012, the change in pension value reflects not only the increase due to additional service and pay for the year, but also a slight increase in present value due to the lower discount rate (5.05% for fiscal 2012 year-end; down from 5.80% in fiscal year 2011). Assumptions are described in Note 1 to our consolidated financial statements in our annual report for fiscal year 2012 accompanying this proxy statement.

All Other Compensation.    The all other compensation column includes the following:

 

Name

  Fiscal
Year
    Perquisites and
Other Personal
Benefits(1)
    Tax
Gross-ups(2)
    Registrant
Contributions to
Defined
Contribution
Plans(3)
    Severance
Payments(4)
    Vacation
Accrual
Payout5
    Total  

Omar Ishrak

    2012      $ 78,664      $ 7,708      $ 9,849      $ 0      $ 1,000      $ 97,221   

Gary L. Ellis

    2012      $ 24,000      $ 0      $ 9,849      $ 0      $ 116,600      $ 150,449   

D. Cameron Findlay

    2012      $ 24,000      $ 0      $ 52,918      $ 0      $ 17,717      $ 94,634   

Michael J. Coyle

    2012      $ 24,000      $ 0      $ 52,705      $ 0      $ 38,612      $ 115,317   

Christopher J. O’Connell

    2012      $ 23,327      $ 6,348      $ 9,849      $ 0      $ 85,187      $ 124,710   

William A. Hawkins

    2012      $ 40,000      $ 0      $ 9,849      $ 3,785,339      $ 230,769      $ 4,065,957   

 

 

(1) 

The value of certain perquisites and other personal benefits for Mr. Ishrak represents a $34,615 business allowance and $44,049 in relocation expenses. The value of perquisites and other personal benefits for Messrs. Ellis, Findlay and Coyle represents a business allowance of $24,000. Mr. O’Connell’s value represents a $24,000 business allowance and adjustments to relocation expenses. All relocation expenses are subject to a clawback requirement if the employee leaves the Company before the second anniversary of the employee’s start of employment, the employee would have to repay all relocation expenses to Medtronic. 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 the use.

 

(2) 

Tax gross-ups for Mr. Ishrak and Mr. O’Connell are related to elements of their relocation expenses. All tax gross-ups are in accordance with Medtronic’s relocation policies.

 

47


(3) 

This amount reflects the contribution by Medtronic to match contributions to the Medtronic, Inc. Savings and Investment Plan or 401(k) Plan. Medtronic matches employee contributions of up to 6% of eligible compensation. The plan makes a minimum contribution of $0.50 and a maximum contribution of $1.50, with any contribution over the minimum determined based on diluted EPS performance target levels. The fiscal year 2012 match of $0.67 was based on achievement of an adjusted diluted EPS of $3.40. Amounts for Mr. Findlay and Mr. Coyle also represent Company contributions to the qualified defined contribution and nonqualified defined contribution plans. For additional information, see the 2012 Nonqualified Deferred Compensation table on page 56.

 

(4) 

Amount represents severance payments made to Mr. Hawkins in accordance with his separation agreement. See page 32 of our CD&A for further details.

 

(5) 

Amounts represent a company-wide vacation accrual payout due to a policy change in 2012 that limits the amount of accrued vacation all employees may carry forward. Accordingly, each NEO’s vacation accrual payout represents payment for vacation that was deemed in excess of the newly implemented vacation accrual limits.

 

48


2012 GRANTS OF PLAN-BASED AWARDS

The following table summarizes all plan-based award grants to each of the NEOs during fiscal year 2012. Threshold amounts assume attainment of plan performance thresholds. You should refer to the Compensation Discussion and Analysis sections entitled “Annual Performance-Based Incentives” on page 35 and “Long-Term Incentive Program” beginning on page 36 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.

 

Name

  Award
Type
  Grant
Date
    Approval
Date
    Estimated Future Payouts
under Non-Equity
Incentive Plan Awards ($)
    Estimated
Future
Payouts
Under Equity
Incentive
Plan Awards
Target
(#  of shares)
    All Other
Option
Awards:
Number of
Securities
Underlying
Options (#)
    Exercise
or Base
Price of
Options
Awards
($/Sh)
    Grant Date
Fair Value
of Stock
and Options
Awards
 
        Threshold     Target     Maximum          

Omar Ishrak

  MIP       $ 945,000      $ 1,890,000      $ 4,252,500           
  LTPP       $ 1,126,666      $ 2,816,666      $ 5,069,999           
  OPT     08/24/2011        08/23/2011                323,013        34.88      $ 2,150,585   
  RSU     06/13/2011        06/13/2011              248,580          $ 9,480,841   
  PBRSU     06/13/2011        06/13/2011              177,557          $ 6,772,024   
  PBRSU     08/24/2011        08/23/2011              80,754          $ 2,816,700   

Gary L. Ellis

  MIP       $ 310,050      $ 620,100      $ 1,395,225           
  LTPP       $ 320,000      $ 800,000      $ 1,440,000           
  OPT     08/1/2011        06/23/2011                91,744        34.88      $ 632,116   
  PBRSU     08/1/2011        06/23/2011              22,936          $ 800,008   

D. Cameron
Findlay

  MIP       $ 243,200      $ 486,400      $ 1,094,400           
  LTPP       $ 240,000      $ 600,000      $ 1,080,000           
  OPT     08/1/2011        06/23/2011                68,808        34.88      $ 474,087   
  PBRSU     08/1/2011        06/23/2011              17,202          $ 600,006   

Michael J.
Coyle

  MIP       $ 266,475      $ 532,950      $ 1,199,138           
  LTPP       $ 293,200      $ 733,000      $ 1,319,400           
  OPT     08/1/2011        06/23/2011                84,060        34.88      $ 579,173   
  PBRSU     08/1/2011        06/23/2011              21,044          $ 734,015   

Christopher J. O’Connell

  MIP       $ 250,750      $ 501,500      $ 1,128,375           
  LTPP       $ 293,200      $ 733,000      $ 1,319,400           
  OPT     08/1/2011        06/23/2011                84,060        34.88      $ 579,173   
  PBRSU     08/1/2011        06/23/2011              21,044          $ 734,015   

William A. Hawkins

  MIP       $ 875,000      $ 1,750,000      $ 3,937,500           

 

MIP = Annual performance-based plan award granted under the Medtronic, Inc. Executive Incentive Plan

LTPP = Long-term performance plan award granted under Medtronic, Inc. 2008 Stock Award and Incentive Plan

OPT = Nonqualified stock options granted under the Medtronic, Inc. 2008 Stock Award and Incentive Plan

PBRSU = Performance-based restricted stock units granted under the Medtronic, Inc. 2008 Stock Award and Incentive Plan

RSU = Restricted stock unit granted under the Medtronic, Inc. 2008 Stock Award and Incentive Plan

Estimated Future Payouts Under Non-Equity Incentive Plan Awards.    Amounts in these columns represent future potential cash payments under the 2012-2014 LTPP and 2012 MIP at threshold, target and maximum performance. The LTPP provides for annual grants that are earned over a three-year period. Awards under the LTPP can range from 40% to 180% of the original grant based on Company performance relative to the following metrics: three-year cumulative compounded annual revenue growth rate relative to a peer group and average ROIC (rolling 12-month profit after tax plus interest expense net of tax divided by the difference of Average Asset Base and Average Non-Interest Bearing Liabilities) for each year averaged over the three-year period. Similarly, the MIP provides for annual grants based upon meeting a minimum performance threshold. Assuming the minimum plan performance threshold is met, awards under the MIP can range from 50% to 225% of the original determination based on Company performance relative to annual revenue growth, diluted EPS and a cash flow measure as described on page 35 of this proxy statement in fiscal year 2012. The maximum dollar value that may be paid to any participant in qualified performance-based awards denominated in cash in any fiscal year is $10 million.

 

49


Estimated Future Payouts Under Equity Incentive Plan Awards.    Amounts in this column represent grants of performance-based restricted stock units (PBRSUs) and grants of time-based restricted stock units (RSUs). PBRSUs vest 100% on the third anniversary of the date of grant provided Medtronic achieves the minimum three-year cumulative diluted EPS threshold. Separately, Mr. Ishrak’s June 13, 2011 PBRSU grant will vest 35% in year one and 212/3% in each of years two, three and four provided Medtronic achieves a minimum diluted EPS threshold of $1.00 in each performance year. Additionally, the vesting of a specified number of Mr. Ishrak’s June 13, 2011 is subject to additional vesting conditions as to the vesting and exercisability of outstanding stock options at his previous employer. 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. RSUs vest 100% on the fourth anniversary of the grant.

All Other Option Awards/Exercise or Base Price of Option Awards.    The exercise or base price of all option awards is the closing market price of Medtronic common stock on the date of grant. However, the exercise price of Mr. Ishrak’s August 24th stock option grant ($34.88) is greater than the closing market price of Medtronic common stock on the day of grant ($34.21) per an agreement between Mr. Ishrak and the Company to use the higher exercise price between August 1, 2011 and August 24, 2011. 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 2012 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, 2011 and August 24, 2011, see page 46 of this proxy statement.

 

50


2012 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 2012. The market or payout value of unearned shares, units or other rights that have not vested equals $37.69, which was the closing price of Medtronic’s common stock on the New York Stock Exchange on April 27, 2012, 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  

Name

  Option
Grant Date
    Number of
Securities
Underlying
Unexercised
Options (#)
    Option
Exercise
Price
($)
    Option
Expiration
Date
    Grant
Date
    Shares or Units of
Stock That Have
Not Vested
    Equity Incentive
Plan Awards:
Unearned Shares,
Units or Other
Rights That Have
Not Vested
 
    Exer-
cisable(2)
    Unexer-
cisable
          Number
(#) (1)
    Market
Value
($)
    Number
(#) (1)
    Market
or Payout
Value
($)
 

Omar Ishrak

    08/24/2011        0        323,013        34.88        08/24/2021        06/13/2011        255,149        9,616,566       
              06/13/2011            182,249        6,868,965   
              08/23/2011            82,334        3103,168   

Gary L. Ellis

    10/24/2002        33,430        0        44.87        10/24/2012        08/03/2009            14,854        559,847   
    04/25/2003        7,189        0        48.08        04/25/2013        08/02/2010            18,567        699,790   
    10/23/2003        32,602        0        46.01        10/23/2013        08/01/2011            23,385        881,381   
    04/30/2004        4,246        0        50.46        04/30/2014             
    10/21/2004        30,000        0        50.00        10/21/2014             
    10/19/2005        37,011        0        56.74        10/19/2015             
    10/30/2006        41,068        0        48.70        10/30/2016             
    10/29/2007        41,868        0        47.77        10/29/2017             
    10/27/2008        41,391        13,797        36.24        10/27/2018             
    08/03/2009        25,056        25,056        35.92        08/03/2019             
    08/02/2010        17,746        53,238        37.53        08/02/2020             
    08/01/2011        0        91,744        34.88        08/01/2021             

D. Cameron Findlay

    11/02/2009        22,148        22,149        36.12        11/02/2019        11/02/2009        22,032        830,386       
    08/02/2010        15,987        47,962        37.53        08/02/2020        08/02/2010            16,703        629,536   
    08/01/2011        0        68,808        34.88        08/01/2021        08/01/2011            17,539        661,045   

Michael J. Coyle

    02/01/2010        11,587        11,588        43.15        02/01/2020        02/01/2010        18,355        691,800       
    08/02/2010        17,746        53,238        37.53        08/02/2020        08/02/2010            18,567        699,790   
    08/01/2011        0        84,060        34.88        08/01/2021        08/01/2011            21,456        808,677   

Christopher J. O’Connell

    10/24/2002        26,744        0        44.87        10/24/2012        11/02/2009        7,344        276,795       
    04/25/2003        4,160        0        48.08        04/25/2013        08/03/2009            7,427        279,924   
    10/23/2003        30,429        0        46.01        10/23/2013        08/02/2010            18,567        699,790   
    04/30/2004        1,982        0        50.46        04/30/2014        08/01/2011            21,456        808,677   
    10/21/2004        28,000        0        50.00        10/21/2014             
    04/29/2005        11,423        0        52.70        04/29/2015             
    10/19/2005        17,625        0        56.74        10/19/2015             
    10/30/2006        15,401        0        48.70        10/30/2016             
    10/29/2007        17,794        0        47.77        10/29/2017             
    10/27/2008        24,834        8,279        36.24        10/27/2018             
    08/03/2009        16,704        16,704        35.92        08/03/2019             
    11/02/2009        13,843        13,843        36.12        11/02/2019             
    08/02/2010        17,746        53,238        37.53        08/02/2020             
    08/01/2011        0        84,060        34.88        08/01/2021             

William A. Hawkins

    10/24/2002        49,031        0        44.87        10/24/2012        08/03/2009            84,669        3,191,175   
    10/23/2003        65,204        0        46.01        10/23/2013        08/02/2010            79,334        2,990,098   
    10/21/2004        100,000        0        50.00        10/21/2014             
    04/29/2005        7,591        0        52.70        04/29/2015             
    04/29/2005        5,462        0        52.70        04/29/2015             
    10/19/2005        75,785        0        56.74        10/19/2015             
    10/30/2006        67,762        0        48.70        10/30/2016             
    10/29/2007        188,403        0        47.77        04/27/2017             
    10/27/2008        303,533        0        36.24        04/27/2017             
    08/03/2009        306,237        0        35.92        04/27/2017             
    08/02/2010        293,099        0        37.53        04/27/2017             

 

 

(1) 

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

(2) 

Mr. Hawkins options accelerated and vested upon his retirement April 27, 2012.

 

51


The amounts shown in the column entitled “Shares or Units of Stock That Have Not Vested” of the 2012 Outstanding Equity Awards at Fiscal Year End table that correspond to a November 2, 2009, February 1, 2010 and June 13, 2011 grant date reflect time-based restricted stock unit awards that vest 100% on the fourth anniversary of the date of grant. The June 13, 2011 grant to Mr. Ishrak reflects a performance based restricted stock unit award that vests 35% on the first anniversary and 21 2/3% on the second, third, and fourth anniversary of the date of the grant provided that the established minimum diluted EPS threshold is achieved. The amounts shown in the column entitled “Equity Incentive Plan Awards: Unearned Shares, Units or Other Rights That Have Not Vested” of the 2012 Outstanding Equity Awards at Fiscal Year End table that correspond to an August 3, 2009, August 2, 2010 and August 1, 2011, and the August 24, 2011 grant date reflect performance-based restricted stock or restricted stock unit awards that vest on the third anniversary of the date of grant provided that the established performance threshold for each award is achieved, except that the August 24, 2011 grant vests on August 1, 2014.

The table below shows the vesting schedule for all unexercisable options. All options vest on the anniversary of the grant date in the year indicated except Mr. Ishrak’s August 24, 2011 option grant which vests on the anniversary of August 1, 2011 and Mr. Hawkins option grants which accelerated and vested upon his April 27, 2012 retirement.

 

            VESTING SCHEDULE FOR
UNEXERCISABLE OPTIONS
 

Name

   Grant Date          2012              2013              2014              2015      

Omar Ishrak

     08/24/2011         80,753         80,753         80,753         80,754   

Gary L. Ellis

     10/27/2008         13,797            
     08/03/2009         12,528         12,528         
     08/02/2010         17,746         17,746         17,746      
     08/01/2011         22,936         22,936         22,936         22,936   

D. Cameron Findlay

     11/02/2009         11,074         11,075         
     08/02/2010         15,987         15,987         15,988      
     08/01/2011         17,202         17,202         17,202         17,202   
     02/01/2010            5,794         5,794      

Michael J. Coyle

     08/02/2010         17,746         17,746         17,746      
     08/01/2011         21,015         21,015         21,015         21,015   
     10/27/2008         8,279            

Christopher J. O’Connell

     08/03/2009         8,352         8,352         
     11/02/2009         6,921         6,922         
     08/02/2010         17,746         17,746         17,746      
     08/01/2011         21,015         21,015         21,015         21,015   

William A. Hawkins

     10/27/2008         75,884            
     08/03/2009         153,119            
     08/02/2010         219,825            

 

52


    

 

     VESTING SCHEDULE FOR UNVESTED
RESTRICTED STOCK AND RSUS
 

Name

   Grant Date          2012              2013              2014              2015      

Omar Ishrak

     06/13/2011         63,786         39,488         39,488         39,488   
     06/13/2011                  255,149   
     08/24/2011               82,334      

Gary L. Ellis

     08/03/2009         14,854            
     08/02/2010            18,567         
     08/01/2011               23,385      

D. Cameron Findlay

     11/02/2009            22,032         
     08/02/2010            16,703         
     08/01/2011               17,539      

Michael J. Coyle

     02/01/2010               18,355      
     08/02/2010            18,567         
     08/01/2011               21,456      

Christopher J. O’Connell

     08/03/2009         7,427            
     11/02/2009            7,344         
     08/02/2010            18,567         
     08/01/2011               21,456      

William A. Hawkins

     08/03/2009         84,669            
     08/02/2010            79,334         

Messrs. Hawkins and Ellis also own 91,003 and 32,025 vested and deferred stock units including associated dividend equivalents, respectively, which will be distributed following their retirement. Mr. Hawkins stock options accelerated and vested upon his retirement on April 27, 2012.

2012 OPTION EXERCISES AND STOCK VESTED

The table below includes information related to options exercised by each of the NEOs and restricted stock awards that have vested during fiscal year 2012. 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
($)
     Number of Shares
Acquired
on Vesting(1)
(#)
     Value Realized
on Vesting(1)
($)
 

Omar Ishrak

              0   

Gary L. Ellis

           46,670       $ 1,663,620   

D. Cameron Findlay

                             0   

Michael J. Coyle

                             0   

Christopher J. O’Connell

           46,437       $ 1,665,156   

William A. Hawkins

                     84,369       $ 2,954,866   

 

 

(1) 

Not included in the Number of Shares Acquired on Vesting column and the Value Realized on Vesting column are 43,290 shares for Mr. Hawkins ($1,530,734) which vested May 15, 2009 but were not issued until fiscal year 2012, because they were deferred until after Mr. Hawkins’ separation from service.

 

53


2012 PENSION BENEFITS

The table below includes information with respect to Medtronic’s pension plan for each of the NEOs as of April 27, 2012, 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 ($)
    Payments
During
Last Fiscal
Year ($)
 

Omar Ishrak

  Medtronic, Inc. Retirement Plan     0.83        Not vested      $ 0   
  Medtronic, Inc. NRPS     0.83        Not vested      $ 0   

Gary L. Ellis

  Medtronic, Inc. Retirement Plan     22.42      $ 463,198      $ 0   
  Medtronic, Inc. NRPS     22.42      $ 1,672,981      $ 0   

D. Cameron Findlay(1)

  Medtronic, Inc. Retirement Plan      
  Medtronic, Inc. NRPS      

Michael J. Coyle(1)

  Medtronic, Inc. Retirement Plan      
  Medtronic, Inc. NRPS      

Christopher J. O’Connell

  Medtronic, Inc. Retirement Plan     17.75      $ 211,012      $ 0   
  Medtronic, Inc. NRPS     17.75      $ 543,960      $ 0   

William A. Hawkins

  Medtronic, Inc. Retirement Plan     10.25      $ 231,175      $ 0   
  Medtronic, Inc. NRPS     9.42      $ 1,606,269      $ 86,034   

 

 

(1) 

Messrs. Findlay and Coyle do not participate in the Company’s defined benefit pension plans.

The Retirement Plan is a funded, tax-qualified, noncontributory defined-benefit pension plan that covers all eligible employees employed with the Company prior to April 30, 2005 who elected to remain in the Retirement Plan, including the NEOs. Effective May 1, 2005, the Company froze the Retirement Plan to new entrants and provided all eligible employees the option of continuing to accrue retirement benefits under the Retirement Plan or participate in one of two new options being offered. All eligible NEOs hired prior to May 1, 2005, elected to continue participation in the Retirement Plan. Benefits under the Retirement Plan are based upon the employee’s years of credited service and the average of the employee’s highest five consecutive years of covered compensation during the employee’s career while covered under the Retirement Plan. 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, formula bonus and incentive plan payments, sales commissions, salary reduction contributions (such as to a cafeteria plan or medical plan) or 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. For the most recent plan year, that limit is $245,000. 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 Retirement Plan 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 Retirement Plan. 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. Employees with over 30 years of service receive 0.5% for every year of credited service in excess of 30 years.

 

54


The Retirement Plan currently limits pensions paid under the Retirement Plan to an annual maximum of $195,000, payable at age 65 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 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 Retirement Plan. This 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 that the executive elected to participate in. The NRPS benefit calculated based on the Retirement Plan 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). Upon separation from service, the amount of retirement benefits earned under the NRPS are calculated. When we calculate the monthly benefit we determine the principal amount and the amount of interest to come up with the monthly payment. We determine interest based on a declining balance schedule using an interest rate of 6%. Upon separation from service, the amount of retirement benefits earned under the NRPS are calculated. If the lump sum value is less than $100,000, it is paid out as a lump sum six months after separation from service. If the lump sum 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, if there is no surviving spouse, to the children or if no survivors, the estate.

 

55


2012 NONQUALIFIED DEFERRED COMPENSATION

 

Name

       Executive
Contributions in
Last FY(2)
    Registrants
Contributions
in Last FY
    Aggregate
Earnings
in Last
FY(3)
    Aggregate
Withdrawals/
Distributions
    Aggregate
Balance at
Last FYE(4)
 

Omar Ishrak(1)

   CAP   $ 0      $ 0      $ 0      $ 0      $ 0   
   NRPS   $ 0      $ 0      $ 0      $ 0      $ 0   
   RSUs   $ 0      $ 0      $ 0      $ 0      $ 0   
   ESOP   $ 0      $ 0      $ 0      $ 0      $ 0   

Gary L. Ellis

   CAP   $ 324,009      $ 0      $ 27,918      $ 0      $ 716,215   
   NRPS   $ 0      $ 0      $ 0      $ 0      $ 0   
   RSUs   $ 0      $ 0      $ (94,377   $ 0      $ 1,207,029   
   ESOP   $ 0      $ 0      $ (3,830   $ 0      $ 48,362   

D. Cameron Findlay(1)

   CAP   $ 0      $ 0      $ 0      $ 0      $ 0   
   NRPS   $ 0      $ 30,819      $ 1,600      $ 0      $ 79,482   
   RSUs   $ 0      $ 0      $ 0      $ 0      $ 0   
   ESOP   $ 0      $ 0      $ 0      $ 0      $ 0   

Michael J. Coyle

   CAP   $ 262,989      $ 0      $ 1,112      $ 0      $ 264,101   
   NRPS   $ 0      $ 30,606      $ 1,635      $ 0      $ 61,550   
   RSUs   $ 0      $ 0      $ 0      $ 0      $ 0   
   ESOP   $ 0      $ 0      $ 0      $ 0      $ 0   

Christopher J. O’Connell

   CAP   $ 60,180      $ 0      $ (21,676   $ 0      $ 1,735,215   
   NRPS   $ 0      $ 0      $ 0      $ 0      $ 0   
   RSUs   $ 0      $ 0      $ 0      $ 0      $ 0   
   ESOP   $ 0      $ 0      $ (1,138   $ 0      $ 14,370   

William A. Hawkins

   CAP   $ 0      $ 0      $ 36,817      $ (16,960   $ 2,017,050   
   NRPS   $ 0      $ 0      $ 0      $ 0      $ 0   
   RSUs   $ 0      $ 0      $ (526,141   $ (1,530,734   $ 3,453,677   
   ESOP   $ 0      $ 0      $ (2,628   $ 0      $ 33,178   

 

CAP = Capital Accumulation Plan

NRPS = Nonqualified Retirement Plan Supplement

RSUs = Restricted Stock Units

ESOP = Employee Stock Ownership Plan

 

(1) 

Mr. Ishrak and Findlay have not participated in the Capital Accumulation Plan (CAP).

 

(2) 

The following amounts of Executive Contributions from the table above have been reported in Salary and Non-Equity Incentive Plan Compensation columns in the current year’s Summary Compensation Table:

 

Name

   Contributions  

Omar Ishrak

  

Gary L. Ellis

   $ 324,009   

D. Cameron Findlay

  

Michael J. Coyle

   $ 262,989   

Christopher J. O’Connell

   $ 60,180   

William A. Hawkins

  

 

(3) 

No amounts of Aggregate Earnings from the table above have been reported in the current year’s Summary Compensation Table for any of our NEOs.

 

56


(4) 

The following amounts of Aggregate Balance from the table above have been reported in the Summary Compensation Table from prior fiscal years:

 

Name

   Contributions  

Omar Ishrak

   $ 0   

Gary L. Ellis

   $ 849,796   

D. Cameron Findlay

   $ 0   

Michael J. Coyle

   $ 262,989   

Christopher J. O’Connell

   $ 504,152   

William A. Hawkins

   $ 944,660   

Capital Accumulation Plan

The Capital Accumulation Plan allows U.S. executives of Medtronic to defer:

 

   

Up to 50% of their base salary;

 

   

Up to 100% of their annual incentive plan payments;

 

   

Up to 80% of their commissions (applicable only to those executives in a commission plan); and

 

   

Up to 100% of their cash long-term incentive plan payments.

The minimum amount of each reward element that may be deferred is 10%. Medtronic does not make any contributions to the Capital Accumulation Plan — the aggregate balances shown above represent amounts that the NEOs earned but elected to defer, plus gains (or losses).

 

57


Participants receive credits of gains or losses daily based on funds that are indexed to 26 investment alternatives, which are all also available under the 401(k) Plan. Investment returns for these investment alternatives are shown below:

 

     Return on Funds
April 29, 2011 to
April 30, 2012
 

Medtronic Common Stock Fund

     -6.22

Interest Income Fund

     2.76

Wellin