DEF 14A 1 def14a2018.htm DEF 14A Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
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Mallinckrodt public limited company
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2018
Notice of
Annual General Meeting
of Shareholders and Proxy Statement


























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April 4, 2018




Dear Shareholder,

You are cordially invited to attend the 2018 Annual General Meeting of Mallinckrodt plc, which will be held on Wednesday, May 16, 2018, at 9:30 a.m., local time, at the Sofitel London Heathrow Hotel, Terminal 5, London Heathrow Airport, London TW6 2GD, United Kingdom. Shareholders in Ireland may participate in the Annual General Meeting by audio link at the offices of Arthur Cox, Earlsfort Centre, Dublin 2, Ireland.

Details of the business to be presented at the meeting can be found in the accompanying Proxy Statement. We hope you are planning to attend the meeting. Your vote is important. Whether or not you are able to attend, I encourage you to submit your proxy as soon as possible so that your shares will be represented at the meeting.

On behalf of the Board of Directors and the management of Mallinckrodt, I extend our appreciation for your continued support.

Yours sincerely,
melvindbootha03.jpg

MELVIN D. BOOTH
Chairman



MALLINCKRODT PUBLIC LIMITED COMPANY
Registered In Ireland — No. 522227
Principal Executive Office:
3 Lotus Park, The Causeway,
Staines-Upon-Thames, Surrey TW18 3AG, United Kingdom
NOTICE OF 2018 ANNUAL GENERAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 16, 2018
The 2018 Annual General Meeting of Mallinckrodt plc (“Mallinckrodt” or the “Company”), a company incorporated under the laws of Ireland, will be held on May 16, 2018, at 9:30 a.m., local time, at the Sofitel London Heathrow Hotel, Terminal 5, London Heathrow Airport, London TW6 2GD, United Kingdom, for the following purposes:
1.
By separate resolutions, to elect as Directors for a period of one year, expiring at the end of the Company’s Annual General Meeting of Shareholders in 2019, the following individuals:
(a)
David R. Carlucci
(e)
JoAnn A. Reed
(i)
Kneeland C. Youngblood, M.D.
(b)
J. Martin Carroll
(f)
Angus C. Russell
(j)
Joseph A. Zaccagnino
(c)
Paul R. Carter
(g)
Mark C. Trudeau
 
 
(d)
David Y. Norton
(h)
Anne C. Whitaker
 
 
2.
To hold an advisory non-binding vote to approve the re-appointment of Deloitte & Touche LLP as the independent auditors of the Company and, by binding vote, to authorize the Audit Committee of the Board of Directors (also referred to in this Proxy Statement as the Board) to set the independent auditors’ remuneration.
3.
To hold an advisory vote to approve the Company’s executive compensation.
4.
To approve the Amended and Restated Mallinckrodt Pharmaceuticals Stock and Incentive Plan.
5.
To approve the Board’s authority to issue shares.
6.
To approve the waiver of pre-emption rights (Special Resolution).
7.
To authorize the Company and/or any subsidiary of the Company to make market purchases or overseas market purchases of Company shares.
8.
To authorize the price range at which the Company can re-allot shares that it holds as treasury shares (Special Resolution).
9.
To act on such other business as may properly come before the meeting or any adjournment thereof.
Proposals 1 through 5 and 7 are ordinary resolutions, requiring the approval of a simple majority of the votes cast at the meeting, in person or by proxy. Proposals 6 and 8 are special resolutions, requiring the approval of not less than 75% of the votes cast, in person or by proxy. The foregoing items are more fully described in the Proxy Statement accompanying this Notice of Annual General Meeting of Shareholders. Shareholders as of March 12, 2018, the record date for the Annual General Meeting, are entitled to vote on these matters.
During the meeting, following a review of the Company’s affairs, management will also present and the auditors will report to shareholders on Mallinckrodt’s Irish Statutory Accounts for the fifteen months ended December 29, 2017.
Shareholders in Ireland may participate in the Annual General Meeting by audio link at the offices of Arthur Cox, Earlsfort Centre, Earlsfort Terrace, Dublin 2, Ireland, at 9:30 a.m. local time. See “General Information” for further information on participating in the Annual General Meeting in Ireland.

By Order of the Board of Directors,

sdmsignaturea01.jpg
 
Stephanie D. Miller,
Secretary
April 4, 2018



Whether or not you expect to attend the Annual General Meeting in person, we encourage you to cast your vote promptly so that your shares will be represented and voted at the meeting. Any shareholder entitled to attend and vote at the Annual General Meeting may appoint one or more proxies, who need not be a shareholder(s) of Mallinckrodt to attend, speak and vote on your behalf. Proxies may be appointed via the internet or by phone in the manner set out in our proxy card. Alternatively, they may be appointed by depositing a signed instrument of proxy (or proxy card) with Mallinckrodt plc c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717 (which Broadridge will arrange to forward to Mallinckrodt plc’s registered address electronically) or with Mallinckrodt plc, College Business & Technology Park, Cruiserath, Blanchardstown, Dublin 15, Ireland, in each case at least 48 hours before the meeting. If you wish to appoint a person other than the individuals specified on our proxy card, please contact our Company Secretary and also note that your nominated proxy must attend the Annual General Meeting in person in order for your votes to be cast.
This Proxy Statement, our Annual Report on Form 10-K for the fiscal year ended December 29, 2017 and our Irish Statutory Accounts are available to shareholders of record at proxyvote.com. These materials are also available on the Investor Relations section of our website at mallinckrodt.com.




TABLE OF CONTENTS

Proxy Statement Summary
General Information
Questions and Answers about Proxy Materials, Voting, Attending the Meeting and Other General Information
Corporate Governance
Corporate Governance Guidelines
Independence of Nominees for Director
Director Nominations Process
Majority Vote for Election of Directors
Executive Sessions of the Board
Board Leadership Structure
Code of Ethics
Board Risk Oversight
Compensation Risk Assessment
Transactions with Related Persons
Communications with the Board of Directors
Board of Directors and Board Committees
General
Board Committees
Compensation of Non-Employee Directors
Compensation of Executive Officers
Compensation Discussion and Analysis
Compensation Committee Report on Executive Compensation
Executive Compensation Tables
Security Ownership and Reporting
Security Ownership of Management and Certain Beneficial Owners
Section 16(a) Beneficial Ownership Reporting Compliance
Audit and Audit Committee Matters
Audit and Non-Audit Fees
Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services
Audit Committee Report
Equity Compensation Plan Information
Proposals Requiring Your Vote
Proposals 1(a) through 1(j): Election of Directors
Proposal 2: Advisory Non-Binding Vote to Approve the Re-Appointment of the Independent Auditors and a Binding Vote to Authorize the Audit Committee to Set Their Remuneration
Proposal 3: Advisory Vote to Approve Executive Compensation
Proposal 4: Approve the Amended and Restated Mallinckrodt Pharmaceuticals Stock and Incentive Plan
Proposal 5: Approve the Board’s Authority to Issue Shares
Proposal 6: Approve the Waiver of Pre-emption Rights
Proposal 7: Authorize the Company and/or any Subsidiary of the Company to Make Market Purchases or Overseas Market Purchases of Company Shares
Proposal 8: Authorize the Price Range at Which the Company can Re-Allot Shares That It Holds As Treasury Shares



Other Matters
Presentation of Irish Statutory Accounts
Registered and Principal Executive Offices
Shareholder Proposals for the 2019 Annual General Meeting
United States Securities and Exchange Commission Reports
Delivery of Documents to Shareholders Sharing an Address
General
Appendix A

 


 
 
 
 
 
PROXY STATEMENT SUMMARY

PROXY STATEMENT SUMMARY

This summary highlights information contained elsewhere in this Proxy Statement, which we are making available to you on or about April 4, 2018 on the internet, or by delivering printed versions to you by mail. It does not contain all the information that you should consider in deciding whether to approve the items to be presented at the Annual General Meeting of Mallinckrodt plc (“Mallinckrodt,” the “Company,” “we,” “our” or “us”). You should read this entire Proxy Statement carefully before voting. For information regarding our fiscal 2017 operating performance, please review our Annual Report on Form 10-K.
2018 Annual General Meeting of Shareholders
Date and Time: May 16, 2018, at 9:30 a.m., local time
Place: Sofitel London Heathrow Hotel, Terminal 5, London Heathrow Airport, London TW6 2GD, United Kingdom. Shareholders in Ireland may participate in the Annual General Meeting by audio link at the offices of Arthur Cox, Earlsfort Centre, Dublin 2, Ireland.
Record Date: March 12, 2018
Voting: If you owned Mallinckrodt ordinary shares at the close of business on the record date, then you may vote at the Annual General Meeting by following the procedures outlined in this Proxy Statement. Each ordinary share is entitled to one vote on each matter properly brought before the Annual General Meeting.
Ordinary Shares Outstanding as of Record Date: 86,387,326
Transfer Agent: Computershare Inc. (“Computershare”)
Place of Incorporation: Ireland
Meeting Agenda and Voting Recommendations
 
Proposal
  
Our Board’s Recommendation
1.
Elect directors (page 56)
  
FOR each nominee
2.
Advisory non-binding vote to approve the re-appointment of the independent auditors and binding vote to authorize the Audit Committee of the Board to set the independent auditors’ remuneration (page 59)
  
FOR
3.
Advisory vote to approve executive compensation (page 60)
  
FOR
4.
Approval of the Amended and Restated Mallinckrodt Pharmaceuticals Stock and Incentive Plan (page 61)
 
FOR
5.
Approval of the Board’s authority to issue shares (page 71)
  
FOR
6.
Approval of waiver of pre-emption rights (Special Resolution) (page 72)
 
FOR
7.
Authorization to make market purchases or overseas market purchases of Company Shares (page 73)
 
FOR
8.
Authorization of the price range at which the Company can re-allot shares held as treasury shares (Special Resolution) (page 74)
  
FOR


MALLINCKRODT PUBLIC LIMITED COMPANY – Proxy Statement   1 

 
 
 
PROXY STATEMENT SUMMARY
 
 

Our Director Nominees
Name
Age
Director Since
Principal Occupation
Committee
Memberships
Other Public Company Boards
David R. Carlucci*
63
2013
Former Chairman, Chief Executive Officer and President of IMS Health
Human Resources and Compensation (Chair)
1
J. Martin Carroll*
68
2013
Former President and Chief Executive Officer of Boehringer Ingelheim Corporation
Compliance (Chair); Nominating and Governance; Portfolio
2
Paul R. Carter*
57
Nominee
Former Executive Vice President, Commercial Operations of Gilead Sciences, Inc.
N/A - First time nominee
2
David Y. Norton*
66
2017
Former Company Group Chairman, Global Pharmaceuticals of Johnson & Johnson
Human Resources and Compensation; Portfolio
1
JoAnn A. Reed*
62
2013
Healthcare services consultant and former Senior Vice President, Finance and Chief Financial Officer of Medco Health Solutions
Audit (Chair)
2
Angus C. Russell*
62
2014
Former Chief Executive Officer of Shire plc
Portfolio (Chair); Audit
3
Mark C. Trudeau
56
2013
President and Chief Executive Officer of Mallinckrodt plc
 
1
Anne C. Whitaker*
50
Nominee
President and Chief Executive Officer of KNOW Bio, LLC
N/A - First time nominee
1
Kneeland C. Youngblood, M.D.*
62
2013
Founding Partner of Pharos Capital Group
Compliance; Nominating and Governance
2
Joseph A. Zaccagnino*
71
2013
Former President and Chief Executive Officer of Yale New Haven Health System
Nominating and Governance (Chair); Compliance
0
* Independent Director or Director Nominee
 
Melvin D. Booth, age 73, and Diane H. Gulyas, age 61, are retiring from the Board and, therefore, are not standing for re-election and will no longer serve as members of the Board of Directors following the 2018 Annual General Meeting on May 16, 2018. Following the 2018 Annual General Meeting, Mr. Russell will succeed Mr. Booth as Chairman of the Board and Mr. Norton will succeed Mr. Russell as Chair of the Portfolio Committee. It is also expected that, if elected, Mr. Carter will be appointed to the Audit Committee and Ms. Whitaker will be appointed to the Human Resources and Compensation Committee.


2  MALLINCKRODT PUBLIC LIMITED COMPANY – Proxy Statement  


 
 
 
GENERAL INFORMATION

GENERAL INFORMATION
Questions and Answers about Proxy Materials, Voting, Attending the Meeting and Other General Information
Why did I receive this Proxy Statement?
We are making this Proxy Statement available to you on or about April 4, 2018 on the internet, or by delivering printed versions to you by mail, because our Board of Directors is soliciting your proxy to vote at our 2018 Annual General Meeting on May 16, 2018. This Proxy Statement contains information about the items being voted on at the Annual General Meeting and important information about Mallinckrodt.
This Proxy Statement and the following documents relating to the 2018 Annual General Meeting are available on the Investor Relations section of our website at mallinckrodt.com:
Our Notice of Internet Availability of Proxy Materials;
Our Annual Report on Form 10-K for the fiscal year ended December 29, 2017; and
Our Irish Statutory Accounts for the fifteen months ended December 29, 2017 and the reports of the Directors and auditors thereon.
How do I access the proxy materials and vote my shares?
The instructions for accessing proxy materials and voting can be found in the information you received either by mail or e-mail.
For shareholders who received a notice by mail about the internet availability of proxy materials:  You may access the proxy materials and voting instructions over the internet via the web address provided in the notice. In order to access this material and vote, you will need the control number provided on the notice you received in the mail. You may vote by following the instructions on the notice or on the website.
For shareholders who received a notice by e-mail:  You may access the proxy materials and voting instructions
over the internet via the web address provided in the e-mail. In order to vote, you will need the control number provided in the e-mail. You may vote by following the instructions in the e-mail or on the website.
For shareholders who received the proxy materials by mail:  You may vote your shares by following the instructions provided on the proxy card or voting instruction form. If you vote by internet or telephone, you will need the control number provided on the proxy card or voting instruction form. If you vote by mail, please complete, sign and date the proxy card or voting instruction form and mail it in the accompanying pre-addressed envelope.
Who may vote at the Annual General Meeting and how many votes do I have?
If you owned our ordinary shares at the close of business on the record date, March 12, 2018, then you may vote at the Annual General Meeting by following the procedures outlined in this Proxy Statement. At the close of business on the record date, we had 86,387,326 ordinary shares outstanding and entitled to vote. Each ordinary share is entitled to one vote on each matter properly brought before the Annual General Meeting.
May I vote my shares in person at the Annual General Meeting?
Yes, you may vote your shares in person at the Annual General Meeting as follows:
If you are a shareholder of record and you wish to vote in person at the Annual General Meeting, you may do so. If you do not wish to attend yourself, you may also appoint a proxy or proxies to attend, speak and vote in your place. A proxy does not need to be one of our shareholders. You are not precluded from attending, speaking or voting at the Annual General Meeting, even if you have completed a proxy form. To appoint a proxy other than our designated officers, please contact our Company Secretary.
If you are a beneficial owner of shares and you wish to vote in person at the Annual General Meeting, you must obtain a legal proxy from the bank, brokerage firm or nominee that holds your shares. You will need to bring the legal proxy with you to the meeting and hand it in with a signed ballot that you can request at the meeting. You will not be able to vote your shares at the Annual General Meeting without a legal proxy and a signed ballot.

MALLINCKRODT PUBLIC LIMITED COMPANY – Proxy Statement   3 

 
 
GENERAL INFORMATION
 


Even if you plan to attend the Annual General Meeting, we recommend that you also vote by proxy as described above so that your vote will be counted if you later decide not to attend the meeting.
What is the deadline for voting my shares if I do not vote in person at the Annual General Meeting?
If you are a shareholder of record, you may vote by internet or by telephone until 11:59 p.m., United States Eastern Time, on May 15, 2018.
If you are a beneficial owner of shares held through a bank or brokerage firm, please follow the voting instructions provided by your bank or brokerage firm.
What is the difference between holding shares as a shareholder of record and as a beneficial owner of shares held in street name?
Shareholder of Record.  If you hold ordinary shares and your name appears in the Register of Members of Mallinckrodt, you are considered the shareholder of record of those shares.
Beneficial Owner of Shares Held in Street Name.  If your ordinary shares are held in an account at a brokerage firm, bank, broker-dealer or other similar organization, then you are the beneficial owner of shares held in “street name.” As a beneficial owner, you have the right to direct your bank or brokerage firm how to vote the shares held in your account.
Can I change my vote after I have submitted my proxy?
Yes. You have the right to revoke your proxy before it is voted at the Annual General Meeting. You may vote again on a later date within the proxy voting deadlines described above by internet or by telephone (only your latest proxy submitted prior to the meeting will be counted), or by signing and returning a new proxy card with a later date, or by attending the meeting and voting in person. However, your attendance at the Annual General Meeting will not automatically revoke a previously submitted proxy unless you actually vote in person at the meeting or file a written instrument with our Company Secretary prior to the start of the meeting requesting that your prior proxy be revoked.
What happens if I do not give specific voting instructions when I deliver my proxy?
Shareholders of Record.  If you are a shareholder of record and you:
Indicate when voting by internet or by telephone that you wish to vote as recommended by our Board of Directors; or
If you sign and return a proxy card without giving specific voting instructions,
then the Company-designated proxy holders will vote your shares in the manner recommended by our Board of Directors on all matters presented in this Proxy Statement and as the proxy holders may determine in their discretion regarding any other matters properly presented for a vote at the meeting.
Beneficial Owners of Shares Held in Street Name.  If you are a beneficial owner of shares and your bank or
brokerage firm does not receive instructions from you about how your shares are to be voted, one of two things can happen, depending on the type of proposal. Pursuant to New York Stock Exchange (“NYSE”) rules, brokers have discretionary power to vote your shares with respect to “routine” matters, but they do not have discretionary power to vote your shares on “non-routine” matters. Pursuant to NYSE rules, the election of directors, the advisory vote to approve the Company’s executive compensation and the approval of the amended and restated Stock and Incentive Plan are considered non-routine matters. A bank or brokerage firm may not vote your shares with respect to non-routine matters if you have not provided instructions. This is called a “broker non-vote.” We strongly encourage you to submit your proxy and exercise your right to vote as a shareholder.

4  MALLINCKRODT PUBLIC LIMITED COMPANY – Proxy Statement  


 
 
 
GENERAL INFORMATION

What is the “quorum” requirement for the Annual General Meeting?
In order to conduct any business at the Annual General Meeting, holders of a majority of our ordinary shares outstanding and entitled to vote on the record date must be present in person or represented by valid proxies. This is called a quorum. Your shares will be counted for purposes of determining if there is a quorum, whether representing votes for, against or abstained, or broker non-votes, if you:
Are present and vote in person at the meeting;
Have voted by internet or by telephone; or
Have submitted a proxy card or voting instruction form by mail.
Assuming there is a proper quorum of shares represented at the Annual General Meeting, how many shares are required to approve the proposals being voted upon at the Annual General Meeting?
The voting requirements for each of the proposals are as follows:
 
Proposal
  
Vote Required
1.
Elect directors
  
Majority of votes cast
2.
Advisory non-binding vote to approve the re-appointment of the independent auditors and binding vote to authorize the Audit Committee of the Board to set the independent auditors’ remuneration
  
Majority of votes cast
3.
Advisory vote to approve executive compensation
  
Majority of votes cast
4.
Approve the Amended and Restated Mallinckrodt Pharmaceuticals Stock and Incentive Plan
 
Majority of votes cast
5.
Approve the Board’s authority to issue ordinary shares
 
Majority of votes cast

6.
Approve the waiver of pre-emption rights (Special Resolution)
 
75% of votes cast
7.
Authorization to make market purchases or overseas market purchases of Company shares

  
Majority of votes cast
8.
Authorization of the price range at which the Company can re-allot shares held as treasury shares (Special Resolution)
  
75% of votes cast
How are abstentions and broker non-votes treated?
Abstentions and broker non-votes are considered present for purposes of determining the presence of a quorum. Abstentions and broker non-votes will not be considered votes properly cast at the Annual General Meeting pursuant to our Articles of Association. Because the approval of all of the proposals is based on the votes properly cast at the Annual General Meeting, abstentions and broker non-votes will not have any effect on the outcome of voting on these proposals under Irish law.
However, Proposal 4 is also subject to separate NYSE rules. Under NYSE rules, abstentions will be considered votes cast while broker non-votes will not be considered votes cast. As a result, abstentions will have the effect of a vote against Proposal 4 while broker non-votes will not have any effect on Proposal 4 under NYSE rules.
Why did I receive a notice in the mail regarding the internet availability of the proxy materials instead of a paper copy of the proxy materials?
As explained in more detail below, we are using the “notice and access” system adopted by the U.S. Securities and Exchange Commission (the “SEC”) relating to delivery of our proxy materials over the internet. As a result, we mailed to many of our shareholders a notice about the internet availability of the proxy materials instead of a paper copy of the proxy materials. Shareholders who received the notice will have the ability to access the proxy materials over the internet and to request a paper copy of the proxy materials by mail, by e-mail or by telephone. Instructions on how to access the proxy materials over the internet or to request a paper copy may be found on the notice. In addition, the notice contains instructions on how shareholders may request proxy materials in printed form by mail or electronically by e-mail on an ongoing basis. This notice of internet availability of proxy materials also serves as a Notice of Meeting.

MALLINCKRODT PUBLIC LIMITED COMPANY – Proxy Statement   5 

 
 
GENERAL INFORMATION
 


What are the “notice and access” rules and how do they affect the delivery of the proxy materials?
The SEC’s notice and access rules allow us to deliver proxy materials to our shareholders by posting the materials on an internet website, notifying shareholders of the availability of the proxy materials on the internet and sending paper copies of proxy materials upon shareholder request. We believe that the notice and access rules allow us to use internet technology that many shareholders prefer, continue to provide our shareholders with the information they need and, at the same time, assure more prompt delivery of the proxy materials. The notice and access rules also lower our cost of printing and delivering the proxy materials and minimize the environmental impact of printing paper copies.
Why didn’t I receive a notice in the mail about the internet availability of the proxy materials?
Shareholders who previously elected to access the proxy materials over the internet will not receive a notice in the mail about the internet availability of the proxy materials. Instead, you should have received an e-mail with links to the proxy materials and the proxy voting website. Additionally, we mailed copies of the proxy materials to shareholders who previously requested to receive paper copies instead of the notice.
If you received a paper copy of the proxy materials, you may elect to receive future proxy materials electronically by following the instructions on your proxy card or voting instruction form. Choosing to receive your future proxy materials by e-mail will help us conserve natural resources and reduce the cost of printing and distributing our proxy materials. If you choose to receive future proxy materials by e-mail, you will receive an e-mail with instructions containing a link to the website where those materials are available and a link to the proxy voting website. Your election to receive proxy materials by e-mail will remain in effect until you terminate it.
How do I attend the Annual General Meeting?
All shareholders are invited to attend the Annual General Meeting at the Sofitel London Heathrow Hotel, Terminal 5, London Heathrow Airport, London TW6 2GD, United Kingdom.
Shareholders in Ireland may participate in the Annual General Meeting by audio link at the offices of Arthur Cox, Earlsfort Centre, Earlsfort Terrace, Dublin 2, Ireland.
Shareholders of Record.  For admission to the Annual General Meeting, shareholders of record should bring picture identification to the Registered Shareholders check-in area, where ownership will be verified. If you would like someone to attend on your behalf, please contact our Company Secretary prior to the meeting.
Beneficial Owners of Shares Held in Street Name.  Those who have beneficial ownership of ordinary shares held by a bank, brokerage firm or other nominee should come to the Beneficial Owners check-in area. To be admitted, beneficial owners must bring picture identification, as well as proof from their banks or brokers that they owned our ordinary shares on March 12, 2018, the record date for the Annual General Meeting.
Registration will begin at 9:00 a.m., local time, and the Annual General Meeting will begin at 9:30 a.m., local time. For directions to the Annual General Meeting, please call +44 20 8757 7777.
How will voting on any other business be conducted?
Other than matters incident to the conduct of the Annual General Meeting, we do not know of any business or proposals to be considered at the Annual General Meeting other than those set forth in this Proxy Statement. If any other business is proposed and properly presented at the Annual General Meeting, the proxies received from our shareholders give the proxy holders the authority to vote on the matter at their discretion.
Who will count the votes?
Broadridge Financial Solutions, Inc. will act as the inspector of elections and will tabulate the votes.

6  MALLINCKRODT PUBLIC LIMITED COMPANY – Proxy Statement  


 
 
 
GENERAL INFORMATION

Who will pay the costs of soliciting the proxies?
Mallinckrodt will pay the costs of soliciting proxies. Proxies may be solicited on our behalf by our directors, officers or employees in person or by telephone, facsimile or other electronic means. We have retained Innisfree M&A Incorporated (“Innisfree”) to assist in solicitation of proxies and have agreed to pay Innisfree $15,000, plus out-of-pocket expenses. As required by the SEC and the NYSE, we also will reimburse brokerage firms and other custodians, nominees and fiduciaries, upon request, for their reasonable expenses incurred in sending proxies and proxy materials to beneficial owners of our ordinary shares.
Who is Mallinckrodts transfer agent?
Mallinckrodt’s transfer agent is Computershare. All communications concerning accounts of shareholders of record, including address changes, name changes, inquiries as to requirements to transfer Mallinckrodt ordinary shares and similar issues, can be handled by calling toll-free 1-877-487-1633 (U.S.) or +1-732-645-4170 (outside the U.S.) or by accessing Computershare’s website at computershare.com.
Where can I find more information about Mallinckrodt?
For other information about Mallinckrodt, you can visit our website at mallinckrodt.com.
We use our website as a channel of distribution of important company information, such as press releases, investor presentations and other financial information. We also use our website to expedite public access to time-critical information regarding us in advance of or in lieu of distributing a press release or a filing with the SEC disclosing the same information. Therefore, investors should look to the Investor Relations page of our website for important and time-critical information. Visitors to our website can also register to receive automatic e-mail and other notifications alerting them when new information is made available on the Investor Relations page of our website.
We make our website content available for information purposes only. It should not be relied upon for investment purposes, and it is not incorporated by reference into this Proxy Statement.
How does the change in Mallinckrodts fiscal year end affect this Proxy Statement?
On May 17, 2016, the Board of Directors approved a change in our fiscal year end to the last Friday in December from the last Friday in September. The change in fiscal year became effective for our 2017 fiscal year. As a result of the change in fiscal year end, we have included certain information in this Proxy Statement related to, among other things, our executive and director compensation disclosures for both the period from October 1, 2016 through December 30, 2016 (the “transition period”) and the fiscal year ended December 29, 2017. 


MALLINCKRODT PUBLIC LIMITED COMPANY – Proxy Statement   7 

 
 
CORPORATE GOVERNANCE
 


CORPORATE GOVERNANCE
Our Corporate Governance Guidelines, general approach to corporate governance and internal policies and procedures are guided by U.S. practice and applicable federal securities laws and regulations as well as NYSE requirements. Although we are an Irish public limited company that is tax resident in the United Kingdom (“U.K.”), we are not subject to the listing rules of the Irish Stock Exchange or the listing rules of the U.K. Listing Authority and we are therefore not subject to, nor have we adopted, the U.K. Corporate Governance Code or any other non-statutory Irish or U.K. governance standards or guidelines. While there are many similarities and overlaps between the U.S. corporate governance standards we apply and the U.K. Corporate Governance Code and other Irish and U.K. governance standards or guidelines, there are differences, relating in particular to the extent of the authorization to issue share capital and effect share repurchases that may be granted to the Board of Directors and the criteria for determining the independence of directors.
Our Board of Directors believes that good governance requires not only an effective set of specific practices, but also a culture of responsibility throughout an organization, and governance at Mallinckrodt is intended to achieve both. The Board also believes that good governance ultimately depends on the quality of an organization’s leadership, and it is committed to recruiting and retaining directors and officers of proven leadership ability and personal integrity.
Corporate Governance Guidelines
The Board has adopted Corporate Governance Guidelines designed to assist Mallinckrodt and the Board in implementing effective corporate governance practices. These guidelines, which are reviewed annually by the Nominating and Governance Committee, address, among other things:
Director responsibilities;
Composition and selection of the Board, including qualification standards and independence guidelines;
Majority voting for directors;
The role of the Chairman of the Board or of an independent Lead Director;
Board committee establishment, structure and guidelines;
Officer and director share ownership requirements;
Meetings of non-employee directors;
Director orientation and continuing education;
Board access to management and independent advisors;
Communication with directors;
Board and committee self-evaluations;
Succession planning and management development reviews;
CEO performance reviews;
Recoupment, or “clawback”, of executive compensation; and
Ethics and conflicts of interest.
Our Corporate Governance Guidelines are posted on our website at mallinckrodt.com.

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CORPORATE GOVERNANCE



Independence of Nominees for Director
As noted above, the Corporate Governance Guidelines include criteria adopted by the Board to guide determinations regarding the independence of its members. The criteria, summarized below, are consistent with the NYSE listing standards regarding director independence. To be considered independent, a director must be determined by the Board to have no material relationship, directly or indirectly, with us. In assessing independence, the Board considers all relevant facts and circumstances. In particular, when assessing the materiality of a director’s relationship with us, the Board considers the issue not just from the standpoint of the director, but also from that of the persons or organizations with which the director has an affiliation. A director will not be considered independent if he or she, at the time of determination:
Is, or has been within the prior three years, an employee of Mallinckrodt or any of its subsidiaries;
Has an immediate family member who is, or has been within the prior three years, an executive officer of Mallinckrodt;
Is a current partner or employee of our external auditor;
Has an immediate family member who is a current partner of our external auditor or who is an employee of our external auditor and personally works on our audit;
Has been, or has an immediate family member who has been, within the prior three years, a partner or employee of our external auditor who personally worked on our audit during that time;
Is, or has an immediate family member who is, or has been within the prior three years, employed as an executive officer of another company that has or had on the compensation committee of its board of directors one of our executive officers (during the same period of time);
Has, or has an immediate family member who has, received more than $120,000 in direct compensation from Mallinckrodt, other than director and committee fees and pension or other forms of deferred compensation for prior service (provided such compensation is not contingent in any way on continued service), in any 12-month period within the prior three years (compensation received by an immediate family member for service as an employee, other than as an executive officer, is not included for purposes of this determination);
Is a current employee, or has an immediate family member who is a current executive officer, of a company that does business with Mallinckrodt and has made payments to, or received payments from, Mallinckrodt for property or services in an amount that, in any of the prior three fiscal years, exceeds the greater of $1 million or 2% of such other company’s consolidated gross revenues; or
Is, or his or her spouse is, an executive officer, director or trustee of a charitable organization to which our contributions, not including our matching of charitable contributions by employees, exceed, in any single fiscal year within the prior three years, the greater of $1 million or 2% of such organization’s total charitable receipts during that year.
The Board has considered the independence of its members in light of these criteria, has reviewed our relationships with organizations with which our directors are affiliated and has determined that none of these current business relationships is material to us, any of the organizations involved, or our directors. Based on these considerations, the Board has determined that each of our directors and director nominees, other than Mark C. Trudeau, our President and Chief Executive Officer, satisfies the criteria and is independent. Each independent director is expected to notify the chair of the Nominating and Governance Committee, as soon as reasonably practicable, of changes in his or her personal circumstances that may affect the Board’s evaluation of his or her independence.
Director Nominations Process
The Nominating and Governance Committee is responsible for developing the general criteria, subject to approval by the full Board, used in identifying, evaluating and selecting qualified candidates for election or re-election to the Board. The Nominating and Governance Committee periodically reviews with the Board the appropriate skills and characteristics required of Board members in the context of the then-current make-up of the Board. Final approval of director candidates is determined by the full Board, and invitations to join the Board are extended by the Chairman of the Board on behalf of the entire Board.
The Nominating and Governance Committee, in accordance with our Corporate Governance Guidelines, seeks to create and maintain a Board that is strong in its collective knowledge and has a diversity of backgrounds, skills and experience with respect to accounting and finance, management and leadership, vision and strategy, business

MALLINCKRODT PUBLIC LIMITED COMPANY – Proxy Statement   9 

 
 
CORPORATE GOVERNANCE
 


operations, business judgment, industry knowledge, corporate governance and global markets. When the Nominating and Governance Committee reviews a potential new candidate, the Nominating and Governance Committee looks specifically at the candidate’s qualifications in light of our needs and the needs of the Board at that time, given the then-current mix of director attributes.
As described in our Corporate Governance Guidelines:
Directors should be individuals of the highest ethical character and integrity;
Directors should have demonstrated management ability at senior levels in successful organizations, including as the chief executive officer of a public company or as the leader of a large, multifaceted organization, including government, educational and other non-profit organizations;
Each director should have the ability to provide wise, informed and thoughtful counsel to senior management on a range of issues and be able to express independent opinions, while at the same time working as a member of a team;
Directors should be free from any conflict of interest or business or personal relationship that would interfere with the duty of loyalty owed to us; and
Directors should be independent of any particular constituency and be able to represent all of our shareholders.
The Nominating and Governance Committee assesses independence and also monitors compliance by the members of the Board with the requisite qualifications under NYSE listing standards for populating the Audit, Human Resources and Compensation and Nominating and Governance Committees. Directors may not serve on more than four public company boards of directors (including ours). If the director is employed as CEO of a publicly traded company, the director may serve on no more than three public company boards of directors (including ours).
As provided in its charter, the Nominating and Governance Committee will consider nominations submitted by shareholders. To recommend a nominee, a shareholder should write to our Company Secretary at our registered address, Mallinckrodt plc, College Business & Technology Park, Cruiserath, Blanchardstown, Dublin 15, Ireland. Any such recommendation must include:
The name and address of the candidate;
A brief biographical description, including his or her occupation for at least the last five years, and a statement of the qualifications of the candidate, taking into account the qualification requirements set forth above; and
The candidate’s signed consent to serve as a director if elected and to be named in our Proxy Statement.
The recommendation must also include documentary evidence of ownership of our ordinary shares if the shareholder is a beneficial owner, as well as the date the shares were acquired and the name and address of the shareholder, as required by our Articles of Association.
To be considered by the Nominating and Governance Committee for nomination and inclusion in our Proxy Statement for the 2019 Annual General Meeting, a shareholder recommendation for director must be received by our Company Secretary not earlier than the close of business on January 16, 2019 and not later than the close of business on February 15, 2019. Once our Company Secretary receives the recommendation, we will deliver a questionnaire to the candidate requesting additional information about the candidate’s independence, qualifications and other information that would assist the Nominating and Governance Committee in evaluating the candidate, as well as certain information that must be disclosed about the candidate in our Proxy Statement, if nominated. Candidates must complete and return the questionnaire within the time frame provided to be considered for nomination by the Nominating and Governance Committee.
The Nominating and Governance Committee also receives suggestions for director candidates from Board members and, in its discretion, may also employ a third-party search firm to assist in identifying candidates for director. Mr. Norton, Mr. Carter and Ms. Whitaker were each recommended to our Nominating and Governance Committee by a third-party search firm. Eight of our nominees for director are current members of the Board, whereas Mr. Carter and Ms. Whitaker are being nominated for election to the Board for the first time at the Annual General Meeting. In evaluating candidates for director, the Nominating and Governance Committee uses the guidelines described above, and evaluates shareholder candidates in the same manner as candidates proposed from all other sources. Based on its evaluation, the Nominating and Governance Committee recommended each of

10  MALLINCKRODT PUBLIC LIMITED COMPANY – Proxy Statement  


 
 
 
CORPORATE GOVERNANCE



the nominees for election by the shareholders. More information regarding each director nominee’s qualifications can be found in Proposal 1 later in this Proxy Statement.
Majority Vote for Election of Directors
Directors are elected by the affirmative vote of a majority of the votes cast by shareholders at the Annual General Meeting (present in person or by proxy) and serve for one-year terms. Any nominee for director who does not receive a majority of the votes cast is not elected to the Board and the position that would have been filled by such nominee will become vacant. Given that Irish law does not recognize the concept of a holdover director, incumbent directors who do not receive a majority of the votes cast at the Annual General Meeting are not re-elected to the Board, and immediately following the Annual General Meeting, will no longer be members of the Board.
Irish law does require, however, a minimum of two directors at all times. If an election results in either only one or no directors receiving the required majority vote, either the nominee or each of the two nominees receiving the greatest number of votes in favor of his or her election shall, in accordance with our Articles of Association, hold office until his or her successor(s) is elected.
Executive Sessions of the Board
The independent directors meet in executive session, without members of management present, at each regularly scheduled Board meeting and at such other times as may be deemed appropriate. These executive sessions also may include a discussion with our Chief Executive Officer.
Board Leadership Structure
Since our separation from Covidien plc (“Covidien”) in June 2013, the positions of Chairman of the Board and Chief Executive Officer have been held by separate people, and Mr. Booth has served as Chairman of the Board for this entire period. However, since Mr. Booth is not standing for re-election and thus will no longer be able to serve as Chairman of the Board, the Board has determined that Mr. Russell will succeed Mr. Booth as Chairman of the Board following the 2018 Annual General Meeting.
The Chairman of the Board provides leadership to the Board and works with the Board to define its structure and activities in the fulfillment of its responsibilities. The Chairman of the Board sets the Board agendas with Board and management input, facilitates communication among directors, provides an appropriate information flow to the Board and presides at meetings of the Board and shareholders. The Chairman of the Board works with other Board members to provide strong, independent oversight of our management and affairs. We believe that having a non-executive, independent Chairman of the Board is in the best interests of the Company and our shareholders at this time. The separation of the roles of Chairman of the Board and Chief Executive Officer allows our Chief Executive Officer to focus on managing the Company’s business and operations, and allows our Chairman of the Board to focus on Board matters, especially in light of the high level of regulation and scrutiny of public company boards. Further, we believe that separation of these roles ensures the independence of the Board in its oversight role of evaluating and assessing the Chief Executive Officer and management generally. Future modification of the Board leadership structure will be made at the sole discretion of the Board. A more detailed description of the role and responsibilities of the Chairman of the Board are set forth in our Corporate Governance Guidelines.
Code of Ethics
We have adopted the Mallinckrodt Guide to Business Conduct, which applies to all of our employees, officers and directors and meets the requirements of a “code of ethics” as defined by SEC regulations. We review and revise the Guide to Business Conduct from time to time, most recently in December 2017, to more closely align to our vision. The Guide to Business Conduct also meets the requirements of a code of business conduct and ethics under the listing standards of the NYSE. The Guide to Business Conduct is posted on our website, mallinckrodt.com. We will disclose any material amendments to the Guide to Business Conduct, as well as any waivers for executive officers or directors, on our website.
 

MALLINCKRODT PUBLIC LIMITED COMPANY – Proxy Statement   11 

 
 
CORPORATE GOVERNANCE
 


Board Risk Oversight
Our Board oversees an enterprise-wide approach to risk management designed to support the achievement of organizational objectives, including strategic objectives, to improve long-term organizational performance and enhance shareholder value. A fundamental part of risk management is not only understanding the risks we face and what steps management is taking to manage those risks, but also understanding what level of risk is appropriate for us. The involvement of the full Board in approving our business strategy is a key part of its assessment of management’s appetite for risk and the determination of what constitutes an appropriate level of risk for us. In this process, risk is assessed throughout the business, focusing on three primary areas: financial risk, legal/compliance risk and operational/strategic risk.
While the full Board has the ultimate oversight responsibility for the risk management process, various committees of the Board also have responsibility for risk management. In particular, the Audit Committee focuses on financial risk, including internal controls over financial reporting and receives an annual risk assessment report from our internal auditors. The Compliance Committee assists the Board in fulfilling its oversight responsibility with respect to regulatory, healthcare compliance and public policy issues that affect us and work closely with our legal and regulatory groups. In addition, in setting compensation, the Human Resources and Compensation Committee strives to create incentives that encourage a level of risk-taking behavior consistent with our business strategy. The Compliance Committee conducts an annual assessment of the risk management process and reports its findings to the Board.
Compensation Risk Assessment
At the direction of the Human Resources and Compensation Committee, representatives of our human resources department, along with our Chief Compliance Officer, conducted a risk assessment of our compensation policies and practices during fiscal 2017. This risk assessment consisted of a review of cash and equity compensation provided to our employees, with a focus on compensation payable to senior executives and incentive compensation plans that provide variable compensation to other employees based upon Company and individual performance, with a particular focus on sales compensation. The Human Resources and Compensation Committee and its independent consultant reviewed the findings of this assessment and agreed with the conclusion that our compensation programs are designed with the appropriate balance of risk and reward in relation to our overall business strategy and do not create risk that is reasonably likely to have a material adverse effect on us. The following characteristics of our compensation programs support this finding:
Our use of different types of compensation vehicles that provide a balance of long- and short-term incentives with fixed and variable components;
Our use of a variety of performance metrics, both absolute (e.g., adjusted earnings per share (“EPS”)) and relative to our peers (e.g., total shareholder return);
Our practice of looking beyond results-oriented performance in assessing the contributions of a particular executive;
Our share ownership requirements;
Our executive compensation clawback policy; and
The ability of the Human Resources and Compensation Committee to reduce incentive payouts if deemed appropriate.
Transactions with Related Persons
The Nominating and Governance Committee is responsible for the review and, if appropriate, approval or ratification of “related-person transactions” involving us or our subsidiaries and related persons. Under SEC rules, a related person is a director, nominee for director, executive officer or a beneficial owner of 5% or more of our ordinary shares and their immediate family members. The Board has adopted written policies and procedures that apply to any transaction or series of transactions in which we or one of our subsidiaries is a participant, the amount involved exceeds $120,000 and a related person has a direct or indirect material interest.

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CORPORATE GOVERNANCE



Communications with the Board of Directors
The Board has established a process for interested parties to communicate with members of the Board. If you have a concern, question or complaint regarding our compliance with any policy or law, or would otherwise like to contact the Board, you may reach the Board via e-mail at board.directors@mnk.com. A direct link to this e-mail address can be found on our website. You may also submit communications in writing or by phone. Please refer to the Board contact information that can be found at mallinckrodt.com/Company_Contacts/. All concerns and inquiries are received and reviewed promptly by the Office of the General Counsel. Any significant concerns relating to accounting, internal controls over financial reporting or audit matters are reviewed with the Audit Committee.
All concerns will be addressed by the Office of the General Counsel, unless otherwise instructed by the Audit Committee or the Chairman of the Board. The status of all outstanding concerns is reported to the Chairman of the Board and the Audit Committee on a quarterly basis, and any concern that is determined to pose an immediate threat to us or concern one of our senior officials (any executive officer or any direct report to the President and Chief Executive Officer) is immediately communicated to the Chair of the Audit Committee. The Chairman of the Board or the Audit Committee may determine that certain matters should be presented to the full Board and may direct the retention of outside counsel or other advisors in connection with any concern addressed to them. The Mallinckrodt Guide to Business Conduct prohibits any employee from retaliating against anyone for raising or helping to resolve an integrity question.

MALLINCKRODT PUBLIC LIMITED COMPANY – Proxy Statement   13 

 
 
BOARD OF DIRECTORS AND BOARD COMMITTEES
 


BOARD OF DIRECTORS AND BOARD COMMITTEES
General
Our business, property and affairs are managed under the direction of the Board of Directors. Directors are kept informed about our business through discussions with the Chairman of the Board and the Chief Executive Officer and other officers, by reviewing materials provided to them and by participating in meetings of the Board and its committees. During the transition period and fiscal 2017, the Board held eight meetings. All of our current directors attended over 75% of the total of all meetings of the Board and the committees on which they served during their terms in office during the transition period and fiscal 2017. Our Corporate Governance Guidelines provide that Board members are expected to attend each Annual General Meeting. All of our Board members attended our 2017 Annual General Meeting, with the exception of Mr. Virgil Thompson. Mr. Thompson did not stand for re-election at our 2017 Annual General Meeting and therefore did not attend.
Board Committees
The Board has a separately designated Audit Committee established in accordance with the Securities Exchange Act of 1934, as amended (“Exchange Act”), as well as a Human Resources and Compensation Committee, a Nominating and Governance Committee, a Compliance Committee and a Portfolio Committee. Membership and chairs of the committees are recommended by the Nominating and Governance Committee and selected by the Board. The committees report on their activities to the Board at each regular Board meeting.
The table below provides Board and committee membership information as of the date of this Proxy Statement.
 
 
Audit
Committee
 
Human 
Resources
and 
Compensation
Committee
 
Nominating and
Governance
Committee
 
Compliance
Committee
 
Portfolio
Committee
Non-Employee Directors
 
 
 
 
 
 
 
 
 
 
Melvin D. Booth chairmanoftheboarda03.jpg
 
 membera03.jpg
 
 
 
 
 
 
 
 membera03.jpg
David R. Carlucci
 
 
 
 chairpersona03.jpg
 
 
 
 
 
 
J. Martin Carroll
 
 
 
 
 
 membera03.jpg
 
 chairpersona03.jpg
 
 membera03.jpg
Diane H. Gulyas
 
 
 
 membera03.jpg
 
 
 
 
 
 
David Y. Norton
 
 
 
 membera03.jpg
 
 
 
 
 
 membera03.jpg
JoAnn A. Reed
 
 chairpersona03.jpg
 
 
 
 
 
 
 
 
Angus C. Russell
 
 membera03.jpg
 
 
 
 
 
 
 
 chairpersona03.jpg
Kneeland C. Youngblood, M.D.
 
 
 
 
 
 membera03.jpg
 
 membera03.jpg
 
 
Joseph A. Zaccagnino
 
 
 
 
 
 chairpersona03.jpg
 
 membera03.jpg
 
 
Employee Director
Mark C. Trudeau
 
 
 
 
 
 
 
 
 
 
Number of Meetings Held in Transition Period
 
2
 
2
 
1
 
1
 
1
Number of Meetings Held in Fiscal 2017
 
11
 
4
 
5
 
4
 
8
chairmanoftheboarda03.jpg
 
chairpersona03.jpg
 
membera03.jpg
Chairman of the Board
 
Chairperson
 
Member
Mr. Booth, age 73, and Ms. Gulyas, age 61, are retiring from the Board and, therefore, are not standing for re-election and will no longer serve as members of the Board of Directors following the 2018 Annual General Meeting on May 16, 2018. Following the 2018 Annual General Meeting, Mr. Russell will succeed Mr. Booth as Chairman of the Board and Mr. Norton will succeed Mr. Russell as Chair of the Portfolio Committee. It is also expected that, if elected, Mr. Carter will be appointed to the Audit Committee and Ms. Whitaker will be appointed to the Human Resources and Compensation Committee.

14  MALLINCKRODT PUBLIC LIMITED COMPANY – Proxy Statement  


 
 
 
BOARD OF DIRECTORS AND BOARD COMMITTEES

Audit Committee
The Audit Committee monitors the integrity of our financial statements, the independence and qualifications of the independent auditors, the performance of our internal auditors and independent auditors, our compliance with certain legal and regulatory requirements and the effectiveness of our internal controls. The Audit Committee is responsible for selecting, retaining, evaluating, setting the remuneration of and, if appropriate, recommending the termination of our independent auditors. The current members of the Audit Committee are Ms. Reed, Mr. Booth, and Mr. Russell. Ms. Gulyas served as a member of the Audit Committee until November 17, 2016. If elected, it is anticipated that Mr. Carter will serve as a member of the Audit Committee. Each of them is independent under SEC rules and NYSE listing standards applicable to audit committee members. Ms. Reed is the Chair of the Audit Committee. The Board has determined that Ms. Reed is an audit committee financial expert. The Audit Committee operates under a charter approved by the Board, which is posted on our website at mallinckrodt.com.
Human Resources and Compensation Committee
The Human Resources and Compensation Committee reviews and approves compensation and benefits policies and objectives, determines whether our officers and employees are compensated according to those objectives and carries out the Board’s responsibilities relating to executive compensation. The current members of the Human Resources and Compensation Committee are Mr. Carlucci, Ms. Gulyas and Mr. Norton, each of whom is independent under NYSE listing standards applicable to compensation committee members. Mr. Thompson served as a member of the Human Resources and Compensation Committee until March 1, 2017 while Ms. Gulyas and Mr. Norton were appointed to serve on the Human Resources and Compensation Committee on November 17, 2016 and September 20, 2017, respectively. If elected, it is anticipated that Ms. Whitaker will serve as a member of the Human Resources and Compensation Committee. Mr. Carlucci is the Chair of the Human Resources and Compensation Committee. The Human Resources and Compensation Committee operates under a charter approved by the Board, which is posted on our website at mallinckrodt.com.
Nominating and Governance Committee
The Nominating and Governance Committee is responsible for identifying individuals qualified to become Board members, recommending to the Board the director nominees for election at the Annual General Meeting, developing and recommending to the Board our Corporate Governance Guidelines and taking a general leadership role in our corporate governance. The Nominating and Governance Committee also reviews the succession planning process relating to the Chief Executive Officer. The members of the Nominating and Governance Committee are Mr. Zaccagnino, Mr. Carroll and Dr. Youngblood, each of whom is independent under NYSE listing standards. Mr. Zaccagnino is the Chair of the Nominating and Governance Committee. The Nominating and Governance Committee operates under a charter approved by the Board, which is posted on our website at mallinckrodt.com.
Compliance Committee
The Compliance Committee assists the Board in fulfilling its oversight responsibility with respect to regulatory, healthcare compliance and public policy issues that affect us. The members of the Compliance Committee are Mr. Carroll, Dr. Youngblood and Mr. Zaccagnino, each of whom is independent under NYSE listing standards. Mr. Carroll serves as the Chair of the Compliance Committee. The Compliance Committee operates under a charter approved by the Board, which is posted on our website at mallinckrodt.com.


MALLINCKRODT PUBLIC LIMITED COMPANY – Proxy Statement   15 

 
 
BOARD OF DIRECTORS AND BOARD COMMITTEES
 


Portfolio Committee
The Portfolio Committee is appointed by the Board of Directors to assist in fulfilling its oversight responsibility by reviewing, monitoring and advising the full Board on major corporate actions including external business development, portfolio refinement and divestitures, and internal research and development investments and activities. The members of the Portfolio Committee are Mr. Booth, Mr. Carroll, Mr. Norton and Mr. Russell, all of whom are independent under NYSE listing standards. Mr. Carroll and Mr. Norton were appointed to serve on the Portfolio Committee on March 2, 2017 and September 20, 2017, respectively. Mr. Russell currently serves as the Chair of the Portfolio Committee but it is anticipated that Mr. Norton will serve as the Chair of the Portfolio Committee following the 2018 Annual General Meeting of Shareholders. The Portfolio Committee operates under a charter approved by the Board, which is posted on our website at mallinckrodt.com.

16  MALLINCKRODT PUBLIC LIMITED COMPANY – Proxy Statement  


 
 
 
COMPENSATION OF NON-EMPLOYEE DIRECTORS


COMPENSATION OF NON-EMPLOYEE DIRECTORS
The Board of Directors has approved a compensation structure for non-employee directors consisting of equity awards, an annual cash retainer and supplemental cash retainers. This compensation structure was determined in conjunction with the Nominating and Governance Committee, after reviewing data and analyses from the Nominating and Governance Committee’s independent compensation consultant, Willis Towers Watson.
Cash Retainers
Board members.  The cash retainers are paid in quarterly installments at the end of each quarter. Directors joining the Board other than on the first day of a quarter receive a cash retainer pro-rated for the number of days served during their initial quarter of service. During fiscal 2017, the annual cash retainer for all directors was $100,000.
Committee Chairs.  The Chair of the Audit Committee receives a supplemental annual cash retainer of $25,000. The Chair of the Human Resources and Compensation Committee receives a supplemental annual cash retainer of $20,000. The Chairs of the Compliance Committee, the Nominating and Governance Committee and the Portfolio Committee each receive a supplemental annual cash retainer of $15,000.
Committee Members.  Each member of a committee (excluding committee chairs) receives a supplemental annual cash retainer of $5,000.
Non-Executive Chairman of the Board.  Our non-executive Chairman receives a supplemental annual cash retainer of $50,000.
Transition Period. To cover services performed during the transition period, our non-employee directors received retainers representing one-fourth of the annual amounts to reflect the three-month duration of the transition period.
Equity Awards
Restricted Units.  On October 1, 2016, each non-employee director received a grant of restricted units with a value of $73,750 which vested on October 1, 2017, representing a pro-rated annual equity grant to cover services performed during the transition period. At the time of our 2017 Annual General Meeting, each non-employee director received an annual grant of restricted units with a value of $295,000. Additionally, our non-executive Chairman received, at the time of our 2017 Annual General Meeting, additional restricted units with a value of $112,000. The 2017 awards vested on March 1, 2018.
New directors receive a pro-rated annual equity grant. A pro-rated annual equity grant will not be granted to any new director who commences service less than three months prior to the vesting date.
Other
Pursuant to our company-wide Matching Gift Program, we match employee and director contributions to charitable organizations up to $2,500 (which was extended to $3,000 for the period of October 1, 2016 through December 31, 2017 in connection with our transition to a new fiscal year end). Directors are also reimbursed for reasonable out-of-pocket expenses incurred in attending Board meetings, committee meetings and shareholder meetings. Directors are provided with chartered private or commercial aircraft in order to travel to and from such meetings.
Director Share Retention and Ownership Guidelines
As set forth in our Corporate Governance Guidelines, all non-employee directors are required to hold Mallinckrodt ordinary shares with a market value of at least five times the annual cash retainer. In determining a director’s ownership, shares held directly as well as shares underlying restricted units subject to time-based vesting (less a 40% tax assumption) are included. Shares underlying unexercised stock options are not included in the calculation. Until the required ownership level is achieved, the non-employee directors are required to retain net after tax shares received upon vesting of restricted units.

MALLINCKRODT PUBLIC LIMITED COMPANY – Proxy Statement   17 

 
 
COMPENSATION OF NON-EMPLOYEE DIRECTORS
 


The following table provides information concerning the compensation paid by us to each of our non-employee directors for the transition period and the fiscal year ended December 29, 2017. Compensation for Mark C. Trudeau, our President and Chief Executive Officer, is shown in the Summary Compensation Table. Mr. Trudeau receives no additional compensation for his services as a director.
2017 Director Compensation Table
Name
 
Period
 
Fees Earned or
Paid in Cash
($)
 
Stock
Awards
($)(1)
 
All Other
Compensation
($)(2)
 
Total
($)
Melvin D. Booth
 
2017
 
160,000

 
407,000

 
3,000

 
570,000

 
 
Transition Period
 
40,000

 
73,750

 

 
113,750

David R. Carlucci
 
2017
 
120,000

 
295,000

 

 
415,000

 
 
Transition Period
 
30,000

 
73,750

 

 
103,750

J. Martin Carroll
 
2017
 
124,167

 
295,000

 
1,750

 
420,917

 
 
Transition Period
 
30,000

 
73,750

 
1,250

 
105,000

Diane H. Gulyas
 
2017
 
105,000

 
295,000

 
3,000

 
403,000

 
 
Transition Period
 
26,250

 
73,750

 

 
100,000

David Y. Norton (3)
 
2017
 
30,522

 
193,179

 

 
223,701

 
 
Transition Period
 

 

 

 

JoAnn A. Reed
 
2017
 
125,000

 
295,000

 

 
420,000

 
 
Transition Period
 
31,250

 
73,750

 

 
105,000

Angus C. Russell
 
2017
 
120,000

 
295,000

 

 
415,000

 
 
Transition Period
 
30,000

 
73,750

 

 
103,750

Virgil D. Thompson (4)
 
2017
 
17,500

 

 

 
17,500

 
 
Transition Period
 
26,250

 
73,750

 

 
100,000

Kneeland C. Youngblood, M.D.
 
2017
 
110,000

 
295,000

 

 
405,000

 
 
Transition Period
 
27,500

 
73,750

 

 
101,250

Joseph A. Zaccagnino
 
2017
 
120,000

 
295,000

 

 
415,000

 
 
Transition Period
 
30,000

 
73,750

 

 
103,750

 
(1)
The amounts reported reflect the aggregate grant date fair value of restricted units granted in fiscal 2017, calculated in accordance with Accounting Standards Codification 718. The grant date fair value does not necessarily correspond to the actual value that will be recognized by each director, which will likely vary based on a number of factors, including our financial performance, stock price fluctuations and applicable vesting. As of December 29, 2017, Mr. Booth had 7,896 unvested restricted units outstanding, Mr. Norton had 5,601 unvested restricted units outstanding and each other current director listed in the table above had 5,723 unvested restricted units outstanding.
(2)
Reflects Company match of directors’ charitable contributions pursuant to Mallinckrodt’s Matching Gift Program.
(3)
Mr. Norton was appointed to the Board on September 20, 2017.
(4)
Mr. Thompson retired from the Board on March 1, 2017.


18  MALLINCKRODT PUBLIC LIMITED COMPANY – Proxy Statement  


 
 
 
COMPENSATION DISCUSSION AND ANALYSIS



COMPENSATION OF EXECUTIVE OFFICERS

COMPENSATION DISCUSSION AND ANALYSIS
Our Named Executive Officers
For purposes of the Compensation Discussion and Analysis (“CD&A”) and executive compensation disclosures, the individuals listed below are referred to collectively as our named executive officers (“NEOs”).
Mark C. Trudeau, President and Chief Executive Officer.
Matthew K. Harbaugh, Executive Vice President and Chief Financial Officer.
Steven Romano, M.D., Executive Vice President and Chief Scientific Officer.
Dr. Frank Scholz, Executive Vice President of Global Operations and President, Specialty Generics.
Hugh M. O’Neill, Executive Vice President and President, Autoimmune and Rare Diseases.
Fiscal 2017 Company Performance Highlights
In 2017, we made strong progress in strategically reshaping our business to become an innovation-focused specialty pharmaceutical company. With the recent acquisitions of Sucampo Pharmaceuticals, Inc. and other transactions building out our roster of marketed brands as well as our branded pipeline, we are poised to begin fulfilling the promise of the innovative development portfolio we’ve built.
In the last five years we’ve divested declining non-core assets and invested in not only a cadre of strong marketed brands that have established platforms in the hospital and rare diseases spaces, but have also brought in mid- and late-stage development programs that, if approved, will serve patient populations with complex, often devastating conditions and create a company whose success will be driven by patient-centric innovation.
2017 Key performance highlights: You should refer to the more comprehensive discussions contained in our our Annual Report on Form 10-K for the fiscal year ended December 29, 2017 for additional information about these highlights. Key performance highlights for fiscal 2017 include:
Net sales were $3.222 billion, compared with $3.381 billion in the prior year, representing a 4.7% decrease.
Income from continuing operations was $1.771.2 million, compared with $489.0 million in fiscal 2016. 
Reduced interest-bearing deferred tax liabilities to $554 million from $1,801 million at December 30, 2016.
Diluted earnings per share from continuing operations were $18.09, compared with $4.39 in fiscal 2016.
Net cash provided by operating activities was $727.3 million, compared with $1,184.6 million in fiscal 2016.
Expanded our Specialty Brands business through the acquisitions of InfaCare Pharmaceutical Corporation, Ocera Therapeutics, Inc. and Sucampo Pharmaceuticals, Inc., including their commercial and developmental products MNK-6105 (OCR-002), AMITIZA® (lubiprostone), RESCULA® (unoprostone isopropyl ophthalmic solution) 0.15%, VTS-270 and CPP-1X/sulindac and the license of NeuroproteXeon Inc.’s investigational, pharmaceutical-grade xenon gas for inhalation therapy.
Completed the divestiture of our Nuclear Imaging and Intrathecal businesses and entered into an agreement to sell two of our hemostasis products. Further, we made preparations for and announced in early 2018 the commencement of a process to dispose a portion of our business which is referred to as “the Specialty Generics Disposal Group” to further our strategic evolution to being a brands-focused innovation-driven specialty pharmaceutical growth company.

MALLINCKRODT PUBLIC LIMITED COMPANY – Proxy Statement   19 

 
 
COMPENSATION DISCUSSION AND ANALYSIS
 


Executive Summary
We believe the executive compensation practices put in place by our Board play a key role in driving our performance. These practices are designed to maximize long-term shareholder value and return. These practices reward performance when financial, operational and strategic performance goals are achieved that drive long-term value for our shareholders through the delivery of innovative clinical solutions to providers and diverse patient populations with unmet medical needs. Our compensation practices are heavily weighted toward long-term stock-based compensation (83% for our CEO and an average of 71% for our other NEOs) that aligns the long-term interests of executives with those of shareholders. As such actual realized compensation is higher when we overperform and lower when we underperform. We expect our executives to be fully accountable in pursuing our short and long-term objectives, and have implemented policies and practices that provide appropriate checks and balances to ensure proper compliance and discourage excessive risk-taking behavior.
Management and the Board believe in and apply sound executive compensation practices to promote the alignment of all stakeholders:
What We Do
ü
Align to a peer group that reflects our business model
ü
Engage Independent and expert compensation committee consultants
ü
Ensure the majority of compensation is at risk and paid on performance
ü
Link a substantial portion of total executive compensation to performance and shareholder value creation
ü
Establish challenging threshold performance goals and maximum performance goals that reflect stretch levels of performance
ü
Cap annual cash incentive and long-term performance unit payouts for corporate performance measures at 200% of the target award
ü
Allow for little overlap in performance metrics between annual and long-term incentives, with the exception of revenue which is key strategic focus for the company
ü
Include both relative and absolute performance metrics in our long-term performance units program
ü
Provide minimum vesting of three years on equity awards for executives
ü
Require robust stock ownership guidelines with retention requirement
ü
Require termination of employment in addition to a change in control for accelerated equity vesting (double trigger)
ü
Require non-competition, non-solicitation and confidentiality agreement for eligibility in severance and change in control plans
ü
Ensure freedom for Human Resources and Compensation Committee (“HRCC”) discretion to apply negative adjustments to incentive awards
ü
Have an executive compensation clawback policy that allows us to recover performance-based cash and equity incentive compensation paid to executives in various circumstances, including for misconduct
ü
Review annually our compensation programs and policies to ensure they do not encourage excessive risk-taking
ü
Conduct annual “say-on-pay” advisory votes
What We Don’t Do
û
Enter into long-term employment contracts with our executive officers (except as required outside the United States)
û
Provide excessive executive perquisites
û
Reprice or exchange equity awards without shareholder approval
û
Allow hedging and pledging of company securities
û
Provide change of control excise tax gross-ups
û
Provide any other tax gross-ups to our executives, with the exception of relocation expenses, limited business-related benefits or in connection with expatriate / international assignments

20  MALLINCKRODT PUBLIC LIMITED COMPANY – Proxy Statement  


 
 
 
COMPENSATION DISCUSSION AND ANALYSIS


Executive Compensation Philosophy
Our compensation philosophy provides a governance framework for our executive compensation practices. The HRCC in its process of governance applies sound judgment and discretion in the application of the following:
Compensation should strongly align the interests of executive officers with those of patients, employees and shareholders;
Compensation policies and practices should support effective governance;
Compensation should align management with the long-term financial interests of shareholders through the use of stock-based compensation and executive stock ownership;
The focus should be on total compensation opportunity (base salary, annual incentive compensation and long-term incentive compensation) with an explicit role for each element;
Compensation should be competitive, but not excessive, in order to attract and retain talented executive officers who can achieve our long-term strategic goals and create shareholder value;
Compensation earned should be aligned with company performance and investor returns;
Compensation should reward corporate, group and individual performance to encourage collaboration and collective interests, while rewarding key contributors;
Compensation should support our business strategy in the areas of patient focus, customer focus, globalization, operational excellence and innovation, as well as our talent strategy;
The reward elements should be balanced, with an emphasis on performance-based compensation;
Compensation goals and practices should be transparent and easy to communicate, both internally and externally;
Goal setting is a key activity and should be conducted in a rigorous manner resulting in targets that reflect stretch, yet achievable, levels of performance; and
Pay programs and oversight of these programs should avoid excessive compensation risk that could adversely impact the Company.
Transition Period
On May 17, 2016, our Board of Directors approved a change in our fiscal year end from the last Friday in September to the last Friday in December. As a result, we have included disclosures in certain tables below, including our Summary Compensation Table, covering the three-month transition period of October 1, 2016 through December 30, 2016 (in addition to the twelve-month period of December 31, 2016 through December 29, 2017). Unless otherwise stated, all references to “fiscal 2017” pertain to the twelve-month period covering December 31, 2016 through December 29, 2017, all references to the “transition period” pertain to the three-month period covering October 1, 2016 through December 30, 2016, all references to “fiscal 2016” pertain to the twelve-month period covering September 26, 2015 through September 30, 2016 and all references to “fiscal 2015” pertain to the twelve-month period covering September 27, 2014 through September 25, 2015.

MALLINCKRODT PUBLIC LIMITED COMPANY – Proxy Statement   21 

 
 
COMPENSATION DISCUSSION AND ANALYSIS
 


2017 Compensation Program
The following table summarizes the three major elements of our executive compensation program and the objective of each element. They are designed to work together, and the HRCC views the executive compensation program as an integrated total compensation program. The mix of compensation elements varies based on an executive’s position and responsibilities.
Element
Key Features
Objective
Base salary
Fixed cash compensation
Offer a stable income, intended to reflect the market value of the executive’s role, with differentiation for strategic significance, individual capability and experience
Annual incentive compensation
Market-competitive, performance-based cash bonus opportunity tied to achievement of Company and individual goals
 
Initial calculation for each executive’s annual cash incentive is based on performance versus pre-determined goals tied to financial performance measures. In addition, each executive’s individual performance can modify the amount received
Focus executives on pre-set patient, employee and shareholder value objectives each year and drive specific behaviors that foster short- and long-term growth and profitability
Long-term incentive compensation
Awards of stock options, restricted units and performance units
 
Stock options generally have ten-year terms and vest in four equal installments on each anniversary of the grant date
 
Restricted units generally vest in four equal installments on each anniversary of the grant date. Each unit is converted into one ordinary share at vesting
 
Performance units may be earned from 0% to 200% of the target number of units, based on performance over a three-year performance period. For the fiscal 2017-2019 performance period, half of the performance units are based on our adjusted Net Revenue Compound Annual Growth Rate, while the other half are based on our relative total shareholder return versus a Total Shareholder Return (TSR) performance peer group, in each case over the performance period. To the extent earned, performance units are delivered as ordinary shares after the end of the performance period.
Align the interests of executives with the interests of shareholders in long-term growth and stock performance, reward executives for the achievement of multi-year performance objectives and shareholder value creation and promote retention
The following charts illustrate, for fiscal 2017, the distribution of value among the three elements of direct compensation — base salary, target annual incentive compensation and target long-term incentive compensation — for our CEO and on average for the other NEOs. The long-term equity incentive component is based on the dollar value awarded by the HRCC before conversion to the various forms of equity awards — see the “Fiscal 2017 Long-Term Incentive Compensation” section of this CD&A. Of target total direct compensation, 92% of our CEO’s and, on average, 82% of the other NEOs’ was variable and at risk, either because it is subject to performance goals, the fluctuations of our stock price, or both.

22  MALLINCKRODT PUBLIC LIMITED COMPANY – Proxy Statement  


 
 
 
COMPENSATION DISCUSSION AND ANALYSIS


paymixchart2017a03.jpg
We provide all employees, including our executive officers, with other benefits, consisting of retirement benefits (including both qualified and non-qualified defined contribution retirement plans), health and welfare benefits and an employee stock purchase plan (U.S. employees). In addition, our executive officers are provided with change in control and severance benefits as well as an executive physical program and an executive financial and tax planning program. These benefits are intended to be competitive with the practices of our peer companies and consistent with shareholder interests.
2017 Say-on-Pay Shareholder Vote
At our 2017 Annual General Meeting, we provided our shareholders with the opportunity to cast an advisory vote on our fiscal 2016 executive compensation program. Over 95% of the votes cast were voted in favor of the proposal. We believe the 2017 say-on-pay vote indicates that our shareholders are generally supportive of our approach to executive compensation. Accordingly, we did not make changes to our executive compensation arrangements in fiscal 2017 in response to our say-on-pay vote. In the future, we will continue to consider the outcome of advisory say-on-pay votes and other shareholder feedback when making compensation decisions regarding our executive officers.
Compensation Decision-Making
Role of the HRCC and Management.  The HRCC makes all decisions regarding senior management compensation, which includes our NEOs and certain other senior officers. The HRCC reviews our executive compensation policies, practices and plans on an ongoing basis to determine whether they are consistent with our compensation philosophy and objectives, and whether they need to be modified in light of changes in our business or the market in general. The HRCC meets periodically with management to review compensation policies and specific levels of compensation paid to officers and other key personnel and approves compensation and programs for executive officers other than our CEO. The HRCC reports to the Board on compensation paid to officers and other key personnel and makes recommendations to the Board regarding CEO compensation policies and programs. In addition, our CEO makes recommendations to the HRCC regarding salary adjustments and the setting of annual and long-term incentive targets and awards for executive officers other than himself, including the other NEOs.
In determining the compensation of an executive officer, the HRCC considers various factors, including:
Company, business unit and individual performance;
Market data on compensation opportunities of officers with similar responsibilities at comparable companies;
The officer’s current and future responsibilities and potential contribution to our performance;
Retention considerations; and
Compensation levels of our executives with similar levels of responsibility (“internal equity”).
Role of the Compensation Consultant.  The HRCC utilizes the services of independent compensation consultants from time to time and has the sole authority to retain, compensate and terminate any such compensation consultants. During the transition period and fiscal 2017, Willis Towers Watson (“WTW”) served as independent

MALLINCKRODT PUBLIC LIMITED COMPANY – Proxy Statement   23 

 
 
COMPENSATION DISCUSSION AND ANALYSIS
 


compensation consultant to the HRCC, compensation paid to WTW for these services totaled approximately $224,000. WTW reports directly to the HRCC, and within their scope of services WTW reviews HRCC materials, attends HRCC meetings, reviews our peer group and competitive positioning of individual executives versus market, assists the HRCC with program design, provides advice to the HRCC as compensation issues arise and provides recommendations on certain specific aspects of our compensation programs. The HRCC assessed the independence of WTW and determined that WTW is independent and that no conflicts of interest exist currently or existed during the transition period or fiscal 2017. WTW also has been retained by the Nominating and Governance Committee as its independent compensation consultant in all matters relating to non-employee director compensation.
Like many industries, the Human Resource Consulting and Advisory Services industry has and continues to experience significant consolidation. As a result, Mallinckrodt has maintained relationships with parts of the legacy organizations that now form WTW. During fiscal 2017, in addition to the Board retaining WTW to provide services to the HRCC, Mallinckrodt management engaged WTW to provide services relating to the strategy and governance of our health and welfare programs, and a one-time engagement in support of the vendor search and transition of our defined contribution retirement plan. Total fees in relation to work in health and wellness and retirement during fiscal 2017 were approximately $430,000. In addition, we participate in a number of WTW general compensation surveys and purchase subsequent U.S. and international compensation reports. In fiscal 2017, our expenditure for these products was approximately $60,000. Not considering the one-time engagement undertaken in fiscal 2017, our average annual expenditure for services from the WTW benefits segments for health and group retirement services and compensation survey data is approximately $200,000.
Peer Group.  When reviewing compensation programs for the executive officers, the HRCC considers the compensation practices of a group of companies of reasonably similar size and that may be in competition with us for talent. Given the rapidly changing business landscape of the pharmaceutical industry, including consolidations, it is important to maintain a current view of peer competitors. The HRCC periodically reviews the peer group and approves changes, based on an established set of criteria and the recommendation of WTW. In March 2016, the HRCC approved a peer group that included the 16 companies listed below for fiscal 2017. The specific companies were selected using objective size criteria, in a range that we believe is appropriate for benchmarking executive compensation. We believe the peer group includes companies with which we compete for business, executive talent and/or investment dollars.
The following table sets forth the peer group companies approved by the HRCC for use in the fiscal 2017 competitive analysis of executive compensation:
Alexion Pharmaceuticals, Inc.

 
Endo International plc
 
Perrigo Company plc
Biogen Inc.
 
Impax Laboratories
 
Shire plc
BioMarin Pharmaceutical Inc.
 
Incyte Corp.
 
United Therapeutics Corporation
Celgene Corporation
 
Jazz Pharmaceuticals plc
 
Valeant Pharmaceuticals International, Inc.
CSL Limited
 
Medivation, Inc.*
 
Vertex Pharmaceuticals Incorporated
 
 
Mylan N.V.
 
 
* Acquired by Pfizer Inc. in September 2016.
In May 2017, the HRCC, with the assistance of WTW, analyzed this peer group to determine whether it should be revised. After consideration of various factors, the HRCC made the following changes to the peer group, effective for fiscal 2018:
Peer Companies Removed
 
Peer Companies Added
Celgene Corporation 1
 
Horizon Pharma plc
Biogen Inc. 1
 
Regeneron Pharmaceuticals, Inc.
 
 
Zoetis Inc.
1 Less comparable to us due to size.

24  MALLINCKRODT PUBLIC LIMITED COMPANY – Proxy Statement  


 
 
 
COMPENSATION DISCUSSION AND ANALYSIS


In selecting the peer group, the HRCC considered revenue and market capitalization, in addition to business similarity and our market for executive talent. Summary information is provided below in terms of revenue and market capitalization for the fiscal 2017 peer group at the time the fiscal 2017 peer group was approved by the HRCC (based on publicly available information as of February 16, 2016):
 
Revenue for the
Last Twelve Months
($ Millions)
Market Capitalization
($ Millions)
75th Percentile
$9,256
$32,079
Median
$3,354
$21,027
25th Percentile
$1,032
$11,458
 
 
 
Mallinckrodt
$3,494
$7,187
Mallinckrodt Percentile
50%
14%
The HRCC also reviews compensation data from life sciences and general industry surveys provided by AON Radford and WTW.
The HRCC maintains a separate, broader peer group that is used to assess Relative Total Shareholder Return (“TSR”) for a portion of the value of Performance Units that vest over a three year performance period. The TSR peer companies and details related to the determination of that peer group are discussed in the Performance Units section beginning on page 31.
Transition Period and Fiscal Year 2017 Executive Compensation Decisions
The HRCC took many factors into account in making compensation decisions during the transition period and in fiscal year 2017. The HRCC process started with the full Board’s review of the Company’s strategy, progress against the stated transformation goals toward becoming a specialty branded pharmaceutical company, operating performance in prior years and performance goals for the coming fiscal year. In addition, with support from WTW, the HRCC looked at the potential impact of current and emerging external factors such as the dynamic competitive landscape for executive talent, a review of compensation data and market trends from the peer group and external surveys. Finally, the HRCC weighed internal factors specific to Mallinckrodt such as executive tenure and experience, role and individual performance.
In considering fiscal 2017, the HRCC recognized the progress against the strategy and the accelerating transformation of the portfolio, as well as many external factors that included changing market dynamics specific to the generics industry, drug pricing, payer and provider behavior and public policy. As always, actions taken by the HRCC considered the Company’s operating plan for fiscal 2017 and the then current share price; furthermore, these actions were aligned to our compensation philosophy and as such aimed to align management and shareholder interests through competitive performance-based compensation that attracted, motivated and retained important talent.
The HRCC approved certain increases in base salary, target bonus levels and long-term incentive targets to reflect market competitive pay, individual capability, tenure and experience and the nature and complexity of individual roles within the business.
In assessing performance, approving payments against the 2017 Global Bonus Plan, and in considering fiscal 2018 compensation, the HRCC recognized the underperformance against stated fiscal 2017 financial goals and the decline in shareholder value realized during the period.
Base Salary
The HRCC evaluates base salaries annually as well as upon a promotion or other change in job responsibility to determine if increases are appropriate. The HRCC, based in part upon the recommendation of our CEO and considering each NEO’s level of responsibility and experience, as well as market data for similar positions at companies in our peer group and issues of pay equity, approved the following base salary increases: for Dr. Scholz effective October 3, 2016 and effective January 1, 2017, as part of the annual review process and to reflect his

MALLINCKRODT PUBLIC LIMITED COMPANY – Proxy Statement   25 

 
 
COMPENSATION DISCUSSION AND ANALYSIS
 


additional responsibilities as President of our Specialty Generics business; and for Mr. O’Neill effective December 26, 2016, as part of the annual review process. In addition, in consultation with the HRCC and WTW, the Board approved a salary increase for Mr. Trudeau effective December 26, 2016, as part of the annual review process. Base salaries for Mr. Harbaugh and Dr. Romano were unchanged during fiscal 2017. A summary of NEO annual base salaries during the transition period and fiscal 2017, along with any corresponding increases, is shown in the following table:
NEO Annual Base Salaries and Adjustments
During the Transition Period and Fiscal 2017
 
Initial Salary
Ending Salary
Change
Mark Trudeau
$1,000,000
$1,050,000
$50,000 / 5.0%
Matthew Harbaugh
$570,000
$570,000
$0 / 0.0%
Steven Romano, M.D.
$550,000
$550,000
$0 / 0.0%
Dr. Frank Scholz
$460,000
$550,000
$90,000 / 19.6%
Hugh O’Neill
$475,000
$550,000
$75,000 / 15.8%
Transition Period Bonus Plan
In September 2016, the HRCC approved a short-term incentive plan (the “Transition Period Bonus Plan”) designed to reward performance during the transition period since this period was not covered by either the 2016 Global Bonus Plan or the 2017 Global Bonus Plan. Recognizing the volatility that can occur over a three-month period, the HRCC approved a simplified design based upon net sales revenue, as calculated in accordance with U.S. generally accepted accounting principles (“GAAP”), adjusted to exclude the impact of foreign exchange fluctuations to provide a clear focus on top-line growth. The performance target was set in relation to our annual budget as approved by the Board of Directors, excluding the Nuclear Imaging business given its previously announced sale, and funding for the Transition Period Bonus Plan could range from 0% to 150% of target based upon our performance against this measure. To reflect the three-month duration of the transition period, the HRCC set award targets for each of our NEOs under the Transition Period Bonus Plan as one-fourth of their previously established award targets under the 2016 Global Bonus Plan.
The following chart summarizes the Transition Period Bonus Plan design with respect to the performance targets, actual results and funding.
Measure
 
Weighting
 
Threshold
(50% Payout)
 
Target
(100%
Payout)
 
Maximum
(150%
Payout)
 
Trans.
Period
Results
 

Funding
Net Sales Revenue
(in millions)
 
100%
 
$753.7
 
$795.5-879.3
 
$921.2
 
$829.9
 
100
%
In March 2017, the HRCC reviewed our net sales revenue results for the transition period of $829.9 million, which resulted in the awards paying out at 100%. The following table summarizes the award targets and the actual amounts received by each of our NEOs pursuant to the Transition Period Bonus Plan.
Transition Period Bonus Plan Award Target and Payout
 
Target
(% of  Salary)
Final Payout
($)
Mark Trudeau
31.25%
$328,250
Matthew Harbaugh
17.50%
$99,800
Steven Romano, M.D.
16.25%
$89,400
Dr. Frank Scholz
16.25%
$81,300
Hugh O’Neill
16.25%
$89,400


26  MALLINCKRODT PUBLIC LIMITED COMPANY – Proxy Statement  


 
 
 
COMPENSATION DISCUSSION AND ANALYSIS


Fiscal 2017 Annual Incentive Awards
Our 2017 Global Bonus Plan is funded on the basis of accomplishment of a preset level of Adjusted EBITDA (earnings before interest, income taxes, depreciation and amortization, as adjusted for certain items). This is intended to maintain tax deductibility under Section 162(m) of the Internal Revenue Code (“Code”). The HRCC may exercise its authority to use negative discretion to the funding level in determining bonus amounts provided to NEOs.
During fiscal 2017, each NEO participated in the 2017 Global Bonus Plan which is a component of our Stock and Incentive Plan. For fiscal 2017, the HRCC determined the amount payable to our CEO under the 2017 Global Bonus Plan using the following formula:
Individual Annual
Incentive Target
  
×
 
Individual Funding based on Company Performance
  
×
 
Individual
Performance
Multiplier
(0 to 150%)
  
=
 
Final 2017 Global
Bonus Plan Amount to CEO
For fiscal 2017, the HRCC determined the following formula would be utilized to calculate the amount payable to each NEO (other than our CEO) under the 2017 Global Bonus Plan:
Individual Annual
Incentive Target

  
×
 
Assess Achievement Against Performance Targets adjusted up or down (0-200% of target)
  
×
 
Individual
Performance
Multiplier
(0 to 150%)
  
=
 
Final 2017 Global
Bonus Plan Amount to Individual NEO

For fiscal 2017, the HRCC determined that the payouts for each of our NEOs (other than Dr. Scholz) would be based upon our achievement against certain specified specialty brands and corporate performance measures (adjusted earnings per share (adjusted EPS), net sales revenue and free cash flow). Dr. Scholz assumed responsibility for the leadership of our Specialty Generics segment in October 2016. For fiscal 2017, recognizing the rapidly changing competitive and pricing dynamics of the generics market, the HRCC determined that a substantial portion of the payout for Dr. Scholz would be based upon achievement against Specialty Generics performance measures, specifically net sales revenue and operating income (weighted at 80%). The remainder (weighted at 20%) would be based upon our achievement against the specified corporate performance measures.
For fiscal 2017, the HRCC established award targets for each of our NEOs under the 2017 Global Bonus Plan as a percentage of their base salary. Based on the assessment of our audited performance, the HRCC may adjust the bonus factor up or down under the maximum determined by our plan. Based on individual performance as recommended by our CEO and determined by the HRCC, individual awards were granted.
    
2017 Global Bonus Plan Target as a % of Salary
  
Target
(% of  Salary)
Mark Trudeau
125%
Matthew Harbaugh
70%
Steven Romano, M.D.
65%
Dr. Frank Scholz
65%
Hugh O’Neill
65%
Performance Measures.  For the 2017 Global Bonus Plan, corporate and business unit performance measures were the primary basis for assessing performance. For executive officers other than our CEO, the CEO recommends individual payouts based on individual targets, corporate performance and individual performance. The HRCC reviews the CEO’s recommendations and approves final payouts.

MALLINCKRODT PUBLIC LIMITED COMPANY – Proxy Statement   27 

 
 
COMPENSATION DISCUSSION AND ANALYSIS
 


Corporate Financial Objectives. For fiscal year 2017, the corporate performance measures were based upon adjusted earnings per share, or adjusted EPS, net sales revenue and free cash flow. The HRCC believes these measures are key drivers of longer term value creation and key indicators of the current and future strength of our business.
Adjusted EPS is defined as diluted earnings per share calculated in accordance with GAAP, as adjusted for certain items and their related tax effects. Adjusted EPS is an important measure because it provides a focus on profitable growth and expense control, and is viewed as a strong indicator of sustained performance over the long term.
Net sales revenue represents net sales calculated in accordance with GAAP, as adjusted for certain items. Net sales revenue is an important measure because it is a leading indicator of performance and value creation and provides a clear focus on top-line growth.
Free cash flow is defined as cash flow from operating activities less net capital expenditures, both calculated in accordance with GAAP, as adjusted for the impacts to operating cash flows from certain items. Free cash flow is an important measure because it provides focus on generating cash to fund operations and research, focuses executives on expense control and is expected to lead to long-term shareholder value creation.
Business Unit Financial Objectives. For fiscal year 2017, the performance measures for the Specialty Generics business unit were based upon operating income (weighted at 70%) and net sales revenue (weighted at 30%). The HRCC believes that performance against these measures are key for successful navigation of uncertain market conditions and are drivers of longer term value creation
Operating income is defined as operating income calculated in accordance with GAAP, as adjusted for certain items and their related tax effects. Operating income is an important measure because it provides a focus on profitable performance, appropriate investment and judicious expense control, and is viewed as a strong indicator of the strength of the business during uncertain market conditions.
Net sales revenue represents net sales calculated in accordance with GAAP, as adjusted for certain items. Net sales revenue is an important measure because it is a leading indicator of performance and value creation and provides a clear focus on top-line performance.
The weighted average funding for the 2017 Global Bonus Plan could range from 0% to 200% of target based upon our performance against these measures. The HRCC maintains discretionary authority to further modify the funding, both negatively and positively, subject to the Section 162(m) plan funding maximum.
The performance targets were set in relation to our annual budget as approved by the Board of Directors. For fiscal 2017, the corporate net sales revenue target and the adjusted EPS target under the 2017 Global Bonus Plan were lower than under the 2016 Global Bonus Plan due to several factors, including our sale of the Nuclear Imaging business and Intrathecal Therapy business, an extra week in fiscal 2016 and anticipated challenges in Specialty Generics.
The following chart summarizes the 2017 Global Bonus Plan design with respect to the corporate performance measures, including the relative weighting, performance targets, actual results and weighted average funding for our NEOs.
Corporate Performance Measures
(Applicable to all NEOs)
Measure
 
Weighting
 
Threshold
(50% Payout)
 
Target
(100%
Payout)
 
Maximum
(200%
Payout)
 
Fiscal
2017 
Results(1)
 
 Weighted
Average
Funding
Adjusted EPS
 
50%
 
$7.11
 
$7.65
 
$8.18
 
$7.49
 
85.0
%
Net Sales Revenue
(in millions)
 
30%
 
$3,135
 
$3,300
 
$3,465
 
$3,225
 
77.0
%
Free Cash Flow
(in millions)
 
20%
 
$692
 
$714
 
$739
 
$543
 

 
 
 
 
 
 
 
 
 
 
 
 
66.0
%
 

28  MALLINCKRODT PUBLIC LIMITED COMPANY – Proxy Statement  


 
 
 
COMPENSATION DISCUSSION AND ANALYSIS


(1)
The performance measures used for compensation purposes include non-GAAP financial measures which exclude the effects of certain items which the HRCC believes do not represent ongoing operating results and/or business trends. The categories of these items include: restructuring and related charges, net; amortization and impairment charges; discontinued operations; acquisition-related expenses; changes in fair value of contingent consideration obligations; inventory step-up expenses; pension settlement charges; recurrent cash tax payments to the IRS associated with internal installment sales transactions; and other items identified by the company.  In addition, these measures are calculated using the share count, tax rate and foreign exchange rates used in our fiscal year 2017 budget. In calculating fiscal 2017 results, the HRCC also excluded certain costs incurred in connection with actions taken as part of our ongoing transformation to become an innovation-driven specialty pharmaceuticals growth company.

The non-GAAP financial measures used in our executive compensation programs exclude certain charges that are included within the comparably-titled non-GAAP financial measures included in our quarterly earnings releases.
For Dr. Scholz, with respect to his responsibilities for the Specialty Generics business, the HRCC determined that a payout at the 130.0% level of performance was appropriate, based upon 154.0% achievement of the Specialty Generics operating income target (weighted at 70%) and 104.0% achievement of the Specialty Generics net sales revenue target (weighted at 30%).
Strategic Imperatives. In addition to performance against financial measures, the HRCC also considers performance that supported the accomplishment of strategic imperatives, and has the ability to adjust the overall size of the executive bonuses, both negatively and positively, subject to Section 162(m) limits. This allows the HRCC to decrease the size of the executive bonuses if, in the HRCC’s opinion, such amounts are not appropriately earned or should not be paid or to reflect individual differentiation when financial performance is at or near maximum.
The key strategic imperatives considered for fiscal 2017, included:
Maximize growth;
Transform the portfolio;
Drive Value; and
Build a patient and customer centric high-performing organization.
The HRCC reviewed results in these areas:
Full Year Results
Strategic Imperatives
Fiscal 2017 Imperatives
Results
Maximize Growth
Achieve or exceed net sales target
Achieve or exceed branded net sales of 75% of total revenue
Accelerate patient access to key products

Overall rating - Partially Achieved:
Below targeted net sales goal
Achieved portfolio mix objective
Behind patient access target

Transform the Portfolio

Accelerate BD&L
Progress development and life cycle programs
Strengthen evidence generation and dissemination

Overall rating - Achieved
Expanded pipeline through completed M&A transactions
Completed divestiture of legacy and non-core businesses
Announced other accretive acquisition and divestiture of non-core assets
Achieved key portfolio development milestones
Generated over 130 scientific and HEOR studies

Drive Value
Achieve or exceed SG&A and operating efficiency targets
Maximize portfolio durability and competitive position
Optimize Specialty Generics performance

Overall rating - Partially Achieved
Year over year SG&A spend reduction
Unfavorable Inomax patent ruling
Successful Specialty Generics optimization



MALLINCKRODT PUBLIC LIMITED COMPANY – Proxy Statement   29 

 
 
COMPENSATION DISCUSSION AND ANALYSIS
 


Build a Patient and Customer-Centric High Performing Organization
Enhance customer centricity
Strengthen competitive capabilities
Build compelling employee value proposition and operationalize footprint

Overall rating - Achieved
Completed Customer Centricity baseline survey
Enhanced clinical, medical and commercial capabilities
Completed organizational footprint transformation
Further enhanced employee engagement
National recognition for inclusion and diversity programs


With respect to individual NEO performance modification recommendations the HRCC considered the following:
NEO
Individual Goal Achievement
Matthew Harbaugh
Tax restructuring delivering significant value
Leadership of SAP implementation


Steven Romano, M.D.
Achieved key portfolio development milestones relating to Terlipressin, Acthar and Stratagraft
Achieved 20 key portfolio Life Cycle Management milestones
Generated 130 scientific and Health Economic studies
Recruited key talent and added critical capabilities


Dr. Frank Scholz
Exceeded revenue and operating income objectives
Established specialty generics as a stand-alone business
Improved generics R&D pipeline
Recruited certain key talent to the generics and brands organizations
Achieved key milestones in biologics modernization program

Hugh O’Neill
Recruited key talent and added critical commercial capabilities
Slower than planned patient access improvement
Decline in Acthar revenue

Following the conclusion of fiscal 2017, the HRCC reviewed preliminary payout calculations for each NEO based on the performance measures. It also received input from our CEO on the NEOs (other than our CEO). The HRCC determined the amount of the actual payout taking into account the factors described above in order to align the final payout more closely with our financial performance and available pool funding. For our CEO, the Board determined that a payout at the 66% level of performance was appropriate, based on company performance and a 100% individual multiplier.
 
Target and Performance Multiplier
 
Individual Modifier
 
Final 2017
Global
Bonus Plan
Payout
  
Target Bonus
Opportunity
x
Multiplier
=
Preliminary
Payout
x
Multiplier
  
 
Mark Trudeau
$1,312,500
x
66%
=
$866,250
x
100%
=
$866,250
Matthew Harbaugh
$399,000

66%

$263,340

115%

$302,800
Steven Romano, M.D.
$357,500

66%

$235,950

145%

$342,100
Dr. Frank Scholz (1)
$357,500

117.2%

$418,990

115%

$481,800
Hugh O’Neill
$357,500

66%

$235,950

85%

$200,600
(1)
For Dr. Scholz, the performance multiplier of 117.2% reflects performance of 130.0% against the Specialty Generics performance measures (which were weighted at 80%) and performance of 66.0% against the corporate performance measures (which were weighted at 20%).

30  MALLINCKRODT PUBLIC LIMITED COMPANY – Proxy Statement  


 
 
 
COMPENSATION DISCUSSION AND ANALYSIS


Fiscal 2017 Equity Grants
For fiscal 2017, our long-term incentive compensation program consisted of our annual equity grant, which was increased in size this year by 25% for all NEOs except for Mr. Trudeau to reflect the services provided during three-month transition period, and a special one-time performance grant intended to ensure continuity for hard to recruit senior executive talent and create incentives aligned with our multi-year business strategies, all of which were granted under our Stock and Incentive Plan. Mr. Trudeau did not receive any additional grants beyond his standard annual equity grant. The annual equity grant consisted of a mix of performance units (weighted 40%), non-qualified stock options (weighted 40%) and restricted units (weighted 20%) while the special one-time performance grants consisted of a mix of performance units (weighted 50%) and non-qualified stock options (weighted 50%). The table below sets forth the target award opportunities with respect to long-term incentive compensation for equity grants made during fiscal 2017.
Target Award Opportunities
 
 
Annual Equity Grants
 
Grants to Reflect Transition Period
 
Special Performance Grants
Name
 
Target Performance Units($)
 
Stock Options($)
 
Restricted Units($)
 
Total($)
 
Target Performance Units($)
 
Stock Options($)
 
Restricted Units($)
 
Total($)
 
Target Performance Units($)
 
Stock Options($)
 
Total($)
Mark Trudeau
 
4,600,000

 
4,600,000

 
2,300,000

 
11,500,000

 

 

 

 

 

 

 

Matthew Harbaugh
 
1,100,000

 
1,100,000

 
550,000

 
2,750,000

 
275,200

 
275,200

 
137,600

 
688,000

 
1,167,500

 
1,167,500

 
2,335,000

Steven Romano, M.D.
 
880,000

 
880,000

 
440,000

 
2,200,000

 
220,000

 
220,000

 
110,000

 
550,000

 
1,100,000

 
1,100,000

 
2,200,000

Dr. Frank Scholz
 
800,000

 
800,000

 
400,000

 
2,000,000

 
200,000

 
200,000

 
100,000

 
500,000

 
1,000,000

 
1,000,000

 
2,000,000

Hugh O'Neill
 
800,000

 
800,000

 
400,000

 
2,000,000

 
200,000

 
200,000

 
100,000

 
500,000

 
1,000,000

 
1,000,000

 
2,000,000

Performance units.  We grant performance units to create incentives for executives to achieve long-term performance goals aligned with our multi-year business strategies. Performance units represent unissued ordinary shares; we do not issue ordinary shares until the applicable performance-based vesting requirements are satisfied. The vesting requirements for performance units granted to NEOs during fiscal 2017 are based upon adjusted net revenue compound annual growth rate (“Net Revenue CAGR”) and relative total shareholder return (“TSR”), each weighted at 50%, over a three-year performance period (fiscal 2017 to fiscal 2019).
Net Revenue CAGR for the Company will be calculated for fiscal 2017 - fiscal 2019 (December 31, 2016 - December 27, 2019) using non-GAAP Net Sales Revenue where GAAP Net Sales Revenue has been adjusted to exclude the impact of both acquisitions and divestitures during the performance period.
Relative TSR means our total shareholder return as compared against a broad performance peer group of pharmaceutical and life sciences companies, listed below. This group of companies is broader than the peer group of companies used for competitive comparisons of executive compensation, and it includes some companies that are much larger or much smaller than Mallinckrodt. The HRCC believes that use of a larger comparison group for measuring our TSR better reflects our market performance against the broad industry, even though some of the companies in the performance group would not be reasonable comparators for the compensation peer group because of extreme differences in size. The HRCC periodically reviews the TSR peer group and approves changes, based on the recommendation of WTW. The relative TSR measure provides a “total picture” of our performance and will balance the achievement of absolute internal goals (Net Revenue CAGR) with relative performance against our peers in a measure that is directly linked with long-term shareholder value creation. The relative TSR peer group companies approved by the HRCC for the 2017 grants are:
Abbvie Inc.
 
Eli Lilly and Company
 
Novo Nordisk A/A
Actelion Ltd. *
 
Endo International plc
 
Opko Health, Inc.
Akorn, Inc. *
 
Genus plc
 
Orion Oyj
Alexion Pharmaceuticals
 
Gilead Sciences Inc.
 
Pacira Pharmaceuticals, Inc.
Alkermes plc
 
Hikma Pharmaceuticals plc
 
Perrigo Company plc

MALLINCKRODT PUBLIC LIMITED COMPANY – Proxy Statement   31 

 
 
COMPENSATION DISCUSSION AND ANALYSIS
 


Allergan plc
 
Horizon Pharma plc
 
Philbro Animal Health Corporation
Almirall, S.A.
 
Impax Laboratories Inc.
 
Regeneron Pharmaceuticals Inc.
Amgen Inc.
 
Incyte Corporation
 
Sanofi
AstraZeneca plc
 
Indivior plc
 
Shire plc
Biogen Inc.
 
Intrexon Corporation
 
Swedish Ophan Biovitrum AB
BioMarin Pharmaceutical Inc.
 
Ionis Pharmaceuticals, Inc.
 
Taro Pharmaceutical Industries Ltd.
Boiron SA
 
Ipsen S.A.
 
Teva Pharmaceutical Industries Ltd.
Bristol-Myers Squibb
 
Jazz Pharmaceuticals plc
 
United Therapeutics Corporation
Catalent, Inc.
 
Merck & Co., Inc.
 
Valeant Pharmaceuticals Intl.
Celgene Corporation
 
Merck KGaA
 
Vertex Pharmaceuticals Inc.
Cepheid *
 
Mylan N.V.
 
Virbac SA
Depomed, Inc.
 
Myriad Genetics, Inc.
 
Zoetis, Inc.
* subsequently removed from TSR peer group as a result of acquisition
These companies were selected because they are within our industry and represent potential alternative investment choices for our shareholders.
Non-qualified stock options.  We grant stock options to create incentives for our executives to take actions and make decisions that align with long-term shareholder value and stock price growth. Non-qualified stock options generally permit a NEO to purchase ordinary shares at a per-share exercise price equal to the fair market value of ordinary shares on the date of grant. Fair market value is equal to the closing price of ordinary shares as reported on the NYSE on the grant date. Options granted to NEOs during fiscal 2017 as part of the annual equity grant ordinarily have a 10 year term and vest one-quarter annually beginning on the first anniversary of the grant date. The options granted to NEOs during fiscal 2017 in connection with the special one-time performance grant ordinarily vest in their entirety on the fourth anniversary of the grant date.
Restricted units.  We grant restricted units to align the interests of management and shareholders and to promote retention of key talent over the vesting period. Restricted units represent unissued ordinary shares; we do not issue ordinary shares until the applicable vesting requirements are satisfied. When the vesting requirements are satisfied, the executive receives ordinary shares without restriction. Restricted units granted to NEOs during fiscal 2017 vest one-quarter annually beginning on the first anniversary of the grant date.
The HRCC, with input from our CEO for the other NEOs, in consideration of each NEO’s level of responsibility and market data for similar positions at companies in our peer group sets long-term incentive grant value targets as percentages of base salary. For fiscal 2017, the target levels for each of the NEOs (other than Mr. Harbaugh) were increased to reflect levels of responsibility and market data for similar positions in our peer group. In addition, to reflect services provided during the three month transition period, the long-term grant value targets were increased by 25% while the special one-time performance grant value targets were based on a percentage (ranging from 70%-100%) of the long-term incentive grant value targets. The target grant values were then converted to equity amounts based on grant-date fair values. By using this value approach, the number of stock options, restricted units and performance units will vary from year to year based on, among other things, our share price at the time of grant, even though the awards may have the same dollar value under the valuation methodologies.

32  MALLINCKRODT PUBLIC LIMITED COMPANY – Proxy Statement  


 
 
 
COMPENSATION DISCUSSION AND ANALYSIS


The table below sets forth the target long-term incentive compensation grant value for the fiscal 2017 equity awards, along with the target number of performance units, and the number of stock options and restricted units granted to each NEO, reflective of the 40%, 40% and 20% weighting, respectively, described above.
Fiscal 2017 Long-Term Incentive Compensation
Name
 
Target
($)
 
Target Number of
Performance
Units (#)
 
Number of Stock
Options (#)
 
Number of
Restricted Units (#)
Mark Trudeau
 
11,500,000
 
76,681
 
249,785
 
44,462
Matthew Harbaugh
 
2,750,000
 
18,338
 
59,731
 
10,633
Steven Romano, M.D.
 
2,200,000
 
14,670
 
47,785
 
8,506
Dr. Frank Scholz
 
2,000,000
 
13,337
 
43,441
 
7,733
Hugh O’Neill
 
2,000,000
 
13,337
 
43,441
 
7,733
Fiscal 2015 Performance Share Awards Results
The following table shows results for the three year period of the fiscal 2015 Performance Share Awards which was completed on September 29, 2017. The performance measures, each 50% weighted, were Adjusted EBITDA Margin and Relative Total Return to Shareholders. Adjusted EBITDA margin is calculated by taking Adjusted EBITDA and dividing by net sales revenue.
Fiscal 2015 Performance Share Awards Results
Financial Objectives
Threshold (50% Awarded)
Target (100% Awarded)
Maximum (200% Awarded)
Performance Result
Payout %
Adjusted EBITDA Margin (50% weight) (1)
40.9%
43.0%
47.3%
42.0%
76.2%
Relative Total Return to Shareholders
(50% weight)
25th Percentile
50th Percentile (Median)
75th Percentile
6th Percentile
0%
(1) 
Adjusted EBITDA Margin represents net income before interest, income taxes, depreciation and amortization, adjusted to exclude certain items including discontinued operations; other income; net separation costs; restructuring charges; net immediately expensed up-front and milestone payments; acquisition related costs and non-cash impairment charges.
The following table shows target shares granted and shares that will payout based on performance results. The HRCC determined that Adjusted EBITDA Margin performance was 42.0% which resulted in a payout of 76.2% of target with respect to that portion of the award. The HRCC received external certification from AON Radford for Total Return to Shareholder results compared to the predetermined peer group, which showed that Mallinckrodt’s Relative Total Return to Shareholders ranked at the 6th percentile, or below the minimum threshold, resulting in no payout with respect to that portion of the award. Since each performance measure was weighted equally, the 2015 Performance Share Awards ended up paying out at 38.1% of target as reflected in the table below.
Fiscal 2015 Performance Share Awards Grants and Payouts
Name
 
Grant Value ($) (1)
 
Shares Granted (#)
 
Shares Earned (#)
 
Realized Value ($) (2)
Mark Trudeau
 
3,100,000
 
26,367
 
10,046
 
236,282
Matthew Harbaugh
 
742,000
 
6,311
 
2,405
 
56,566
Steven Romano, M.D.(3)
 
 
 
 
Dr. Frank Scholz
 
430,000
 
3,658
 
1,394
 
32,787
Hugh O’Neill
 
475,000
 
4,041
 
1,540
 
36,221
(1) 
On the date of grant, the closing sales price per share of our ordinary shares as reported on the NYSE was $97.00.
(2) 
On the date of vesting, the closing sales price per share of our ordinary shares as reported on the NYSE was $23.52.
(3) 
Dr. Romano was not employed at the time the Fiscal 2015 Performance Share Awards were issued.

MALLINCKRODT PUBLIC LIMITED COMPANY – Proxy Statement   33 

 
 
COMPENSATION DISCUSSION AND ANALYSIS
 


Fiscal 2018 Compensation Considerations
As stated earlier in the introductory comments under “Transition Period and Fiscal Year 2017 Executive Compensation Decisions,” in considering compensation actions for fiscal 2018, the HRCC recognized many factors including: current competitive trends, changing industry dynamics, fiscal 2017 performance and the loss of shareholder value resulting from the decline in share price. For fiscal 2018, the HRCC has approved total compensation targets for Mr. Trudeau, Mr. Harbaugh and Mr. O’Neill that are approximately 11% below their respective target opportunity for fiscal 2017.
Other Benefits
We provide NEOs the same benefits that are provided to all employees, including defined contribution retirement benefits, health and welfare benefits and an employee stock purchase plan. In addition, our executive officers are provided with certain additional benefits, intended to be competitive with the practices of our peer companies.
Retirement Benefits.  The NEOs are eligible to participate in our Retirement Savings and Investment Plan (“Mallinckrodt Retirement Savings Plan”), which is our 401(k) plan available to all eligible U.S. employees, and our Supplemental Savings and Retirement Plan (“Mallinckrodt Supplemental Savings Plan”), our non-qualified deferred compensation plan in which executive officers and other senior employees may participate. The Mallinckrodt Supplemental Savings Plan is a so-called “excess” plan that extends the 401(k) benefits beyond the Code limitations. For more information regarding the Mallinckrodt Supplemental Savings Plan, see “Executive Compensation Tables — Non-Qualified Deferred Compensation.”
Bonus for Stock Exchange Program. From time to time, the NEOs may be eligible to participate in our Bonus for Stock Exchange Program which provides an additional opportunity for executive officers and other senior employees to accumulate ordinary shares. Under this program, participating employees may elect to exchange all or a portion of their bonus (not to exceed the target level) for restricted units granted. The company matches an additional 25% amount in restricted units as compensation for the delay in receiving the bonus and the risk of forfeiture. Amounts deferred pay out in the form of ordinary shares, in three equal annual installments beginning on the first anniversary of the grant date. No NEOs elected to participate in this program with respect to either the Transition Period Bonus Plan or the 2017 Global Bonus Plan. The HRCC elected to discontinue this program effective in 2018.
International Assignment Benefits. We ensure that employees who are sent on an assignment outside of their home country are subject to substantially the same income tax liability as they would have paid in the U.S. pursuant to our tax equalization program. Each such employee is responsible for a theoretical U.S. income tax liability based on an estimate of his or her anticipated U.S. income tax liability, and we are responsible for any home country and assignment country taxes in excess of that amount. We deduct hypothetical income taxes from the employee’s compensation during the tax year and pay any assignment country taxes on his or her behalf. Mr. Trudeau and Dr. Scholz were each provided with these benefits during all or part of fiscal 2017 as Mr. Trudeau and Dr. Scholz are employed on a partial secondment arrangement to the United Kingdom.
Health and Welfare Benefits.  The health and welfare benefits we provide to the NEOs are offered to all eligible U.S. based employees and include medical, dental, prescription drug, vision, life insurance, accidental death and dismemberment, business travel accident, personal and family accident, flexible spending accounts, short- and long-term disability coverage and an employee assistance program.
Additional Benefits.  We maintain an executive physical examination program and an executive financial and tax planning program for executive officers. These programs are intended to encourage executives to proactively manage their health and complex financial/tax situations, thereby enabling them to focus on the business. The benefits are periodically benchmarked versus comparable companies and intended to be competitive for our industry. Under our business travel expense policy, we will reimburse executive officers who are required to spend 90 days per year in the United Kingdom for up to four trips per year for their spouse or partner to visit them. In addition, when we request a spouse or partner to attend a business meeting, such as our annual national sales recognition program for top performers, we reimburse executive officers for expenses related to this travel. In these circumstances, we reimburse executive officers for the income taxes associated with these travel expenses.
Employee Stock Purchase Plan.  Our Board of Directors adopted, and our shareholders approved, our 2016 Employee Stock Purchase Plan, which we refer to as the ESPP. The ESPP is designed to qualify as an “employee stock purchase plan” under Section 423 of the Code. Eligible employees authorize payroll deductions to be made

34  MALLINCKRODT PUBLIC LIMITED COMPANY – Proxy Statement  


 
 
 
COMPENSATION DISCUSSION AND ANALYSIS


for the purchase of ordinary shares and, for fiscal 2017, we provided a 15% discount for all employees who participated in this program for up to $25,000 of an employee’s payroll deductions in the calendar year. Shares utilized were treasury shares and are required to be held by participants for 12 months after purchase.
Severance Benefits.  We maintain an executive severance plan that provides benefits to our senior executives upon an involuntary termination of employment for any reason other than cause, permanent disability or death. We provide this plan to enable our executives to devote their full attention to our business by ensuring they will have some financial security in the event of an involuntary termination of employment without cause. Severance benefits, in the form of base salary continuation, bonus and health benefits are generally payable for 18 months (24 months for our CEO) following a qualifying termination of employment. Executives whose employment is involuntarily terminated without cause during the first twelve months of employment receive base salary continuation and health benefits for 9 months (12 months for our CEO) and do not receive a bonus. Receipt of these benefits is conditioned upon the executive signing a release of any claims against us.
Change in Control Benefits.  We maintain a change in control plan that provides benefits to certain senior executives upon an involuntary termination of employment or good reason resignation that occurs during a period shortly before and continuing after a change in control (a double-trigger arrangement). We provide this plan to encourage our executives to remain neutral in the face of a potential transaction that may benefit shareholders but result in the loss of the executive’s employment. Benefits are generally payable following a qualifying termination of employment in a lump-sum cash payment equal to 1.5 times (two times for our CEO) the sum of the executive’s base salary and the average of the executive’s bonus for the previous three fiscal years. Additional benefits provided upon a change in control termination include full vesting of outstanding equity awards (double-trigger), continued subsidy for health plan premiums for an 18-month period (24 months for our CEO) and outplacement services. Receipt of change in control severance benefits is conditioned upon the executive signing a release of any claims against us. The plan does not provide excise tax gross-ups.
Share Ownership Requirements
To reinforce the alignment of management and shareholder interests, the Board established share ownership requirements under which executive officers are expected to hold equity with a value expressed as a multiple of base salary as follows:
CEO
  
5 times base salary
Other Executive Officers
  
3 times base salary
In determining an executive’s ownership, shares held directly as well as shares underlying restricted units (less a 40% tax assumption) are included. Shares underlying unexercised stock options and unvested performance units are not included in the calculation. Until the required share ownership level is achieved, the executives are required to retain at least 50% of net profit shares. Net profit shares are shares remaining after payment of the exercise price, if applicable, and taxes upon the exercise of stock options, vesting of restricted units and earn-out of performance units. Due to the significant decline in the Company’s stock price since the end of fiscal 2016, none of our executive officers met their ownership requirements as of the end of fiscal 2017.
Anti-Hedging/Anti-Pledging Policy
Our Insider Trading Policy prohibits directors, officers and employees from entering into or trading in puts, calls, cashless collars, options or similar rights and obligations or any other hedging activity involving our securities, other than the exercise of a Company-issued stock option.
Our policy also prohibits directors, officers and employees from purchasing our securities on margin, borrowing against our securities held in a margin account or pledging our securities as collateral for a loan. However, an exception may be granted by our General Counsel if the individual clearly demonstrates the financial capacity to repay the loan without resort to the pledged securities.

MALLINCKRODT PUBLIC LIMITED COMPANY – Proxy Statement   35 

 
 
COMPENSATION DISCUSSION AND ANALYSIS
 


Compensation Recovery Policy (“Clawback”)
Since its separation from Covidien plc in 2013, the Corporate Governance Guidelines have mandated that the Company have a Board-approved policy for recoupment of incentive compensation. This policy was originally implemented by the Board in 2014, and was recently amended in response to a productive engagement between members of the Board and certain shareholders. Mallinckrodt’s policy states that in the event of (i) a restatement of financial or operating results due to material non-compliance with financial reporting requirements or (ii) misconduct resulting in a material violation of the Company’s policies that results in significant harm to the Company, the HRCC is authorized to recover (“clawback”) any incentive compensation that was overpaid to certain employees, including NEOs, taking into account such factors as the HRCC deems appropriate.
Deductibility of Executive Compensation
The HRCC has generally intended to structure our executive compensation in a manner designed to qualify for deductibility under Section 162(m) of the Code when consistent with our overall compensation program objectives, while also maintaining maximum flexibility in the design of our compensation programs and in making appropriate payments to NEOs.
The exemption from Section 162(m)’s deduction limit for performance-based compensation has been repealed, effective for taxable years beginning after December 31, 2017, such that compensation paid to our NEOs in excess of $1 million will not be deductible unless it qualifies for transition relief applicable to certain arrangements in place as of November 2, 2017.
Because of ambiguities and uncertainties as to the application and interpretation of Section 162(m) and the regulations issued thereunder, including the uncertain scope of the transition relief under the legislation repealing Section 162(m)’s exemption from the deduction limit, no assurance can be given that compensation intended to satisfy the requirements for exemption from Section 162(m) in fact will. Further, the HRCC reserves the right to modify compensation that was initially intended to be exempt from Section 162(m) if it determines that such modifications are consistent with our business needs. The Transition Period Bonus Plan does not qualify for tax deduction under Section 162(m).


36  MALLINCKRODT PUBLIC LIMITED COMPANY – Proxy Statement  


 
 
 
COMPENSATION OF EXECUTIVE OFFICERS


Compensation Committee Report on Executive Compensation
The Human Resources and Compensation Committee (“HRCC”) is responsible for the oversight of our compensation programs on behalf of the Board of Directors. In fulfilling these responsibilities, the HRCC has reviewed and discussed with management the Compensation Discussion and Analysis set forth in this Proxy Statement.
Based on the review and discussions referred to above, the HRCC recommended to the Board of Directors that the Compensation Discussion and Analysis be included in Mallinckrodt’s Proxy Statement for the 2018 Annual General Meeting of Shareholders, which will be filed with the Securities and Exchange Commission.
Human Resources and Compensation Committee
David R. Carlucci, Chairman
Diane H. Gulyas
David Y. Norton


MALLINCKRODT PUBLIC LIMITED COMPANY – Proxy Statement   37 

 
 
COMPENSATION OF EXECUTIVE OFFICERS
 


Executive Compensation Tables
SUMMARY COMPENSATION TABLE
Name and Principal Position
 
Fiscal
Year
 
Salary
($)
 
Bonus
($)
 
Stock
Awards
($)(1)
 
Option
Awards
($)(1)
 
Non-Equity
Incentive Plan
Compensation
($)(2)
 
All Other
Compensation
($)(3)
 
Total
($)
Mark C. Trudeau
 
2017
 
1,050,000

 

 
7,813,805

 
4,600,016

 
866,250

 
696,639

 
15,026,710

President and
Chief Executive Officer
 
Trans. Period
 
230,769

 

 

 

 
328,250

 
55,761

 
614,780

 
2016
 
1,038,461

 

 
5,876,436

 
3,900,004

 
1,587,500

 
245,065

 
12,647,466

 
 
2015
 
1,005,769

 

 
4,445,289

 
2,995,289

 
1,053,750

 
228,409

 
9,728,506

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Matthew K. Harbaugh
 
2017
 
570,000

 

 
3,731,411

 
2,542,720

 
302,800

 
56,262

 
7,203,193

Executive Vice President and Chief Financial Officer
 
Trans. Period
 
131,538

 

 

 

 
99,800

 
12,909

 
244,247

2016
 
581,154

 

 
1,661,817

 
1,100,003

 
557,400

 
96,456

 
3,996,830

 
 
2015
 
533,462

 

 
1,064,059

 
716,946

 
312,753

 
72,256

 
2,699,476

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Steven Romano, M.D.

2017

550,000




3,168,250


2,200,000


342,100


53,956


6,314,306

Executive Vice President and Chief Science Officer

Trans. Period

126,923








89,400


7,615


223,938

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Dr. Frank Scholz
 
2017
 
549,038

 

 
2,880,221

 
2,000,004

 
481,800

 
104,983

 
6,016,046

Executive Vice President of Global Operations and President, Specialty Generics
 
Trans. Period
 
115,385

 

 

 

 
81,300

 
19,669

 
216,354

2016
 
469,616

 

 
914,151

 
600,016

 
417,700

 
122,897

 
2,524,380

 
 
2015
 
430,000

 

 
616,732

 
415,487

 
254,000

 
57,366

 
1,773,585

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Hugh M. O’Neill
 
2017
 
550,000

 

 
2,880,221

 
2,000,004

 
200,600

 
63,407

 
5,694,232

Executive Vice President and
President, Autoimmune and Rare Diseases
 
Trans. Period
 
109,615

 

 

 

 
89,400

 
36,007

 
235,022

 
2016
 
493,270

 

 
1,020,076

 
680,003

 
490,500

 
104,632

 
2,788,481

 
 
2015
 
454,808

 

 
681,283

 
458,968

 
207,869

 
459,032

 
2,261,960

 
(1)
The amounts reported represent the aggregate grant date fair value, computed in accordance with Accounting Standards Codification 718 (“ASC 718”), of restricted units, performance units and stock option awards granted to each of our NEOs during fiscal 2017. For performance units, the values shown reflect the grant date fair value based on the probable outcome of the performance conditions. If the highest level of achievement of the performance conditions were assumed, the value of the performance units at the grant date for the proxy officers (other than Dr. Romano) for fiscal years 2017, 2016 and 2015, respectively, would be: Mr. Trudeau, $10,948,114, $9,792,445 and $10,226,177; Mr. Harbaugh, $6,051,938, $2,762,014 and $2,447,658; Dr. Scholz, $4,760,397, $1,506,609 and $1,418,719; and Mr. O’Neill, $4,760,397, $1,707,490 and $1,567,261. If the highest level of achievement of the performance conditions were assumed, the value of the performance units at the grant date for Dr. Romano for fiscal year 2017 would be $5,236,408. Further information regarding the fiscal 2017 awards is included in the Fiscal 2017 Grants of Plan-Based Awards Table, the Outstanding Equity Awards at 2017 Fiscal Year-End Table and the CD&A.
Amounts reported do not correspond to the actual value that may be recognized by the NEOs, which may be higher or lower based on a number of factors, including our performance, stock price fluctuations and applicable vesting. For additional information relating to assumptions made in the valuation for current year awards reflected in these columns, see Note 16 to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended December 29, 2017.
For fiscal 2017, the Stock Awards column includes $465,056 for Mr. Harbaugh; $371,879 for Dr. Romano; $338,000 for Dr. Scholz and $338,000 for Mr. O’Neill, respectively, related to restricted units and performance units granted with respect to the transition period and $1,389,413 for Mr. Harbaugh; $1,309,102 for Dr. Romano; $1,190,099 for Dr. Scholz and $1,190,099 for Mr. O’Neill, respectively, related to performance units granted in connection with the one-time special performance grant. For fiscal 2017, the Option Awards column includes $275,207 for Mr. Harbaugh; $219,996 for Dr. Romano; $199,997 for Dr. Scholz and $199,997 for Mr. O’Neill, respectively, related to stock option awards granted with respect to the transition period and $1,167,513 for Mr. Harbaugh; $1,100,000 for Dr. Romano; $1,000,002 for Dr. Scholz and $1,000,002 for Mr. O’Neill, respectively, related to stock option awards granted in connection with the one-time special performance grant.
(2)
The amounts reported represent incentive cash awards paid to the NEOs under our 2017 Global Bonus Plan and our short-term incentive plan for the transition period. For information regarding the calculation of these awards, see the CD&A.
(3)
The amounts reported represent the aggregate dollar amount for each NEO for employer contributions to the Retirement Savings Plan, employer credits to the Supplemental Savings Plan, executive financial planning, relocation benefits, expatriate and international assignment benefits, executive physicals, executive financial planning and tax reimbursements. We also have Company-purchased tickets to athletic or other events which are generally used for business purposes. In limited instances our named executive officers may have personal use of Company-purchased event tickets when they are not being used for business purposes. No amounts are included because there is no incremental cost to us of such personal use. The following table shows the specific amounts included in the All Other Compensation column of the Summary Compensation Table for the transition period and fiscal 2017.


38  MALLINCKRODT PUBLIC LIMITED COMPANY – Proxy Statement  


 
 
 
COMPENSATION OF EXECUTIVE OFFICERS


ALL OTHER COMPENSATION
Name
Period
 
Contributions
to Retirement
Savings Plan
($)
 
Credits to
Supple-mental
Savings Plan
($)
 
Relocation Benefits ($)
 
International Assignments
($) (1)
 
Tax
Reimburse-ment
Payments
($) (2)(3)(4)
 
Other
($)(5)
 
Total
($)
Mark C. Trudeau
Fiscal 2017
 
16,090

 
66,495

 

 
20,355

 
576,159

 
17,540

 
696,639

 
Transition Period
 

 
13,846

 

 

 
41,915

 

 
55,761

Matthew K. Harbaugh
Fiscal 2017
 
15,880

 
23,988

 

 

 
38

 
16,356

 
56,262

 
Transition Period
 

 
12,909

 

 

 

 

 
12,909

Steven Romano, M.D.
Fiscal 2017
 
16,200

 
22,164

 



 
127

 
15,465

 
53,956

 
Transition Period
 

 
7,615

 



 

 

 
7,615

Dr. Frank Scholz
Fiscal 2017
 
14,904

 
21,621

 

 

 
53,318

 
15,140

 
104,983

 
Transition Period
 

 
8,427

 

 

 
11,080

 
162

 
19,669

Hugh M. O’Neill
Fiscal 2017
 
13,955

 
24,409

 

 

 
8,406

 
16,637

 
63,407

 
Transition Period
 

 
36,007

 

 

 

 

 
36,007


(1) As part of international assignments, executives who are assigned to the United Kingdom for 90 days or more may submit travel expenses for their partner or spouse for up to four trips per year. These expenses are grossed up for taxes. Additional information is available in the Additional Benefits section of the CD&A.
(2) Tax reimbursement related to the Mallinckrodt’s company-wide iMpact Recognition and Rewards Program: Messrs. Harbaugh: $38 and O’Neill: $30 and Drs. Scholz: $76 and Romano: $127 received.
(3) Mr. Trudeau and Mr. O’Neill received tax reimbursement for expenses incurred by partners or spouses who were requested to attend an annual national sales recognition program.
(4) Pursuant to footnote (1) of the All Other Compensation table included above, Mr. Trudeau and Dr. Scholz received tax reimbursement as part of their international assignments.
(5) Includes amounts for executive physicals and executive financial planning. 

MALLINCKRODT PUBLIC LIMITED COMPANY – Proxy Statement   39 

 
 
COMPENSATION OF EXECUTIVE OFFICERS
 


Grants of Plan-Based Awards
The following table provides information concerning the annual cash incentive awards and equity incentive awards granted to each of our NEOs in fiscal 2017 under the Stock and Incentive Plan.
“GBP” is the annual cash incentive award payable pursuant to our 2017 Global Bonus Plan.
“PSUs” are restricted unit awards subject to performance-based vesting.
“RSUs” are restricted unit awards subject to time-based vesting.
“Options” are nonqualified stock options subject to time-based vesting.
For a more complete understanding of the table, please read the footnotes that follow the table, as well as the related discussion in the CD&A.
FISCAL 2017 GRANTS OF PLAN-BASED AWARDS
 
Name
 
Grant
Date
 
Date of
Commit-tee
Action
 
Estimated Future Payouts
Under Non-Equity
Incentive Plan Awards(1)
 
Estimated Future Payouts
Under Equity
Incentive Plan Awards(2)
 
All other
Stock
Awards:
Number of
Shares of
Stock or
Units
(#)
 
All other
Option
Awards:
Number of
Securities
Under-lying
Options
(#)
 
Exercise or
Base Price
of Option
Awards
($/Sh)
 
Grant Date
Fair
Value of
Stock and
Option
Awards
($)(3)
Threshold
($)
 
Target
($)
 
Maximum
($)
 
Threshold
(#)
 
Target
(#)
 
Maximum
(#)
 
Mark C. Trudeau
 
 
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 

 

 
 

 
 

GBP





656,250


1,312,500


3,937,500
























PSUs

1/3/2017

11/16/2016










19,170


76,681


153,362













5,474,057

RSUs

1/3/2017

11/16/2016




















44,462