DEF 14A 1 d943797ddef14a.htm DEFINITIVE PROXY STATEMENT Definitive Proxy Statement
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

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

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Preliminary Proxy Statement

 

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x Definitive Proxy Statement

 

¨  

Definitive Additional Materials

 

¨  

Soliciting Material Pursuant to §240.14a-12

MEDTRONIC PUBLIC LIMITED COMPANY

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

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LOGO

 

 

 

LOGO

 

 

Proxy Statement    

 

AND NOTICE OF 2015 ANNUAL GENERAL

MEETING OF SHAREHOLDERS

 

Friday, December 11, 2015, at 9 a.m. Local Time

Dublin, Ireland


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NOTICE OF ANNUAL GENERAL MEETING

 

 

MEETING AGENDA:

 

1. Electing, by separate resolutions, the 13 director nominees named in the proxy statement to hold office until the 2016 Annual General Meeting of the Company;

 

2. Ratifying the re-appointment of PricewaterhouseCoopers LLP as the Company’s independent auditor for fiscal year 2016 and authorizing the Board of Directors, acting through the Audit Committee, to set its remuneration;

 

3. Advisory approval of the Company’s executive compensation;

 

4. Advisory approval of the frequency of Say-on-Pay votes;

 

5. To receive and consider the Company’s Irish Statutory Accounts for the fiscal year ended April 24, 2015 and the reports of the directors and auditors thereon and to review the affairs of the Company; and

 

6. Transacting any other business that may properly come before the meeting.

Proposals 1 to 4 above are ordinary resolutions requiring a simple majority of the votes cast at the meeting. All proposals are more fully described in this proxy statement. There is no requirement under Irish law that Medtronic’s Irish Statutory Accounts for the fiscal year ended April 24, 2015 or the directors’ and auditor’s reports thereon be approved by the shareholders, and no such approval will be sought at the annual general meeting.

By order of the Board of Directors,

 

LOGO

Bradley E. Lerman

Senior Vice President, General Counsel and Company Secretary

August 1, 2015

 

YOUR VOTE IS IMPORTANT. WE ENCOURAGE YOU TO VOTE.

If possible, please vote your shares using the toll-free telephone number or Internet instructions found in the Notice. Alternatively, you may request a printed copy of the proxy materials and mark, sign, date and mail your proxy form to the Company’s registered office in the postage-paid envelope that will be provided. Voting by any of these methods will not limit your right to vote in person at the annual general meeting.

 

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

 

Date:    Friday, December 11, 2015
Time:    9:00 a.m. local time
Location:               

Conrad Dublin Hotel

Earlsfort Terrace

Dublin 2, Ireland

Record date: Shareholders of record at the close of business on October 12, 2015 are entitled to vote at the meeting.

Online proxy delivery and voting: As permitted by the Securities and Exchange Commission, we are making this proxy statement, the Company’s annual report to shareholders and our Irish statutory accounts available to our shareholders electronically via the Internet. We believe electronic delivery expedites your receipt of materials, reduces the environmental impact of our annual general meeting and reduces costs significantly. The Notice Regarding Internet Availability of Proxy Materials (the “Notice”) contains instructions on how you can access the proxy materials and how to vote online. If you received the Notice by mail, you will not receive a printed copy of the proxy materials unless you request one in accordance with the instructions provided in the Notice. The Notice has been mailed to shareholders on or about October 22, 2015 and provides instructions on how you may access and review the proxy materials on the Internet and how to vote.

Admission to the Annual General Meeting: If you wish to attend the Annual General Meeting, you must be a shareholder on the record date and request an admission ticket in advance by visiting www.proxyvote.com and following the instructions provided (you will need the 12 digit number included on your proxy card, voter instruction form or notice), or bring proof of ownership of ordinary shares to the meeting. Tickets will be issued to registered and beneficial owners and to one guest accompanying each registered or beneficial owner.

Important Notice Regarding the Availability of Proxy Materials for the Annual General Meeting of Shareholders to be held on December 11, 2015: This proxy statement, the Company’s 2015 Annual Report to Shareholders and our Irish Statutory Accounts for the year ended April 24, 2015 are available at www.proxyvote.com.

 


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TABLE OF CONTENTS

 

 

     Page  

Proxy Summary

  

Proxy Statement

     1   

Proxy Solicitation

     1   

Voting at the Meeting

     1   

Cautionary Note Regarding Forward-Looking Statements

     2   

Proposal 1 — Election of Directors

     3   

Directors and Nominees

     3   

Director Independence

     8   

Related Transactions and Other Matters

     9   

Governance of Medtronic

     11   

Our Corporate Governance Principles

     11   

Lead Director and Chairman; Executive Sessions

     11   

Board Role in Risk Oversight

     11   

Committees of the Board and Meetings

     12   

Director Compensation

     18   

Complaint Procedure; Communications with Directors

     21   

Our Codes of Conduct

     21   

Share Ownership Information

     22   

Compensation Discussion and Analysis (CD&A)

     24   

Executive Summary

     24   

Detailed Information

     30   

Executive Compensation Philosophy

     30   

Elements of Executive Compensation

     31   

Executive Compensation Peer Review

     32   

Fiscal Year 2015 Compensation Decisions

     35   

Fiscal Year 2015 Annual and Long-Term Incentive Plan Payouts

     40   

Compensation Committee Report

     44   

Executive Compensation

     45   

2015 Summary Compensation Table

     45   

2015 Grants of Plan-Based Awards

     48   

2015 Outstanding Equity Awards at Fiscal Year End

     50   

2015 Option Exercises and Stock Vested

     52   

2015 Pension Benefits

     53   

2015 Nonqualified Deferred Compensation

     55   

Potential Payments Upon Termination or Change of Control

     60   

Equity Compensation Plan Information

     63   

Report of the Audit Committee

     64   

Audit and Non-Audit Fees

     65   

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

     66   

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

     67   

Proposal 4 — Advisory Vote on Resolution to Approve Frequency of Say-on-Pay Votes

     68   

Other Information

     69   

Expenses of Solicitation

     69   

Shareholder Proposals and Director Nominations

     69   

Delivery of Documents to Shareholders Sharing an Address

     69   

Other

     69   

Appendix A

     A-1   


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PROXY SUMMARY

 

 

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

2015 Annual General Meeting of Shareholders

 

Date and Time:

   Friday, December 11, 2015, at 9:00 a.m. (Local Time)

Place:

  

Conrad Dublin Hotel

Earlsfort Terrace

Dublin 2, Ireland

Commence Mail Date:

   October 22, 2015

Record Date:

   October 12, 2015

Advance Voting Methods and Deadlines

 

Method   Instruction       Deadline
   

LOGO

Internet

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

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

 

       

Shares Held Through the Medtronic Puerto Rico Employees’ Savings and Investment Plan – 11:59 p.m., Eastern Standard Time, on December 8, 2015

 

            Registered Shareholders or Beneficial Owners – 11:59 p.m., Eastern Standard Time, on December 10, 2015
   

LOGO

Telephone

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

LOGO

Mail

   

Mark your selections on the enclosed proxy card

 

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

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

 

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

Questions and Answers About Attending our Annual General Meeting and Voting

We encourage you to review the questions and answers about our annual general meeting and voting beginning on page 1 to learn more about the rules and procedures surrounding the proxy and annual general meeting process, as well as the business to be conducted at our Annual General Meeting. If you plan to attend the Annual General Meeting in person, we direct your attention to the information following “Admission to the Meeting” on page 2.

If you wish to attend the Annual General Meeting, you must request an admission ticket in advance.

Your vote is important! Please cast your vote and play a part in the future of Medtronic.

 


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Voting Matters and Board Recommendations

 

Proposal  

Board

Recommendation

 

For More

  Information  

Proposal 1 —

  To elect, by separate resolutions, the thirteen director nominees named in the proxy statement to hold office until the 2016 Annual General Meeting of the Company   “FOR” all

nominees

  Page 3

Proposal 2 —

  To ratify the re-appointment of PricewaterhouseCoopers LLP as Medtronic’s independent auditor for fiscal year 2016 and authorize the Board of Directors, acting through the Audit Committee, to set its remuneration   “FOR”   Page 66

Proposal 3 —

  To approve, in a non-binding advisory vote, named executive officer compensation (a “Say-on-Pay” vote)   “FOR”   Page 67

Proposal 4 —

  To approve, in a non-binding advisory vote, the frequency of Say-on-Pay votes   “FOR”   Page 68

Director Nominees

You are being asked to vote, by separate resolutions, on the election of the following 13 Directors. Each Director nominee is elected annually by a majority of votes cast. Detailed information about each Director’s background, skill sets and areas of expertise can be found beginning on page 3.

 

                   

 

Committee Memberships

 

Other
 Current 
Public
Boards

Name

  Age*   Director
Since
  Principal Position   Indep.    AC     CC     FC    NCGC    QTC   

Richard H. Anderson

  60   2002   Chief Executive Officer of Delta Air Lines, Inc.   Y       M       C       1

Craig Arnold

  55   2015   Vice Chairman and Chief Operating Officer of Industrial Sector of Eaton Corporation   Y       M       M       0

Scott C. Donnelly

  53   2013   Chairman, President and Chief Executive Officer of Textron, Inc.   Y   M   M           M   1

Randall Hogan, III

  59   2015   Chairman & Chief Executive Officer of Pentair plc   Y   M       M           1

Omar Ishrak

  59   2011   Chairman and Chief Executive Officer of Medtronic plc   N                       0

Shirley Ann Jackson, Ph.D.

  68   2002   President of Rensselaer Polytechnic Institute   Y   C           M       3

Michael O. Leavitt

  64   2011   Founder and Chairman of Leavitt Partners   Y           M       M   1

James T. Lenehan

  66   2007   Financial Consultant and retired Vice Chairman and President of Johnson & Johnson   Y           M       C   0

Elizabeth Nabel, M.D.

  63   2014   President of Brigham & Women’s Healthcare   Y               M   M   0

Denise M. O’Leary

  57   2000   Private Venture Capital Investor   Y       M   M           2

Kendall J. Powell

  61   2007   Chairman and Chief Executive Officer of General Mills, Inc.   Y   M   C       M       1

Robert C. Pozen

  68   2004   Former Chairman of MFS Investment Management   Y   M       C           1

Preetha Reddy

  57   2012   Executive Vice Chairperson of Apollo Hospitals Enterprise Limited   Y       M     M   0

 

*Age is as of the date the Proxy Statement was filed with the SEC.

 

AC:    Audit Committee

CC:    Compensation Committee        

FC:    Finance Committee

  

NCGC:   Nominating and Corporate Governance Committee

QTC:       Quality and Technology Committee

  

C:    Chair

M:    Member

 


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Performance Highlights

On January 26, 2015, Medtronic plc acquired Covidien plc, a public limited company organized under the laws of Ireland (Covidien), and Medtronic, Inc., a Minnesota corporation (Medtronic). In connection with the transaction, Medtronic, Inc. and Covidien were combined under and became subsidiaries of Medtronic plc, a public limited company organized under the laws of Ireland (Medtronic).

Medtronic is the global leader in medical technology – alleviating pain, restoring health, and extending life for millions of people around the world. Fiscal year 2015 was a transformational year for Medtronic, with the announcement of the Covidien acquisition in the first quarter and subsequent closing of the transaction in the fourth quarter. During fiscal year 2015, we delivered consistent and dependable revenue growth across all four of our groups: Cardiac and Vascular, Minimally Invasive Therapies, Restorative Therapies, and Diabetes. This was a result of our continued focus on our three strategies: Therapy Innovation, Globalization, and Economic Value. Fiscal year 2015 was a strong year for therapy innovation at Medtronic, with all four groups launching meaningful innovations, including those that make advances into new disease areas, innovate on our existing market leading technologies, or enhance our diagnostic, therapy, and monitoring products with key wrap-around programs. We continue to focus on addressing the evolving needs of our customers regarding delivery system efficiency and more integrated, connected care models for patients around the world. We feel we are well positioned to demonstrate the role medical technology and related services can play in improving healthcare system efficiency and care integration in key disease states, and to serve as a key partner and collaborator with the healthcare systems, payers, and governments who are working to deliver better patient outcomes at lower costs.

Ultimately, our fiscal year 2015 results reflect the dedication and passion of over 92,000 full-time equivalent employees collaborating with our partners in healthcare to deliver therapies and services to millions of patients around the globe to fulfill our Mission. A few of our most notable performance highlights include the following:

 

   

We closed the acquisition of Covidien on January 26, 2015 to create the industry leading Global Medical Device company.

 

   

We achieved revenue of $20.3 billion and cash flows from operations of $4.9 billion.

 

   

Grew topline revenues by 6% year-over year on a constant currency basis.(1)

 

   

Grew earnings per share by 6% year-over-year.(1)

 

   

Medtronic’s stock price increased by 33.3% during Fiscal Year 2015 (add appropriate qualifiers/disclaimers).

 

   

We returned $3.3 Billion, over 50 percent of our free cash flow, to shareholders through dividends and share repurchases and increased our dividend for the 37th consecutive year.

 

   

We began the integration of Covidien, embarking on our goal of delivering a minimum of $850 million in cost synergies by the end of fiscal year 2018.

 

   

We had robust growth in the second year of our Cath Lab Managed Services business, ending the year with 50 long-term agreements with hospital systems to manage their cath labs, which collectively represent $1.1 billion in revenue over the life of these contracts.

 

   

Our Cardiac Rhythm & Heart Failure division grew 5 percent, driven in part by the robust growth of our Reveal LINQ® Insertable Cardiac Monitor (ICM) System, which is used for the diagnosis from unexplained syncope, atrial fibrillation, and cryptogenic stroke.

 

   

We experienced strong customer adoption in CE Mark countries for our CoreValve® Evolut® R next-generation self-expanding transcatheter aortic valve system, which features an option to recapture and reposition the valve during the procedure and a differentiated 14-French equivalent delivery catheter allowing access to smaller anatomies.

 

   

We received FDA approval and launched our IN.PACT® Admiral® drug-coated balloon in the United States, which drove solid fourth quarter growth in our Aortic & Peripheral Vascular division.

 

(1)  Revenue growth rate on a comparable, constant currency basis and diluted EPS are considered “non-GAAP” financial measures under applicable SEC rules and regulations. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are included in Appendix A of this proxy statement.

 


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We saw strong adoption of our Solitaire™ FR revascularization device in our Neurovascular division following the presentation of four meaningful clinical trials at the International Stroke Conference in February, and subsequent publication of three of these studies in the New England Journal of Medicine. These studies provided evidence that the standard of care for the treatment of stroke should be changed to include stent thrombectomy as a primary treatment in addition to IV tPA.

 

   

We began the launch in select international countries of the MiniMed® 640G System in our Diabetes group, which features a new insulin pump design, the Enhanced Enlite™ continuous glucose monitoring sensor, and SmartGuard™ technology, which can automatically suspend insulin delivery when sensor glucose levels are predicted to approach a low limit and then resume insulin delivery once levels recover.

Executive Compensation Philosophy, Goals and Principles

Our compensation programs are designed to align the interests of our NEOs with those of our shareholders. We provide market competitive programs that enable us to attract and retain highly talented individuals with pay linked to the attainment of short-and long-term performance goals according to the following principles:

 

   

We attract and retain talented executives by providing market competitive total direct compensation consisting of base salary, annual cash incentives, and long-term cash and equity incentives.

 

   

We attempt to calibrate all elements of total direct compensation at the market median, with a +/- 15% range developed for base salary and annual incentives, and a +/- 20% range for long-term incentives and total direct compensation.

 

   

We couple competitive total direct compensation with comprehensive benefits to support retirement, health and wellness, and other life events.

 

   

We emphasize pay for performance by basing at least 75% of total direct compensation on short-term and long-term financial incentives with a heavy emphasis on long-term performance.

 

   

Short-term and long-term incentives align executives with shareholders by using annual and three-year performance measures that drive shareholder value. Short-term and long-term incentive goals are derived from our Board-approved annual operating plan and Board-approved long-term strategic guidance provided to investors, respectively.

 

   

We also emphasize a culture of quality through the executives’ annual incentive plan. Payouts are reduced if a quality compliance performance threshold is not achieved. The modifier cannot increase payouts under the annual incentive plan. The quality modifier is based on maintaining quality standards that prevent U.S. Food and Drug Administration inspection observations and warning letters. The modifier is designed not to impede proactive quality actions such as product recalls and complaint handling procedures.

 

   

We hold an annual advisory vote regarding named executive officer compensation. Last year, 95.65% of votes cast were in favor of the Medtronic, Inc. say-on-pay resolution.

For additional information, see the CD&A and Executive Compensation sections of this Proxy Statement.

Corporate Governance Highlights

 

Strong Lead Independent

Director

SEE PAGE 11

 

Annual Board and Committee

Evaluation Processes

SEE PAGE 12

  Robust Risk  Management

Program

SEE PAGE 11

Stock Ownership Guidelines

for Named Executive Officers

and Directors

SEE PAGES 20 AND 43

 

Annual Board of Director

Elections and

Majority Voting for Directors

SEE PAGE 3

  Regular Executive

Sessions of

Independent Directors

SEE PAGE 11

Maintain High Ethical Standards Through Written Policies and Actions (Includes Codes of

Conduct, U.S. Patient Privacy Principles, Political Contribution Policy, and Policies Regarding

Environmental, Health and Safety and the Use of Animals)

SEE PAGE 21 AND OUR INVESTOR RELATIONS WEBSITE

 


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PROXY STATEMENT

 

 

Medtronic plc

Registered Address—

20 on Hatch, Lower Hatch Street

Dublin 2, Ireland

This proxy statement, the accompanying proxy form, Medtronic’s annual report for the year ended April 24, 2015, and our Irish Statutory Accounts for the year ended April 24, 2015 will be made available or sent to shareholders commencing on or about October 22, 2015.

Throughout this proxy statement, all references to our Board of Directors (or its committees) or officers for periods prior to January 26, 2015, are references to the Board of Directors (or its committees) or officers, respectively, of Medtronic, Inc., our predecessor. Similarly, all references to the Company for such periods refer to Medtronic, Inc.

Voting by Proxy

Shareholders of the Company who are entitled to attend and vote at the Annual General Meeting are entitled to appoint a proxy or proxies to attend and vote at the Annual General Meeting on their behalf. A proxy is not required to be a shareholder of the Company.

Proxy Solicitation

Medtronic’s Board of Directors solicits your proxy for use at the 2015 annual general meeting of shareholders and any adjournments or postponements of the meeting.

In addition to soliciting proxies over the Internet and through the mail, certain persons may solicit proxies in person or by telephone or fax. Medtronic has retained The Proxy Advisory Group, LLC, 18 East 41st Street, Suite 2000, New York, New York 10017, to assist in the solicitation of proxies, primarily from brokers, banks and other nominees, for a fee of $15,000, plus reasonable out-of-pocket expenses. Brokerage firms, nominees, custodians and fiduciaries may be asked to forward proxy soliciting material to the beneficial shareholders. All reasonable soliciting costs will be borne by Medtronic.

How Proxies will be Voted

The individuals named in the enclosed form of proxy have advised the Board of their intention to vote at the meeting in accordance with instructions on all proxy forms submitted by shareholders and, where no contrary instruction is indicated on the proxy form, as follows: for the election by separate resolution of the individuals nominated to serve as directors, for the ratification of PricewaterhouseCoopers LLP as independent auditor for fiscal year 2016 and authorizing Board of Directors, through the Audit Committee, to set its remuneration, for advisory approval of the Company’s executive compensation, and for an annual (one year) Say-on-Pay frequency vote.

You may revoke a proxy by submitting a later-dated proxy, by notifying Medtronic by fax, email, letter sent to Medtronic’s registered office, or other verifiable communication before the meeting, or by revoking it at the meeting. All properly executed or transmitted proxies not revoked will be voted at the meeting.

Voting at the Meeting

Each Medtronic shareholder of record at the close of business on October 12, 2015 is entitled to one vote for each share then held. As of July 17, 2015, 1,414,188,681 Medtronic ordinary shares (par value US $0.0001 each) were outstanding and entitled to vote.

At the 2015 annual general meeting, the inspector of election appointed by the Board of Directors for the meeting will determine the presence of a quorum and tabulate the results of shareholder voting. As provided by the Company’s Articles of Association, one or more shareholders present in person or by proxy holding not less than a majority of

 

 

Medtronic Proxy Statement and Notice of 2015 Annual General Meeting of Shareholders    1


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PROXY STATEMENT

 

 

the issued and outstanding shares of Medtronic entitled to vote at the meeting will constitute a quorum. The inspector of election intends to treat as “present” for these purposes shareholders who have submitted properly executed and transmitted proxies even if marked “abstain” as to some matters. The inspector will also treat as “present” shares held in “street name” by brokers that are voted on at least one proposal to come before the meeting.

Adoption of all proposals to come before the meeting will require the affirmative vote of a majority of the votes cast by the holders of ordinary shares represented at the annual general meeting in person or by proxy.

Abstentions and broker non-votes will not be considered votes cast at the annual general meeting. The practical effect of this is that abstentions and shares held in “street name” by brokers that are not voted in respect of these proposals will not have any effect on the outcome of voting on the proposals.

There is no requirement under Irish law that Medtronic’s Irish Statutory Accounts for the fiscal year ended April 24, 2015 or the related directors’ and auditor’s reports thereon be approved by the shareholders, and no such approval will be sought at the annual general meeting.

Admission to the Meeting

If you wish to attend the Annual General Meeting, you must be a shareholder on the record date and request an admission ticket in advance by visiting www.proxyvote.com and following the instructions provided (you will need the 12 digit number included on your proxy card, voter instruction form or notice), or bring proof of ownership of ordinary shares to the meeting. Tickets will be issued to registered and beneficial owners and to one guest accompanying each registered or beneficial owner.

Requests for admission tickets must be requested no later than December 8, 2015. On the day of the meeting, each shareholder will be required to present valid picture identification such as a driver’s license or passport with their admission ticket. If you do not request an admission ticket in advance, we will need to determine if you owned ordinary shares on the record date by:

 

   

verifying your name and share ownership against our list of registered shareholders; or

 

   

asking to review evidence of your share ownership as of October 12, 2015, such as your brokerage statement. You must bring such evidence with you in order to be admitted to the meeting.

Seating will begin at 8:15 a.m. and the meeting will begin at 9:00 a.m. Cameras (including cell phones with photographic capabilities), recording devices and other electronic devices will not be permitted at the meeting. You will be required to enter through a security check point before being granted access to the meeting.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

 

 

2    Medtronic Proxy Statement and Notice of 2015 Annual General Meeting of Shareholders


Table of Contents

PROPOSAL 1 — ELECTION OF DIRECTORS

 

 

Directors and Nominees

Our Board of Directors is currently comprised of 13 members, all of whom serve for a term of one year or until a respective successor is elected and has qualified. All nominees are currently Medtronic directors who were elected by shareholders at the 2014 annual general meeting, except Elizabeth Nabel, M.D., who was elected by the Board of Directors on September 14, 2014 and Craig Arnold and Randall Hogan, III, who were elected by the Board of Directors on January 26, 2015 as a result of the Covidien Acquisition. In order to be elected as a director, each nominee must be appointed by an ordinary resolution and each must receive the affirmative vote of a majority of the votes cast by the holders of ordinary shares represented at the annual general meeting in person or by proxy. If any of the nominees become unable or decline to serve, the individuals named as proxies in the enclosed proxy form will have the authority to vote for any substitutes who may be nominated in accordance with Medtronic’s Articles of Association. However, we have no reason to believe that this will occur.

NOMINEES FOR DIRECTORS FOR ONE-YEAR TERMS ENDING IN 2016:

 

LOGO   

RICHARD H. ANDERSON

Chief Executive Officer

Delta Air Lines, Inc.

  

Director since 2002

age 60

  

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

 

Director Qualifications: Mr. Anderson’s qualifications to serve on our Board include his more than 25 years of business, operational, financial and executive management experience. He also serves on the board of directors of another public company. Mr. Anderson’s extensive experience, including within the health care industry and for Fortune 500 companies, allows him to contribute valuable strategic management and risk assessment insight to Medtronic.

LOGO   

CRAIG ARNOLD

Vice Chairman and Chief Operating Officer

Industrial Sector of Eaton Corporation

  

Director since 2015

age 55

  

Mr. Arnold is the Vice Chairman and Chief Operating Officer, Industrial Sector of Eaton Corporation, a diversified industrial manufacturer. From 2000 to 2008 he served as Senior Vice President of Eaton Corporation and President of the Fluid Power Group of Eaton. Prior to joining Eaton, Mr. Arnold was employed in a series of progressively more responsible positions at General Electric Company from 1983 to 2000. Within the past five years, Mr. Arnold served as a director of Covidien plc, a leading global healthcare products company.

 

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

 

 

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LOGO   

SCOTT C. DONNELLY

Chairman, President and Chief Executive Officer

Textron, Inc.

  

Director since 2013

age 53

  

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

 

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

LOGO   

RANDALL J. HOGAN, III

Chairman & Chief Executive Officer

Pentair plc

  

Director since 2015

age 59

  

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

 

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

 

 

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LOGO   

OMAR ISHRAK

Chairman and Chief Executive Officer

Medtronic plc

  

Director since 2011

age 59

  

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

 

Director Qualifications: Mr. Ishrak’s qualifications to serve on our Board include his more than 20 years in the health care industry and more than 31 years of technology development and business management experience. Mr. Ishrak’s strong technical expertise and deep understanding of our customers, as well as his long history of success as a global executive in the medical technology industry, make him a valuable and qualified director with critical technical, leadership and strategic skills.

LOGO   

SHIRLEY ANN JACKSON, Ph.D.

President

Rensselaer Polytechnic Institute

  

Director since 2002

age 68

  

Dr. Jackson has been President of Rensselaer Polytechnic Institute, a technological research university, since 1999. She was Chair of the U.S. Nuclear Regulatory Commission under President Clinton from 1995 to 1999, and Professor of Physics at Rutgers University and consultant to AT&T Bell Laboratories from 1991 to 1995. Dr. Jackson currently serves as co-chair of The President’s Intelligence Advisory Board, appointed by President Obama in 2013. She is a member of the National Academy of Engineering and the American Philosophical Society and a Fellow of the American Academy of Arts and Sciences, the American Association for the Advancement of Science, and the American Physical Society. She is a trustee of the Brookings Institution, a Life Trustee of M.I.T. and a member of the Council on Foreign Relations. She is also a director of FedEx Corporation, a global courier delivery company, Public Service Enterprise Group, a publicly owned gas and electric utility company in the state of New Jersey, and International Business Machines Corporation, a multinational technology and consulting corporation. Within the past five years, Dr. Jackson also served as a director of NYSE Euronext, a multinational financial services corporation, and Marathon Oil Corporation, a company with international operations in exploration and production, oil sands mining and integrated gas.

 

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

 

 

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LOGO   

MICHAEL O. LEAVITT

Founder and Chairman

Leavitt Partners

  

Director since 2011

age 64

  

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

 

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

LOGO   

JAMES T. LENEHAN

Financial Consultant and Retired Vice

Chairman and President of

Johnson & Johnson

  

Director since 2007

age 66

  

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

 

Director Qualifications: Mr. Lenehan’s qualifications to serve on our Board include 31 years of business, operational and management experience in medical device, pharmaceutical, biotherapeutics and related industries. He also serves on the board of directors of private companies. His management ability at senior levels and financial experience make his input valuable to Medtronic.

LOGO   

ELIZABETH G. NABEL, M.D.

President of Brigham & Women’s Healthcare

  

Director since 2014

age 63

  

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

 

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

 

 

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LOGO   

DENISE M. O’LEARY

Private Venture Capital Investor

  

Director since 2000

age 57

  

Ms. O’Leary has been a private venture capital investor in a variety of early stage companies since 1996. Ms. O’Leary is also a director of American Airlines Group, Inc., a commercial airline, and Calpine Corporation, a national power generation company based in the United States. She was a member of the Stanford University Board of Trustees from 1996 through 2006, where she chaired the Committee of the Medical Center. Within the past five years, Ms. O’Leary served as a director of US Airways Group, Inc., a commercial airline.

 

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

LOGO   

KENDALL J. POWELL

Chairman and Chief Executive Officer

General Mills, Inc.

  

Director since 2007

age 61

  

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

 

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

LOGO   

ROBERT C. POZEN

Former Chairman

MFS Investment Management

  

Director since 2004

age 68

  

Mr. Pozen was Chairman of MFS Investment Management and a director of MFS Mutual Funds from 2004 until 2011. He previously was Secretary of Economic Affairs for the Commonwealth of Massachusetts in 2003 and the John Olin Visiting Professor at Harvard Law School from 2002 to 2003. He also was Vice Chairman of Fidelity Investments from 2000 to 2001 and President of Fidelity Management & Research from 1997 to 2001. From 2007 to 2008, he was the chairman of the SEC Advisory Committee on Improvements to Financial Reporting; and from January 2008 through June 2015, he was a senior lecturer at Harvard Business School. Mr. Pozen currently serves on the board of Nielsen Holdings N.V., a global information and measurement company, and on the board of Asset Management Company, a fund management subsidiary of The World Bank Group. As of July 2015, he also is a senior lecturer at M.I.T. Sloan School of Management. Within the past five years, Mr. Pozen also served as a director of MFS Investment Management, a global asset manager, and MFS Mutual Funds, a global provider of mutual fund services.

 

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

 

 

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LOGO   

PREETHA REDDY

Executive Vice Chairperson

Apollo Hospitals Enterprise Limited

  

Director since 2012

age 57

  

Ms. Reddy has been Managing Director of Apollo Hospitals Enterprise Limited, a specialized hospital system in India and a division of The Apollo Group, since 1993. Prior to that she was Joint Managing Director from 1991-1993 and Director of Apollo Hospitals since February 1989. Ms. Reddy serves on several boards under the Apollo Group, an owner of for-profit educational institutions. She is a member of the Wipro Business Leadership Council, and Senior Vice President of the All India Management Association (AIMA).

 

Director Qualifications: Ms. Reddy’s qualifications to serve on our Board include her extensive experience in the field of health and managing the operations of one of the largest hospital chains in India and its network of highly skilled professionals. She also serves on the Boards of Directors of other organizations. Ms. Reddy has worked with industry bodies and government in India to advance health care in India. Her extensive experience in health care in developing countries and in managing complex organizations makes her a valuable director.

THE BOARD RECOMMENDS A VOTE FOR THE DIRECTOR NOMINEES.

Director Independence

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

 

   

being a current employee, or having an immediate family member who is an executive officer, of an entity that has made or is expected to make immaterial payments to, or that has received or is expected to receive immaterial payments from, Medtronic for property or services, and each such relationship with Medtronic, through the relevant entity, is transactional in nature and is not a material transactional relationship (Messrs. Anderson, Arnold, Donnelly, Hogan, Lenehan, Powell and Pozen, Dr. Jackson, Dr. Nabel, Governor Leavitt and Ms. Reddy);

 

   

Governor Leavitt’s anticipated relationship with Medtronic will relate to limited consulting services and will not be a material relationship; and

 

   

being an employee or executive officer of a non-profit organization to which Medtronic or The Medtronic Foundation has made immaterial contributions (Mr. Pozen, Dr. Jackson and Dr. Nabel).

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

 

 

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boardroom or have a meaningful impact on any such director’s ability to satisfy his or her fiduciary standards on behalf of Medtronic’s shareholders.

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

The Board of Directors also considered a director’s spouse who provided non-professional services to, but was not an employee of, The Medtronic Foundation where payments to the spouse did not exceed $120,000, and the employment of a director’s daughter by Medtronic. The Board of Directors determined that none of the relationships were material and that their existence would not influence the director’s objectivity in the boardroom or have a meaningful impact on the director’s ability to satisfy fiduciary standards on behalf of Medtronic’s shareholders.

During fiscal year 2015, Medtronic entered into a consulting services agreement with Leavitt Partners, LLC, of which Michael O. Leavitt, a current director of Medtronic, is the founder, chairman and less than 50% equity owner. Under the consulting agreement, which ran from July 11, 2014 through October 10, 2014, Medtronic paid Leavitt Partners, LLC an aggregate of approximately $90,000, plus reimbursable incidental expenses incurred in connection with the delivery of services thereunder. In addition, effective via a third-party’s contract assignment to Leavitt Partners, LLC dated January 1, 2014, Medtronic and Leavitt Partners, LLC maintain a separate consulting agreement pursuant to which Medtronic paid to Leavitt Partners, LLC an aggregate of approximately $30,000 as of the date of this proxy statement, plus reimbursable incidental expenses incurred in connection with the delivery of services thereunder. Medtronic anticipates maintaining this relationship for the foreseeable future at a cost of $5,000 per month plus incidental fees. During the 2015 fiscal year, Leavitt Partners, LLC also assisted Medtronic with arranging certain conference speakers. In connection with these services, Leavitt Partners, LLC received an aggregate of approximately $5,000, which was a portion of the aggregate speakers’ fees of $25,000.

Related Transactions and Other Matters

The Board of Directors of Medtronic has adopted written related party transaction policies and procedures. The policies require that all “interested transactions” (as defined below) between Medtronic and a “related party” (as defined below) are subject to approval or ratification by the Nominating and Corporate Governance Committee. In determining whether to approve or ratify such transactions, the Nominating and Corporate Governance Committee will take into account, among other factors it deems appropriate, whether the interested transaction is on the same terms as are generally available to an unaffiliated third-party under the same or similar circumstances and the extent of the related person’s interest in the transaction. In addition, the Nominating and Corporate Governance Committee has reviewed a list of interested transactions and deemed them to be pre-approved or ratified. Also, the Board of Directors has delegated to the chair of the Nominating and Corporate Governance Committee the authority to pre-approve or ratify any interested transaction in which the aggregate amount is expected to be less than $1 million. Finally, the policies provide that no director shall participate in any discussion or approval of an interested transaction for which he or she is a related party, except that the director shall provide all material information concerning the interested transaction to the Nominating and Corporate Governance Committee.

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

 

   

the aggregate amount involved will or may be expected to exceed $120,000 in any twelve-month period;

 

   

Medtronic is a participant; and

 

   

any related party has or will have a direct or indirect interest (other than solely as a result of being a director or a less than ten percent beneficial owner of another entity).

 

 

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A “related party” is defined as any:

 

   

person who is or was (since the beginning of the last fiscal year for which Medtronic has filed a Form 10-K and proxy statement, even if they do not presently serve in that role) an executive officer, director or nominee for election as a director;

 

   

greater than five percent beneficial owner of Medtronic’s ordinary shares; or

 

   

immediate family member of any of the foregoing.

During fiscal year 2015, Sarah Powell, a daughter of director Kendall J. Powell, became employed by Medtronic as a Senior Leadership Development Rotation Program Associate. The Leadership Development Rotation Program is a three year program designed to place high-potential, high-performing graduates of an MBA program in two 18 month placements in different business units of Medtronic. The aggregate value of the compensation paid to Ms. Sarah Powell during fiscal year 2015 was approximately $158,200, which includes salary, bonus and incentive payments and stock options. In addition, Ms. Powell received the standard benefits provided to other non-executive Medtronic employees for her services during fiscal year 2015. Ms. Sarah Powell is not an executive officer of, and does not have a key strategic role within, Medtronic.

 

 

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GOVERNANCE OF MEDTRONIC

 

 

Our Corporate Governance Principles

The Board of Directors has adopted Principles of Corporate Governance (the “Governance Principles”), last amended January 2015. The Governance Principles describe Medtronic’s corporate governance practices and policies, and provide a framework for the governance of Medtronic. Among other things, the Governance Principles include the provisions below.

 

   

A majority of the members of the Board must be independent directors and no more than two directors may be Medtronic employees. Currently one director, Medtronic’s Chairman and Chief Executive Officer, is not independent.

 

   

Medtronic maintains Audit, Compensation, Finance, Nominating and Corporate Governance and Quality and Technology Committees, which consist entirely of independent directors.

 

   

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

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

Lead Director and Chairman; Executive Sessions

Mr. Ishrak, our Chief Executive Officer, also serves as Chairman of the Board. The Board believes that it is appropriate for Mr. Ishrak to serve as Chairman of the Board due to his extensive knowledge of and experience in the global health care industry generally and in the medical device industry specifically. This knowledge and experience will be critical in identifying strategic priorities and providing unified leadership in the execution of strategy.

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

Six regular meetings of our Board were held in fiscal year 2015 and beginning in fiscal year 2016, four regular meetings of our Board will be held each year. At each Board meeting, our independent directors will meet in executive session with no Company management present.

Board Role in Risk Oversight

Our Board of Directors, in exercising its overall responsibility to oversee the management of our business, considers risks when reviewing the Company’s strategic plan, financial results, merger and acquisition related activities, legal and regulatory matters and its public filings with the Securities and Exchange Commission. The Board is also deeply engaged in the Company’s Enterprise Risk Management (“ERM”) program and has received briefings on the outcomes of the ERM program and the steps the Company is taking to mitigate risks identified through the ERM program. The Board’s oversight of risk management includes full and open communications with management to review the adequacy and functionality of the risk management processes used by management. In addition, the Board of Directors uses its committees to assist in its risk oversight responsibility as follows:

 

   

The Audit Committee assists the Board of Directors in its oversight of the integrity of the financial reporting of the Company and its compliance with applicable legal and regulatory requirements. It also oversees our internal controls and compliance activities. The Audit Committee periodically discusses policies with respect

 

 

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to risk assessment and risk management, including appropriate guidelines and policies to govern the process, as well as the Company’s major financial and business risk exposures and certain contingent liabilities and the steps management has undertaken to monitor and control such exposures. It also meets privately with representatives from the Company’s independent registered public accounting firm.

 

   

The Finance Committee assists the Board of Directors in its oversight of risk relating to the Company’s assessment of its significant financial risks and certain contingent liabilities.

 

   

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

 

   

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

Committees of the Board and Meetings

Our five standing Board committees — Audit, Compensation, Finance, Nominating and Corporate Governance and Quality and Technology — consist solely of independent directors, as defined in the New York Stock Exchange Corporate Governance Standards. The Audit Committee was established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Each director attended 75% or more of the total Board and Board committee meetings on which the director served in fiscal year 2015. In addition, it has been the longstanding practice of Medtronic for all directors to attend the Annual General Meeting of Shareholders. All directors attended the last Annual General Meeting.

The following table summarizes the current membership of the Board and each of its standing committees and the number of times each standing committee met during fiscal year 2015.

 

    Board   Audit   Compensation   Finance   Nominating and
Corporate
Governance
  Quality and
Technology

Mr. Anderson

  X     X     Chair  

Mr. Arnold

  X     X     X  

Mr. Donnelly

  X   X   X       X

Mr. Hogan

  X   X     X    

Mr. Ishrak

  Chair          

Dr. Jackson

  X   Chair       X  

Gov. Leavitt

  X       X     X

Mr. Lenehan

  X       X     Chair

Dr. Nabel

  X         X   X

Ms. O’Leary

  X     X   X    

Mr. Powell

  X   X   Chair     X  

Mr. Pozen

  X   X     Chair    

Ms. Reddy

  X       X     X

Number of fiscal year 2015 meetings

  13   12   8   4   2   5

 

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

 

 

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GOVERNANCE OF MEDTRONIC

 

 

Audit Committee

Shirley Ann Jackson, Ph.D. (Chair)

Scott C. Donnelly

Randall J. Hogan, III

Kendall J. Powell

Robert C. Pozen

The functions of the Audit Committee include:

 

   

Overseeing the integrity of Medtronic’s financial reporting

 

   

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

 

   

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

 

   

Reviewing with the General Counsel and independent registered public accounting firm: legal matters that may have a material impact on the financial statements; any fraud involving management or other employees who have a significant role in Medtronic’s internal controls; compliance policies; and any material reports or inquiries received that raise material issues regarding Medtronic’s financial statements and accounting or compliance policies

 

   

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

 

   

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

 

   

Reviewing major issues and changes to Medtronic’s accounting and auditing principles and practices, including analyses of the effects of alternative GAAP methods on the financial statements, and the effect of regulatory and accounting initiatives, as well as off-balance sheet structures, on the financial statements of Medtronic

 

   

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

 

   

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

 

   

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

 

   

Reviewing, at least annually, a report by the independent registered public accounting firm describing its internal quality-control procedures and any material issues raised by the most recent internal quality-control review, and any steps taken to deal with any such issues, and all relationships between the independent registered public accounting firm and Medtronic

 

   

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

 

   

Establishing clear policies for hiring current and former employees of the independent registered public accounting firm

 

   

Preparing the Report of the Audit Committee

 

   

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

 

   

Reviewing the results of the annual audit examination

 

 

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

 

   

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

 

   

Reviewing candidates for the positions of Chief Financial Officer and Controller of Medtronic

 

   

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

 

   

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

Audit Committee Independence and Financial Experts

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

Audit Committee Pre-Approval Policies

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

Compensation Committee

Kendall J. Powell (Chair)

Richard H. Anderson

Craig Arnold

Scott C. Donnelly

Denise M. O’Leary

The functions of the Compensation Committee include:

 

   

Reviewing compensation philosophy and major compensation programs

 

   

Annually reviewing executive compensation programs; annually reviewing and approving corporate goals and objectives relevant to the compensation of the Chief Executive Officer and, based on its own evaluation of performance in light of those goals and objectives, as well as input from the entire Board; determining and approving the total compensation of the Chief Executive Officer and annually approving the total compensation of all other executive officers, including base salaries

 

   

Administering and determining incentive compensation plans and equity-based compensation plans and approving stock and other long-term incentive awards

 

   

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

 

   

Reviewing new compensation arrangements and reviewing and recommending to the Board employment agreements and severance arrangements for senior executive officers

 

 

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Reviewing and discussing with management the Compensation Discussion and Analysis required by the rules of the SEC and recommending to the Board the inclusion of the Compensation Discussion and Analysis in the Company’s annual proxy statement

 

   

Assisting the Board in reviewing results of any shareholder advisory votes, responding to other shareholder communications as such relate to the compensation of senior executive officers, and reviewing and recommending to the Board for approval the frequency with which Medtronic will conduct shareholder advisory votes

 

   

Preparing the Committee’s report to be included in Medtronic’s annual proxy statement

 

   

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

 

   

The Compensation Committee may form and delegate authority to subcommittees as it deems appropriate. The Compensation Committee may also delegate certain of its responsibilities to one or more designated senior executives or committees in accordance with applicable laws, regulations, and plan requirements. Please refer to the Compensation Discussion and Analysis beginning on page 24 for additional discussion of the Compensation Committee’s processes and procedures relating to compensation.

Compensation Committee Independence

In accordance with New York Stock Exchange Corporate Governance Standards and SEC Rule 10C-1, all members of the Compensation Committee meet the additional independence standards applicable to Compensation Committee members.

Compensation Committee Interlocks and Insider Participation

The members of our Compensation Committee are Kendall J. Powell (Chair), Richard H. Anderson, Craig Arnold, Scott C. Donnelly, and Denise M. O’Leary. No member of the Compensation Committee during fiscal year 2015 was ever an officer or employee of Medtronic, and no executive officer of Medtronic during fiscal year 2015 served on the Compensation Committee or board of any company that employed any member of Medtronic’s Compensation Committee or Board. During fiscal year 2015, Sarah Powell, a daughter of director Kendall J. Powell, was employed by Medtronic as a Senior Leadership Development Rotation Program Associate as further described in this proxy statement under “Proposal 1 — Election of Directors — Related Transactions and Other Matters” beginning on page 9.

Compensation Risk Assessment

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

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

 

   

Base salaries at Medtronic are generally competitive in the median range of the executive compensation peer companies, not subject to any performance risk and act as a material component of total compensation for most Medtronic employees.

 

   

Incentive plans for senior management and executive officers are appropriately weighted between short-term and long-term performance; between cash and equity compensation; and with long-term incentive performance targets being established at the beginning of each of our overlapping three year performance periods to reduce the incentive to maximize performance during any one year

 

   

Short-term incentive performance goals are recalibrated annually, based upon Medtronic’s annual operating plan approved by the Board, and are different than the long-term performance measures

 

 

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Executives and directors are subject to stock ownership and retention guidelines which require directors to maintain ownership of Medtronic stock equal to five (5) times their annual retainer, Medtronic’s CEO to maintain ownership of Medtronic stock equal to six (6) times his annual salary, and the other NEOs to maintain Medtronic stock equal to three (3) times their annual salary. Until the ownership guideline is met, the CEO and directors must retain 75% of after-tax Medtronic shares received through settlement of equity compensation awards and other NEOs must retain 50% of such shares. As of July 17, 2015, all directors and NEOs are in compliance with the stock ownership and retention guidelines; however, due to their more recent appointments, Mr. Donnelly, Gov. Leavitt, Dr. Nabel and Ms. Reddy are continuing to make progress towards the required ownership guidelines.

 

   

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

Finance Committee

Robert C. Pozen (Chair)

Randall J. Hogan, III

Michael O. Leavitt

James T. Lenehan

Denise M. O’Leary

Preetha Reddy

The functions of the Finance Committee include:

 

   

Reviewing and approving management’s recommendations to the Board for significant capital expenditures

 

   

Reviewing, approving and monitoring significant strategic transactions

 

   

Reviewing and overseeing management’s plans and objectives for the capitalization of the Company

 

   

Reviewing and approving management’s recommendations to the Board with respect to new offerings of debt and equity securities, stock splits, credit agreements, and Medtronic’s investment policies

 

   

Reviewing and approving management’s recommendations to the Board regarding dividends

 

   

Reviewing and approving management’s recommendations to the Board regarding authorization for repurchases of Medtronic’s stock

 

   

Reviewing and approving management’s recommendations for the Corporate Cash Investment Policy

 

   

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

 

   

Reviewing and overseeing the Company’s tax strategies

 

   

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

 

   

Reviewing and recommending to the Board for approval authorization limits for the Committee and the Chief Executive Officer to approve expenditures

Nominating and Corporate Governance Committee

Richard H. Anderson (Chair)

Craig Arnold

Shirley Ann Jackson, Ph.D.

Elizabeth Nabel, M.D.

Kendall J. Powell

The functions of the Nominating and Corporate Governance Committee include:

 

   

Identifying, evaluating and recommending to the Board individuals for the Board to nominate for election as directors

 

   

Formulating and administering policies and procedures for identifying, evaluating and recommending director candidates, including nominees recommended by shareholders

 

 

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Reviewing and making recommendations to the Board whether members of the Board should stand for re-election

 

   

Considering any resignation offered by a director

 

   

Developing an annual evaluation process for the Board and its committees

 

   

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

 

   

Monitoring emerging corporate governance trends and overseeing and evaluating the Company’s corporate governance policies and programs

 

   

Recommending to the Board corporate governance guidelines

 

   

Reviewing shareholder proposals and recommending to the Board proposed Company responses to such proposals

 

   

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

 

   

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

 

   

Overseeing and reviewing on a periodic basis the continuing education program for directors and the orientation program for new directors

 

   

Determining director compensation and benefits

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

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

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

Alternatively, shareholders intending to appear at the Annual General Meeting to nominate a candidate for election by the shareholders at the meeting (in cases where the Board does not intend to nominate the candidate or

 

 

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where the Nominating and Corporate Governance Committee was not requested to consider his or her candidacy) must comply with the procedures in Medtronic’s Articles of Association, which are described under “Other Information — Shareholder Proposals and Director Nominations” on page 69 of this proxy statement.

Quality and Technology Committee

James T. Lenehan (Chair)

Scott C. Donnelly

Michael O. Leavitt

Elizabeth Nabel, M.D.

Preetha Reddy

The functions of the Quality and Technology Committee include:

 

   

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

 

   

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

 

   

Overseeing the innovation strategy of the Company, including an assessment of portfolio competitive superiority and disruptive technology impacts; approach to new mark creation; monitoring overall effectiveness of research and development; a periodic targeted review of the IP strategy and portfolio; a technology evaluation of potential acquisitions for alignment with corporate strategy; and an assessment and evaluation of the economic value proposition of new and existing products

 

   

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

Director Compensation

All of our non-employee directors are paid an annual cash retainer and receive annual equity awards. A supplemental annual cash retainer is also paid to committee chairs, the Lead Independent Director, and non-chair audit committee members. Directors who are Medtronic employees receive no fees for their services as directors.

In connection with our acquisition of Covidien, the Compensation Committee retained Towers Watson to conduct a review of competitive market practices for board of director compensation. Following such review, the Compensation Committee found it appropriate to establish a new compensation structure for non-employee directors. The new compensation structure is consistent with the compensation structure of other companies who have experienced a recent tax domicile change, and it reflects the increased responsibilities and expectations of our board members given the expanded scope of our business. The principal features of the compensation received by our non-employee directors for fiscal year 2015 are described below.

 

Director Compensation

   Prior to  1/26/15      After  1/26/15  

Annual Cash Retainer

   $ 80,000       $ 175,000   

Committee Chair Stipends:

     

Audit

   $ 19,000       $ 25,000   

Compensation

   $ 10,000       $ 20,000   

Nominating & Corporate Governance

   $ 10,000       $ 20,000   

Finance

   $ 10,000       $ 20,000   

Quality & Technology

   $ 10,000       $ 20,000   

Lead Independent Director Stipend

   $ 20,000       $ 40,000   

Member Audit Committee

   $ 5,000       $ 15,000   

 

 

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The Director Compensation table reflects all compensation awarded to, earned by or paid to the Company’s non-employee directors during fiscal year 2015. No additional compensation was provided to Mr. Ishrak for his service as a director on the Board.

 

Non-Employee Director

  

Fees Earned or

Paid in Cash(1)

     Stock
Awards
    

All Other

Compensation(5)

     Total  

Richard H. Anderson

   $ 140,563       $ 140,012       $ 806,046       $ 1,086,621   

Craig Arnold(4)

   $ 136,538       $ 30,000       $ 0       $ 166,538   

Scott C. Donnelly(2)

   $ 110,673       $ 115,052       $ 50,637       $ 276,363   

Randall Hogan, III(4)

   $ 155,206       $ 30,000       $ 0       $ 185,206   

Shirley Ann Jackson

   $ 123,695       $ 140,012       $ 739,671       $ 1,003,378   

Michael O. Leavitt

   $ 103,228       $ 140,012       $ 173,103       $ 416,343   

James T. Lenehan

   $ 115,673       $ 140,012       $ 562,947       $ 818,632   

Elizabeth Nabel(2)

   $ 71,800       $ 0       $ 0       $ 71,800   

Denise M. O’Leary

   $ 103,228       $ 140,012       $ 778,550       $ 1,021,790   

Kendall J. Powell

   $ 123,118       $ 140,012       $ 614,227       $ 877,357   

Robert C. Pozen

   $ 123,118       $ 140,012       $ 616,311       $ 879,442   

Preetha Reddy(3)

   $ 103,228       $ 105,009       $ 83,722       $ 291,959   
(1) 

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

(2) 

Mr. Donnelly’s stock compensation was pro-rated as a result of his appointment to the Board effective July 2013. Dr. Nabel’s cash compensation was prorated as a result of her appointment to the Board effective September 2014. Dr. Nabel was not a board member at the time of the annual stock award.

(3) 

Ms. Reddy’s stock compensation was reduced by 25% due to her attendance of less than 75% of applicable meetings during the prior fiscal year.

(4) 

Messrs. Arnold and Hogan’s compensation reflects the compensation paid to them by Covidien from April 26, 2014 through January 25, 2015 and the compensation earned or paid to them by Medtronic from January 26, 2015 through April 24, 2015.

(5) 

In connection with Medtronic’s acquisition of Covidien, our non-employee directors were subject to the same excise tax as our named executive officers, as described in the section “Compensation Discussion and Analysis — Tax Matters—Code Section 4985 Excise Tax.” The amounts in this column represent estimated cost to Medtronic of providing a gross-up payment with respect to that excise tax, which will be payable on behalf of Medtronic’s non-employee directors. These non-recurring payments will result in no financial gain to our directors. The payments will be made so that, on a net after-tax basis, the directors would be in the same position as if they had not been subject to the excise tax and put the directors in the same position as other equity compensation holders after the Medtronic acquisition. The payments were fully disclosed in the November 20, 2014 Transaction Proxy S-4 filing in connection with the advisory vote on golden parachute compensation, which was supported by the major proxy advisory firms and approved by more than 92% of shares voted.

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

The annual cash retainer, annual cash stipend and special committee fees are paid in two installments — in the middle and at the end of a fiscal year. The annual cash retainer and annual cash stipend are reduced by 25% if a non-employee director does not attend at least 75% of the total meetings of the Board and Board committees on which such director served during the relevant plan year. The table on page 12 of this proxy statement under the section entitled “Committees of the Board and Meetings” shows on which committees the individual directors serve.

Stock Awards. Prior to the Covidien acquisition, directors were granted deferred stock units on the first business day of the fiscal year in an amount equal to $140,000 (on a pro-rata basis for participants who were directors for less than the entire preceding plan year and reduced by 25% for those directors who failed to attend at least 75% of the applicable meetings during such fiscal year) divided by the fair market value of a share of Medtronic ordinary shares on the date of grant. Dividends paid on Medtronic ordinary shares were credited to a director’s stock unit account in

 

 

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the form of additional stock units. The balance in a director’s stock unit account will be distributed to the director in the form of shares of Medtronic ordinary shares upon resignation or retirement from the Board in a single distribution or, at the director’s option, in five equal annual distributions.

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

The stock awards column represents aggregate grant date fair value of the deferred stock units granted in the respective fiscal year as computed in accordance with Financial Accounting Standards Board (“FASB”) ASC Topic 718, Compensation — Stock Compensation.

Stock Holdings. Non-employee directors held the following shares of restricted stock, stock options, and deferred stock units as of April 24, 2015:

 

Non-Employee Director

   Restricted
Stock
       Stock
Options
       Deferred
Stock Units
 

Richard H. Anderson

               14,017           26,589   

Craig Arnold

               15,109           0   

Scott C. Donnelly

               0           1,994   

Randall Hogan

               15,109           0   

Shirley Ann Jackson

               4,093           27,390   

Michael O. Leavitt

               0           7,061   

James T. Lenehan

               10,471           20,534   

Elizabeth Nabel

               0           0   

Denise M. O’Leary

               14,017           28,645   

Kendall J. Powell

               10,061           19,681   

Robert C. Pozen

               4,484           24,075   

Preetha Reddy

               0           3,679   

To align directors’ interests more closely with those of shareholders, the Nominating and Corporate Governance Committee approved the Medtronic, Inc. Stock Ownership and Retention Guidelines pursuant to which non-employee directors are expected to own stock of Medtronic in an amount equal to five times the annual Board retainer fees. Until the ownership guideline is met, the directors must retain 75% of after-tax Medtronic shares received through settlement of equity compensation awards. Once the guideline is met, the directors must retain 75% of after tax shares for one year following grant of equity compensation awards. For stock options, net after-tax profit shares are those shares remaining after payment of the option’s exercise price and income taxes. For share issuances, net gain shares are those remaining after payment of income taxes. Shares retained may be sold on the later of one year after grant of the shares or until the ownership guidelines are met. In the case of retirement or termination, the shares may be sold after the shorter of the remaining retention period or one year following retirement or termination, as applicable. As of June 25, 2105, all directors were in compliance with the stock ownership and retention policy; however, due to their more recent appointments, Mr. Donnelly, Gov. Leavitt, Dr. Nabel and Ms. Reddy are continuing to make progress towards the required ownership guidelines.

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

 

 

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Complaint Procedure; Communications with Directors

The Sarbanes-Oxley Act of 2002 requires companies to maintain procedures to receive, retain and treat complaints received regarding accounting, internal accounting controls or auditing matters and to allow for the confidential and anonymous submission by employees of concerns regarding questionable accounting or auditing matters. We currently have such procedures in place. Our 24-hour, toll-free confidential compliance line is available for the submission of concerns regarding accounting, internal controls or auditing matters. Shareholders may also communicate with our independent directors via e-mail at independentdirectors@medtronic.com. Our Lead Director may be contacted via e-mail at leaddirector@medtronic.com. Communications received from shareholders may be forwarded directly to Board members as part of the materials sent before the next regularly scheduled Board meeting, although the Board has authorized management, in its discretion, to forward communications on a more expedited basis if circumstances warrant or to exclude a communication if it is illegal, unduly hostile or threatening or otherwise inappropriate. Advertisements, solicitations for periodical or other subscriptions and other similar communications generally will not be forwarded to the directors.

Our Codes of Conduct

All Medtronic employees, including our Chief Executive Officer and other senior executives, are required to comply with our long-standing Code of Conduct to help ensure that our business is conducted in accordance with the highest standards of ethical behavior. Our Code of Conduct covers all areas of professional conduct, including customer relationships, conflicts of interest, insider trading, intellectual property and confidential information, as well as requiring strict adherence to all laws and regulations applicable to our business. Employees are required to bring any violations and suspected violations of the Code of Conduct to the attention of Medtronic, through management or our legal counsel or by using Medtronic’s confidential compliance line. Our Code of Ethics for Senior Financial Officers, which is a part of the Code of Conduct, includes certain specific policies applicable to our Chief Executive Officer, Chief Financial Officer, Treasurer and Controller and to other senior financial officers designated from time to time by our Chief Executive Officer. These policies relate to internal controls, the public disclosures of Medtronic, violations of the securities or other laws, rules or regulations and conflicts of interest. The members of the Board of Directors are subject to a Code of Business Conduct and Ethics relating to director responsibilities, conflicts of interest, strict adherence to applicable laws and regulations and promotion of ethical behavior.

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

 

 

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SHARE OWNERSHIP INFORMATION

 

 

Significant Shareholders

The following table shows information as of June 25, 2015, concerning each person who is known by us to beneficially own more than 5% of our ordinary shares.

 

Name of Beneficial Owner

  Amount and Nature  of
Beneficial Ownership of
Ordinary Shares
  

Of Shares Beneficially

Owned, Amount that

May Be Acquired

Within 60 Days

 

Percent

    of Class    

BlackRock, Inc., 55 East 52nd Street, New York, NY 10055(1)

  85,340,992    N/A   6.03%

FMR LLC, 245 Summer Street, Boston, MA 02210(2)

  71,214,341    N/A   5.04%
(1) 

The information for security ownership of this beneficial owner is based on a Standard Form TR-1 filed by BlackRock, Inc. and provided to Medtronic, reporting ownership as of May 14, 2015. On such date, BlackRock, together with its affiliates, held indirect voting power over 85,340,992 ordinary shares. Based upon 1,414,188,681 shares outstanding as of July 17, 2015, the shareholder beneficially owns approximately 6.03% of our shares outstanding.

(2) 

The information for security ownership of this beneficial owner is based on a Standard Form TR-1 filed by FMR LLC and provided to Medtronic, reporting ownership as of June 2, 2015. On such date, FMR LLC, together with its affiliates, held indirect voting power over 71,214,341 ordinary shares. Based upon 1,414,188,681 shares outstanding as of July 17, 2015, the shareholder beneficially owns approximately 5.04% of our shares outstanding.

Beneficial Ownership of Management

The following table shows information as of July 17, 2015 concerning beneficial ownership of Medtronic’s ordinary shares by Medtronic’s directors, named executive officers identified in the Summary Compensation Table under “Executive Compensation,” and all directors and executive officers as a group.

 

Name of Beneficial Owner

  Amount and  Nature of
Beneficial Ownership of
Ordinary Shares
(7)
   Of Shares  Beneficially
  Owned, Amount that May Be  
Acquired Within 60 Days

Richard H. Anderson(1)

      66,954          35,166  

Craig Arnold

      30,263          15,109  

Michael J. Coyle(2)

      340,073          300,006  

Scott C. Donnelly(3)

      2,239          1,994  

Gary L. Ellis

      680,130          592,560  

Bryan Hanson

      164,650          114,347  

Randall Hogan

      30,149          15,109  

Omar Ishrak

      675,306          485,291  

Shirley Ann Jackson.

      32,745          31,483  

Michael O. Leavitt

      7,061          7,061  

James T. Lenehan

      44,043          31,005  

Christopher J. O’Connell

      151,951          90,116  

Elizabeth Nabel

      0          0  

Denise M. O’Leary

      54,740          42,662  

Kendall J. Powell(4)

      32,742          29,742  

Robert C. Pozen(5)

      53,259          28,559  

Preetha Reddy

      3,679          3,679  

Directors and executive officers as a group (23 persons)(6)

      3,020,774          2,416,724  
(1) 

Mr. Anderson disclaims beneficial ownership of 25 shares that are owned by his adult son. Includes 4,800 shares held by Mr. Anderson’s spouse’s trust.

 

 

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(2) 

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

(3) 

Includes 245 shares held by Mr. Donnelly’s spouse’s trust.

(4) 

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

(5) 

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

(6) 

As of June 25, 2015, no director or executive officer beneficially owns more than 1% of the shares outstanding. Medtronic’s directors and executive officers as a group beneficially own approximately .21% of the shares outstanding.

(7) 

Amounts include the shares shown in the last column, which are not currently outstanding but are deemed beneficially owned because of the right to acquire shares pursuant to options exercisable or RSUs vesting and payable within 60 days (on or before December 11, 2015) and the right to receive shares for deferred stock units within 60 days (on or before December 11, 2015) upon a director’s resignation.

Section 16(a) Beneficial Ownership Reporting Compliance

Based upon a review of reports and written representations furnished to it, Medtronic believes that during fiscal year 2015, all filings with the SEC by its executive officers and directors complied with requirements for reporting ownership and changes in ownership of Medtronic’s ordinary shares pursuant to Section 16(a) of the Exchange Act, except that due to Medtronic’s administrative oversight, Rob ten Hoedt failed to timely file a Form 3 and Form 4 at the time of becoming a Section 16 officer and Michael J. Coyle failed to timely file a Form 4 reflecting the sale of Medtronic stock. In addition, due to timing and vendor constraints at the close of the Covidien acquisition, Bradley E. Lerman failed to timely file a closing Form 4 and Richard E. Kuntz, Governor Leavitt, Mr. Lerman and Ms. O’Leary failed to timely file initial Form 4s.

 

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

 

This Compensation Discussion and Analysis (“CD&A”) discusses the principles underlying our executive compensation programs and the key executive compensation decisions that were made for Fiscal Year 2015, including the most important factors relevant to those decisions. This CD&A is intended to provide additional context and background for the compensation earned by and awarded to the following named executive officers (“NEOs”) for Fiscal Year 2015 (listed in order as they appear in the Summary Compensation Table):

 

Omar Ishrak    Chairman and Chief Executive Officer
Gary L. Ellis    Executive Vice President and Chief Financial Officer
Christopher J. O’Connell    Executive Vice President and President, Restorative Therapies Group
Bryan C. Hanson    Executive Vice President and President, Minimally Invasive Therapies Group
Michael J. Coyle    Executive Vice President and President, Cardiac and Vascular Group

Medtronic, Inc. became an indirectly, wholly-owned subsidiary of Medtronic plc, a newly-formed Irish holding company, on January 26, 2015. Each of the executive officers of Medtronic, Inc. became executive officers of Medtronic plc, and the compensation programs of Medtronic, Inc. generally continue to be in place. References below to the Compensation Committee relate to Medtronic, Inc. prior to the transaction, and Medtronic plc following the transaction.

This CD&A also provides an overview of our executive compensation philosophy and explains how the Compensation Committee arrives at specific compensation decisions involving the NEOs. In addition, the CD&A explains how our executive compensation programs are designed and operate with respect to our NEOs by discussing the following aspects or our compensation programs:

 

   

Executive Compensation Philosophy

 

   

Elements of Executive Compensation

 

   

Executive Compensation Benchmarking

 

   

Fiscal Year 2015 Compensation Decisions

 

   

Fiscal Year 2015 Annual and Long-Term Incentive Plan Payouts

 

   

Other Benefits and Perquisites

 

   

Share Ownership, Share Retention, and Clawback Policies

 

   

Tax and Accounting Implications

Executive Summary

Business Environment

Fiscal year 2015 was a transformational year for our Company marked by the announcement on June 15, 2014 and consummation on January 26, 2015 of Medtronic, Inc.’s acquisition of Covidien. Our Company now has a global reach that extends to approximately 160 countries and enhances our industry leading capabilities in innovative therapies to fulfill our Mission of alleviating pain, restoring health, and extending life. In addition, our market capitalization increased from over $59 billion in June 2014 to over $109 billion in January 2015. It is now more important than ever for our Company to attract, retain, and incentivize a world-class executive leadership team to leverage our new scale and capabilities to achieve our long-term strategic imperatives of Therapy Innovation, Globalization, and Economic Value.

In addition to the successful consummation and ongoing integration of the Covidien acquisition, we achieved strong financial and operational performance in Fiscal Year 2015. Highlights from our June 2, 2015 Earnings Release are summarized below:

 

   

Revenue increased 6% to $20.3 billion for Fiscal Year 2015 measured on a constant currency, comparable basis

 

 

   

Adjusted diluted earnings per share on a non-cash basis increased by 6% to $4.28

 

 

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Revenue growth rate on a comparable, constant currency basis and diluted EPS are considered “non-GAAP” financial measures under applicable SEC rules and regulations. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are included in Appendix A of this proxy statement.

Medtronic continues to return 50% of annual cash flow to investors in the form of dividends and share buy-backs.

Executive Compensation Philosophy

Our executive compensation philosophy, which enables us to attract and engage world-class executive talent, continues to align with our new company profile. The key philosophy principles continue to be:

 

   

Attract and engage talented executives by providing a comprehensive, market competitive array of compensation and benefit programs

 

 

   

Target compensation to align with the median value that best reflects our talent market

 

 

   

Align the majority of compensation with pay for performance incentive programs that emphasize long-term company performance

 

Compensation Actions

Key compensation decisions for our NEOs included the following for Fiscal Year 2015:

 

Start of Fiscal Year 2015 Actions:

   

Base salaries increased by 4.6% on average

 

   

Target long-term incentive opportunities increased by 17% on average

Covidien Acquisition Related Actions:

   

Updated the company’s compensation Comparison Group of companies to reflect the new company profile and talent market following the acquisition of Covidien.

 

 

   

Appointed Bryan Hanson as Executive Vice President and President of Minimally Invasive Therapies Group. To align Mr. Hanson’s compensation with Medtronic’s market median targets as well as align compensation with Mr. Hanson’s newly expanded role, the following changes were made: (1) base salary increased from $702,000 to $750,000 annually; (2) annual target incentive decreased from 90% to 85% of base salary; and (3) annual long-term incentive plan target increased from $2,300,000 to $2,700.000.

 

 

   

Target annual incentives were unchanged at the beginning of the fiscal year. Following the acquisition close, the CEO annual target and CFO annual Target were increased from 140% to 175% of base salary and from 90% to 120% of base salary, respectively. The change was to ensure target total direct compensation remained at least at the minimum of updated market median data following the Covidien acquisition.

 

 

   

As disclosed in the November 20, 2014 Transaction Proxy S-4 filing, Medtronic’s Board of Directors determined to provide tax gross-up compensation to offset the impact of the Covidien acquisition associated excise tax on NEO unexercised stock options and unvested restricted stock units. The intent of the tax gross-up was to neutralize the effect of the excise tax so that Mr. Ishrak and the other NEOs were neither harmed by, nor benefited from, the transaction.

 

Fiscal Year-End 2015 Actions:

   

Annual incentive plan payouts were based on revenue growth, adjusted diluted earnings per share growth, and cash flow indicator goals and paid out at 109.27% of target award opportunity.

 

 

   

Restricted stock units granted during Fiscal Year 2013 attained the adjusted diluted earnings per share threshold necessary to be earned.

 

 

   

Long-term performance plan awards granted during Fiscal Year 2013 were based on revenue growth and return on invested capital goals and paid out at 112.29% of target award opportunity.

 

 

 

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The following chart shows our Company’s performance relative to our pre-established performance goals and our actual award payouts relative to target awards for Fiscal Year 2015 for our annual incentive and long-term performance plans:

 

LOGO

Compensation of our Chief Executive Officer

A pay for performance analysis that is summarized in the following chart and table for our chief executive officer (“CEO”), Mr. Ishrak, shows a conservative relationship between company performance and pay. Actual pay, whether measured using the Summary Compensation Table or based on the proposed SEC definition of “Compensation Actually Paid,” is below median of our comparison group of companies while total shareholder return exceeds the median of the comparison group and the S&P 500 Health Care Equipment index. Additionally, Medtronic’s total shareholder return increased 29% during Fiscal Year 2015 compared to the CEO’s increase in Target Total Direct Compensation of 12% for Fiscal Year 2015.

The compensation of our CEO is based on the same design elements and performance standards that are applicable to the other NEOs. For Fiscal Year 2015, the Compensation Committee determined to increase his base salary by 3%, maintain his target annual incentive opportunity at 140% of base salary, and establish a long-term incentive opportunity of $10.5 million, to be equally allocated to stock options, restricted stock units, and long-term performance plan awards. Based on market median data from Medtronic’s updated compensation Comparison Group of companies following the Covidien acquisition, the Compensation Committee increased Mr. Ishrak’s target annual incentive opportunity for the remainder of the Fiscal Year to 175% of base salary. Other compensation related adjustments based on the updated market median data was determined at the Committee’s June 2015 meeting when compensation decisions were completed for Fiscal Year 2016.

Also in connection with the Covidien acquisition and disclosed in the November 20, 2014 Transaction Proxy S-4 filing, Mr. Ishrak and the other NEOs were subject to a 15% federal excise tax on the value of certain stock compensation held at any time six months before and six months after the closing of the transaction. Rather than accelerate the vesting of this stock compensation to avoid the excise tax, the Compensation Committee determined to reimburse Mr. Ishrak and the other NEOs for the excise tax and the resulting income taxes to maintain the retention benefits of non-vested stock compensation. The intent of the reimbursement was to neutralize the effect of the excise tax so that Mr. Ishrak and the other NEOs where neither harmed by, nor benefited from, the transaction. This approach was supported by 92.26% of Medtronic’s shareholders in the “say on parachute” vote held in connection with the shareholder meeting held to approve the Covidien transaction. Mr. Ishrak and the other NEOs remained subject to the same federal income tax consequences that applied to all domestic shareholders as a result of the transaction and received no financial gain as a result of the transaction.

 

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

 

The following chart and table present total compensation for our CEO for Fiscal Year 2015 as required to be presented by the Securities Exchange Commission (SEC) in the Summary Compensation Table, both with and without the Covidien acquisition related excise tax gross up. From a performance perspective, we also present the total shareholder return for Fiscal Year 2015 for the Company, our peer group and the third-party index in our stock performance graph.

 

LOGO

 

     SEC Summary
Compensation
Table

Base Salary

   $  1,503,123

Annual Incentive

   $  2,444,532

—% of Base Salary

   163%
   109% of target

Total Annual Cash

   $  3,947,655

Stock Options

   $  3,078,407

Performance-Based RSUs

   $  3,500,062

Long-Term Performance Plan (LTPP)

   $  3,163,209

— LTPP % of 2013-2015 Target

   112% of target

Total Long-Term Incentives

   $  9,741,678

Change in Pension Value

   $     192,470

All Other Compensation

  

— Excluding Excise Tax and Gross Up

   $       54,485

Total Compensation

   $13,936,288

Excise Tax Gross-Up

   $25,523,978

Total Compensation Including Gross-Up

   $39,460,266

 

 

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Pay Versus Performance

In addition to ensuring that the annual and long-term cash incentive plan payouts align with performance, the Compensation Committee evaluates how the amount of annual cash compensation aligns with the Company’s performance when ranked against the comparison companies. For purposes of this analysis, annual cash compensation represents the actual base salaries and annual bonuses paid for the last completed fiscal year. As shown in the table below for Fiscal Year 2015, total annual compensation for the CEO, CFO, and the average other NEOs is directionally aligned with the Company’s equally weighted composite ranking of “as reported” GAAP measures of size, profitability, and growth, and conservative relative to the Company’s total shareholder return:

One-Year Average Size and

Performance Composite Rank

      Total Annual Compensation
(TAC) Rank ($000)
     

1-Year Total

Shareholder
Return

Size   Profitability   Growth                   CEO                              CFO                          Other NEO              

General Electric (GE)

  GILD   GILD     GE   $ 9,150        UNH   $ 3,900        222%      GE   $ 5,992          UNH

Johnson & Johnson (JNJ)

  JNJ   BIIB     HON   $ 7,366        168%      GE   $ 3,850        UNH   $ 3,225      198%     AMGN

Procter & Gamble (PG)

  QCOM   STJ     BMY   $ 7,314        220%      PFE   $ 2,569        111%      INTC   $ 2,669      118%     BSX

IBM (IBM)

  BIIB   BSX     PEP   $ 6,600        156%      LMT   $ 2,567        180%      BMY   $ 2,581      195%     BMY

Pfizer (PFE)

  MRK   BA     PG   $ 6,400        88%      UTX   $ 2,510        195%      PFE   $ 2,428      111%     BIIB

Intel (INTC)

  IBM   MON     BA   $ 6,369        135%      BMY   $ 2,477        172%      MRK   $ 2,337      149%     MDT

Coca-Cola (KO)

  MMM   INTC     LMT   $ 6,286        180%      ABBV   $ 2,414        146%      BA   $ 2,312      132%     CSCO

UnitedHealth Group (UNH)

  INTC   AMGN     ABT   $ 5,773        120%      INTC   $ 2,337        121%      GILD   $ 2,152      146%     GILD

Cisco Systems (CSCO)

  MON   QCOM     BIIB   $ 5,422        210%      PEP   $ 2,328        122%      AMGN   $ 2,126      154%     ABBV

Pepsico (PEP)

  LMT   JNJ     MON   $ 5,409        170%      JNJ   $ 2,278        127%      CSCO   $ 2,126      140%     INTC

United Technologies (UTX)

  CSCO   HON     GILD   $ 5,322        145%      ABT   $ 2,213        ABBV   $ 2,122      138%     LLY

Merck (MRK)

  AMGN   UNH     UTX   $ 5,220        112%      MRK   $ 2,168        202%      JNJ   $ 2,063      133%     ABT

Boeing (BA)

  BA   MMM     IBM   $ 5,100        90%      AMGN   $ 2,091        147%      PEP   $ 2,060      112%     LMT

Qualcomm (QCOM)

  PEP   GE     ABBV   $ 5,096        113%      CSCO   $ 2,075        128%      HON   $ 1,895      108%     MMM

Honeywell (HON)

  KO   UTX     JNJ   $ 5,044        135%      BA   $ 1,818        133%      PG   $ 1,865      89%     PEP

Gilead Sciences (GILD)

  HON   LMT     MMM   $ 4,893        163%      LLY   $ 1,800        85%      UTX   $ 1,848      113%     BA

Amgen (AMGN)

  STJ   MRK     MRK   $ 4,841        149%      GILD   $ 1,763        146%      LMT   $ 1,784      168%     STJ

3M (MMM)

  PG   ABT     PFE   $ 4,815        111%      PG   $ 1,748        88%      MON   $ 1,724      170%     PFE

Medtronic (MDT)

  MDT   PEP     AMGN   $ 4,373        147%      MDT   $ 1,713        109%      KO   $ 1,590      77%     DD

Du Pont (DD)

  DD   PG     INTC   $ 4,355        133%      MMM   $ 1,691        124%      STJ   $ 1,443      99%     HON

Abbott Laboratories (ABT)

  ABBV   MDT     UNH   $ 4,300        132%      BIIB   $ 1,510        210%      MDT   $ 1,392      109%     MRK

Lockheed Martin (LMT)

  PFE   DD     KO   $ 4,100        78%      HON   $ 1,455        93%      LLY   $ 1,383      85%     MON

Lilly (LLY)

  UTX   KO     MDT   $ 3,948        109%      KO   $ 1,440        81%      IBM   $ 1,381      81%     GE

Bristol-Myers Squibb (BMY)

  UNH   CSCO     CSCO   $ 3,600        114%      MON   $ 1,408        170%      ABT   $ 1,284          KO

AbbVie (ABBV)

  GE   ABBV     LLY   $ 3,285        85%      IBM   $ 1,408        84%      MMM   $ 1,242      115%     JNJ

Monsanto (MON)

  LLY   BMY     DD   $ 2,788        55%      QCOM   $ 1,389        71%      QCOM   $ 1,182      79%     PG

Biogen Idec (BIIB)

  BMY   IBM     QCOM   $ 2,619        70%      DD   $ 1,180        55%      BIIB   $ 1,140      210%     UTX

Boston Scientific (BSX)

  ABT   PFE     STJ   $ 2,547        99%      BSX   $ 867        132%      DD   $ 1,125      54%     IBM

St. Jude Medical (STJ)

  BSX   LLY     BSX   $ 2,325        127%      STJ   $ 809        99%      BSX   $ 965      141%     QCOM

Medtronic Rank = 36%

   MDT Rank = 44%     MDT Rank = 35%      Medtronic Rank = 21%      Medtronic Rank = 35%      Medtronic Rank = 26%     MDT Rank = 82%

Medtronic Composite Rank = 38%

    Medtronic Composite Rank = 27%      
Italicized percentages under TAC columns represent actual annual bonus payouts as a percentage of target bonus
Other NEO for Medtronic represents the average of Coyle and O’Connell

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

 

For Fiscal Year 2015, Medtronic, Inc. advisory votes on say-on-pay and say-on-golden

parachute compensation garnered shareholder support of 96% and 92%, respectively

The Compensation Committee reviewed shareholder and other stakeholder feedback along with the results of our 2014 shareholder “say-on-pay vote” in making compensation decisions during Fiscal Year 2015. Efforts to gather stakeholder feedback included periodic outreach to our largest shareholders. Through these discussions we continue to hear positive feedback about our executive compensation philosophy and the CD&A, and there were no significant concerns noted about pay practices. Based on this feedback and the 96% say-on-pay approval by shareholders in 2014, the Compensation Committee believes that shareholders support our compensation policies and practices. Therefore, the Compensation Committee continued to apply the same principles in determining Fiscal Year 2015 compensation actions.

 

 

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Compensation Governance Practices

We maintain the following compensation practices, which demonstrate our commitment to strong compensation governance:

 

   

Change-of-Control Policy: Compensation and benefits under our Change-of-Control (CIC) policy, which also includes equity awards that are replaced in connection with a change in control, are not triggered solely by a CIC event (“single trigger”). The compensation and benefits only apply in the event of a CIC when a participant is involuntarily terminated, without cause, or where a participant terminates employment for good reason, within a limited time period following the CIC (“double trigger”). Our CIC policy also does not provide for any “golden parachute” excise tax gross-up;

 

 

   

Stock Ownership Policy: Our policy requires the CEO to maintain ownership of stock equal to six (6) times annual salary and other NEOs to maintain stock equal to three (3) times annual salary. Until the ownership guideline is met, the CEO must retain 75% of after-tax shares received through settlement of equity compensation awards and other NEOs must retain 50% of such shares. Once the guideline is met, executives must retain the same percentages of after-tax shares for one year following grant of equity compensation awards. As of June 25, 2015, all NEOs are in compliance with the stock ownership and retention guidelines;

 

 

   

Forfeiture Policy: Our Stock Award and Incentive Plan provides that stock awards are forfeited when an NEO terminates employment with us for any reason other than retirement, disability, death, or termination under specific circumstances related to a Change in Control;

 

 

   

Clawback Policy: Compensation policies include significant penalties for misconduct including a broad clawback policy that allows the Company to recapture equity compensation and other incentive awards paid to an executive who engages in misconduct. Misconduct includes, among other things, a violation of our Code of Conduct, other fraudulent or illegal activity, violation of post-termination non-competition covenants, unauthorized disclosure of confidential information, and violation of business ethics or other business policies of our Company; and

 

 

   

Securities Trading Policy: NEOs (along with others) are prohibited from engaging in short sales of Medtronic securities (including share sales against the box) or engaging in purchases or sales of puts, calls or other derivative securities based on Medtronic securities. The policy also prohibits our NEOs from purchasing Medtronic securities on margin, borrowing against Medtronic securities held in a margin account or pledging Medtronic securities as collateral for a loan (unless the officers can clearly demonstrate the financial capacity to repay the loan without resorting to the pledged securities).

 

Participants in Executive Compensation Design and Decision Making Process

Role of Compensation Committee

The Compensation Committee establishes our compensation philosophy, program design and administration rules, and is the decision-making body on all compensation matters related to our NEOs. The Committee solicits input from an independent outside compensation consultant and relies on the consultant’s advice. For more information on the Compensation Committee, its members and its duties as identified in its charter, please refer to the section entitled “Governance of Medtronic — Compensation Committee” beginning on page 14 of this proxy statement.

Independent Compensation Consultant

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

In June 2013, the Medtronic, Inc. Compensation Committee adopted enhanced independence standards for outside consultants that mirror the New York Stock Exchange (“NYSE”) listing standards. This policy established an assessment framework to confirm and report on a consultant’s independence. It also requires a consultant to confirm

 

 

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its independent status according to the Compensation Committee’s standards. The Compensation Committee reviews and confirms the independence of its outside consultants on an annual basis.

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

Role of Chief Executive Officer in Compensation Decisions

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

The next section of the 2015 CD&A provides details about Medtronic’s Executive Compensation and Benefits.

Detailed Information

This section of the CD&A provides details about Medtronic’s executive compensation program design, which was summarized in the preceding Executive Summary section.

Executive Compensation Philosophy

Our compensation programs are designed to align the interests of our NEOs with those of our shareholders. We provide market competitive programs that enable us to attract and retain highly talented individuals with pay linked to the attainment of short- and long-term performance goals according to the following principles:

 

   

We attract and retain talented executives by providing market competitive total direct compensation consisting of base salary, annual cash incentives, and long-term cash and equity incentives.

 

 

   

We calibrate all elements of total direct compensation at the market median, with a +/- 15% range developed for base salary and annual incentives, and a +/- 20% range for long-term incentives and total direct compensation.

 

 

   

We leverage the market median range of externally benchmarked compensation data from our compensation comparison group of companies to ensure NEO compensation is positioned competitively based on incumbent experience and performance.

 

 

   

We couple competitive total direct compensation with comprehensive benefits to support retirement, health and wellness, and other life events.

 

 

   

We emphasize pay for performance by basing at least 75% of total direct compensation on short-term and long-term financial incentives with a heavy emphasis on long-term performance.

 

 

   

Short-term and long-term incentives align executives with shareholders by using annual and three-year performance measures that drive shareholder value. Short-term and long-term incentive goals are derived from our Board-approved annual operating plan and Board-approved long-term strategic guidance provided to investors, respectively.

 

 

   

We also emphasize a culture of quality through the executives’ annual incentive plan. Payouts are reduced if a quality compliance modifier performance threshold is not achieved. The modifier cannot increase payouts under the annual incentive plan. The quality modifier is based on maintaining quality standards that prevent U.S. Food and Drug Administration inspection observations and warning letters. The modifier is designed not to impede proactive quality actions such as product recalls and complaint handling procedures.

 

 

 

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Elements of Executive Compensation

Summarized below are the principle elements of our executive compensation program:

 

    Component   Performance
Period (yrs.)
  Basic Design   Purpose

 

Fixed

 

  Base Salary   1  

•    Calibrated with the Comparison Group market median range

 

•    Compensates for carrying out duties of the job

•    Recognizes individual experiences, skills, and sustained performance

  Benefits   1  

•    Health, retirement, and other life event market competitive benefits

 

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

  Perquisites   1  

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

•    No tax gross-up

 

•    Provide a modest allowance to be used in lieu of company provided perquisites

•    40 hours of personal use of corporate aviation service as needed in conjunction with business travel schedule

 

    At Risk    

 

  Annual Incentive Plan   1  

•    Actual pay varies between 50% and 200% of target

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

 

•    Incents the accomplishment of annual operating plan based on Company and individual performance

  Restricted Stock Units   3  

•    Granted annually

•    Vest 100 percent on the 3rd anniversary of grant date

•    Vesting is dependent on achieving a 3-year diluted earnings per share cumulative compound annual growth threshold

 

•    Promotes stock ownership in Medtronic

•    Provides a retention component

  Stock Options   4  

•    Granted annually

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

 

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

  Long-Term Performance Plan   3  

•    Granted annually

•    Actual pay varies between 50% and 200% of target

•    3-year performance period

•    Uses cumulative revenue growth, and return on invested capital performance measures

 

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

 

LOGO

 

NEO Target Total Direct Compensation (TTDC) is composed of 82% – 90%

Pay at Risk with 67% - 72% of TTDC composed of long-term incentives

 

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

 

Executive Compensation Peer Review

The Compensation Committee considers relevant market pay practices when establishing executive compensation levels and evaluating compensation programs including base salary, short-term and long-term incentives. In order to ensure the competitiveness of compensation programs, the Committee has established a Comparison Group of companies for benchmarking purposes. The identification of these companies is based on discussions with, and recommendations from, Frederic W. Cook & Co., Inc. Once the comparison companies are identified, a market median range is derived using a regression formula to adjust for compensation differences attributed to company size.

Initial compensation decisions for Fiscal Year 2015 were based on a 19-company Comparison Group approved by the Medtronic, Inc. Compensation Committee in February of 2014. The acquisition of Covidien during Fiscal Year 2015 required the Compensation Committee to re-assess the Compensation Comparison Group of companies. Medtronic increased from $17B to $27B in revenue rendering the 19-company Comparison Group of companies too small for a valid comparison of compensation.

Principles for establishing a new, post-acquisition Comparison Group include:

 

   

Maintain medical device industry specific companies

 

   

Include companies, both medical device and other industries, whose size and complexity align with our Company’s post-acquisition company profile and whom are confirmed competitors for key executive talent

Our objective is to establish market competitive compensation within a range on either side of the market median benchmark established for each position compared to our executive compensation peer group. The market median ranges are +/- 15% for base salary and target annual incentives and +/- 20% for Long-Term Incentives and Target Total Direct Compensation. Consistent with our pay-for-performance philosophy, we establish an award range for short-term and long-term incentives that generates above-market pay for above-market performance and below-market pay for below-market performance.

In addition to the competitive market information, the Compensation Committee also reviews information about performance, potential, expertise, and experience for each NEO. Base salary decisions are based on these factors to ensure that salaries are market competitive consistent with our compensation philosophy.

The following table compares the company selection criteria used for the pre-acquisition and post-acquisition Compensation Comparison Group:

 

Pre-Acquisition Criteria    Post-Acquisition Criteria

Start with North American Companies in the Standard & Poor’s database

  

Start with the 200 largest U.S. companies based on

revenue (Fortune 200) and market capitalization

Limit to companies in one of the following Global Industry Classification Standards (GICS) sub-industries, with revenue exceeding $4 billion

 

1.     Health Care Equipment

 

2.     Pharmaceuticals

 

3.     Biotechnology

  

Limit to 6 GICS Sectors

 

1.     Health Care

 

2.     Consumer Discretionary

 

3.     Consumer Staples

 

4.     Industrials

 

5.     Information Technology

 

6.     Materials

Consider the following criteria for selecting companies

 

1.     Health care equipment company

 

2.     Identify Medtronic as a comparison company

 

3.     Listed in the primary comparison group of a company identifying Medtronic as a comparison company

 

4.     Consideration of prior year comparison group

  

Consider the following criteria for selecting companies

 

1.     Overall company size

 

2.     Health care company

 

3.     Global operations

 

4.     Manufacturer

 

5.     Government contractor

 

6.     Information technology hardware

 

7.     Geographic competitor

 

 

32    Medtronic Proxy Statement and Notice of 2015 Annual General Meeting of Shareholders


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COMPENSATION DISCUSSION AND ANALYSIS

 

 

The revised comparison company selection criteria resulted in the following changes to the Comparison Group:

 

Comparison Companies

Used to Set Pre-Acquisition Pay

  Deletions   Additions  

Comparison Companies

Used to Set Post-Acquisition Pay

3M           3M
Abbott Laboratories           Abbott Laboratories
        AbbVie   AbbVie
Allergan   Allergan        
Amgen           Amgen
Baxter International   Baxter International        
Becton Dickinson   Becton Dickinson        
        Biogen Idec   Biogen Idec
        Boeing   Boeing
Boston Scientific           Boston Scientific
Bristol-Myers Squibb           Bristol-Myers Squibb
C.R. Bard   C.R. Bard        
CareFusion   CareFusion        
        Cisco Systems   Cisco Systems
        Coca-Cola   Coca-Cola
Covidien   Covidien        
        DuPont   DuPont
Eli Lilly           Eli Lilly
        General Electric   General Electric
Gilead Sciences           Gilead Sciences
        Honeywell International   Honeywell International
        Intel   Intel
        Intl Business Machines   Intl Business Machines
Johnson & Johnson           Johnson & Johnson
        Lockheed Martin   Lockheed Martin
Merck           Merck
        Monsanto   Monsanto
        PepsiCo   PepsiCo
Pfizer           Pfizer
        Proctor & Gamble   Proctor & Gamble
        QUALCOMM   QUALCOMM
St Jude Medical           St Jude Medical
Stryker   Stryker        
        United Technologies   United Technologies
        UnitedHealth Group   UnitedHealth Group
Zimmer Holdings   Zimmer Holdings        
19   8   17   28

 

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

 

Summarized below is a comparison of the Company to the revised post-acquisition Comparison Group in various measures of company financial and market size at the time of approval by the Compensation Committee:

 

     Latest 4 Quarters ($Mil.)      Latest Quarter ($Mil.)    

FYE Total
Employees

    

9/30/2014
Market
Capital.

   

Composite
Percentile
Rank

Company Name

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

General Electric Co

   $ 144,400       $ 23,245       $ 651,869       $ 134,013        307,000       $ 257,069      99%

Johnson & Johnson

   $ 73,540       $ 20,563       $ 135,200       $ 78,048        128,100       $ 300,859      89%

Procter & Gamble Co

   $ 83,062       $ 16,292       $ 144,266       $ 69,214        118,000       $ 227,003      86%

Intl Business Machines Corp

   $ 98,267       $ 19,680       $ 124,314       $ 17,377        431,212       $ 189,373      83%

Pfizer Inc

   $ 50,068       $ 15,936       $ 172,612       $ 76,633        77,700       $ 187,499      80%

Coca-Cola Co

   $ 46,220       $ 11,074       $ 95,489       $ 34,071        130,600       $ 187,104      73%

Intel Corp

   $ 53,912       $ 13,865       $ 91,793       $ 59,247        107,600       $ 172,394      73%

Pepsico Inc

   $ 66,544       $ 10,214       $ 80,433       $ 23,471        274,000       $ 140,659      69%

Cisco Systems Inc

   $ 47,142       $ 10,841       $ 105,134       $ 56,654        74,042       $ 128,543      68%

United Technologies Corp

   $ 63,327       $ 8,938       $ 92,142       $ 33,785        212,400       $ 96,604      67%

UnitedHealth Group Inc

   $ 126,023       $ 9,689       $ 85,466       $ 32,935        156,000       $ 83,921      65%

Merck & Co

   $ 43,550       $ 9,695       $ 97,860       $ 48,358        76,000       $ 171,895      65%

Boeing Co

   $ 88,425       $ 6,880       $ 92,737       $ 14,061        168,400       $ 91,886      59%

Medtronic (Post-Consummation)

   $ 27,680       $ 7,311       $ 57,777       $ 29,202        87,747       $ 100,412      51%

Qualcomm Inc

   $ 26,276       $ 8,068       $ 48,355       $ 38,789        31,000       $ 125,464      50%

Honeywell International Inc

   $ 39,966       $ 6,450       $ 46,596       $ 18,696        131,000       $ 72,871      46%

3M Co

   $ 31,450       $ 6,890       $ 33,970       $ 17,354        88,667       $ 91,804      41%

Amgen Inc

   $ 19,460       $ 6,520       $ 69,534       $ 24,382        20,000       $ 106,694      41%

DuPont (E.I.) De Nemours

   $ 35,489       $ 4,331       $ 48,314       $ 17,063        64,000       $ 65,729      34%

Gilead Sciences Inc

   $ 17,437       $ 9,847       $ 31,206       $ 16,127        6,100       $ 162,447      34%

Lockheed Martin Corp

   $ 44,836       $ 5,000       $ 37,250       $ 4,319        115,000       $ 58,012      32%

Abbott Laboratories

   $ 21,819       $ 2,759       $ 41,475       $ 23,602        69,000       $ 62,539      31%

Medtronic (Pre-Consummation)

   $ 17,195       $ 5,020       $ 37,554       $ 19,248        49,247       $ 61,331      30%

Lilly (Eli) & Co

   $ 21,200       $ 4,291       $ 35,018       $ 17,984        37,925       $ 72,457      30%

AbbVie Inc

   $ 19,258       $ 6,435       $ 29,045       $ 5,218        25,000       $ 91,937      24%

Bristol-Myers Squibb Co

   $ 16,206       $ 3,316       $ 33,503       $ 15,327        28,000       $ 84,856      23%

Monsanto Co

   $ 15,855       $ 4,077       $ 21,981       $ 7,875        26,200       $ 59,022      15%

Biogen Idec Inc

   $ 8,345       $ 3,013       $ 12,918       $ 9,561        6,850       $ 78,119      12%

Boston Scientific Corp

   $ 7,220       $ 921       $ 16,477       $ 6,544        23,000       $ 15,657        6%

St Jude Medical Inc

   $ 5,571       $ 1,426       $ 10,443       $ 3,979        16,000       $ 17,119        2%

75th Percentile

   $ 64,131       $ 10,899       $ 96,082       $ 41,181        130,700       $ 172,020       

Mean

   $ 49,960       $ 8,938       $ 88,764       $ 32,310        105,314       $ 121,412       

Median

   $ 41,758       $ 7,479       $ 58,945       $ 21,084        76,850       $ 94,270       

25th Percentile

   $ 19,410       $ 4,321       $ 33,853       $ 15,011        27,550       $ 72,767     

Medtronic Rank (Post-Consummation)

     38%         49%         50%         61%        55%         53%     

Medtronic Rank (Pre-Consummation)

     18%         30%         34%         49%        35%         14%       
–– Companies are ranked in descending order based on overall average percentile rank
–– All financial and market data are taken from Standard & Poor’s Compustat Service
–– Medtronic Post-Acquisition amounts represent the sum of most recent 4 quarters net revenue and EBIT, latest quarter total assets and total equity, and latest fiscal year-end total employees for Medtronic (April 2014) and Covidien (March 2014); market capitalization represents the sum of September 30, 2014 market capitalizations

 

 

34    Medtronic Proxy Statement and Notice of 2015 Annual General Meeting of Shareholders


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COMPENSATION DISCUSSION AND ANALYSIS

 

 

Fiscal Year 2015 Compensation Decisions

Appointment of EVP and President, Minimally Invasive Therapies Group

Bryan Hanson joined our Company in conjunction with the Covidien acquisition. Prior to joining, Mr. Hanson was in charge of Covidien’s Medical Devices Business Group.

The Compensation Committee, advised by the Independent Consultant, reviewed competitive market data to establish Mr. Hanson’s compensation package. One-time new hire components were provided to recognize the importance of Mr. Hanson’s leadership in the new company and to increase the value of long-term equity held by Mr. Hanson. The following table summarizes the material components of Mr. Hanson’s compensation following the close of the Covidien acquisition transaction(1):

 

Compensation Component (1)

   Amount      Comment

Annual Base Salary

   $750,000      Calibrated to market median

Annual Incentive Target

   85% of Base Salary      Calibrated to market median

Long-Term Incentive Target

   $2,700,000      Calibrated to market median

One-Time Restricted Stock Unit Grant

   $1,500,000      Increase value of long-term equity holdings

One-Time Stock Option Grant

   $1,500,000      Increase value of long-term equity holdings

One-Time Cash Sign-on Bonus

   $1,000,000      Sign-on bonus calibrated to market median
(1) This table reports Mr. Hanson’s compensation in effect following the close of the Covidien Acquisition transaction. The Summary Compensation Table reports Mr. Hanson’s compensation at the beginning of legacy Covidien fiscal year 2015 through the end of Medtronic’s Fiscal Year 2015, summarizing pre- and post-acquisition values.

Fiscal Year 2015 Annual Base Salaries

Our philosophy is to maintain base salary within a +/- 15% range around the median base salary paid by our Comparison Group. The range allows for pay decisions to take into account individual factors such as performance, potential, expertise, and experience. At the beginning of each Fiscal Year, the Independent Consultant presents to the Committee the analysis that identifies the median base salary range for the CEO and each NEO. Using this market data, the Committee approves base pay increases to maintain base salary within the median range, again, taking into account individual factors such as performance, potential, expertise, and experience.

The table below shows the Fiscal Year 2015 base salary increases for the CEO and each NEO.

 

Name

   FY2014  Salary
(000’s)
       FY2015  Salary
(000’s)
       %
Increase

Omar Ishrak

   $ 1,460         $ 1,504         3%

Gary L. Ellis

   $ 776         $ 830         7%

Christopher J. O’Connell

   $ 676         $ 696         3%

Bryan C. Hanson(1)

   $ 702         $ 750         7%

Michael J. Coyle

   $ 726         $ 748         3%
(1) FY2014 Salary = pre-acquisition amount, FY2015 Salary = post acquisition amount

Fiscal Year 2015 Annual Incentive Target Pay

Using the same analytical approach described for the annual base salary, the Independent Consultant identifies the median range (based on incentive opportunities at our Comparison Group) for annual incentive target pay for the CEO and each NEO, which is set as a percentage of annual base salary. Initially for Fiscal Year 2015, no changes to CEO or NEO target annual incentive pay were made. The table below shows CEO and NEO target annual incentive pay as a percentage of base salary. In connection with the Covidien acquisition, the Compensation Committee reviewed updated market median compensation data for NEOs and determined to increase target annual

 

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

 

incentive opportunities for the remainder of the Fiscal Year for Messrs. Ishrak and Ellis from 140% to 175% and from 90% to 120% of base salary, respectively. Market compensation data for NEOs will be reevaluated at the Committee’s June 2015 meeting to support compensation decisions for Fiscal Year 2016.

 

Name

  FY2014  MIP
Target
   FY2015  MIP
Target
 

%

Increase/
  (Decrease)  

Omar Ishrak(1)

      140 %        148.75 %       6.3 %

Gary L. Ellis(2)

      90 %        97.50 %       8.3 %

Christopher J. O’Connell

      85 %        85 %       0.0 %

Bryan C. Hanson

      90 %        85 %       -5.6 %

Michael J. Coyle

      85 %        85 %       0.0 %
(1) Mr. Ishrak’s annual incentive (MIP) target for FY15 incorporates an increase to 175% effective for Q4 of FY15. The MIP target change is to align with the Company’s updated compensation comparison companies.
(2) Mr. Ellis’ annual incentive (MIP) target for FY15 incorporates an increase to 120% effective for Q4 of FY15. The MIP target change is to align with the Company’s updated compensation comparison companies.
(3) FY2014 MIP Target = pre-acquisition amount, FY2015 MIP Target = post acquisition amount.

Fiscal Year 2015 Annual Incentive Plan Design

Our incentive plan design was established following an extensive review completed by the Compensation Committee, Independent Consultant, and management. The review considered shareholder feedback, competitive benchmarking, and the Company’s short-term and long-term strategic imperatives. The following details the key design elements:

 

   

Payout range aligned with market practice. Payout for each incentive plan component starts at 50% of target incentive and is paid up to a maximum of 200% of target incentive.

 

   

Results below the minimum performance level for a component pay 0% of target incentive for that component. There is no minimum guaranteed payout.

 

   

Diluted Earnings Per Share performance is a total plan payout qualifier. Results below the minimum performance level for the diluted EPS component result in no plan payout regardless of results for the other components.

 

   

Target incentive is paid at 100% achievement of three financial targets. As detailed in the next section, these three targets come directly from the Board-approved Annual Operating Plan and represent the best financial measures of annual executive performance expectations.

 

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

 

Fiscal Year 2015 Annual Incentive Plan Performance Measures

At the Medtronic, Inc. Compensation Committee’s June 2014 meeting, the Committee approved the targets for each of the three equally weighted performance measures, which come directly from the Company’s Board-approved Annual Operating Plan.

The following provides details about the performance measures, including a comparison to the Company’s comparison company median (if available):

 

Measure   Rationale   Performance Target   Weight

Revenue Growth (Constant Currency)

  Top line growth continues to be a key Company strategy, reflecting market development, market penetration, and market share performance   4.6% growth over Prior Year   1/3 of Payout

Diluted Earnings Per Share Growth (Non-GAAP)

  Earnings both from operating efficiency and financial management is a key driver of returns to shareholders  

$4.05 Per Share;

6.0% over Prior Year

  1/3 of Payout

Cash-Flow Indicator

  Cash flow generated from operations plus management of short-term receivables, inventory, and payables is a key driver of the Company’s ability to re-invest and provide returns to shareholders   $3.856 Billion   1/3 of Payout

Quality Compliance Modifier Performance Threshold

  Maintain high quality system compliance measured through FDA inspection results   A Score of 25 Points or Less   A score of more than 25 points reduces payout by five (5) percentage points

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

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

Non-Material FDA Warning Letter = 1 point per finding

Material FDA Warning Letter = 25 points

Fiscal Year 2015 Long-Term Incentive Plan (LTIP) Design

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

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

 

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

 

At the Medtronic, Inc. June 2014 Compensation Committee meeting, LTIP targets were approved for Fiscal Year 2015. The following table shows the target pay for LTIP awards granted in Fiscal Year 2014 compared to Fiscal Year 2015.

 

Name

  FY2014  LTIP
Target (000’s)
       FY2015  LTIP
Target (000’s)
       %
Increase
 

Omar Ishrak

  $ 9,200         $ 10,500           14.1

Gary L. Ellis

  $ 2,525         $ 3,375           33.7

Christopher J. O’Connell

  $ 2,525         $ 2,700           6.9

Bryan C. Hanson(1)

  $ 2,300         $ 2,700           17.4

Michael J. Coyle

  $ 2,325         $ 2,700           16.1
(1) FY2014 LTIP Target = pre-acquisition amount, FY2015 LTIP Target = post acquisition amount

Fiscal Year 2015 Long-Term Incentive Plan Components

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

Restricted Stock Units (RSU): Restricted stock units represent the second one-third of the target LTIP value that is primarily intended to deliver a market competitive level of stock ownership. The RSU grants cliff vest (100%) on the third anniversary of the grant date. Unlike the more commonly used time-based RSUs, our RSUs include a three-year minimum performance threshold that must be met before the RSUs vest. For Fiscal Year 2015 RSU grants, the performance threshold was set at an Earnings Per Share cumulative compound annual growth rate (cumulative CAGR) of 3%. The threshold is intentionally less than our externally communicated target performance, consistent with the primary stock ownership intention of RSU grants; however, the cumulative CAGR is still a challenging performance threshold because the cumulative CAGR measure means that each year’s growth is counted versus the standard CAGR which measures only the beginning and end points.

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

The following details the key design elements for our 2015-2017 LTPP:

 

   

Align payout range with market practice. Payout for each component starts at 50% of target incentive and is paid up to a maximum of 200% of target incentive;

 

   

Performance below the minimum threshold for each component pays 0% of target;

 

   

Revenue growth aligns with expectations communicated to shareholders. Revenue growth is measured using GAAP reported results to reflect organic and acquired growth, but excludes the effects of foreign currency exchange rates;

 

   

ROIC uses non-GAAP reported results, typically excluding one-time charges but including operating results from acquisitions and divestitures to reinforce accountability for investment decisions; and

 

   

ROIC and Revenue Growth are equally weighted (50% each) so that the two measures balance each other.

 

 

38    Medtronic Proxy Statement and Notice of 2015 Annual General Meeting of Shareholders


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COMPENSATION DISCUSSION AND ANALYSIS

 

 

The Medtronic, Inc. Compensation Committee approved the LTPP performance measures and targets for Fiscal Year 2015 – 2017 at the June 2014 meeting. The following table provides detailed information about each performance measure:

 

Measure

  Rationale   Targets   Weight

Three-year Revenue Growth

  Uses a cumulative compound annual growth rate (Cumulative CAGR) over three fiscal years, which is a more rigorous measure of sustained revenue growth.   5% Cumulative CAGR   50%

ROIC

  ROIC measures all components of management’s responsibility to generate sustained, long-term returns on invested capital.   14% average ROIC   50%

Revenue growth is measured as a three-year cumulative compound annual growth at constant currency but otherwise includes all other GAAP components.

ROIC is measured using Non-GAAP Earnings Per Share, which is the rolling 12 month profit after tax, excluding one-time items plus interest expense net of tax. Non-GAAP Earnings Per Share are divided by the difference of the three-year average asset base less average non-interest bearing liabilities.

Reimbursement of Covidien Acquisition Related Excise Tax for NEOs

As disclosed in the November 20, 2014 Transaction Proxy S-4 filing, Medtronic’s Board of Directors determined to provide compensation to offset the impact of the Covidien acquisition associated excise tax on NEO unexercised stock options and unvested restricted stock units.

The considerations reviewed by the Board of Directors are disclosed in the November 20, 2014 Transaction Proxy S-4 filing. In summary, the Board of Directors of Medtronic determined that it would be appropriate to reimburse the covered individuals for the excise tax, so that, on a net after-tax basis, they would be in the same position as if no such excise tax had been applied.

The following highlights the key considerations that the Board of Directors reviewed in making this decision:

 

  1. Covered Executives Are Key to Realizing the Strategic Benefits of the Transaction.

 

  2. Covered Individuals Remain Responsible for Paying All Income and Capital Gains Taxes That They Would Have Paid Absent the Transaction.

 

  3. Neutralize the effect of the excise tax so that Covered Executives were neither harmed by, nor benefited from, the transaction.

 

  4. Covered Individuals Are Receiving No Accelerated or Additional Compensation as a Result of the Transaction.

 

  5. Accelerating the Stock Compensation of the Covered Individuals Would Have Cost Medtronic More Than the Tax Reimbursements.

 

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

 

Fiscal Year 2015 Annual and Long-Term Incentive Plan Payouts

Fiscal Year 2015 Annual Incentive Plan Results and Payouts

The Committee reviewed performance against the incentive plan targets at its June 2015 meeting and approved the resulting CEO and NEO annual incentive plan payout percentage and payments as follows:

Annual Incentive Plan Financial Results:

 

     Diluted
EPS
(2)
       Revenue
Growth
       Cash  Flow
Indicator
     Total Payout
Percent
 

FY15 Actual

   $ 4.07           6.0      $ 3,891      

FY15 Target

   $ 4.05           4.6      $ 3,856      

Payout Level

     104.94        113.82        109.04   

Objective Weight

     33.33        33.33        33.33   

Award Level

     34.98        37.94        36.35      = 109.27%(1)(2)   
(1) The Medtronic Quality Compliance Modifier was achieved so a 5% reduction was not applied.
(2) The above results are adjusted for non-recurring items and to remove impacts of the Covidien acquisition.

Annual Incentive Plan Quality Compliance Modifier:

 

            Score
     Multiplier      FY13      FY14      FY15

Material Warning Letter

   20      20      20      0

Non-material Warning Letter Findings

   1      0      6      0

Average Findings per inspection

   10      14.85      6.25      6.00
   FY Total      34.85      32.25      6.00

Goal – Not to exceed

                        25.00

Annual Incentive Plan Payments:

 

Participant

 

FY2015

Actual Performance

  

FY2015

MIP Target

  

FY2015

MIP Award

 

Omar Ishrak

  109.27%    140% / 175%(1)    $ 2,444,531.55 (1) 

Gary Ellis

  109.27%    90% / 120%(2)    $ 884,267.48 (2) 

Christopher J. O’Connell

  109.27%    85%    $ 646,441.32   

Bryan C. Hanson (3)

  153.50% / 109.27%(3)    90% / 85%(3)    $ 480,726.86 (3) 

Michael J. Coyle

  109.27%    85%    $ 694,738.66   
(1) FY2015 MIP payout was prorated based on a target of 140% for Q1 through Q3 and a target of 175% for Q4.
(2) FY2015 MIP payout was prorated based on a target of 90% for Q1 through Q3 and a target of 120% for Q4.
(3) FY2015 payout reflected a prorated payment based on legacy Covidien annual incentive plan at a target of 90% for the period from October 1, 2014 through January 25, 2015 and Medtronic MIP at a target of 85% for the period from January 26, 2015 through April 24, 2015.

Fiscal Year 2013 — 2015 Long-Term Performance Plan (LTPP) Payout Results

At its June 2015 meeting, the Compensation Committee certified the results for the LTPP performance period that began in Fiscal Year 2013 and was completed at the end of Fiscal Year 2015. Payments of awards for this LTPP performance period were made during the first fiscal quarter of 2016 and can be found in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table on page 45.

 

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

 

FY2013-FY2015 Long-Term Performance Plan (LTPP) Results

The following table shows the results for FY2013-FY2015 Long-Term Performance Plan (LTPP) and the resulting Total Payout Percent:

 

Year    Revenue
Growth
(1)
     ROIC(2)  

FY2013

     4.4      14.1

FY2014

     3.4      13.3

FY2015

     23.0      10.5

Total/Average

     7.16 %(3)       12.63 %(4) 

2013-2015 LTPP Target

     5.0      14.0

Payout Level

     143.2      81.4

Objective Weight

     50      50

Weighted Payout Percent

     71.57      40.72

Total Payout Percent

     112.29%   
(1) Results are reported at GAAP, excluding the impact of foreign exchange rate fluctuation.
(2) Results are reported using Non-GAAP Earnings Per Share (EPS).
(3) Calculated as a cumulative compound annual growth rate.
(4) Calculated as a 3-year average.

Long-Term Performance Plan Payments:

 

Participant  

FY13-FY15 Actual

Performance

    FY13-FY15
Targets
     FY13-FY15
Awards
 

Omar Ishrak

    112.29   $ 2,817,000       $ 3,163,209.30   

Gary Ellis

    112.29   $ 800,000       $ 898,320.00   

Christopher J. O’Connell

    112.29   $ 733,000       $ 823,085.70   

Bryan C. Hanson (1)

    —          —           —     

Michael J. Coyle

    112.29   $ 733,000       $ 823,085.70   
(1) Not eligible for FY13-FY15 plan

Medtronic measures Earnings Per Share (EPS) performance using the same Non-GAAP EPS that is reported to investors through Medtronic’s Earnings Release. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are included in Appendix A of this proxy statement.

Other Benefits and Perquisites

Our Company provides broad-based benefit plans to all of its employees, including the NEOs. All employees participate in the same health care plans, and we do not provide NEOs with any different or additional benefit plans, with the exception of a required executive physical exam and a business allowance. NEOs are expected to complete a physical exam annually and, in the event that requirement exceeds regular plan coverage, the executives can receive reimbursement for up to $2,000 of the cost that exceeds the regular plan coverage. Our business allowance policy is described in detail below. The broad-based benefit plans include:

Qualified Retirement Plans

Our Company sponsors a number of tax-qualified retirement plans for its employees. In the United States, Medtronic, Inc. changed its retirement plans effective May 1, 2005 in order to provide then-current employees and employees hired after that date a choice of retirement plans. Employees hired prior to May 1, 2005 had the option of continuing in the final average pay pension plan referred to as the Medtronic Retirement Plan (MRP) or electing to participate in one of the new plans. Employees hired after that date choose to participate in one of the new retirement plans: the Personal Pension Account or the Personal Investment Account. The Personal Pension Account is a cash balance plan and, along with the MRP, is part of the Medtronic, Inc. Retirement Plan. The Personal Investment Account is part of the Company’s tax-qualified 401(k) Plan. Additional details regarding these plans are provided on page 53 of this proxy statement.

 

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

 

Supplemental Retirement Plans

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

Nonqualified Deferred Compensation Plan

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

Business Allowance

Our Company does not provide any perquisites such as Company-provided automobiles, club memberships, financial and tax advisors, etc. Instead, we provide NEOs with a market competitive business allowance. The NEOs may spend their business allowance at their discretion for expenses such as financial and tax planning, automobiles or club memberships. The business allowance is paid as taxable income, and we do not track an executive’s use of his or her business allowance. The annual business allowances provided to our NEOs in Fiscal Year 2015 ranged from $24,000 to $40,000. Additionally, it is occasionally appropriate for NEOs to be accompanied during business travel by their spouses. The expenses associated with such travel, while rare, are considered taxable income. The referenced amounts are included in the “All Other Compensation” column of the Summary Compensation Table.

Corporate Aviation Service

Our Company acquired Covidien’s corporate aviation services with the transaction close on January 26, 2015. The service will provide aviation service for use primarily by the CEO and members of the Board of Directors. Additionally, other executives may occasionally use the aviation services for business purposes based on availability and approval by the CEO or General Counsel. The service will help facilitate more effective and efficient travel planning and it is anticipated that limited personal use will be appropriate in conjunction with scheduled business travel.

Change of Control Agreements

Compensation in a change-of-control situation is designed: (1) to protect the compensation already earned by executives and to ensure that they will be treated fairly in the event of a change of control; and (2) to help ensure the retention and dedicated attention of key executives critical to the ongoing operation of the Company. Our change-of-control policy supports these principles. We believe shareholders will be best served if the interests of our executive officers are aligned with shareholders’ interests, and we believe providing change-of-control benefits should incent senior management to objectively evaluate potential mergers or transactions that may be in the best interests of shareholders. Our change-of-control agreements are discussed in more detail in the “Potential Payments Upon Termination or Change of Control” section of “Executive Compensation.” Other than Messrs. Coyle and Ishrak’s agreements, we do not have individual employment contracts with our NEOs relating to compensation other than those associated with a change of control.

Compensation Risk Assessment

Compensation policies and practices are also designed to discourage inappropriate risk taking. While you should refer to the section entitled “Governance of Medtronic — Board Role in Risk Oversight” beginning on page 11

 

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

 

of this proxy statement for a discussion of the Company’s general risk assessment of compensation policies and practices, mitigating factors with respect to our NEOs include the following:

 

   

The NEOs are subject to stock ownership guidelines which require our CEO to maintain ownership of stock equal to six (6) times annual salary and the other NEOs to maintain ownership of stock equal to three (3) times annual salary. As of July 17, 2015, all NEOs are in compliance with the stock ownership and retention guidelines;

 

   

Incentive plans are more heavily weighted towards long-term performance to reduce the incentive to impact adversely long-term performance in favor of maximizing performance in one year;

 

   

Improper payments or gains from incentives and equity compensation are subject to clawback;

 

   

Short-term and long-term cash incentive payments are capped at 200% of target payout;

 

   

Short-term and long-term cash incentive performance targets are established at the beginning of each performance period and are not subject to change. Short and long-term incentive programs use different measures of performance. Short-term cash incentives focus on annual operating plan financial measures such as revenue growth, earnings per share, and cash flow. Long-term cash incentives measure shareholder three-year ROIC and three-year revenue growth relative our long-term strategic expectations communicated to shareholders; and

 

   

The Compensation Committee retains discretionary authority to override any incentive plan’s formulaic outcome in the event of unforeseen circumstances.

Share Ownership, Share Retention, and Clawback Policies

Equity Holding

In Fiscal Year 2012, Medtronic, Inc. implemented executive stock ownership and retention guidelines that require the CEO to maintain ownership of stock equal to six (6) times annual salary and other NEOs to maintain stock equal to three (3) times annual salary. Until the ownership guideline is met, the CEO must retain 75% of after-tax shares received through settlement of equity compensation awards and other NEOs must retain 50% of such shares. Once the guideline is met, the CEO must retain 75% of after tax shares for one year following grant of equity compensation awards and other NEO’s must retain 50% of such shares for one year following grant of equity compensation awards. For purposes of complying with the guidelines, stock is not considered owned if pledged as collateral for a loan. Shares owned outright, legally or beneficially, by an officer or his or her immediate family members, after-tax “in the money” vested but unexercised stock options, after-tax unvested restricted stock units, and shares held in the tax-qualified and nonqualified retirement and deferred compensation plans count towards the guideline. Compliance with these guidelines is measured at the beginning of the first fiscal month of a new fiscal year by the internal team at the Company responsible for handling executive compensation matters and the results of such measurement are reported to the Nominating and Corporate Governance Committee or Compensation Committee, as applicable, after the measurement. On each measurement date, compliance is measured using each executive officer’s base salary then in effect and the average closing price per share of the Company’s ordinary shares on the New York Stock Exchange for the six calendar months preceding the measurement date. As of July 17, 2015, all NEOs are in compliance with the stock ownership and retention policy. For stock options, net after-tax profit shares are those shares remaining after payment of the option’s exercise price and income taxes. For share issuances (restricted stock unit vesting), net gain shares are those shares remaining after payment of income taxes.

Hedging and Pledging Policy

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

 

 

 

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COMPENSATION DISCUSSION AND ANALYSIS

 

 

Sale and Transfer of Awards

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

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

Equity Compensation Forfeiture

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

Tax and Accounting Implications

In evaluating compensation programs applicable to our NEOs (including the Company’s annual and long-term incentive plans), the Compensation Committee considers the potential impact on the Company of Section 162(m) of the Internal Revenue Code while maintaining maximum flexibility in the design of our compensation programs and in making appropriate payments to NEOs.

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

COMPENSATION COMMITTEE REPORT

 

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

COMPENSATION COMMITTEE:

 

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

 

 

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EXECUTIVE COMPENSATION

 

 

2015 Summary Compensation Table

The following table summarizes all compensation for each of the last three fiscal years awarded to, earned by or paid to the Company’s Chief Executive Officer, Chief Financial Officer, and three other most highly compensated executive officers during fiscal year 2015 (collectively, the named executive officers or “NEOs”). Please refer to the section entitled “Compensation Discussion and Analysis” beginning on page 24 of this proxy statement for a description of the compensation components for Medtronic’s NEOs. A narrative description of the material factors necessary to understand the information in the table is provided below, following the table.

 

Name and

Principal Position

  Fiscal
Year
  Salary     Bonus     Stock
Awards
    Option
Awards
   

Non-Equity

Incentive  Plan

Compensation

   

Change in
Pension

Value and
Nonqualified
Deferred
Compensation
Earnings

   

All Other

Compensation(1)

    Total  

Omar Ishrak

  2015   $ 1,503,123      $ 0      $ 3,500,062      $ 3,078,407      $ 5,607,741      $ 192,470      $ 25,578,463      $ 39,460,266   

Chairman and Chief

  2014   $ 1,459,080      $ 0      $ 3,067,051      $ 2,658,962      $ 4,682,931      $ 198,207      $ 52,614      $ 12,118,846   

Executive Officer

  2013   $ 1,402,962      $ 0      $ 2,817,024      $ 2,099,144      $ 2,417,098      $ 165,917      $ 73,741      $ 8,975,886   

Gary L. Ellis

  2015   $ 828,962      $ 0      $ 1,117,002      $ 1,004,447      $ 1,782,587      $ 734,266      $ 8,587,377      $ 14,054,641   

Senior Vice President and

  2014   $ 774,866      $ 0      $ 833,009      $ 744,075      $ 1,452,014      $ 537,582      $ 34,940      $ 4,376,485   

Chief Financial Officer

  2013   $ 716,461      $ 0      $ 800,029      $ 615,487      $ 1,302,580      $ 401,356      $ 37,186      $ 3,873,099   

Christopher J. O’Connell

  2015   $ 695,616      $ 0      $ 892,008      $ 806,555      $ 1,469,527      $ 447,827      $ 7,444,094      $ 11,755,626   

Executive Vice President

  2014   $ 675,135      $ 0      $ 833,009      $ 744,075      $ 1,262,793      $ 235,502      $ 35,340      $ 3,785,854   

& President, Restorative

  2013   $ 630,212      $ 0      $ 734,014      $ 565,564      $ 1,168,604      $ 252,198      $ 37,776      $ 3,388,368   

Therapies Group

                 

Bryan C. Hanson

  2015 (partial)   $ 400,758      $ 1,000,000      $ 3,800,104      $ 1,411,736      $ 480,727      $      $ 2,869,479      $ 9,962,804   

Executive Vice President

  2014   $ 595,285      $ 0      $ 1,610,042      $ 963,739      $ 736,501      $ 535      $ 80,688      $ 3,986,790   

& President, Minimally

  2013   $ 556,585      $ 0      $ 1,300,989      $ 719,527      $ 585,184      $      $ 54,142      $ 3,216,427   

Invasive Therapies Group

  2012   $ 535,200      $ 0      $ 1,223,049      $ 725,547      $ 355,965      $      $ 529,980      $ 3,369,741   

Michael J. Coyle

  2015   $ 747,577      $ 0      $ 892,008      $ 806,555      $ 1,517,824      $      $ 5,869,185      $ 9,833,150   

Executive Vice President

  2014   $ 724,942      $ 0      $ 767,012      $ 686,416      $ 1,306,793      $      $ 106,257      $ 3,591,420   

& President, Cardiac and

  2013   $ 670,154      $ 0      $ 734,014      $ 565,564      $ 1,210,414      $      $ 84,549      $ 3,264,695   

Vascular Group

                                                                   
(1) Includes the estimated cost to Medtronic for the Covidien acquisition-related excise tax gross-up payments, which will be payable on behalf of Medtronic’s NEOs. The payments are required to neutralize the effect of the excise tax so that NEOs were neither harmed by, nor benefitted from, the transaction.

Fiscal Year: The fiscal year column represents the last three fiscal years for Medtronic, with the exception of Mr. Hanson. Mr. Hanson’s fiscal year 2015 represents September 27, 2014 through Medtronic’s fiscal year end, April 24, 2015 and includes compensation received from Covidien prior to January 26, 2015. Mr. Hanson’s fiscal year 2014, 2013 and 2012 align with Covidien’s fiscal year end dates, September 26, 2014, September 27, 2013 and September 28, 2012 respectively.

Salary: The salary column represents the base salary earned by the NEO during the applicable fiscal year. This column includes any amounts that the officer may have deferred under the Capital Accumulation Plan, which deferred amounts also are included in the 2015 Nonqualified Deferred Compensation Table on page 55 of this proxy statement. Each of the NEOs, except Mr. Hanson, also contributed a portion of his salary to the Medtronic Savings and Investment Plan, also referred to as the 401(k) Plan. Mr. Hanson contributed a portion of his salary to the Covidien Retirement Savings and Investment Plan.

Bonus: Mr. Hanson’s 2015 amount represents a one-time $1,000,000 bonus following the commencement of his employment with the Company.

Stock Awards: The stock awards column represents aggregate grant date fair value of restricted stock unit awards and performance-based restricted stock units assuming full (maximum) achievement of applicable performance criteria over the performance period (collectively, the “restricted stock awards”) granted in the respective fiscal year as computed in accordance with FASB ASC Topic 718, Compensation — Stock Compensation. Accordingly, the grant date fair value was determined by multiplying the numbers of restricted stock awards by the closing stock price on the date of grant. For a description of the vesting terms of the stock awards,

 

 

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EXECUTIVE COMPENSATION

 

 

see the narrative disclosure following the 2015 Grants of Plan-Based Awards table on page 48 and the footnotes to the 2015 Outstanding Equity Awards at Fiscal Year End table on page 50 of this proxy statement. Additional information regarding the assumptions used to calculate these amounts are incorporated by reference to Note 11 to the Company’s Form 10-K for fiscal year 2015.

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

 

     Stock Option Grant Date  
    

July 30,

2012

   

October 29,

2012

   

July 29,

2013

   

October 28,

2013

   

July 28,

2014

   

February 18,

2015

 

Fair value of options granted

   $ 7.23      $ 8.05      $ 11.99      $ 12.52      $ 13.80      $ 18.47   

Assumption used:

            

Risk-free rate(1)

     0.91     1.06     1.88     1.86     2.09     1.81

Expected volatility(2)

     26.31     26.18     25.20     24.96     24.71     25.57

Expected life(3)

     6.5 yrs        6.5 yrs        6.4 yrs        6.4 yrs        6.4 yrs        6.4 yrs   

Dividend yield(4)

     2.68     2.50     2.02     1.94     1.94     1.55

 

(1) 

The risk-free rate is based on the grant date yield of a zero-coupon U.S. Treasury bond whose maturity period equals or approximates the expected term of the option.

(2) 

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

(3) 

The Company analyzes historical employee stock option exercise and termination data to estimate the expected life assumption. The Company calculates the expected life assumption using the midpoint scenario, which combines historical exercise data with hypothetical exercise data, as the Company believes this data currently represents the best estimate of the expected life of a new employee option.

(4) 

The dividend yield rate is calculated by dividing the Company’s annual dividend, based on the most recent quarterly dividend rate, by the closing stock price on the grant date.

For a description of the vesting terms of the option awards, see the narrative disclosure following the 2015 Grants of Plan-Based Awards table on page 48 and the footnotes to the 2015 Outstanding Equity Awards at Fiscal Year End table on page 50 of this proxy statement. Additional information regarding the assumptions used to calculate these amounts are incorporated by reference to Note 11 to the Company’s Form 10-K for fiscal year 2015.

Non-Equity Incentive Plan Compensation: This column reflects the Medtronic MIP and LTPP payments, and Mr. Hanson’s legacy Covidien Annual Incentive Plan (AIP) payment, earned by the NEOs during the applicable fiscal year(s) and payable subsequent to fiscal year end, including any amounts deferred under the Capital Accumulation Plan (which are included in the 2015 Nonqualified Deferred Compensation table on page 55 of this proxy statement). The table below reflects the compensation received by the NEO under each plan for the performance period ending through fiscal year 2015.

 

Name    MIP     

2013-2015

LTPP

    

Total Non-Equity

Incentive Plan

Compensation

 

Omar Ishrak

   $ 2,444,532       $ 3,163,209        $ 5,607,741   

Gary L. Ellis

   $ 884,267       $ 898,320       $ 1,782,587   

Christopher J. O’Connell

   $ 646,441       $ 823,086       $ 1,469,527   

Bryan C. Hanson

   $ 480,727 (1)     $       $ 480,727   

Michael J. Coyle

   $ 694,739       $ 823,086       $ 1,517,824   
(1) 

Includes $310,872 earned under the legacy Covidien AIP for the period September 27, 2014 through January 26, 2015

 

 

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EXECUTIVE COMPENSATION

 

 

For a more detailed description of the terms of the non-equity incentive plan awards, see page 35 of the Compensation Discussion and Analysis and the narrative disclosure following the 2015 Grants of Plan-Based Awards on page 48 of this proxy statement.

Change in Pension Value and Nonqualified Deferred Compensation Earnings: This column includes the estimated aggregate increase in the accrued pension benefit under Medtronic’s defined benefit pension plans and Covidien’s Kendall Pension Plan. Mr. Hanson experienced a decrease in the present value of his accrued pension benefit between September 26, 2014 and April 24, 2015 in the amount of $201. The change in the present value of the accrued pension benefit is impacted by variables such as additional years of service, age, pay and the discount rate (4.20% for fiscal 2015; down from 4.75% for fiscal 2014) used to calculate the present value of the change. The pension values are calculated based on the accrued pension benefits (qualified plan, the nonqualified NRPS and Covidien’s Kendall Pension Plan) as of April 24, 2015, and the fiscal year-end 2015 ASC 715 disclosure assumptions. Assumptions are described in Note 13 to the Company’s Form 10-K for fiscal year 2015.

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

 

Name

   Fiscal
Year
   Perquisites
and&n