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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 (Amendment No.          )

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Filed by a Party other than the Registrant o

Check the appropriate box:

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Preliminary Proxy Statement

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

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Definitive Proxy Statement

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Definitive Additional Materials

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Soliciting Material under §240.14a-12
 
Abbott Laboratories

(Name of Registrant as Specified In Its Charter)

 

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

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Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
    (1)   Title of each class of securities to which transaction applies:
        

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

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

 

 

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Abbott Laboratories
100 Abbott Park Road
Abbott Park, Illinois 60064-6400 U.S.A.

On the Cover: Ensure Advance

Marisela Hernández, Mexico City, Mexico

    Marisela has always been an active person. But when she was in her mid-40s, she began to feel noticeably less energetic and strong. After consulting her doctor, she began to take a more active approach to maintaining her health, drinking
Ensure Advance and working out more regularly at a gym near her home. Today, at 60, she feels much stronger and has more energy for her busy career as a financial consultant.



Table of Contents


 
 
Page
Notice of Annual Meeting of Shareholders   2

Proxy Summary

 

3

Information About the Annual Meeting

 

14
Who Can Vote   14
Notice and Access   14
Cumulative Voting   14
Voting by Proxy   14
Revoking a Proxy   14
Discretionary Voting Authority   14
Quorum and Vote Required to Approve Each Item on the Proxy   15
Effect of Broker Non-Votes and Abstentions   15
Inspectors of Election   15
Cost of Soliciting Proxies   15
Abbott Laboratories Stock Retirement Plan   15
Confidential Voting   16
Householding of Proxy Materials   16

Nominees for Election as Directors (Item 1 on Proxy Card)

 

17

The Board of Directors and its Committees

 

23
The Board of Directors   23
Leadership Structure   23
Director Selection   24
Board Diversity   24
Committees of the Board of Directors   24
Communicating with the Board of Directors   26
Corporate Governance Materials   26
2013 Director Compensation   26

Security Ownership of Executive Officers and Directors

 

28

Executive Compensation

 

29
Compensation Discussion and Analysis   29
Compensation Committee Report   42
Compensation Risk Assessment   42
Summary Compensation Table   44
2013 Grants of Plan-Based Awards   47
2013 Outstanding Equity Awards at Fiscal Year-End   49
2013 Option Exercises and Stock Vested   56
Pension Benefits   56
2013 Nonqualified Deferred Compensation   59
Potential Payments Upon Termination or Change in Control   59

Ratification of Ernst & Young LLP as Auditors (Item 2 on Proxy Card)

 

63
Change of Independent Public Accountants   64
Report of the Audit Committee   65

Say on Pay—An Advisory Vote on the Approval of Executive Compensation (Item 3 on Proxy Card)

 

66

Shareholder Proposals

 

67
Shareholder Proposal on Genetically Modified Ingredients (Item 4 on Proxy Card)   68

Proponent's Statement in Support of Shareholder Proposal

  68

Board of Directors' Statement in Opposition to the Shareholder Proposal

  69
Shareholder Proposal on Lobbying Disclosure (Item 5 on Proxy Card)   70

Proponent's Statement in Support of Shareholder Proposal

  70

Board of Directors' Statement in Opposition to the Shareholder Proposal

  71
Shareholder Proposal on Incentive Compensation—Compliance Costs (Item 6 on Proxy Card)   73

Proponent's Statement in Support of Shareholder Proposal

  73

Board of Directors' Statement in Opposition to the Shareholder Proposal

  74

Approval Process for Related Person Transactions

 

75

Additional Information

 

76
Information Concerning Security Ownership   76
Section 16(a) Beneficial Ownership Reporting Compliance   76
Other Matters   76
Date for Receipt of Shareholder Proposals for the 2015 Annual Meeting Proxy Statement   77
Procedure for Recommendation and Nomination of Directors and Transaction of Business at Annual Meeting   77
General   78

Exhibit A—Director Independence Standard

 

A-1

Annex I—Non-GAAP Reconciliation of Financial Information

 

I-1

Reservation Form for Annual Meeting

 

Back Cover

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Notice of Annual Meeting of Shareholders


Your Vote
Is Important

Please sign and promptly return your proxy
in the enclosed envelope or vote your
shares by telephone or using the Internet.


Important Notice Regarding the Availability of Proxy Materials for the Shareholder Meeting to Be Held on April 25, 2014

The Annual Meeting of the Shareholders of Abbott Laboratories will be held at Abbott's headquarters, 100 Abbott Park Road, at the intersection of Route 137 and Waukegan Road, Lake County, Illinois, on Friday, April 25, 2014, at 9:00 a.m. for the following purposes:

To elect 11 directors to hold office until the next Annual Meeting or until their successors are elected (Item 1 on the proxy card),

To ratify the appointment of Ernst & Young LLP as auditors of Abbott for 2014 (Item 2 on the proxy card),

To vote on an advisory vote on the approval of executive compensation (Item 3 on proxy card), and

To transact such other business as may properly come before the meeting, including consideration of three shareholder proposals, if presented at the meeting (Items 4, 5, and 6).

The Board of Directors recommends that you vote FOR Items 1, 2, and 3 on the proxy card.

The Board of Directors recommends that you vote AGAINST (Items 4, 5, and 6 on the proxy card).

The close of business on February 27, 2014, has been fixed as the record date for determining the shareholders entitled to receive notice of and to vote at the Annual Meeting.

Abbott's 2014 Proxy Statement and 2013 Annual Report to Shareholders are available at www.abbott.com/proxy.

If you are a registered shareholder, you may access your proxy card by either:

Going to the following Web site: www.investorvote.com/abt, entering the information requested on your computer screen and then following the simple instructions, or

Calling (in United States, U.S. territories, and Canada), toll free 1-800-652-VOTE (8683) on a touch tone telephone, and following the simple instructions provided by the recorded message.


Admission to the meeting will be by admission card only. If you plan to attend, please complete and return the reservation form on the back cover, and an admission card will be sent to you. Due to space limitations, reservation forms must be received before April 18, 2014. Each admission card, along with photo identification, admits one person. A shareholder may request two admission cards, but a guest must be accompanied by a shareholder.

By order of the Board of Directors.

Hubert L. Allen
Secretary

March 14, 2014

 

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Proxy Summary


This summary contains highlights about our Company and the upcoming 2014 Annual Meeting of Shareholders. This summary does not contain all of the information that you should consider in advance of the meeting, and we encourage you to read the entire Proxy Statement carefully before voting.

The accompanying proxy is solicited on behalf of the Board of Directors for use at the Annual Meeting of Shareholders. The meeting will be held on April 25, 2014, at Abbott's headquarters, 100 Abbott Park Road, at the intersection of Route 137 and Waukegan Road, Lake County, Illinois. This proxy statement and the accompanying proxy card are being mailed to shareholders on or about March 14, 2014.

2013 — A TRANSFORMATIONAL YEAR FOR ABBOTT

On January 1, 2013, we completed the largest strategic initiative in the Company's long history, creating two leading healthcare companies. The research-based pharmaceuticals business became AbbVie and our diversified medical products business became the new Abbott.

Historically, Abbott has executed numerous strategic initiatives that have created significant long-term value for shareholders, including the 2013 creation of AbbVie. From the end of 2010 through the end of 2013, the combined market capitalization of Abbott and AbbVie nearly doubled from approximately $75 billion to approximately $145 billion.

Abbott's total shareholder return (TSR) was 82.1% during the past three years as compared to the S&P 500 index return of 56.8%.(1)

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(1)
Source: Thomson Reuters.

 

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THE NEW ABBOTT

The new Abbott continues to be a diverse and well-balanced business. The four businesses that compose Abbott today are strong leaders in large, attractive markets, and aligned with the future of global healthcare. Technologically, geographically, and demographically, Abbott is well-positioned to serve increasing healthcare needs and to capture future growth.

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Geographically, Abbott is one of the most globalized healthcare companies, with 70 percent of our revenue coming from international markets. And, importantly, approximately half of our business now comes directly from the patients and consumers who use our products, rather than third-party payers. This makes us one of the most consumer-facing companies in healthcare. In terms of demographics, Abbott's businesses are highly aligned with population and socioeconomic trends that will drive future healthcare growth. Finally, rising populations and prosperity are driving urbanization and growth in consumer and healthcare spending in emerging markets. As one of the world's most international healthcare companies, with a strong presence in both developed and emerging markets, Abbott is optimally positioned to deliver durable and reliable growth in the years ahead.


Revenue Mix by Market



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2013 FINANCIAL HIGHLIGHTS

A critically important legacy that Abbott carries forward is our tradition of outstanding financial strength and performance. In 2013, Abbott once again fulfilled its commitments to shareholders with another strong year of financial results.

   
Earnings-per-share
   
   
   
 
   

Adjusted diluted earnings-per-share (EPS) from continuing operations increased 15.5% vs. 2012.

 
 
  2013   2012   % Change  

Adjusted diluted EPS from continuing operations (non-GAAP)

  $ 2.01   $ 1.74     15.5%  

Diluted EPS from continuing operations (GAAP)(1)

  $ 1.50   $ 0.36     n/m  

n/m = percent change is not meaningful

See Annex I for a reconciliation of the above GAAP and non-GAAP financial measures.

   

Cash flow and shareholder returns

 
   

Abbott generated adjusted operating cash flow of $4.1 billion in 2013 and returned $2.5 billion to shareholders in the form of dividends and share repurchases. Operating cash flow under U.S. GAAP totaled $3.3 billion in 2013.

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Adjusted Operating Cash Flow reflects adjustments to Operating Cash Flow under GAAP for $0.4 billion of payments related to the separation of AbbVie and $0.4 billion of higher than planned pension contributions.

   

3-year total shareholder return

 
   

Abbott's 3-year total shareholder return of 82.1%, generated through stock price appreciation and dividends, outperformed the Standard & Poor's 500 Index and the Dow Jones Industrial Average.(2)

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(1)
Diluted EPS on a GAAP basis includes a charge in 2012 for the extinguishment of debt related to the separation of AbbVie.

(2)
Source: Thomson Reuters. Thomson Reuters applied an adjustment factor to adjust Abbott historical prices prior to and up through December 31, 2012 to account for the AbbVie separation, which was effective on January 1, 2013. This adjustment factor was calculated based on the ratio of the AbbVie "when-issued" share price and the unadjusted Abbott share price as of market close on December 31, 2012. Based on this methodology, the sum of the adjusted AbbVie and adjusted Abbott share prices as of market close on December 31, 2012 equals the unadjusted Abbott closing share price on that day. To most accurately reflect the TSR created by Abbott since the AbbVie separation, Abbott uses the daily dividend reinvestment methodology to calculate TSR. Other financial data providers may use different methodologies to adjust for the AbbVie separation, which may produce different results.

 

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GOVERNANCE HIGHLIGHTS

The Board of Directors continuously monitors best practices in governance and adopts measures it determines to be in the best interest of shareholders. Highlights of our governance include:

Board of Directors

11 directors; 10 are independent

All directors elected annually

Independent lead director

No former employees serve as directors

Executive sessions of independent directors at each regularly-scheduled meeting

99% average attendance of all directors at Board and committee meetings in 2013

50% of the independent directors are women or minorities

Annual succession planning

Annual Board and Board committee self-assessments

Shareholder Interests

Annual "Say on pay" advisory vote to approve executive compensation

Annual vote to ratify independent auditor

Public Policy Committee oversees corporate political contributions, legal and regulatory compliance, and healthcare compliance

Recoupment policy


RECOUPMENT POLICY

Abbott has adopted a new recoupment policy. Upon implementation, the Compensation Committee will have broad discretion to administer and interpret the policy and may seek recoupment of new equity or cash incentive awards if it determines that a senior executive engaged in misconduct or failed in a supervisory capacity, resulting in a material violation of law or Abbott policy which caused significant financial harm to Abbott. The Compensation Committee will also be entitled to reduce future awards.

 

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RECENT CHANGES IN OUR EXECUTIVE COMPENSATION PROGRAM

New Peer Group

To better reflect the nature of our business going forward, a new peer group for benchmarking compensation and performance was selected, which reflects a balanced mix of corporations whose investment profile, operating characteristics, and employment and business markets share similarities with Abbott, including:

    Globally diverse manufacturing-driven organizations with significant international operations

    Consumer-facing organizations

    Similar financial and operating measures, including revenue, market capitalization and number of employees

    Similar return of cash profiles, including dividends and share repurchases

    Similar geographic mix of revenues and profits

 
3M Company   Danaher Corporation   Illinois Tool Works   Novartis AG
Baxter International   E.I. Du Pont   Kimberly-Clark Corp.   Procter & Gamble Co.
Caterpillar, Inc.   Eaton Corporation   Johnson & Johnson   Thermo Fisher Scientific
The Coca-Cola Company   Emerson Electric Co.   McDonald's Corp.   United Technologies Corp.
Covidien PLC   Honeywell International   Medtronic    

See page 32 for additional details on the new peer group.

Executive Compensation Program

Abbott values input on its corporate governance and executive compensation programs. We conduct meetings with shareholders throughout the year (during the proxy season and off-season), which allow us to assess a wide variety of issues that matter to shareholders. In 2013, we reached out to more than 200 institutional shareholders, and conducted meetings with investors representing more than 40% of Abbott's outstanding shares. In response to shareholder feedback, as well as a review of market practices that align best with our business strategy, certain elements of our executive compensation program were modified, including:

    Eliminated return on equity (ROE) as a goal in our annual incentive plan. Retained ROE as a performance measure in our long-term incentive plan

    Reduced CEO's annual cash incentive target from 200% to 160% of base salary to align with the practices of the new peer group

    Based long-term incentive grants on measured performance against long-range strategic plan in addition to annual performance

    Beginning in 2013, implemented double trigger vesting of equity awards in the event of a change in control

    Eliminated tax gross-ups in our executive officer pay program

    Selected a new Compensation Committee consultant whose company performs no other work for Abbott

    Adopted a new recoupment policy

    Revised executive share ownership guidelines. The new guidelines are:

          Chief Executive Officer—6 times base salary

          Executive Vice President/Senior Vice President—3 times base salary

          All Other Officers—2 times base salary

For additional details on our compensation program, see the Compensation Discussion and Analysis section of this proxy statement which starts on page 29.

 

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EXECUTIVE COMPENSATION PROGRAM HIGHLIGHTS

We believe our compensation program provides an appropriate mix of elements to incent our executives to achieve the Company's business strategies and goals, while also aligning executive performance and rewards with shareholder interests. Our compensation structure has contributed to a corporate culture that encourages employees to regard Abbott as a career employer. Abbott does not include certain design features that may have the potential to encourage excessive risk-taking.

The vast majority of compensation for our officers is performance-based and objectively determined. The remainder of this section provides additional information regarding our compensation programs, including the mix of total compensation and how incentive payouts are determined.


Overview of Total Compensation Mix



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    Compensation Element       Abbott CEO       Other Abbott NEOs    

 

 

        Base Salary

     

$1,900,000

     

$2,863,888

   

 

 

        Annual Cash Incentive Plan

     

$3,150,000

     

$2,984,500

   

 

 

Long-term Incentives

                   
   

Grant made in 2013 based on 2012 results, including the successful separation of AbbVie

     

$14,399,620

     

$10,127,861

   
   

Grant made in 2014(1) based on 2013 results

     

$9,300,000

     

$7,900,300

   

 

 

    

 

 

 

 

 

 

 

 

 

 

 

 

Total Compensation (See page 44)

     

$20,865,668

     

$16,874,775

   

(1)
Grants made in 2014 will be reflected in the compensation of the Executive Officers disclosed in the 2015 proxy statement.

 

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Annual Cash Incentive Payout Calculation for NEOs

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The Compensation Committee may adjust the calculated annual cash incentive plan award amount up or down based on additional factors. Note that the quantitative assessment on its own does not produce above-target payouts. An above-target payout can only be produced when the Committee believes performance merits an above-target payout.

 
Examples of factors that
could create
Downward Adjustment
 
Examples of factors that
could create
Upward Adjustment
 

Product recall

 

Performance well above plan

 

Missing R&D milestones

 

Successful completion of unplanned acquisition

 

Compliance breach

 

Acceleration of R&D milestones

 

Violation of our Core Leadership Requirements

   

Changes to our Long-Term Incentive Grants for NEOs

In 2013, to recognize the post-separation growth focus of Abbott and to more directly align the interests of executive officers with the interests of shareholders, the Committee granted the long-term incentive awards in the form of 50 percent stock options and 50 percent performance-vested shares. This mix is consistent with the practices of our new peer group. All but one of Abbott's new peers grant a portion of their long-term incentive awards in the form of stock options and only six of the 16 companies disclosing percentages grant less than 40 percent of the total long-term incentive value in options.

Options are performance-based because they gain value only when our stock price increases. Therefore these awards are designed to incent long-term growth and shareholder returns. Consequently, they are inherently and directly aligned to shareholder interests.

Our performance-vested shares vest only if the ROE threshold is achieved. The annual ROE vesting threshold is an additional mechanism for the Compensation Committee to ensure growth and investment return objectives are achieved before executives' awards are vested. It is important to note that if performance-vested shares vest, they will vest only at 100 percent. There is no "upside" in the number of shares should the threshold level be exceeded. Because ROE measures how much profit the Company generates over the longer-term with the capital that shareholders have invested, the Committee believes it is an appropriate metric to use for vesting equity granted to executive officers.

Our incentive stock program requires the Compensation Committee to equitably adjust outstanding awards where the award's performance goals no longer fairly apply due to changes from events which alter the financial composition of the Company. With the separation of Abbott and AbbVie on

 

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January 1, 2013, the new Abbott now has a significantly lower debt-to-equity ratio. As a result, the ROE threshold that will be used as the vesting trigger mechanism was proportionately adjusted to reflect this significant capital structure change. It is our intent over time to increase our ROE and ROE threshold through effective deployment of our cash to generate returns on shareholder capital.

Long-Term Incentive (LTI) Calculation for NEOs

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Key Features of our NEO Compensation Program



The compensation program for our NEOs includes key features that align the interests of our executives with Abbott's business strategies and goals and shareholders' interests, and does not include features that could misalign these interests.

                 
 
    What We Do       What We Don't Do    
                 




 




 




ü  Use equity for long-term incentives and determine grant levels based on multiple factors of performance

ü  Align payout of annual incentives to drivers of shareholder value, such as adjusted EPS

ü  Provide change-in-control benefits under double-trigger circumstances only

ü  Include forfeiture for misconduct provision in equity grants and recoup compensation when warranted

ü  Cap incentive payments

ü  Require significant share ownership by management

ü  Benchmark peers of similar size and business complexity





 




 




 




GRAPHIC   No tax gross-ups under executive officer pay program

GRAPHIC   No change-in-control agreement for the CEO

GRAPHIC   No employment contracts

GRAPHIC   No repricing of stock options

GRAPHIC   No guaranteed bonuses

GRAPHIC   No discounted stock options

GRAPHIC   No equity awards pledged by executives or directors

GRAPHIC   No highly leveraged plans that encourage excessive risk taking
        




 




 
                 

(1)
RONA = return on net assets

 

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VOTING MATTERS

 
 
   
  Board vote
recommendation

  Page reference
(for more detail)

   
 
    Management proposals:            
 
    Election of 11 directors, each for a one-year term expiring in 2015   FOR EACH DIRECTOR NOMINEE   17    
 
    Ratification of Ernst & Young LLP as independent auditor for 2014   FOR   63    
 
    Advisory "say on pay" vote to approve executive compensation   FOR   66    
 
    Shareholder proposals:            
 
    Genetically Modified Ingredients   AGAINST   68    
 
    Lobbying Disclosure   AGAINST   70    
 
    Incentive Compensation—Compliance Costs   AGAINST   73    
 

 

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ELECTION OF DIRECTORS (ITEM 1 ON PROXY CARD)

The following table provides summary information about our nominees for election to the Board of Directors. Additional information for all of the nominees may be found beginning on page 17.

 
 
  Name
  Director
since

  Occupation
  Independent
  Other public
company boards

   
 
    Robert J. Alpern, M.D.   2008   Ensign Professor of Medicine, Professor of Internal Medicine, and Dean of Yale School of Medicine   X  

AbbVie

   
 
    Roxanne S. Austin   2000   President, Austin Investment Advisors   X  

AbbVie

   
                   

Target

   
                   

Teledyne Technologies

   
                   

Ericsson

   
 
    Sally E. Blount, Ph.D.   2011   Dean of Kellogg Graduate School of Management at Northwestern University   X        
 
    W. James Farrell   2006   Retired Chairman and CEO of Illinois Tool Works Inc.   X  

3M

   
 
    Edward M. Liddy   2010   Partner, Clayton, Dubilier & Rice, LLC   X  

AbbVie

   
                   

3M

   
                   

Boeing

   
 
    Nancy McKinstry   2011   CEO and Chairman of the Executive Board of Wolters Kluwer N.V.   X  

Wolters Kluwer

Sanoma

   
 
    Phebe N. Novakovic   2010   Chairman and CEO of General Dynamics Corporation   X  

General Dynamics

   
 
    William A. Osborn   2008   Retired Chairman and CEO of Northern Trust Corporation and The Northern Trust Company   X  

Caterpillar

General Dynamics

   
 
    Samuel C. Scott III   2007   Retired Chairman, President and CEO of Corn Products International, Inc.   X  

BNY Mellon

Motorola Solutions

   
 
    Glenn F. Tilton   2007   Chairman of the Midwest, JPMorgan Chase & Co.   X  

AbbVie

Phillips 66

   
 
    Miles D. White   1998   Chairman of the Board and CEO, Abbott Laboratories      

Caterpillar

McDonald's

   
 

 

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RATIFICATION OF ERNST & YOUNG LLP AS AUDITORS (ITEM 2 ON PROXY CARD)

We are asking shareholders to APPROVE the appointment of Ernst & Young LLP as independent auditor for 2014. Information regarding the fees for professional audit services may be found on page 63 of the Proxy Statement. The Audit Committee approved the appointment of Ernst & Young LLP as independent auditor for 2014.

ADVISORY VOTE TO APPROVE EXECUTIVE COMPENSATION (ITEM 3 ON PROXY CARD)

We are asking shareholders to vote FOR on an advisory, nonbinding vote to approve compensation of Abbott's named officers. Given the Company's strong operational results and shareholder returns, the Compensation Committee concluded the compensation reported herein was earned and appropriate. Information regarding our executive compensation may be found elsewhere in the proxy statement.

SHAREHOLDER PROPOSALS (ITEMS 4-6 ON PROXY CARD)

If presented at the meeting, shareholders will be asked to vote on each of the following shareholder proposals. For the reasons outlined in the Proxy Statement, we do not support these requests and ask shareholders to vote AGAINST each of the proposals.

Genetically Modified Ingredients

Lobbying Disclosure

Incentive Compensation—Compliance Costs


MEETING INFORMATION

Date and time   April 25, 2014, 9:00 a.m. Central Time

Place

 

Abbott's Headquarters
100 Abbott Park Road
Abbott Park, Illinois 60064

Record date

 

February 27, 2014

Voting

 

Shareholders at the close of business on the record date may vote at the Annual Meeting of Shareholders. Each share is entitled to one vote on each matter to be voted upon.

 

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Information About the Annual Meeting



Who Can Vote

Shareholders of record at the close of business on February 27, 2014 will be entitled to notice of and to vote at the Annual Meeting. As of January 31, 2014, Abbott had 1,543,070,300 outstanding common shares, which are Abbott's only outstanding voting securities. All shareholders have cumulative voting rights in the election of directors and one vote per share on all other matters.


Notice and Access

In accordance with the Securities and Exchange Commission's "Notice and Access" rules, Abbott mailed a Notice of Internet Availability of Proxy Materials (the "Notice") to certain shareholders in mid-March of 2014. The Notice describes the matters to be considered at the Annual Meeting and how the shareholders can access the proxy materials online. It also provides instructions on how those shareholders can vote their shares. If you received the Notice, you will not receive a print version of the proxy materials, unless you request one. If you would like to receive a print version of the proxy materials, free of charge, please follow the instructions on the Notice.


Cumulative Voting

Cumulative voting allows a shareholder to multiply the number of shares owned by the number of directors to be elected and to cast the total for one nominee or distribute the votes among the nominees, as the shareholder desires. Nominees who receive the greatest number of votes will be elected. If you wish to cumulate your votes, you must sign and mail in your proxy card or attend the Annual Meeting.


Voting by Proxy

All of Abbott's shareholders may vote by mail or at the Annual Meeting. Abbott's By-Laws provide that a shareholder may authorize no more than two persons as proxies to attend and vote at the meeting. Most of Abbott's shareholders may also vote their shares by telephone or the Internet. If you vote by telephone or the Internet, you do not need to return your proxy card. The instructions for voting can be found with your proxy card or on the Notice.


Revoking a Proxy

You may revoke your proxy by voting in person at the Annual Meeting or, at any time prior to the meeting:

by delivering a written notice to the secretary of Abbott,

by delivering an authorized proxy with a later date, or

by voting by telephone or the Internet after you have given your proxy.


Discretionary Voting Authority

Unless authority is withheld in accordance with the instructions on the proxy, the persons named in the proxy will vote the shares covered by proxies they receive to elect the 11 nominees named in Item 1 on the proxy card. Should a nominee become unavailable to serve, the shares will be voted for a substitute designated by the Board of Directors, or for fewer than 11 nominees if, in the judgment of the proxy holders, such action is necessary or desirable. The persons named in the proxy may also decide to vote shares cumulatively so that one or more of the nominees may receive fewer votes than the other nominees (or no votes at all), although they have no present intention of doing so.

Where a shareholder has specified a choice for or against the ratification of the appointment of Ernst & Young LLP as auditors, the advisory vote on the approval of executive compensation, or the approval of the shareholder proposals, or where the shareholder has abstained on these matters, the shares represented by the proxy will be voted (or not voted) as specified. Where no choice has been specified,

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the proxy will be voted FOR the ratification of Ernst & Young LLP as auditors, FOR the approval of executive compensation, and AGAINST the shareholder proposals.

With the exception of matters omitted from this proxy statement pursuant to the rules of the Securities and Exchange Commission, the Board of Directors is not aware of any other issue which may properly be brought before the meeting. If other matters are properly brought before the meeting, the accompanying proxy will be voted in accordance with the judgment of the proxy holders.


Quorum and Vote Required to Approve Each Item on the Proxy

A majority of the outstanding shares entitled to vote on a matter, represented in person or by proxy, constitutes a quorum for consideration of that matter at the meeting. The affirmative vote of a majority of the shares represented at the meeting and entitled to vote on a matter shall be the act of the shareholders with respect to that matter.


Effect of Broker Non-Votes and Abstentions

A proxy submitted by an institution such as a broker or bank that holds shares for the account of a beneficial owner may indicate that all or a portion of the shares represented by that proxy are not being voted with respect to a particular matter. This could occur, for example, when the broker or bank is not permitted to vote those shares in the absence of instructions from the beneficial owner of the stock. These "non-voted shares" will be considered shares not present and, therefore, not entitled to vote on those matters, although these shares may be considered present and entitled to vote for other purposes. Brokers and banks have discretionary authority to vote shares in absence of instructions on matters the New York Stock Exchange considers "routine", such as the ratification of the appointment of the auditors. They do not have discretionary authority to vote shares in absence of instructions on "non-routine" matters. The election of directors, the advisory vote on the approval of executive compensation, and the shareholder proposals are considered "non-routine" matters. Non-voted shares will not affect the determination of the outcome of the vote on any matter to be decided at the meeting. Shares represented by proxies which are present and entitled to vote on a matter but which have elected to abstain from voting on that matter will have the effect of votes against that matter.


Inspectors of Election

The inspectors of election and the tabulators of all proxies, ballots, and voting tabulations that identify shareholders are independent and are not Abbott employees.


Cost of Soliciting Proxies

Abbott will bear the cost of making solicitations from its shareholders and will reimburse banks and brokerage firms for out-of-pocket expenses incurred in connection with this solicitation. Proxies may be solicited by mail, telephone, Internet, or in person by directors, officers, or employees of Abbott and its subsidiaries.

Abbott has retained Georgeson Inc. to aid in the solicitation of proxies, at an estimated cost of $19,500 plus reimbursement for reasonable out-of-pocket expenses.


Abbott Laboratories Stock Retirement Plan

Participants in the Abbott Laboratories Stock Retirement Plan will receive a voting instruction card for their shares held in the Abbott Laboratories Stock Retirement Trust. The Stock Retirement Trust is administered by both a trustee and an Investment Committee. The trustee of the Trust is Mercer Trust Company. The members of the Investment Committee are Stephen R. Fussell, Brian P. Wentworth, and Valentine Yien, employees of Abbott. The voting power with respect to the shares is held by and shared between the Investment Committee and the participants. The Investment Committee must solicit voting instructions from the participants and follow the voting instructions it receives. The Investment Committee may use its own discretion with respect to those shares for which no voting instructions are received.

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Confidential Voting

It is Abbott's policy that all proxies, ballots, and voting tabulations that reveal how a particular shareholder has voted be kept confidential and not be disclosed, except:

where disclosure may be required by law or regulation,

where disclosure may be necessary in order for Abbott to assert or defend claims,

where a shareholder provides comments with a proxy,

where a shareholder expressly requests disclosure,

to allow the inspectors of election to certify the results of a vote, or

in other limited circumstances, such as a contested election or proxy solicitation not approved and recommended by the Board of Directors.


Householding of Proxy Materials

Shareholders sharing an address may receive only one copy of the proxy materials or the Notice of Internet Availability of Proxy Materials, unless their broker, bank or other intermediary has received contrary instructions from any shareholder at that address. This is known as "householding." Shareholders wishing to discontinue householding and receive separate copies of the proxy materials or the Notice of Internet Availability of Proxy Materials, should notify their broker, bank or other intermediary.

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Nominees for Election as Directors


GRAPHIC   Robert J. Alpern, M.D.
Director since 2008    Age 63
Ensign Professor of Medicine, Professor of Internal Medicine, and Dean of Yale School of Medicine, New Haven, Connecticut
 

Dr. Alpern has served as the Ensign Professor of Medicine, Professor of Internal Medicine, and Dean of Yale School of Medicine since June 2004. From July 1998 to June 2004, Dr. Alpern was the Dean of The University of Texas Southwestern Medical Center. Dr. Alpern also serves as a Director of AbbVie Inc. and as a Director on the Board of Yale—New Haven Hospital.

As the Ensign Professor of Medicine, Professor of Internal Medicine, and Dean of Yale School of Medicine, Dean of The University of Texas Southwestern Medical Center, and as a Director on the Board of Yale—New Haven Hospital, Dr. Alpern contributes valuable insights to the Board through his medical and scientific expertise and his knowledge of the health care environment and the scientific nature of Abbott's key research and development initiatives.
 

GRAPHIC

 

Roxanne S. Austin
Director since 2000    Age 53
President, Austin Investment Advisors, Newport Coast, California (Private Investment and Consulting Firm)
 

Ms. Austin is President of Austin Investment Advisors, a private investment and consulting firm, a position she has held since 2004. From July 2009 through July 2010, Ms. Austin also served as the President and Chief Executive Officer of Move Networks, Inc., a provider of Internet television services. Ms. Austin served as President and Chief Operating Officer of DIRECTV, Inc. from June 2001 to December 2003. Ms. Austin also previously served as Executive Vice President and Chief Financial Officer of Hughes Electronics Corporation and as a partner of Deloitte & Touche LLP. Ms. Austin is also a Director of AbbVie Inc., Target Corporation, Teledyne Technologies, Inc. and Telefonaktiebolaget LM Ericsson.

Through her extensive management and operating roles, including her financial roles, Ms. Austin contributes significant oversight and leadership experience, including financial expertise and knowledge of financial statements, corporate finance and accounting matters.
 

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GRAPHIC

 

Sally E. Blount, Ph.D.
Director since 2011    Age 52
Dean of the J.L. Kellogg Graduate School of Management at Northwestern University, Evanston, Illinois
 

Ms. Blount has served as Dean of the J.L. Kellogg Graduate School of Management at Northwestern University since July 2010. From 2004 to 2010, she served as the Vice Dean and Dean of the undergraduate college of New York University's Leonard N. Stern School of Business. Ms. Blount joined the faculty of New York University's Leonard N. Stern School of Business in 2001 and was the Abraham L. Gitlow Professor of Management and Organizations. Prior to joining NYU in 2001, Ms. Blount held academic posts at the University of Chicago's Graduate School of Business from 1992 to 2001.

As Dean of the J.L. Kellogg Graduate School of Management at Northwestern University and as the Vice Dean and Dean of the undergraduate college of New York University's Leonard N. Stern School of Business, Ms. Blount provides Abbott's Board with expertise on business organization, governance and business management matters.
 

GRAPHIC

 

W. James Farrell
Director since 2006    Age 71
Retired Chairman and Chief Executive Officer of Illinois Tool Works Inc., Glenview, Illinois (Worldwide Manufacturer of Highly Engineered Products and Specialty Systems)
 

Mr. Farrell served as the Chairman of Illinois Tool Works Inc. from 1996 to 2006 and as its Chief Executive Officer from 1995 to 2005. He currently serves on the Board of Directors of 3M Company. Mr. Farrell also served on the Board of Directors of Allstate Insurance Company from 1999 to 2013 and UAL Corporation from 2001 to 2012.

As a result of his tenure as Chairman and Chief Executive Officer of Illinois Tool Works, Mr. Farrell brings valuable business, leadership and management experience to the Board and provides guidance on key matters relevant to a major international company.
 

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GRAPHIC

 

Edward M. Liddy
Director since 2010    Age 68
Partner, Clayton, Dubilier & Rice, LLC, New York, New York (Private Equity Investment Firm)
 

Mr. Liddy has been a partner in the private equity investment firm Clayton, Dubilier & Rice, LLC since January 2010, having also been a partner at such firm from April to September 2008. From September 2008 to August 2009, Mr. Liddy was the Interim Chairman and Chief Executive Officer of American International Group, Inc. (AIG), a global insurance and financial services holding company. He served at AIG at the request of the U.S. Department of the Treasury. From January 1999 to April 2008, Mr. Liddy served as Chairman of the Board of the Allstate Corporation. He served as Chief Executive Officer of Allstate from January 1999 to December 2006, President from January 1995 to May 2005, and Chief Operating Officer from August 1994 to January 1999. Mr. Liddy currently serves on the Board of Directors of AbbVie Inc., 3M Company, and The Boeing Company. In addition, Mr. Liddy formerly served on the Board of The Boeing Company from 2007 to 2008.

As the Chairman and Chief Executive Officer of Allstate Corporation and American International Group, Inc., Mr. Liddy brings valuable insights from the perspective of the insurance industry into Abbott's pharmaceutical and medical device businesses. As a partner of Clayton, Dubilier & Rice, LLC, Mr. Liddy gained significant knowledge and understanding of finance and capital markets matters as well as global and domestic strategic advisory experience.
 

GRAPHIC

 

Nancy McKinstry
Director since 2011    Age 54
Chief Executive Officer and Chairman of the Executive Board of Wolters Kluwer N.V., Alphen aan den Rijn, the Netherlands (Global Information, Software, and Services Provider)
 

Ms. McKinstry has been the Chief Executive Officer and Chairman of the Executive Board of Wolters Kluwer N.V. since September 2003 and a member of its Executive Board since June 2001. Ms. McKinstry serves on the Board of Directors of Sanoma Corporation. Ms. McKinstry also serves on the Advisory Board of the University of Rhode Island, the Advisory Council of the Amsterdam Institute of Finance, the Board of Overseers of Columbia Business School and the Advisory Board of the Harrington School of Communication and Media. Ms. McKinstry served on the Board of Directors of Telefonieaktiebolaget LM Ericsson (LM Ericsson Telephone Company) from 2004 to 2012. Ms. McKinstry also served on the Board of Directors of MortgageIT Holdings, Inc. from 2004 to 2007.

As the Chief Executive Officer and Chairman of the Executive Board of Wolters Kluwer N.V., Ms. McKinstry contributes global perspectives and management experience, including an understanding of key issues facing a multinational business such as Abbott's.
 

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GRAPHIC

 

Phebe N. Novakovic
Director since 2010    Age 56
Chairman and Chief Executive Officer, General Dynamics Corporation, Falls Church, Virginia (Worldwide Defense, Aerospace, and Other Technology Products Manufacturer)
 

Ms. Novakovic has been Chairman and Chief Executive Officer of General Dynamics Corporation since January 1, 2013. Previously, she served as President and Chief Operating Officer from May 2012 to December 2012 and as Executive Vice President, Marine Systems of General Dynamics from May 2010 to May 2012. From May 2005 to April 2010, Ms. Novakovic served as its Senior Vice President—Planning and Development. She was elected Vice President of General Dynamics in October 2002 after joining the company in May 2001. Previously, Ms. Novakovic was Special Assistant to the Secretary and Deputy Secretary of Defense, and had been a Deputy Associate Director of the Office of Management and Budget.

As a member of the Board of Directors and Chief Executive Officer of General Dynamics Corporation, Ms. Novakovic has strong management experience with a major public company, including significant marketing, operational and manufacturing experience, and contributes valuable insights into finance and capital markets. Her tenure with the Office of Management and Budget and as Special Assistant to the Secretary and Deputy Secretary of Defense enables her to provide government perspective and experience in a highly regulated industry.
 

GRAPHIC

 

William A. Osborn
Director since 2008    Age 66
Retired Chairman and Chief Executive Officer of Northern Trust Corporation (A Multibank Holding Company) and The Northern Trust Company, Chicago, Illinois (Banking Services Company)
 

Mr. Osborn was Chairman of Northern Trust Corporation from 1995 through 2009 and served as its Chief Executive Officer from 1995 through 2007. Mr. Osborn currently serves as a Director of Caterpillar Inc. and General Dynamics Corporation. He is Chairman of the Board of Trustees of Northwestern University. Mr. Osborn served on the Board of Directors of Nicor, Inc. from 1999 to 2006 and on the Board of Directors of Tribune Company from 2001 to 2012.

As the Chairman and Chief Executive Officer of Northern Trust Corporation and The Northern Trust Company, Mr. Osborn acquired broad experience in successfully overseeing complex global businesses operating in highly regulated industries.
 

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GRAPHIC

 

Samuel C. Scott III
Director since 2007    Age 69
Retired Chairman, President and Chief Executive Officer of Corn Products International, Inc., Westchester, Illinois (A Corn Refining Company)
 

Mr. Scott retired as Chairman, President and Chief Executive Officer of Corn Products International in 2009. He served as Chairman, President, and Chief Executive Officer from February 2001 until he retired in May of 2009. He was President and Chief Operating Officer from January 1998 until February 2001. He was President of the Corn Refining Division of CPC International from 1995 through 1997, when CPC International spun off Corn Products International as a separate corporation. Mr. Scott currently serves on the Board of Directors of Bank of New York Mellon Corporation and Motorola Solutions, Inc.

As the Chairman, President and Chief Executive Officer of Corn Products International, Mr. Scott acquired valuable business, leadership and management experience, including critical insights into matters relevant to a major public company and experience in finance and capital markets matters.
 

GRAPHIC

 

Glenn F. Tilton
Director since 2007    Age 65
Chairman of the Midwest, JPMorgan Chase & Co. Chicago, Illinois (Banking and Financial Services Company)
 

In 2011, Mr. Tilton became Chairman of the Midwest for JPMorgan Chase & Co. and a member of its companywide Executive Committee. From October 2010 to December 2012, Mr. Tilton also served as the Non-Executive Chairman of the Board of United Continental Holdings, Inc. From September 2002 to October 2010, he served as Chairman, President and Chief Executive Officer of UAL Corporation, a holding company, and Chairman and Chief Executive Officer of United Air Lines,  Inc., an air transportation company and wholly owned subsidiary of UAL Corporation. Mr. Tilton is also a Director of AbbVie Inc. and Phillips 66. Mr. Tilton also served on the Board of Directors of Lincoln National Corporation from 2002 to 2007, of TXU Corporation from 2005 to 2007, of Corning Incorporated from 2010 to 2012, and of United Continental Holdings, Inc. from 2001 to 2013.

As Chairman of the Midwest for JPMorgan Chase & Co. and having previously served as Non-Executive Chairman of the Board of United Continental Holdings, Inc., and Chairman, President, and Chief Executive Officer of UAL Corporation and United Air Lines, Vice Chairman of Chevron Texaco and as Interim Chairman of Dynegy, Inc., Mr. Tilton acquired strong management experience overseeing complex multinational businesses operating in highly regulated industries, as well as expertise in finance and capital markets matters.
 

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GRAPHIC

 

Miles D. White
Director since 1998    Age 59
Chairman of the Board and Chief Executive Officer, Abbott Laboratories
 

Mr. White has served as Abbott's Chairman of the Board and Chief Executive Officer since 1999. He served as an Executive Vice President of Abbott from 1998 to 1999. He joined Abbott in 1984. He currently serves as a Director of Caterpillar Inc. and McDonald's Corporation. Mr. White also served on the Board of Directors of Motorola, Inc. from 2005 to 2009.

Serving as Abbott's Chairman of the Board and Chief Executive Officer since 1999 and having joined Abbott in 1984, Mr. White contributes not only his valuable business, management and leadership experience, but also his extensive knowledge of the Company and its global operations, as well as key insights into strategic, management and operation matters, ensuring the appropriate level of oversight and responsibility is applied to all Board decisions.
 

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The Board of Directors and its Committees


THE BOARD OF DIRECTORS


The Board of Directors held seven meetings in 2013. The average attendance of all directors at Board and committee meetings in 2013 was ninety-nine percent and each director attended at least seventy-five percent of the total number of Board meetings and meetings of the committees on which he or she served. Abbott encourages its Board members to attend the annual shareholders meeting. Last year, all of Abbott's directors attended the annual shareholders meeting.

The Board has determined that each of the following directors is independent in accordance with the New York Stock Exchange listing standards: R. J. Alpern, R. S. Austin, S. E. Blount, W. J. Farrell, E. M. Liddy, N. McKinstry, P. N. Novakovic, W. A. Osborn, S. C. Scott III, and G. F. Tilton. To determine independence, the Board applied the categorical standards attached as Exhibit A to this proxy statement. The Board also considered whether a director has any other material relationships with Abbott or its subsidiaries and concluded that none of these directors had a relationship that impaired the director's independence. This included consideration of the fact that some of the directors are officers or serve on boards of companies or entities to which Abbott sold products or made contributions or from which Abbott purchased products and services during the year. In making its determination, the Board relied on both information provided by the directors and information developed internally by Abbott.

The Board has risk oversight responsibility for Abbott and administers this responsibility both directly and with assistance from its committees.

LEADERSHIP STRUCTURE


The Board has determined that the current leadership structure, in which the offices of Chairman and Chief Executive Officer are held by one individual and an independent director acts as lead director, ensures the appropriate level of oversight, independence, and responsibility is applied to all Board decisions, including risk oversight, and is in the best interests of Abbott and its shareholders.

Chairman/Chief Executive Officer

Coherent leadership and direction for the Board and executive management

Clear accountability and a single focus for the chain of command to execute our strategic initiatives and business plans

CEO's extensive industry expertise, leadership experience and familiarity with our complex business

By leading management and chairing the Board, we benefit from our CEO's strategic and operational insights, enabling a focused vision encompassing the full range, from long-term strategic direction and day-to-day execution

Lead Independent Director

Currently, the Chairman of the Nominations and Governance Committee acts as the lead director

Chosen by and from the independent members of the Board of Directors, and serves as the liaison between the Chairman of the Board and the independent directors

Facilitates communication with the Board and presides over regularly conducted executive sessions of the independent directors or sessions where the Chairman of the Board is not present

Reviews and approves matters, such as agenda items, schedule sufficiency, and, where appropriate, information provided to other Board members

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Has the authority to call meetings of the independent directors and, if requested by major stockholders, ensures that he or she is available for consultation and direct communication

The lead director, and each of the other directors, communicates regularly with the Chairman and Chief Executive Officer regarding appropriate agenda topics and other Board related matters

DIRECTOR SELECTION


The process used by the Nominations and Governance Committee to identify a nominee to serve as a member of the Board of Directors depends on the qualities being sought. Board members should have backgrounds that when combined provide a portfolio of experience and knowledge that will serve Abbott's governance and strategic needs. Board candidates will be considered on the basis of a range of criteria, including broad-based business knowledge and relationships, prominence and excellent reputations in their primary fields of endeavor, as well as a global business perspective and commitment to good corporate citizenship. Directors should have demonstrated experience and ability that is relevant to the Board of Directors' oversight role with respect to Abbott's business and affairs. Each director's biography includes the particular experience and qualifications that led the Board to conclude that the director should serve on the Board. The directors' biographies are on pages 17 to 22.

BOARD DIVERSITY


In the process of identifying nominees to serve as a member of the Board of Directors, the Nominations and Governance Committee considers the Board's diversity of ethnicity, gender, and geography and assesses the effectiveness of the process in achieving that diversity. Currently, 50% of the independent directors are composed of women or individuals who are minorities.

COMMITTEES OF THE BOARD OF DIRECTORS


The Board of Directors has five committees established in Abbott's By-Laws: the Executive Committee, Audit Committee, Compensation Committee, Nominations and Governance Committee, and Public Policy Committee. Each of the members of the Audit Committee, Compensation Committee, Nominations and Governance Committee, and Public Policy Committee is independent.

 
 
  Committee
  Current members
  Number of
2013 meetings

   
 
    Audit   Roxanne S. Austin (Chair, audit committee financial expert); Edward M. Liddy; Nancy McKinstry; Samuel C. Scott III; Glenn F. Tilton. Each of the committee members is financially literate, as is required of audit committee members by the New York Stock Exchange. The Board of Directors has determined that Roxanne S. Austin, the Committee's Chair, is an "audit committee financial expert."   7    
 
    Compensation   W. James Farrell (Chair); Roxanne S. Austin; Edward M. Liddy; William A. Osborn; Samuel C. Scott III   5    
 
    Nominations and Governance   William A. Osborn (Chair); Robert J. Alpern, M.D.; Sally E. Blount, Ph.D.; W. James Farrell; Phebe N. Novakovic   4    
 
    Public Policy   Phebe N. Novakovic (Chair); Robert J. Alpern, M.D.; Sally E. Blount, Ph.D.; Nancy McKinstry, Glenn F. Tilton   4    
 
    Executive   Miles D. White (Chair); Roxanne S. Austin; W. James Farrell; Phebe N. Novakovic; William A. Osborn   0    
 

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Executive Committee

The Executive Committee may exercise all the authority of the Board in the management of Abbott, except for matters expressly reserved by law for Board action.

Audit Committee

The Audit Committee assists the Board of Directors in fulfilling its oversight responsibility with respect to Abbott's accounting and financial reporting practices and the audit process, the quality and integrity of Abbott's financial statements, the independent auditors' qualifications, independence, and performance, the performance of Abbott's internal audit function and internal auditors, and certain areas of legal and regulatory compliance. The Committee is governed by a written charter. A copy of the report of the Audit Committee is on page 65.

Compensation Committee

The Compensation Committee assists the Board of Directors in carrying out the Board's responsibilities relating to the compensation of Abbott's executive officers and directors. The Committee is governed by a written charter. The Compensation Committee annually reviews the compensation paid to the members of the Board and gives its recommendations to the full Board regarding both the amount of director compensation that should be paid and the allocation of that compensation between equity-based awards and cash. In recommending director compensation, the Compensation Committee takes comparable director fees into account and reviews any arrangement that could be viewed as indirect director compensation.

This Committee also reviews, approves, and administers the incentive compensation plans in which any executive officer of Abbott participates and all of Abbott's equity-based plans. It may delegate the responsibility to administer and make grants under these plans to management, except to the extent that such delegation would be inconsistent with applicable law or regulation or with the listing rules of the New York Stock Exchange. The processes and procedures used for the consideration and determination of executive compensation are described in the section of the proxy captioned, "Compensation Discussion and Analysis."

The Compensation Committee has the sole authority, under its charter, to select, retain and/or terminate independent compensation advisors. The Committee engaged Aon Hewitt as its compensation consultant for 2013. For 2014, the Compensation Committee has selected a new Compensation Committee consultant whose company performs no other work for Abbott. The Committee engages compensation consultants to provide counsel and advice on executive and non-employee director compensation matters. The consultant, and its principal, report directly to the Chair of the Committee. The principal meets regularly, and as needed, with the Committee in executive sessions, has direct access to the Chair during and between meetings, and performs no other services for Abbott or its senior executives. The Committee determines what variables it will instruct the consultant to consider, and they include: peer groups against which performance and pay should be examined, financial metrics to be used to assess Abbott's relative performance, competitive long-term incentive practices in the marketplace, and compensation levels relative to market practice. The Committee negotiates and approves any fees paid to the consultant for these services. In 2013, the Committee authorized payment of approximately $440,000 to Aon Hewitt for services rendered to the Committee relating to executive compensation. Separately, Abbott management engaged Aon Hewitt to perform and paid approximately $5.8 million for unrelated services, including actuarial work, pension design and administration, insurance, and general consulting. The Compensation Committee was informed about these services, but its formal approval was not requested. A copy of the Compensation Committee report is on page 42.

Nominations and Governance Committee

The Nominations and Governance Committee assists the Board of Directors in identifying individuals qualified to become Board members and recommends to the Board the nominees for election as directors at the next annual meeting of shareholders, recommends to the Board the persons to be elected as executive officers of Abbott, develops and recommends to the Board the corporate governance guidelines applicable to Abbott, and serves in an advisory capacity to the Board and the Chairman of the Board on matters of organization, management succession plans, major changes in the organizational structure of Abbott, and the conduct of Board activities. The Committee is governed by a written charter. The process

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used by this Committee to identify a nominee to serve as a member of the Board of Directors depends on the qualities being sought. From time to time, Abbott engages an executive search firm to assist the Committee in identifying individuals qualified to be Board members. The process used by the Committee to identify nominees is described on page 24 in the section captioned, "Director Selection."

Public Policy Committee

The Public Policy Committee assists the Board of Directors in fulfilling its oversight responsibility with respect to Abbott's public policy, certain areas of legal and regulatory compliance, and governmental affairs and healthcare compliance issues that affect Abbott. The Committee is governed by a written charter.

COMMUNICATING WITH THE BOARD OF DIRECTORS


Interested parties may communicate with the Board of Directors by writing a letter to the Chairman of the Board, to the Chairman of the Nominations and Governance Committee, who acts as the lead director at the meetings of the independent directors, or to the independent directors c/o Abbott Laboratories, 100 Abbott Park Road, D-364, AP6D, Abbott Park, Illinois 60064-6400 Attention: Corporate Secretary. The General Counsel and Corporate Secretary regularly forwards to the addressee all letters other than mass mailings, advertisements, and other materials not relevant to Abbott's business. In addition, directors regularly receive a log of all correspondence received by the Company that is addressed to a member of the Board and may request any correspondence on that log.

CORPORATE GOVERNANCE MATERIALS


Abbott's corporate governance guidelines, outline of directorship qualifications, director independence standards, code of business conduct and the charters of Abbott's Audit Committee, Compensation Committee, Nominations and Governance Committee, and Public Policy Committee are all available in the corporate governance section of Abbott's investor relations Web site (www.abbottinvestor.com).

2013 DIRECTOR COMPENSATION


Our CEO is not compensated for serving on the Board or Board committees. Abbott's remaining directors, who are all non-employee directors, are compensated for their service under the Abbott Laboratories Non-Employee Directors' Fee Plan and the Abbott Laboratories 2009 Incentive Stock Program.

The following table sets forth a summary of the non-employee directors' 2013 compensation.

 
 
  Name
  Fees Earned
or Paid in Cash
($)(1)

  Stock
Awards
($)(2)

  Option
Awards
($)(3)

  Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings
($)(4)

  All Other
Compensation
($)(5)

  Total
($)

   
 

 

R. J. Alpern

  $ 126,000   $ 112,979   $ 0   $ 6,634   $ 13,032   $ 258,645    

 

R. S. Austin

    144,000     112,979     0     0     0     256,979    

 

S. E. Blount

    126,000     112,979     0     0     25,000     263,979    

 

W. J. Farrell

    138,000     112,979     0     14,339     21,703     287,021    

 

E. M. Liddy

    132,000     112,979     0     0     0     244,979    

 

N. McKinstry

    132,000     112,979     0     0     24,992     269,971    

 

P. N. Novakovic

    138,000     112,979     0     0     0     250,979    

 

W. A. Osborn

    138,000     112,979     0     0     0     250,979    

 

S. C. Scott III

    132,000     112,979     0     0     25,000     269,979    

 

G. F. Tilton

    132,000     112,979     0     0     25,000     269,979    
 

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(1)
Under the Abbott Laboratories Non-Employee Directors' Fee Plan, non-employee directors earn $10,500 for each month of service as a director and $1,000 for each month of service as a chairman of a Board committee (other than the Audit Committee). The Chairman of the Audit Committee receives $1,500 for each month of service as a Chairman of that committee and the other members of the Audit Committee receive $500 for each month of service as a Committee member. Fees earned under the Abbott Laboratories Non-Employee Directors' Fee Plan are paid in cash to the director, paid in the form of vested non-qualified stock options (based on an independent appraisal of their fair value), deferred (as a non-funded obligation of Abbott), or paid currently into an individual grantor trust established by the director. The distribution of deferred fees and amounts held in a director's grantor trust generally commences when the director reaches age 65, or upon retirement from the Board of Directors, if later. The director may elect to have deferred fees and fees deposited in trust credited to either a guaranteed interest account or to a stock equivalent account that earns the same return as if the fees were invested in Abbott stock. If necessary, Abbott contributes funds to a director's trust so that as of year-end the stock equivalent account balance (net of taxes) is not less than seventy-five percent of the market value of the related Abbott common stock at year end.

(2)
The amounts reported in this column represent the aggregate grant date fair value of the awards in accordance with Financial Accounting Standards Board ASC Topic 718. Abbott determines the grant date fair value of stock unit awards by multiplying the number of restricted stock units granted by the average of the high and low market prices of an Abbott common share on the date of grant. In addition to the fees described in footnote 1, each non-employee director elected to the Board of Directors at the annual shareholder meeting receives vested restricted stock units having a value of $113,000 (rounded down) under the Abbott Laboratories 2009 Incentive Stock Program (effective as of the 2014 Annual Meeting, this will increase to $135,000 (rounded down)). In 2013, this was 3,097 units. The non-employee directors receive cash payments equal to the dividends paid on the shares covered by the units at the same rate as other shareholders. Upon termination, retirement from the Board, death, or a change in control of Abbott, a non-employee director will receive one share of common stock for each restricted stock unit outstanding under the Incentive Stock Program. The following Abbott restricted stock units were outstanding as of December 31, 2013: R. J. Alpern, 11,656; R. S. Austin, 19,319; S. E. Blount, 4,916; W. J. Farrell, 17,430; E. M. Liddy, 7,083; N. McKinstry, 4,916; P. N. Novakovic, 7,083; W. A. Osborn, 13,573; S. C. Scott III, 15,303; and G. F. Tilton, 15,303. The following AbbVie restricted stock units were outstanding as of December 31, 2013: R. J. Alpern, 8,559; R. S. Austin, 16,222; S. E. Blount, 1,819; W. J. Farrell, 14,333; E. M. Liddy, 3,986; N. McKinstry, 1,819; P. N. Novakovic, 3,986; W. A. Osborn, 10,476; S. C. Scott III, 12,206; and G. F. Tilton, 12,206. The conversion of outstanding Abbott equity awards when Abbott and AbbVie Inc. separated is described in the introduction to the 2013 Outstanding Equity Awards table on page 49.

(3)
The following options were outstanding as of December 31, 2013: N. McKinstry, 6,280 (Abbott) and 6,280 (AbbVie); and P. N. Novakovic, 18,240 (Abbott) and 7,072 (AbbVie).

(4)
The totals in this column include reportable interest credited under Abbott Laboratories Non-Employee Directors' Fee Plan during the year.

(5)
Charitable contributions made by Abbott's non-employee directors are eligible for a matching contribution (up to $25,000 annually). The amounts reported in this column include charitable matching grant contributions, as follows: R. J. Alpern, $3,750; S. E. Blount, $25,000; N. McKinstry, $24,992; S. C. Scott III, $25,000; and G. F. Tilton, $25,000. The amounts also include earnings (net of reportable interest referenced in footnote 4) of $21,703 for W. J. Farrell.

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Security Ownership of Executive Officers and Directors


The table below reflects the number of Abbott common shares beneficially owned as of January 31, 2014, by each director, the Chief Executive Officer, the Chief Financial Officer, and the three other most highly paid executive officers (the "named officers"), and by all directors and executive officers of Abbott as a group. It also reflects the number of stock equivalent units and restricted stock units held by non-employee directors under the Abbott Laboratories Non-Employee Directors' Fee Plan.

 
 
  Name
  Shares
Beneficially
Owned(1)(2)

  Stock Options
Exercisable
within 60 days
of January 31,
2014

  Stock
Equivalent
Units

   
 

 

H. L. Allen

    42,107     66,400     0    

 

R. J. Alpern

    11,656     0     3,357    

 

R. W. Ashley

    335,165     0     0    

 

R. S. Austin

    26,163     0     0    

 

B. J. Blaser

    88,822     127,733     0    

 

S. E. Blount

    4,916     0     0    

 

W. J. Farrell

    18,430     0     0    

 

T. C. Freyman

    472,117     715,400     0    

 

E. M. Liddy

    8,218     0     9,726    

 

N. McKinstry

    4,916     6,280     0    

 

P. N. Novakovic

    7,583     18,420     0    

 

W. A. Osborn

    37,573     0     15,434    

 

S. C. Scott III

    21,303     0     6,309    

 

G. F. Tilton

    22,653     0     17,425    

 

M. D. White

    1,429,475     3,401,834     0    

 

All directors and executive officers as a group(3)(4)

    3,566,700     6,663,821     52,251    
 
(1)
The table includes shares held in the officers' accounts in the Abbott Laboratories Stock Retirement Trust as follows: T. C. Freyman, 1,070; M. D. White, 26,298; and all executive officers as a group, 64,520. Each officer has shared voting power and sole investment power with respect to the shares held in his or her account.

(2)
The table includes restricted stock units held by the non-employee directors and payable in stock upon their retirement from the Board as follows: R. J. Alpern, 11,656; R. S. Austin, 19,319; S. E. Blount, 4,916; W. J. Farrell, 17,430; E. M. Liddy, 7,083; N. McKinstry, 4,916; P. N. Novakovic, 7,083; W. A. Osborn, 13,573; S. C. Scott III, 15,303; G. F. Tilton, 15,303; and all directors as a group, 116,582.

(3)
Certain executive officers of Abbott are fiduciaries of several employee benefit trusts maintained by Abbott. As such, they have shared voting and/or investment power with respect to the common shares held by those trusts. The table does not include the shares held by the trusts. As of January 31, 2014, these trusts owned a total of 34,190,230 (2.2%) of the outstanding shares of Abbott.


None of the directors, named officers, or executive officers has pledged shares.

(4)
Excluding the shared voting and/or investment power over the shares held by the trusts described in footnote 3, the directors, director nominees, and executive officers as a group together own beneficially less than one percent of the outstanding shares of Abbott.

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Executive Compensation


COMPENSATION DISCUSSION AND ANALYSIS


Introduction This Compensation Discussion and Analysis ("CD&A") describes Abbott's executive compensation program in 2013. In particular, this CD&A explains how the Compensation Committee (the "Committee") and Board of Directors made its compensation decisions for the Company's executives, including the five named officers: Miles D. White, Chairman of the Board and Chief Executive Officer; Thomas C. Freyman, Executive Vice President, Finance & Chief Financial Officer; Hubert L. Allen, Executive Vice President, General Counsel and Secretary; Richard W. Ashley, Executive Vice President, Corporate Development; and Brian J. Blaser, Executive Vice President, Diagnostics Products.

The CD&A also describes the pay philosophy the Committee has established for the Company's executive officers, the process the Committee utilizes to examine performance in the context of executive pay decisions, the performance goals and results for each named officer, and recent updates to our compensation program.

On January 1, 2013 we completed the largest strategic initiative in the Company's long history, creating two leading healthcare companies. The research-based pharmaceutical business became AbbVie and our diversified medical products businesses became the new Abbott.

Abbott has executed numerous strategic initiatives that have created significant long-term value for shareholders, including the 2013 creation of AbbVie. From the end of 2010 through the end of 2013, the combined market capitalization of Abbott and AbbVie nearly doubled from approximately $75 billion to approximately $145 billion.

Abbott's total shareholder return (TSR) was 82.1% during the past three years as compared to the S&P 500 index return of 56.8% and the Dow Jones Industrial Average of 54.9%.(1)

3-Year Total Shareholder Return

LOGO

   


(1)
Abbott uses Thomson Reuters as its source for calculating TSR. A description of the methodology used to calculate TSR is on page 5.

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COMPENSATION PHILOSOPHY AND COMPONENTS OF PAY


Abbott and its Compensation Committee have designed a compensation program to attract and retain executives whose talent and contributions support and advance the profitable growth of the Company and growth in shareholder value. The program is designed to be:

Competitive—Each year we compare both the level of compensation and the components of our program to our peer companies to ensure we are providing market-level rewards, consistent with the performance of our business during the year.

Aligned to our shareholders' interests—Our compensation program aligns our executives' compensation with shareholder interests through both short-term and long-term incentives.

Performance-based—Other than base salary, which is the smallest component of our executives' compensation, all components of our Total Direct Compensation program (i.e., base salary, annual cash incentive, performance-based restricted stock awards, and stock options) are aligned with Company and/or division performance.

Balanced—Short- and long-term objectives focus our executives on actions that create value today while building for sustainable future success. Our compensation program rewards both the achievement of short-term goals and milestones that will accelerate our success over the long-range plan. GRAPHICS


    Compensation Element       Abbott CEO       Other Abbott NEOs    
            Base Salary      

$1,900,000

     

$2,863,888

   
            Annual Cash Incentive Plan
  
     

$3,150,000

     

$2,984,500

   
   

Long-Term Incentives

                   
   

Grant made in 2013 based on 2012 results including the successful separation of AbbVie

     

$14,399,620

     

$10,127,861

   
   

Grant made in 2014(1) based on 2013 results

     

$9,300,000

     

$7,900,300

   

 

 

 

 

 

 

 

 

 

 

 

 

 
    Total Compensation as shown in Summary Compensation Table      

$20,865,668

     

$16,874,775

   

   


(1)
Grants made in 2014 will be reflected in the compensation of the Executive Officers disclosed in the 2015 proxy statement.

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There are four primary pay components that make up our executive pay program:

1.
Base salary, which is the only "fixed" element of compensation.

2.
Annual cash incentive plan, which rewards executives for achieving specific goals at the corporate and divisional levels. This program is designed to reward short term results on the long-term plan.

3.
Performance-based restricted stock awards, which vary significantly based on officer evaluation and the components of the table below:

    Granted based on       Vest based on       Upside opportunity based on    

 



  

 

Financial metrics (operating results)

Strategic results (progress
toward long-term commitments)
  

     

Achievement of a specific
Company performance
threshold

     

Share price appreciation only

No additional shares are earned if above threshold performance achieved

   

 

 

Impact of the officer's role
on business overall
  

                   
4.
Stock options, which create value only when returns are generated to shareholders. They are performance-based because they gain value only when our stock price increases. These awards are designed to incent long-term growth and shareholder returns, thereby aligning the interests of our NEOs and shareholders.

CHANGES BASED ON SHAREHOLDER FEEDBACK AND MARKET PRACTICES


Last year, 84.5% of our shareholders approved the compensation of our named executive officers. Nonetheless, several improvements were made to extend the scope of our shareholder outreach. We reached out to more than 200 investors and conducted meetings with investors representing more than 40% of our outstanding shares. In those meetings, we discussed our pay programs broadly, including aspects that were previously subject to shareholder resolutions. Based on shareholder discussions and recommendations, the Committee, during its annual evaluation of the Company's compensation programs and evolving market practices, made several substantive changes to our programs.

Peer group—The Committee selected a new peer group based on the business composition of the new Abbott.

ROE Goals—ROE was removed as a goal from the annual cash incentive program, eliminating duplication with our LTI performance hurdle.

CEO Annual Cash Incentive Plan Target—To align with peer group practices, the CEO's annual incentive target opportunity was reduced from 200% of base salary to 160% of base salary effective January 1, 2013.

Determination of equity grant levels—During 2013, the Committee determined the level of long-term incentive awards granted to each officer based upon an explicit evaluation of financial metrics (annual operating results), strategic results (measured performance against long-term commitments), and the relative contribution of the officer on business overall.

Change-in-control agreements—Our CEO does not have a change-in-control agreement. During 2012, new change-in-control agreements for other officers were issued which eliminated (i) the automatic renewal feature; (ii) the right to receive a tax gross-up payment from Abbott if the executive is subject to the golden parachute excise tax; and (iii) the modified single-trigger severance provision, which was replaced with a double trigger severance provision.

Tax Gross-ups—Tax gross-ups were eliminated for our executive pay program.

Independent compensation consultant—During 2013, the Committee selected a new independent compensation consultant whose company performs no other work for Abbott.

Compensation Recoupment Policy—The Company adopted a new compensation recoupment policy.

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Share ownership guidelines—During 2013, we changed our executive share ownership guidelines to align with market practice. The new guidelines are:

Chief Executive Officer—6 times base salary

Executive Vice President/Senior Vice President—3 times base salary

All Other Officers—2 times base salary

Reloads—Except for outstanding options that have a replacement option feature, the Company has not issued options with a "reload" feature since 2004. Any options with a replacement option feature that remain outstanding will expire no later than December 31, 2014.

HOW EXECUTIVE PAY DECISIONS ARE MADE


The Committee makes compensation decisions in the context of the objectives of our program. They ensure the compensation delivered to our executives is competitive, based on performance, balanced between the short and long term, and aligned with shareholder interests.

Benchmarking Using Peer Companies

To determine the competitiveness of our compensation and benefit programs, the Committee, in consultation with its independent consultant annually compares the level of compensation, market pay practices and our relative performance to those of peer companies.

After the separation of AbbVie, the Committee determined that our peer group should be updated to better reflect the nature of our business going forward. The new peer group reflects a balanced mix of corporations whose investment profile, operating characteristics, and employment and business markets share similarities with Abbott, including:

Globally diverse manufacturing-driven organizations with significant international operations

Consumer-facing organizations

Similar financial and operating measures, including revenue, market capitalization, and number of employees

Similar return of cash profiles, including dividends and share repurchases

Similar geographic mix of revenues and profits

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This group is summarized below, showing the primary characteristics for which each company was selected.

 
  Company Name
   
  Sales/Rev(1)
(billions)

   
  Market Cap(1)
(billions)

   
  % Rev
Outside
US

   
  Similar #
Employees

   
  Health Care
Related

   
  Mfg Driven/
Consumer
Facing

   
    3M Company       $ 30.7       $ 93.3       ü       ü       ü       ü    
    Baxter International Inc.       $ 14.6       $ 37.7       ü       ü       ü       ü    
    Caterpillar Inc.       $ 57.3       $ 57.8       ü       ü               ü    
    The Coca-Cola Company       $ 47.3       $ 182.4       ü       ü               ü    
    Covidien PLC       $ 10.2       $ 30.8               ü       ü       ü    
    Danaher Corporation       $ 18.8       $ 53.8       ü       ü       ü       ü    
    E. I. du Pont de Nemours       $ 35.5       $ 60.2       ü       ü               ü    
    Eaton Corporation       $ 20.9       $ 36.1       ü       ü               ü    
    Emerson Electric Co.       $ 24.7       $ 49.5       ü       ü               ü    
    Honeywell International Inc.       $ 38.2       $ 71.7               ü               ü    
    Illinois Tool Works Inc.       $ 17.2       $ 37.3       ü       ü               ü    
    Johnson & Johnson       $ 70.5       $ 258.4       ü       ü       ü       ü    
    Kimberly-Clark Corporation       $ 21.2       $ 39.9       ü       ü       ü       ü    
    McDonald's Corporation       $ 28.0       $ 96.5       ü                       ü    
    Medtronic, Inc.       $ 16.8       $ 57.3               ü       ü       ü    
    Novartis AG       $ 58.5       $ 194.7       ü       ü       ü       ü    
    Procter & Gamble Co       $ 84.7       $ 221.3       ü       ü       ü       ü    
    Thermo Fisher Scientific, Inc.       $ 12.9       $ 40.2               ü       ü       ü    
    United Technologies Corporation       $ 62.3       $ 104.4                               ü    
                                                                
    Median       $ 28.0       $ 57.8       ü       ü       ü       ü    
    Abbott       $ 21.8       $ 59.3       ü       ü       ü       ü    

Because the long term incentive grants made in February 2013 were based upon the successful separation of the AbbVie business and 2012 performance, the benchmarking related to those grants was against the prior peer group.(2)

Base Salary

Base salary targets are set using the median of the peer group as an initial benchmark. Specific pay rates are based on an executive's performance, experience, unique skills, and internal equity with others at Abbott. Once the rate of pay is set at either hire or upon promotion, subsequent changes in pay, including salary increases, are based on the executive's performance, the job he or she is performing, internal equity, and the Company's operating budget.

   


(1)
Data Source: S&P's Capital IQ database, reflects most recently disclosed (as of January 31, 2014) trailing 12 month sales/revenue. The market cap reflects values on December 31, 2013.

(2)
Prior peer group consisted of Amgen, Bristol-Meyers Squibb, Eli Lilly, GlaxoSmithKline, Johnson & Johnson, Merck, Novartis, and Pfizer.

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Annual Cash Incentive Plan (Performance Incentive Plan)

During 2013, all of Abbott's five named officers participated in the 1998 Abbott Laboratories Performance Incentive Plan (PIP). The PIP is designed to comply with the requirements of Section 162(m) of the Internal Revenue Code of 1986 for performance-based compensation.

Each year, the Committee sets the maximum award allocations under the PIP for each named officer as a percentage of consolidated net earnings. For 2013, the maximum award for the Chief Executive Officer was 0.15% of adjusted consolidated net earnings for the fiscal year-end, and, for all of the other named officers, 0.075% of adjusted consolidated net earnings. Historically, and in 2013, the Committee exercised its discretion to deliver PIP awards that were below the maximum awards that are authorized by these formulas based on achieved performance against annual goals and other factors described below.

Under the PIP, the Committee sets a target payout (expressed as a percentage of base salary) for each officer based upon market benchmarks and internal calibration. The final payout is determined based upon achievement of certain annual goals. Each PIP participant carried a goal of Adjusted Diluted EPS that comprised 20% of his or her goals. For a reconciliation of these adjustments to GAAP, see Annex I. In addition to EPS, most officers had other financial goals specific to each officer's area of responsibility. The process of scoring each officer's goals will determine an initial payout of not more than 100% of the target payout.

Annual Incentive Payout Calculation for NEOs

GRAPHIC

The Compensation Committee may adjust the calculated annual PIP award amount up or down based on additional factors. The Committee may take into account the impact of specified factors or events, including but not limited to compliance costs or product recalls, as they deem applicable. These adjustments are reviewed individually on an annual basis to determine their appropriateness. Note that the quantitative determination of an officer's cash incentive can not result in above-target payouts. However, the Committee in its sole discretion may determine that an above-target payout is warranted based on achieved levels of performance.

 
Examples of factors that
could create
Downward Adjustment
 
Examples of factors that
could create
Upward Adjustment
 

Product recall

 

Performance well above plan

 

Missing R&D milestones

 

Successful completion of unplanned acquisition

 

Compliance breach

 

Acceleration of R&D milestones

 

Violation of our Core Leadership Requirements

   

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Long-Term Incentives (LTI)

Long-term incentive awards are driven by three primary factors:

    1.
    External market data which provides the appropriate range of long-term incentive awards

    2.
    Company performance against financial and operating measures that drive shareholder returns, which determines where the Company's award guidelines should fall in the market data range

    3.
    Individual performance

To determine company performance, the Committee reviews performance using a number of relative benchmarks, including total shareholder return, return on equity, return on net assets, and earnings per share growth. These results are compared to these same benchmarks for our peer group companies. This analysis provides the Committee and its independent consultant with a relative performance ranking of Abbott to peers on a multi-year basis. Generally, the Committee sets the award guideline at Abbott's performance level relative to our peers, but may adjust the guideline up or down. In 2013, based on Abbott's performance relative to peers as well as the value created by the successful separation of the research-based pharmaceutical business (now AbbVie), the Committee set award guidelines for the NEOs between the 50th and 75th percentiles.

In the February 2013 grant shown in the Summary Compensation table, individual performance for each officer was determined based upon an explicit evaluation of:

Financial metrics (annual operating results)

Strategic results (progress toward long-term commitments)

The relative contribution of the officer's role on business overall GRAPHIC

Officers were evaluated on each of these areas using the scoring below:

 
   
   
  Behind Target
   
  Met Target
   
  Exceeded Target
   

 

 

Percentage of Annual Grant Awarded

        0-75 %       75-125 %       125-150 %  

The scoring was used to determine the overall grant as a percentage of the award guidelines. The Committee reviewed these calculations for all officers as part of its process of approving the annual grants.

Changes to our Long-Term Incentive Grants for NEOs

In 2013, to recognize the post-separation growth focus of Abbott and to more directly align the interests of executive officers with the interests of shareholders, the Committee granted the long-term incentive awards in the form of 50 percent stock options and 50 percent performance-vested shares. This mix is consistent with the practices of our new peer group. All but one of Abbott's new peers grant a portion of their long-term incentive awards in the form of stock options and only six of the 16 companies disclosing percentages grant less than 40 percent of the total value in options.

Typically equity grants are approved by the Committee during its regularly scheduled meeting held in February of each year. Stock options have a ten year term, vest ratably over three years and only provide value to executives if shareholders also realize value through stock price increases. Performance-vested

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shares are earned over a period of 5 years, with not more than one-third of each award vesting each year only if the annual return on equity threshold is achieved. Using the annual ROE vesting threshold is an additional mechanism for the Compensation Committee to ensure growth and investment return objectives are achieved before executives' awards are vested. Determining the level of awards based upon progress toward long-range plan objectives focuses NEOs on long-term business growth while maintaining an annual threshold prevents executives from benefiting in future years due to unforeseen events.

It is important to note that if performance-vested shares vest, they will vest only at 100 percent. There is no "upside" in the number of shares should the threshold level be exceeded and outstanding restricted shares receive dividends at the same rate as all other shareholders.

The ROE for each year's vesting is established when the grant is awarded. Our incentive stock program requires the Compensation Committee to equitably adjust outstanding awards where the award's performance goals no longer fairly apply due to changes from events which alter the financial composition of the Company. With the separation of Abbott and AbbVie on January 1, 2013, the new Abbott now has a significantly lower debt-to-equity ratio. As a result, the threshold ROE that will be used as the vesting trigger mechanism was proportionately adjusted from 18 percent to 10 percent to reflect this significant capital structure change.

It is our intent over time to increase our ROE and ROE threshold through effective deployment of our cash to generate returns on shareholder capital. Because ROE measures how much profit the Company generates over the longer-term with the capital that shareholders have invested, the Committee believes this is an appropriate metric to use for vesting equity granted to executive officers. For awards granted in 2011, 2012, and 2013 that are scheduled to vest in the future, the performance requirement will be dependent upon the Company achieving an annual return on equity threshold of 10 percent from continuing operations adjusted for specified items per the quarterly earnings releases. As the ROE for 2013 exceeded 10%, one-third of the awards granted in 2011, 2012, and 2013 vested in February 2014.

Performance Goals

DISCUSSION OF NAMED OFFICERS' ACHIEVEMENT OF GOALS DURING 2013

2013 Financial and Other Goals

FINANCIAL GOALS

   
Executive
  Metric
  Expected Results
  Results Achieved
 
   

Miles D. White

  Adjusted Diluted EPS   $ 2.01   $ 2.01  

  Sales   $ 23.0 Billion   $ 21.8 Billion  

  Adjusted Net Income   $ 3.2 Billion   $ 3.2 Billion  

  Adjusted Return on Assets     9.3%     9.4%  

  Adjusted Operating Cash Flow   $ 4.0 Billion   $ 4.1 Billion  
   

Thomas C. Freyman

  Adjusted Diluted EPS   $ 2.01   $ 2.01  

  Adjusted Return on Assets     9.3%     9.4%  

  Adjusted Operating Cash Flow   $ 4.0 Billion   $ 4.1 Billion  
   

Hubert L. Allen

  Adjusted Diluted EPS   $ 2.01   $ 2.01  
   

Richard W. Ashley

  Adjusted Diluted EPS   $ 2.01   $ 2.01  
   

Brian J. Blaser

  Adjusted Diluted EPS   $ 2.01   $ 2.01  

  Division Net Sales   $ 4.6 Billion   $ 4.6 Billion  

  Diagnostics Division Margin   $ 967.2 Million   $ 1,026.4 Million  
   

The results reflect an increase of 1.6% in sales and an increase of 15.5% in adjusted diluted EPS and adjusted net income.

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OTHER GOALS

MILES D. WHITE

Establish Abbott as a diversified healthcare company post-AbbVie separation; continue Abbott's growth focus by launching new products in the established pharmaceuticals, diagnostics, medical devices and nutrition businesses; achieve strategic objectives supporting emerging market growth; execute strategies to drive gross margin growth; development of key senior management talent.

Results: Mr. White achieved the above goals in all material aspects.

THOMAS C. FREYMAN

Execute phase one of global Finance back office initiative; establish plan for transition of services currently provided to AbbVie as part of the separation agreement; execute final phase of SAP system roll out; support appropriate valuation of the Company given growth prospects through Investor Relations activities.

Results: Mr. Freyman partially achieved the global Finance back office initiative goal and achieved his other goals in all material aspects.

HUBERT L. ALLEN

Successfully resolve key litigation matters; achieve licensing and acquisition objectives to achieve pipeline enhancements and emerging market growth in Devices, Nutrition, and Established Pharmaceuticals businesses; achieve key compliance initiatives.

Results: Mr. Allen achieved the above goals in all material aspects.

RICHARD W. ASHLEY

Achieve key strategic initiatives in Vascular, Medical Optics and Established Pharmaceuticals divisions; refine supply chain economics strategy to address anticipated market challenges.

Results: Mr. Ashley achieved the above goals in all material aspects.

BRIAN J. BLASER

Achieve new product platform development objectives in Diagnostics divisions; accomplish key strategic objectives for Diagnostics including projects in hematology, molecular oncology, clinical laboratory diagnostics, and global division operations; achieve emerging markets program and sales growth objectives; achieve division gross margin objectives.

Results: Mr. Blaser achieved the above goals in all material aspects.

February 2014 Compensation Decisions

Each year during the February Committee meeting, based on the performance assessment of each named executive officer, the Committee determines the appropriate level of:

Base salary for the upcoming year,

Annual cash incentive plan payout earned for the prior year's performance,

Annual cash incentive plan target for the upcoming year, and

Long-term incentive award grant.

Decisions made in February 2014 based upon 2013 performance, the change in business composition and the new peer group's pay practices are summarized in the tables to follow. The Committee believes the compensation summarized in these tables is appropriate in light of 2013 performance and the new peer group.

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Total Direct Compensation—Determined in February 2014 for 2013 performance

 
 
  Name
  Base Salary
  Annual Cash
Incentive Plan
Payout

  Bonus as a
Percent of
Target

   
  Performance
Vested
RSUs ($)

  Options
Granted ($)

   
  Total Direct
Compensation

   
 

 

Miles D. White

  $ 1,900,000   $ 3,150,000     104 %     $ 4,650,000   $ 4,650,000       $ 14,350,000    
 

 

Thomas C. Freyman

  $ 975,100   $ 912,000     85 %     $ 1,281,050   $ 1,281,050       $ 4,449,200    
 

 

Hubert L. Allen

  $ 650,000   $ 682,500     100 %     $ 688,800   $ 688,800       $ 2,710,100    
 

 

Richard W. Ashley

  $ 633,000   $ 590,000     93 %     $ 861,000   $ 861,000       $ 2,945,000    
 

 

Brian J. Blaser

  $ 675,000   $ 800,000     123 %     $ 1,119,300   $ 1,119,300       $ 3,713,600    
 
Base salary shown in the table above represents the named officer's approved salary, effective March 1, 2014.

Annual cash incentive plan amount paid in cash in February 2014 based on 2013 performance and the peer group established in 2013 for the new Abbott.

Long-term incentive awards were granted in February 2014 following the rigorous evaluation process described in the section titled "How Executive Pay Decisions are Made". The peer group established in 2013 for the new Abbott was used to determine appropriate grant amounts. Grants made in 2014 will be reflected in the compensation of the Executive Officers disclosed in the 2015 proxy statement.

Base salary and annual cash incentive plan targets for 2014

The Committee set the following base salaries and annual cash incentive plan targets for the 2014 year.

 
 
  Name
  2013 Base Salary
(effective
March 1, 2013)

  Percentage Increase
  2014 Base Salary
(effective
March 1, 2014)

  2014 Annual
Cash Incentive
Plan Target

   
 

 

Miles D. White

  $ 1,900,000     0 % $ 1,900,000     160 %  
 

 

Thomas C. Freyman

  $ 975,100     0 % $ 975,100     110 %  
 

 

Hubert L. Allen

  $ 650,000     0 % $ 650,000     105 %  
 

 

Richard W. Ashley

  $ 633,000     0 % $ 633,000     100 %  
 

 

Brian J. Blaser

  $ 618,000     9 % $ 675,000     105 %  
 

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Benefits & Perquisites

Each of the benefits described below was designed to support the Company's objective of providing a competitive total pay program. Individual benefits do not directly affect decisions regarding other benefits or pay components, except to the extent that benefits and pay components must, in aggregate, be competitive, as previously discussed.

 
Benefits and Perquisites
  Description
 
Retirement Benefits   The named officers participate in two Abbott-sponsored defined benefit plans: the Abbott Laboratories Annuity Retirement Plan and the Abbott Laboratories Supplemental Pension Plan. These plans are described in greater detail in the "Pension Benefits" section of the proxy.

 

 

Since officers' Supplemental Pension Plan benefits cannot be secured in a manner similar to qualified plans, which are held in trust, officers receive an annual cash payment equal to the increase in present value of their Supplemental Pension Plan benefit. Officers have the option of depositing these annual payments to an individually established grantor trust, net of tax withholdings. Deposited amounts may be credited with the difference between the officer's actual annual trust earnings and the rate used to calculate trust funding (currently 8 percent) while they are employed. Amounts deposited in the individual trusts are not tax deferred.

 

 

As noted previously, beginning in 2013, officers no longer receive tax gross-ups on their grantor trusts. The manner in which the grantor trust will be distributed to an officer upon retirement from the Company generally follows the manner elected by the officer under the Annuity Retirement Plan. Should an officer (or the officer's spouse depending upon the pension distribution method elected by the officer under the Annuity Retirement Plan) live beyond the actuarial life expectancy age used to determine the Supplemental Pension Plan benefit, and therefore exhaust the trust balance, the Supplemental Pension Plan benefit will be paid by Abbott.
 
Deferred Compensation   Officers of the Company, like all U.S. employees, are eligible to defer a portion of annual base salary, on a pre-tax basis, to the Company's qualified 401(k) plan, up to the IRS contribution limits. Officers are also eligible to defer up to 18 percent of their base salary, less contributions to the 401(k) plan, to a non-qualified plan. Unlike other U.S. managers, officers are not eligible to elect to defer compensation into the Deferred Compensation Plan. However, one hundred percent (100 percent) of annual incentive awards earned under the Company's Performance Incentive Plan is eligible for deferral to a non-qualified plan. Officers may defer these amounts to unfunded book accounts or choose to have the amounts paid in cash on a current basis and deposited into individually established grantor trusts, net of tax withholdings. These amounts are credited annually with earnings. As noted previously, beginning in 2013 officers no longer receive tax gross-ups on their grantor trusts. Officers elect the manner in which the assets held in their grantor trusts will be distributed to them upon retirement or other separation from the Company.
 

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Benefits and Perquisites
  Description
 
Change in Control Arrangements   Mr. White does not have a change in control agreement. The other named officers have change in control agreements, the purpose of which is to aid in retention and recruitment, encourage continued attention and dedication to assigned duties during periods involving a possible change in control of the Company, and to protect the earned benefits of the officer against adverse changes resulting from a change in control. The level of payments provided under the agreements is established to be consistent with market practices as confirmed by data provided to the Committee by its independent compensation consultant. These arrangements are described in greater detail in the "Potential Payments upon Termination or Change in Control" section of this proxy.
 
Financial Planning   Named officers are eligible to receive up to $10,000 of fees annually associated with estate planning advice, tax preparation and general financial planning. If an officer chooses to utilize this benefit, fees for services received up to the annual allocation are paid by the Company and are treated as imputed income to the officer, who then is responsible for payment of all taxes due on the fees paid by the Company.
 
Company Automobile   Named officers are eligible for use of a Company-leased vehicle, with a lease term of 50 months. Seventy-five percent (75 percent) of the cost of the vehicle is imputed to the officer as income for federal income tax purposes.
 
Company Aircraft   Non-business related flights on corporate aircraft by Messrs. White and Freyman are covered by time-sharing lease agreements, pursuant to which incremental costs associated with those flights are reimbursed by the executives to the Company in accordance with Federal Aviation Administration regulations.
 
Disability Benefit   In addition to Abbott's standard disability benefits, the named officers are eligible for a monthly long-term disability benefit, which is described in greater detail in the "Potential Payments upon Termination or Change in Control" section of this proxy.
 

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Share Ownership Guidelines

To further promote sustained shareholder return and to ensure the Company's executives remain focused on both short- and long-term objectives, the Company has established share ownership guidelines. Each officer has five years from the date appointed/elected to his/her position to achieve the ownership level associated with the position. As noted previously, these share ownership guidelines were updated during 2013 to better reflect market practice.

   
Role
  Guideline
 
   

Chief Executive Officer

    6 times base salary  
   

Executive Vice Presidents and Senior Vice Presidents

    3 times base salary  
   

All Other Officers

    2 times base salary  
   

All named officers with 5 years tenure in their current position meet or substantially exceed the guidelines.

Hedging and Pledging

None of Abbott's executive officers or directors has pledged any Abbott shares. In addition, all of the Company's corporate officers must pre-clear any transaction involving Abbott shares with the General Counsel prior to entering into such transaction. Abbott's Incentive Stock Programs provide that, unless otherwise permitted by the Compensation Committee, no award may be assigned, pledged, alienated, or hypothecated.

Compliance

The Performance Incentive Plan and Incentive Stock Program, which are described above, are intended to comply with Internal Revenue Code Section 162(m) to ensure deductibility.

The Committee reserves the flexibility to take actions that may be based on considerations in addition to tax deductibility. The Committee believes that shareholder interests are best served by not restricting the Committee's discretion and flexibility in crafting compensation programs, even if such programs may result in certain non-deductible compensation expenses. Accordingly, the Committee may from time to time approve components of compensation for certain officers that are not deductible.

While the Committee does not anticipate there would ever be circumstances where a restatement of earnings upon which any incentive plan award decisions were based would occur, the Committee, in evaluating such circumstances, has discretion to take all actions necessary to protect the interests of shareholders up to and including actions to recover such incentive awards. Such circumstances have never occurred.

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COMPENSATION COMMITTEE REPORT


The Compensation Committee of the Board is primarily responsible for reviewing, approving and overseeing Abbott's compensation plans and practices, and works with management and the Committee's independent consultant to establish Abbott's executive compensation philosophy and programs. The Committee has reviewed and discussed the Compensation Discussion and Analysis with management and has recommended to the Board that the Compensation Discussion and Analysis be included in this proxy statement.

Compensation Committee
W. J. Farrell,
Chairman
R. S. Austin
E. M. Liddy
W. A. Osborn
S. C. Scott III

COMPENSATION RISK ASSESSMENT


During 2013, Abbott conducted its annual risk assessment of its compensation policies and practices for employees and executives. Abbott's risk assessment is reinforced by Abbott's adherence to a number of industry leading best practices, including:

    ü
    Compensation Committee chaired by independent, non-employee director

    ü
    Representation from the Audit Committee on the Compensation Committee

    ü
    Review of executive compensation programs by the Compensation Committee's independent consultant

    ü
    Robust review of compensation program elements and key performance drivers

    ü
    Detailed measurement of short- and long-term compensation elements to ensure balance

Based on this assessment, Abbott determined its compensation and benefit programs appropriately align employees and performance without incentivizing risky behaviors. Any risk arising from its compensation policies and practices is not reasonably likely to have a material adverse effect on Abbott or its shareholders.

The following factors were among those considered:

Compensation structure encourages employees to regard Abbott as a career employer, to consider the long-term impact of their decisions, and to align their interests with those of Abbott's shareholders (e.g., defined benefit pension plan, equity awards that vest over multi-year periods).

Abbott's long-term incentive program focuses on longer-term operating performance and shareholder returns, (e.g., in 2013, roughly 66% of named officer total compensation was in the form of long-term equity incentives—29% of which are stock options, vesting over multi-year periods, and 37% of which are performance awards that vest over a period of up to five years).

Equity awards are made, and grant prices are set at the same time each year, at the Compensation Committee's regularly scheduled meeting. In addition, Abbott does not award discounted stock options or immediately vesting stock options or restricted stock. The equity awards are based on multiple performance factors and executives share ownership guidelines promote alignment with shareholders.

Abbott's annual incentive program places an appropriate weighting on earnings achievement by balancing it with other factors, including operational and strategic measures. Since earnings are a key component of stock price performance, this aspect of Abbott's compensation plan promotes alignment with shareholder interests without creating duplicity across incentive plans. Annual incentives for executives are also capped.

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Abbott's recoupment policy allows the Compensation Committee to seek recoupment of incentive compensation or reduce future awards if it determines that a senior executive engaged in misconduct or failed in a supervisory capacity, resulting in a material violation of law or Abbott policy which caused significant financial harm to Abbott.

Annual benchmarking ensures performance achievement and incentive payout opportunities are aligned with a peer group that reflects the characteristics of Abbott. Appropriateness of this group is assessed annually.

Training on code of conduct and policies and procedures is mandatory for all employees and non-employee directors.

Abbott's compensation program does not include features that could encourage excessive risk-taking, such as: over-weighting toward annual incentives, highly leveraged payout curves, unreasonable thresholds, and steep payout cliffs at certain levels that may encourage short-term business decisions to meet payout thresholds.

This assessment was discussed with the Compensation Committee and its independen compensation consultant. The Committee and the consultant both agreed with the assessment.

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SUMMARY COMPENSATION TABLE


The following table summarizes compensation awarded to, earned by, or paid to the named officers. The section of the proxy statement captioned, "Compensation Discussion and Analysis—How Executive Pay Decisions Are Made" describes in greater detail the information reported in this table.

 
 
  Name and Principal
Position

  Year
  Salary
($)

  Bonus
($)

  Stock
Awards
($)(1)(2)

  Option
Awards
($)(2)(3)(4)

  Non-Equity
Incentive Plan
Compensation
($)(5)

  Change in
Pension
Value and
Non-qualified
Deferred
Compensation
Earnings
($)(6)

  All Other
Compensation
($)(8)

  Total
($)

   
 
    Miles D. White,     2013   $ 1,900,000   $ 0   $ 7,337,400   $ 7,062,220   $ 3,150,000   $ 336,153 (7) $ 1,079,895   $ 20,865,668    
    Chairman of the     2012     1,900,000     0     9,429,176     2,057,000     4,700,000     6,162,947     869,713     25,118,836    
    Board, Chief     2011     1,900,000     0     9,759,558     1,835,981     4,200,000     5,419,080     896,283     24,010,902    
    Executive Officer                                                          
    and Director                                                          
 
    Thomas C. Freyman,     2013     969,748     0     2,009,050     1,784,319     912,000     49,516 (7)   157,121     5,881,754    
    Executive Vice     2012     946,700     1,200,000 (9)   3,341,844     729,640     1,270,000     2,049,188     126,406     9,663,778    
    President, Finance     2011     946,700     0     2,855,661     537,649     1,270,000     2,211,250     126,452     7,947,712    
    and Chief                                                          
    Financial Officer                                                          
 
    Hubert L. Allen,     2013     650,000     0     1,107,598     952,050     682,500     195,150 (7)   185,539     3,772,837    
    Executive Vice President, General Counsel and Secretary                                                          
 
    Richard W. Ashley,     2013     629,532     0     2,215,196     0     590,000     94,836 (7)   111,078     3,640,642    
    Executive Vice President, Corporate Development                                                          
 
    Brian J. Blaser,     2013     614,608     0     1,107,598     952,050     800,000     28,390 (7)   76,896     3,579,542    
    Executive Vice President, Diagnostics Products                                                          
 
(1)
In accordance with the Securities and Exchange Commission's rules, the amounts in this column represent the aggregate grant date fair value of the awards in accordance with Financial Accounting Standards Board ASC Topic 718. Abbott determines grant date fair value by multiplying the number of shares granted by the average of the high and low market prices of an Abbott common share on the award's date of grant.

(2)
When Abbott and AbbVie separated on January 1, 2013, all holders of outstanding Abbott equity awards received (except where prohibited by local law) an identical number of AbbVie equity awards to preserve the value of the initial Abbott awards. Because these AbbVie awards resulted from an antidilution adjustment pursuant to the terms of Abbott's Incentive Stock Programs meant to preserve the value of the existing Abbott awards, they have no impact on the amounts set forth in the table. Additional information regarding the conversion of Abbott's outstanding equity awards when Abbott and AbbVie separated is contained in the introduction to the 2013 Outstanding Equity Awards table on page 49.

(3)
In accordance with the Securities and Exchange Commission's rules, the amounts in this column represent the aggregate grant date fair value of the awards in accordance with Financial Accounting Standards Board ASC Topic 718. These amounts include the grant date fair values of $1,407,620 and $57,358 attributable to replacement stock options issued in 2013 to M. D. White and T. C. Freyman, respectively, with respect to original option grants made before 2005. Except for outstanding options that have a replacement option feature, options granted after 2004 do not include a replacement option feature. No options with a replacement option feature will remain outstanding after December 31, 2014. Additional information regarding replacement options can be found in footnotes 6 and 7 to the 2013 Grants of Plan-Based Awards Table.


Mr. Ashley received the entire value of his long-term incentives in performance-restricted shares. In 2014, Mr. Ashley received 50% of the value of his long-term incentives in options and 50% in performance-restricted shares.

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(4)
These amounts were determined as of the option's grant date using a Black-Scholes stock option valuation model. These amounts are being reported solely for the purpose of comparative disclosure in accordance with the Securities and Exchange Commission's rules. There is no certainty that the amount determined using a Black-Scholes stock option valuation model would be the value at which employee stock options would be traded for cash. For options, other than the replacement options, the assumptions are the same as those described in Note 8 entitled "Incentive Stock Program" of Abbott's Notes to Consolidated Financial Statements included under Item 8, "Financial Statements and Supplementary Data" in Abbott's 2013 Annual Report on Securities and Exchange Commission Form 10-K. For Abbott replacement options, the model used the following assumptions: expected volatility of 14%; dividend yield ranging between 1.6% and 1.7%; risk-free interest of 0.1%; and an option life equal to 60% of the option's remaining life. For AbbVie replacement options, the model used the following assumptions: expected volatility of 32.63%; dividend yield of 4.5%; risk-free interest of 0.1%; and an option life equal to 60% of the option's remaining life. Additional information regarding the conversion of Abbott's outstanding equity awards when Abbott and AbbVie separated on January 1, 2013, is described in the introduction to the 2013 Outstanding Equity Awards table.

(5)
This compensation is earned as a performance-based incentive bonus, pursuant to the 1998 Abbott Laboratories Performance Incentive Plan. Additional information regarding the Performance Incentive Plan can be found in the section of this proxy statement captioned, "Compensation Discussion and Analysis—How Executive Pay Decisions Are Made—Annual Cash Incentive Plan."

(6)
The plan amounts shown below are reported in this column.


For Messrs. White and Freyman, the amounts shown alongside the officer's name are for 2013, 2012, and 2011, respectively. For Messrs. Allen, Ashley, and Blaser, the amount shown is for 2013.


Abbott Laboratories Annuity Retirement Plan


M. D. White: $11,805 / $177,433 / $153,557; T. C. Freyman: $14,517 / $210,536 / $210,878; H. L. Allen: $(693); R. W. Ashley: $13,795; and B. J. Blaser: $(3,130). For additional information regarding the 2013 amounts, see footnote 7, below.


Abbott Laboratories Supplemental Pension Plan


M. D. White: $(1,411,638) / $5,444,865 / $4,855,579; T. C. Freyman: $(539,519) / $1,771,959 / $1,963,122; H. L. Allen: $195,060; R. W. Ashley: $48,094; and B. J. Blaser: $15,511. For additional information regarding the 2013 amounts, see footnote 7, below.


Non-Qualified Defined Contribution Plan Earnings


The totals in this column include reportable interest credited under the 1998 Abbott Laboratories Performance Incentive Plan, the Abbott Laboratories 401(k) Supplemental Plan, and the 1986 Abbott Laboratories Management Incentive Plan (although none of the named officers currently receives awards under this plan).


M. D. White: $336,153 / $540,649 / $409,944; T. C. Freyman: $49,516 / $66,693 / $37,250; H. L. Allen: $783; R. W. Ashley: $32,947; and B. J. Blaser: $16,009.

(7)
The change in pension value included in this total is the result of the following factors: (i) the impact of changes in the actuarial assumptions Abbott uses to calculate plan liability for financial reporting purposes, primarily the change in discount rate, (ii) additional pension benefit accrual under the Annuity Retirement Plan and Supplemental Pension Plan, and (iii) the impact of the time value of money on the pension value.

(8)
The amounts shown below are reported in this column.


For Messrs. White and Freyman, the amounts shown alongside the officer's name are for 2013, 2012, and 2011, respectively. For Messrs. Allen, Ashley, and Blaser, the amount shown is for 2013.


Earnings, Fees and Pre-2013 Tax Payments for Non-Qualified Defined Benefit and Non-Qualified Defined Contribution Plans (net of the reportable interest included in footnote 6).


M. D. White: $583,735 / $392,759 / $416,263; T. C. Freyman: $70,747 / $45,320 / $46,438; H. L. Allen: $0; R. W. Ashley: $52,265; and B. J. Blaser: $12,650.


Each of the named officers' awards under the 1998 Abbott Laboratories Performance Incentive Plan is paid in cash to the officer on a current basis and may be deposited into a grantor trust established by the officer, net of maximum tax withholdings. Each of the named officers has also established grantor trusts in connection with the Abbott Laboratories Supplemental Pension Plan, the Abbott Laboratories 401(k) Supplemental Plan, and, other than Mr. Allen, the 1986 Abbott Laboratories Management Incentive Plan (although none of the named officers currently

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    receives awards under the Management Incentive Plan). These amounts include the earnings (net of the reportable interest included in footnote 6), and (for years prior to 2013) fees and tax payments paid in connection with these grantor trusts (such payments are no longer provided, effective January 1, 2013).


Employer Contributions to Defined Contribution Plans


M. D. White: $95,000 / $95,000 / $95,000; T. C. Freyman: $48,488 / $47,335 / $47,335; H. L. Allen: $32,500; R. W. Ashley: $31,476; and B. J. Blaser: $30,730.


These amounts include employer contributions to both Abbott's tax-qualified defined contribution plan and the Abbott Laboratories 401(k) Supplemental Plan. The Abbott Laboratories 401(k) Supplemental Plan permits Abbott's officers to contribute amounts in excess of the limit set by the Internal Revenue Code for employee contributions to 401(k) plans up to the excess of (i) 18% of their base salary over (ii) the amount contributed to Abbott's tax-qualified 401(k) plan. Abbott matches participant contributions at the rate of 250% of the first 2% of compensation contributed to the Plan. The named officers have these amounts paid to them in cash on a current basis and deposited into a grantor trust established by the officer, net of maximum tax withholdings.


Other Compensation


Messrs. White's and Freyman's non-business related flights on corporate aircraft are covered by time-sharing lease agreements, pursuant to which they reimburse Abbott for certain costs associated with those flights in accordance with Federal Aviation Administration regulations. The following amounts are included in the totals in this column, which reflect Abbott's incremental cost less reimbursements for non-business related flights, M. D. White: $218,280 / $213,435 / $206,464 and T. C. Freyman: $15,687 / $13,686 / $5,182.


Abbott determines the incremental cost for flights based on the direct cost to Abbott, including fuel costs, parking, handling and landing fees, catering, travel fees, and other miscellaneous direct costs.


For Mr. White, the following costs associated with security are included: $182,880 / $168,519 / $178,556. Abbott determines the cost for these expenses based on its actual costs. The security is provided on the recommendation of an independent security study.


Also included in the totals shown in the table is the cost of providing a corporate automobile less the amount reimbursed by the officer: T. C. Freyman: $12,199 / $17,280 / $17,497; H. L. Allen: $15,021; R. W. Ashley: $17,337; and B. J. Blaser: $27,016.


For Messrs. Freyman, Ashley, and Blaser, the following costs associated with financial planning are included: T. C. Freyman: $10,000 / $2,785 / $10,000; R. W. Ashley: $10,000; and B. J. Blaser: $6,500.


For Mr. Allen, tax equalization payments of $138,018 paid by Abbott to avoid double taxation in Switzerland and the United States relating to his work in Switzerland are included.


The named officers are also eligible to participate in an executive disability benefit described on page 60.

(9)
Bonus paid in recognition of performance related to the business separation.

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2013 GRANTS OF PLAN-BASED AWARDS


 
 
   
   
   
  Estimated Future Payouts
Under Non-Equity Incentive
Plan Awards(2)
  Estimated
Future
Payouts
Under Equity
Incentive
Plan Awards

  All Other
Option
Awards:
Numbers of
Securities
Underlying

  Exercise
or Base
Price of
Options

  Closing
Market

  Grant Date
Fair Value
of Stock

   
 
  Name
  Security(1)
  Grant
Date

  Target
($)

  Maximum
($)

  Target
(#)(3)(4)

  Options
(#)

  Awards
($/Sh.)

  Price on
Grant Date

  and Option
Awards

   
 

 

M. D. White

  Abbott     02/15/13                 210,000                     $ 7,337,400 (8)  

      Abbott     02/15/13                       980,000 (5) $ 34.94   $ 35.08     5,654,600 (9)  

      Abbott     01/14/13                       300,401 (6)   33.37     33.36     411,549 (9)  

      AbbVie     01/17/13                       302,757 (7)   35.54     36.42     996,071 (9)  
 

 

T. C. Freyman

  Abbott     02/15/13                 57,500                       2,009,050 (8)  

      Abbott     02/15/13                       299,300 (5)   34.94     35.08     1,726,961 (9)  

      Abbott     03/12/13                       42,487 (6)   34.93     34.98     57,358 (9)  
 

 

H. L. Allen

  Abbott     02/15/13                 31,700                       1,107,598 (8)  

      Abbott     02/15/13                       165,000 (5)   34.94     35.08     952,050 (9)  
 

 

R. W. Ashley

  Abbott     02/15/13                 63,400                       2,215,196 (8)  
 

 

B. J. Blaser

  Abbott     02/15/13                 31,700                       1,107,598 (8)  

      Abbott     02/15/13                       165,000 (5)   34.94     35.08     952,050 (8)  
 
(1)
When Abbott and AbbVie separated on January 1, 2013, all holders of outstanding Abbott equity awards received (except where prohibited by local law) an identical number of AbbVie equity awards to preserve the value of the initial Abbott awards. Because these AbbVie awards resulted from an antidilution adjustment pursuant to the terms of the Abbott awards meant to preserve the value of the existing Abbott awards, these January 1, 2013 awards are not included in this table. Additional information regarding the conversion of Abbott's outstanding equity awards when Abbott and AbbVie separated is contained in the introduction to the 2013 Outstanding Equity Awards table on page 49.

(2)
During 2013, each of the named officers participated in the 1998 Abbott Laboratories Performance Incentive Plan, an annual, non-equity incentive plan. The annual cash incentive award earned by the named officer in 2013 under the plan is shown in the Summary Compensation Table under the column captioned, "Non-Equity Incentive Plan Compensation." No future payouts will be made under the plan's 2013 annual cash incentive award. The Performance Incentive Plan is described in greater detail in the section of the proxy statement captioned, "Compensation Discussion and Analysis—How Executive Pay Decisions Are Made."

(3)
These are performance-based restricted stock awards that have a 5-year term and vest upon Abbott reaching a minimum return on equity target, with no more than one-third of the award vesting in any one year. In 2013, Abbott reached its minimum return on equity target and one-third of each of the awards made on February 15, 2013, vested on February 28, 2014. The equity targets are described in the section of the proxy statement captioned, "Compensation Discussion and Analysis—How Executive Pay Decisions Are Made—Long-Term Incentives."

(4)
In the event of a grantee's death or disability, these awards are deemed fully earned. The treatment of these awards upon a change in control is described in the section of the proxy statement captioned, "Potential Payments Upon Termination or Change in Control—Equity Awards." Outstanding restricted shares receive dividends at the same rate as all other shareholders.

(5)
Options with respect to one-third of the shares covered by these awards are exercisable after one year; two-thirds after two years; and all after three years. The options vest in the event of the grantee's death or disability. The treatment of these awards upon a change in control is described in the section of the proxy statement captioned, "Potential Payments Upon Termination or Change in Control—Equity Awards." Under the Abbott Laboratories 2009 Incentive Stock Program, these options have an exercise price equal to the average of the high and low market prices (rounded-up to the next even penny) of an Abbott common share on the date of grant. These options do not contain a replacement option feature.

(6)
These are Abbott replacement options. When the exercise price of an Abbott option with a replacement feature is paid (or, in the case of a non-qualified stock option, when the option's exercise price or the withholding taxes resulting on exercise of that option are paid) with Abbott common shares held by the named officer, an Abbott replacement option may be granted for the number of shares used to make that payment. The closing price of an

Abbott Laboratories     GRAPHIC            47


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    Abbott common share on the business day before the exercise is used to determine the number of shares required to exercise the related option and the exercise price of the replacement option. The replacement option is exercisable in full six months after the date of grant, and has a term expiring on the expiration date of the original option. Other terms and conditions of the replacement option award are the same in all material respects to those applicable to the original grant. Except for outstanding options that have a replacement option feature, options granted after 2004 do not include a replacement option feature. No options with a replacement option feature will remain outstanding after December 31, 2014.

(7)
These are AbbVie replacement options. When the exercise price of an AbbVie option with a replacement feature is paid (or, in the case of a non-qualified stock option, when the option's exercise price or the withholding taxes resulting on exercise of that option are paid) with AbbVie common stock held by the named officer, an AbbVie replacement option may be granted for the number of shares used to make that payment. The closing price of an AbbVie common share on the business day before the exercise is used to determine the number of shares required to exercise the related option and the exercise price of the replacement option. The replacement option is exercisable in full six months after the date of grant, and has a term expiring on the expiration date of the original option. Other terms and conditions of the replacement option award are the same in all material respects to those applicable to the original grant. Except for outstanding options that have a replacement option feature, options granted after 2004 do not include a replacement option feature. No options with a replacement option feature will remain outstanding after December 31, 2014.

(8)
Abbott determines the grant date fair value of stock awards by multiplying the number of restricted shares granted by the average of the high and low market prices of a common share on the grant date.

(9)
These values were determined as of the option's grant date using a Black-Scholes stock option valuation model. The model uses the assumptions described in Note 8, entitled, "Incentive Stock Program" of Abbott's Notes to Consolidated Financial Statements included under Item 8, "Financial Statements and Supplemental Data" in Abbott's 2013 Annual Report on Securities and Exchange Commission Form 10-K. The assumptions for replacement options are described in footnote 4 to the Summary Compensation table on pages 44 and 45.

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2013 OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END


When Abbott and AbbVie separated on January 1, 2013, all holders of Abbott equity awards received (except where prohibited by local law) an identical number of AbbVie equity awards to preserve the value of existing Abbott equity awards.

Each Abbott stock option was converted into an adjusted Abbott stock option and an AbbVie stock option, which together were intended to preserve the aggregate value of the original Abbott stock option as measured immediately before and immediately after the distribution. The adjusted Abbott stock option and the resulting AbbVie stock option each cover the same number of shares as the original Abbott stock option, but their exercise prices were adjusted to reflect the distribution. The adjusted Abbott stock options and the AbbVie stock options are subject to substantially the same terms, vesting conditions, post-termination exercise rules, and other restrictions that applied to the original Abbott stock option immediately before the distribution.

Holders of Abbott restricted shares or restricted stock units retained those awards and also received restricted stock or restricted stock units of AbbVie, to reflect the distribution to Abbott shareholders. Together, the Abbott and AbbVie awards were intended to preserve the value of the original Abbott restricted shares or restricted stock units as measured immediately before and immediately after the distribution. The original Abbott restricted shares and restricted stock units and the AbbVie restricted stock and restricted stock units are subject to substantially the same terms, vesting conditions and other restrictions that applied to the original Abbott restricted shares and restricted stock units, respectively, immediately before the distribution.

The following table summarizes the outstanding equity awards held by the named officers at year-end.

 
 
   
   
  Option Awards(1)(2)   Stock Awards(1)
 
  Name
  Security
  Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable

  Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable

  Equity
Incentive
Plan Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
(#)

  Option
Exercise
Price
($)

  Option
Expiration
Date

  Number
of Shares
or Units of
Stock That
Have Not
Vested
(#)

  Market
Value of
Shares or
Units of
Stock That
Have Not
Vested
($)

  Equity
Incentive
Plan Awards:
Number of
Unearned
Shares, Units
or Other
Rights That
Have Not
Vested
(#)

  Equity
Incentive
Plan Awards:
Market or
Payout Value
of Unearned
Shares, Units
or Other
Rights That
Have Not
Vested
($)

   
 
    M. D. White     Abbott                                               69,833 (3) $ 2,676,699    
          AbbVie                                               69,833 (3)   3,687,881    
          Abbott                                               111,733 (3)   4,282,726    
          AbbVie                                               111,733 (3)   5,900,620    
          Abbott                                               210,000 (3)   8,049,300    
          Abbott     440,800                 22.2670     02/17/15                            
          AbbVie     440,800                 24.0731     02/17/15                            
          Abbott     438,000                 21.2194     02/16/16                            
          AbbVie     438,000                 22.9407     02/16/16                            
          Abbott     550,000                 25.2461     02/15/17                            
          AbbVie     550,000                 27.2940     02/15/17                            
          Abbott     530,000                 26.6973     02/14/18                            
          AbbVie     530,000                 28.8628     02/14/18                            
          Abbott     325,000                 26.0150     02/19/19                            
          AbbVie     325,000                 28.1251     02/19/19                            
          Abbott     295,000                 26.1879     02/18/20                            
          AbbVie     295,000                 28.3122     02/18/20                            
          Abbott     196,467     98,233 (3)         22.3919     02/17/21                            
          AbbVie     196,467     98,233 (3)         24.2082     02/17/21                            
          Abbott     100,834     201,666 (3)         27.0336     02/16/22                            
          AbbVie     100,834     201,666 (3)         29.2265     02/16/22                            
          Abbott           980,000 (3)         34.9400     02/14/23                            
 

See footnote on page 54.

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2013 OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END (CONTINUED)


 
 
   
   
  Option Awards(1)(2)   Stock Awards(1)
 
  Name
  Security
  Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable

  Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable

  Equity
Incentive
Plan Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
(#)

  Option
Exercise
Price
($)

  Option
Expiration
Date

  Number
of Shares
or Units of
Stock That
Have Not
Vested
(#)

  Market
Value of
Shares or
Units of
Stock That
Have Not
Vested
($)

  Equity
Incentive
Plan Awards:
Number of
Unearned
Shares, Units
or Other
Rights That
Have Not
Vested
(#)

  Equity
Incentive
Plan Awards:
Market or
Payout Value
of Unearned
Shares, Units
or Other
Rights That
Have Not
Vested
($)

   
 
    T. C. Freyman     Abbott                                               20,433 (3) $ 783,197    
          AbbVie                                               20,433 (3)   1,079,067    
          Abbott                                               39,600 (3)   1,517,868    
          AbbVie                                               39,600 (3)   2,091,276    
          Abbott                                               57,500 (3)   2,203,975    
          Abbott     23,000                 21.2194     02/16/16                            
          Abbott     112,000                 25.2461     02/15/17                            
          Abbott     127,500                 26.6973     02/14/18                            
          AbbVie     127,500                 28.8628     02/14/18                            
          Abbott     108,200                 26.0150     02/19/19                            
          AbbVie     108,200                 28.1251     02/19/19                            
          Abbott     87,100                 26.1879     02/18/20                            
          AbbVie     87,100                 28.3122     02/18/20                            
          Abbott     57,533     28,767 (3)         22.3919     02/17/21                            
          AbbVie     57,533     28,767 (3)         24.2082     02/17/21                            
          Abbott     35,767     71,533 (3)         27.0336     02/16/22                            
          AbbVie     35,767     71,533 (3)         29.2265     02/16/22                            
          Abbott           299,300 (3)         34.9400     02/14/23                            
 

See footnote on page 54.

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2013 OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END (CONTINUED)


 
 
   
   
  Option Awards(1)(2)   Stock Awards(1)
 
  Name
  Security
  Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable

  Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable

  Equity
Incentive
Plan Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
(#)

  Option
Exercise
Price
($)

  Option
Expiration
Date

  Number
of Shares
or Units of
Stock That
Have Not
Vested
(#)

  Market
Value of
Shares or
Units of
Stock That
Have Not
Vested
($)

  Equity
Incentive
Plan Awards:
Number of
Unearned
Shares, Units
or Other
Rights That
Have Not
Vested
(#)

  Equity
Incentive
Plan Awards:
Market or
Payout Value
of Unearned
Shares, Units
or Other
Rights That
Have Not
Vested
($)

   
 
    H. L. Allen     Abbott                                   1,100 (3) $ 42,163                
          AbbVie                                   1,100 (3)   58,091                
          Abbott                                   2,346 (3)   89,922                
          AbbVie                                   2,346 (3)   123,892                
          Abbott                                               31,700 (3) $ 1,215,061    
          Abbott     3,400                 20.7485     06/29/16                            
          AbbVie     3,400                 22.4316     06/29/16                            
          Abbott     3,400                 25.2461     02/15/17                            
          AbbVie     3,400                 27.2940     02/15/17                            
          Abbott     4,600                 26.6973     02/14/18                            
          AbbVie     4,600                 28.8628     02/14/18                            
          Abbott           165,000 (3)         34.9400     02/14/23                            
 

See footnote on page 54.

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2013 OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END (CONTINUED)


 
 
   
   
  Option Awards(1)(2)   Stock Awards(1)
 
  Name
  Security
  Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable

  Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable

  Equity
Incentive
Plan Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
(#)

  Option
Exercise
Price
($)

  Option
Expiration
Date

  Number
of Shares
or Units of
Stock That
Have Not
Vested
(#)

  Market
Value of
Shares or
Units of
Stock That
Have Not
Vested
($)

  Equity
Incentive
Plan Awards:
Number of
Unearned
Shares, Units
or Other
Rights That
Have Not
Vested
(#)

  Equity
Incentive
Plan Awards:
Market or
Payout Value
of Unearned
Shares, Units
or Other
Rights That
Have Not
Vested
($)

   
 
    R. W. Ashley     Abbott                                               14,367 (3) $ 550,687    
          AbbVie                                               14,367 (3)   758,721    
          Abbott                                               28,466 (3)   1,091,102    
          AbbVie                                               28,466 (3)   1,503,289    
          Abbott                                               63,400 (3)   2,430,122    
 

See footnote on page 54.

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2013 OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END (CONTINUED)


 
 
   
   
  Option Awards(1)(2)   Stock Awards(1)
 
  Name
  Security
  Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable

  Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable

  Equity
Incentive
Plan Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
(#)

  Option
Exercise
Price
($)

  Option
Expiration
Date

  Number
of Shares
or Units of
Stock That
Have Not
Vested
(#)

  Market
Value of
Shares or
Units of
Stock That
Have Not
Vested
($)

  Equity
Incentive
Plan Awards:
Number of
Unearned
Shares, Units
or Other
Rights That
Have Not
Vested
(#)

  Equity
Incentive
Plan Awards:
Market or
Payout Value
of Unearned
Shares, Units
or Other
Rights That
Have Not
Vested
($)

   
 
    B. J. Blaser     Abbott                                               9,867 (3) $ 378,202    
          AbbVie                                               9,867 (3)   521,076    
          Abbott                                               17,800 (3)   682,274    
          AbbVie                                               17,800