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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

o

 

Definitive Additional Materials

o

 

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.
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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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GRAPHIC


Table of Contents

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

On the Cover: FreeStyle Libre System

Lana and Ali Nadji-Tehrani, Frankfurt, Germany


    Both Lana and her father, Ali, rely on Abbott's
FreeStyle Libre flash glucose-monitoring system to measure, track and analyze their glucose levels.


Table of Contents

TABLE OF CONTENTS

 
  PAGE
Notice of Annual Meeting of Shareholders   2

Proxy Summary

 

3

Information About the Annual Meeting

 

10
Who Can Vote   10
Notice and Access   10
Cumulative Voting   10
Voting by Proxy   10
Revoking a Proxy   10
Discretionary Voting Authority   10
Quorum and Vote Required to Approve Each Item on the Proxy   11
Effect of Withhold Votes, Broker Non-Votes, and Abstentions   11
Inspectors of Election   11
Cost of Soliciting Proxies   11
Abbott Laboratories Stock Retirement Plan   11
Confidential Voting   12
Householding of Proxy Materials   12

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

 

13

The Board of Directors and its Committees

 

19
The Board of Directors   19
Leadership Structure   19
Director Selection   20
Board Diversity and Composition   20
Committees of the Board of Directors   22
Communicating with the Board of Directors   23
Corporate Governance Materials   23
2016 Director Compensation   24

Security Ownership of Executive Officers and Directors

 

26

Executive Compensation

 

27
Compensation Discussion and Analysis   27
Compensation Committee Report   41
Compensation Risk Assessment   42
Summary Compensation Table   44
2016 Grants of Plan-Based Awards   47
2016 Outstanding Equity Awards at Fiscal Year-End   48
2016 Option Exercises and Stock Vested   54
Pension Benefits   54
2016 Nonqualified Deferred Compensation   57
Potential Payments Upon Termination or Change in Control   58

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

 

61
Report of the Audit Committee   62

 
  PAGE
Say on Pay—An Advisory Vote on the Approval of Executive Compensation (Item 3 on Proxy Card)   63

Say When on Pay—An Advisory Vote on the Approval of the Frequency of Shareholder Votes on Executive Compensation (Item 4 on Proxy Card)

 

65

Approval of the Abbott Laboratories 2017 Incentive Stock Program (Item 5 on Proxy Card)

 

66

Approval of the Abbott Laboratories 2017 Employee Stock Purchase Plan for Non-U.S. Employees (Item 6 on Proxy Card)

 

74

Equity Compensation Plan Information

 

78

Shareholder Proposal

 

80
Shareholder Proposal on Independent Board Chairman (Item 7 on Proxy Card)   81

Proponent's Statement in Support of Shareholder Proposal

  81

Board of Directors' Statement in Opposition to the Shareholder Proposal

  82

Approval Process for Related Person Transactions

 

84

Additional Information

 

85
Information Concerning Security Ownership   85
Section 16(a) Beneficial Ownership Reporting Compliance   85
Other Matters   85
Date for Receipt of Shareholder Proposals for the 2018 Annual Meeting Proxy Statement   85
Procedure for Recommendation and Nomination of Directors and Transaction of Business at Annual Meeting   86
General   87

Exhibit A—Director Independence Standard

 

A-1

Exhibit B—Abbott Laboratories 2017 Incentive Stock Program

 

B-1

Exhibit C—Abbott Laboratories 2017 Employee Stock Purchase Plan for Non-U.S. Employees

 

C-1

Annex I—Non-GAAP Reconciliation of Financial Information

 

I-1

Reservation Form for Annual Meeting

 

Back Cover

Abbott Laboratories      1


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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 28, 2017

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 28, 2017, 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 2017 (Item 2 on the proxy card),

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

    To vote on an advisory vote on the approval of the frequency of shareholder votes on executive compensation (Item 4 on proxy card),

    To approve the adoption of the Abbott Laboratories 2017 Incentive Stock Program (Item 5 on the proxy card),

    To approve the adoption of the Abbott Laboratories 2017 Employee Stock Purchase Plan for Non-U.S. Employees (Item 6 on the proxy card), and

    To transact such other business as may properly come before the meeting, including consideration of a shareholder proposal, if presented at the meeting (Item 7 on the proxy card).

The Board of Directors recommends that you vote FOR Items 1, 2, 3, 5, and 6.

The Board of Directors recommends with respect to Item 4 that you vote FOR an ANNUAL (1 YEAR) shareholder advisory vote.

The Board of Directors recommends that you vote AGAINST Item 7.

The close of business on March 1, 2017, 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 2017 Proxy Statement and 2016 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 website: www.investorvote.com/abt, entering the information requested on your computer screen and then following the simple instructions, or

    Calling (in the 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 21, 2017. 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 17, 2017

2      Abbott Laboratories


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PROXY SUMMARY

This summary contains highlights about Abbott and the upcoming 2017 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 28, 2017, 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 17, 2017.

A YEAR OF STRONG PERFORMANCE AND STRATEGIC SHAPING

In 2016, Abbott achieved its expected financial commitments and operational goals and also continued to shape the company for balance, breadth, and sustainable leadership to ensure Abbott is in the right businesses that provide the best opportunities for future growth.

OPERATIONAL HIGHLIGHTS

    Named executive officers overachieved their goals related to earnings per share, net income, return on assets, and free cash flow, while achieving their goals related to sales at 99.8% or greater.

    Raised the dividend by approximately 7%, marking Abbott's 93rd consecutive year of dividends paid and the 45th straight year the dividend has been increased.

    Returned approximately $2.1 billion to Abbott shareholders through dividends and share repurchases.

    Re-invested more than $1.1 billion in Abbott through internal capital spending.

CONTINUED TO STRATEGICALLY SHAPE ABBOTT FOR LONG-TERM GROWTH

Over the last several years, Abbott continued to take important strategic steps to shape the company for long-term growth. With the separation of AbbVie in 2013, Abbott created a new, better-balanced Abbott with leading positions in attractive areas of healthcare that are aligned with important global trends. In 2014 and 2015, Abbott made important internal investments across its businesses in new product development and manufacturing and supply chain infrastructure to strengthen our local presence in some of the fastest growing healthcare markets in the world, such as India and China. Abbott also reshaped and significantly strengthened its branded generics pharmaceuticals business with the acquisitions of CFR Pharmaceuticals in Latin America and Veropharm in Russia, while also divesting its developed markets pharmaceuticals business. These actions created a leading branded generics business with significant scale and focus in some of the fastest growing geographies, including India, Latin America, and Russia. 2016 represented another significant year of shaping with the announced acquisition of St. Jude Medical, Inc. On Jan. 4, 2017, Abbott completed the acquisition, establishing Abbott as a leader in the broad medical device arena and providing expanded opportunities for future growth.

CHART

Abbott Laboratories      3


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A LEADING GLOBAL HEALTHCARE COMPANY

Abbott operates a diverse and balanced portfolio of businesses which are all leaders in large, attractive markets and aligned with favorable, long-term healthcare trends. The strategic actions we've taken over the last several years have created leading positions in the areas of healthcare where we compete.

  GRAPHIC
MEDICAL DEVICES

Leading positions in cardiovascular, neuromodulation, and diabetes care.  In cardiovascular devices, Abbott competes in nearly every area of the $30 billion market and holds No. 1 or 2 positions across several large areas, including coronary stents, cardiac rhythm management, atrial fibrillation, and heart failure.

          GRAPHIC
DIAGNOSTICS

Global leader in in vitro diagnostics, offering a broad portfolio spanning immunoassay, clinical chemistry, hematology, blood screening, molecular and point of care diagnostics for use in hospitals, reference labs, physician offices, critical care emergency departments, and remote settings.

   

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
  GRAPHIC
NUTRITION

Broad and balanced portfolio of science-based products addressing the unique nutrition needs for people of all ages. Abbott is the worldwide leader in the Adult market and maintains leadership positions in the Pediatric market across several geographies, including the No. 1 position in the United States.

          GRAPHIC
ESTABLISHED PHARMACEUTICALS

High-quality, branded generic pharmaceuticals business that is focused on emerging geographies, with significant scale and leading positions in India, Russia, and Latin America.

   

PEER GROUP

Our investors compare us to other global multinational companies, not necessarily in healthcare. These companies share similar characteristics that are aligned with our investment identity of diversified growth and returns to shareholders. In selecting our peer group for performance and compensation benchmarking, we considered:

    Globally diverse manufacturing-driven organizations with significant international operations

    Consumer-facing organizations

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

    Similar return of cash profiles, including dividends and share repurchases

    Similar geographic mix of revenues and profits

3M Company

  E. I. du Pont   Johnson & Johnson   Procter & Gamble

Baxter International

 

Eaton

 

Kimberly-Clark

 

Thermo Fisher Scientific

Caterpillar

 

Emerson Electric

 

McDonald's

 

United Technologies

Coca-Cola

 

Honeywell International

 

Medtronic

 

Danaher

 

Illinois Tool Works

 

Novartis

 

4      Abbott Laboratories


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EXECUTIVE COMPENSATION HIGHLIGHTS

In 2016, we received 94% shareholder support for our annual advisory vote on "Say on Pay" demonstrating strong support for our approach to executive compensation. We continue to evolve our compensation program based upon feedback we receive during our ongoing shareholder outreach, as well as continual review of market practices. The following program changes and pay decisions demonstrate the direct alignment between the interests of our executive officers and shareholders.


RECENT EXECUTIVE COMPENSATION PROGRAM CHANGES
    


 
 

 

Increased the ROE target for vesting of performance shares granted in 2016 (after a similar increase for shares granted in 2015)

Increased director share ownership guidelines

Revised annual cash incentive plan goals and scoring methodology

Implemented a one-year minimum vesting period for long-term incentive (LTI) grants

 

Introduced new long-term incentive measures to reflect sustained performance over a three-year period

Increased disclosure related to payouts for both annual and long-term incentives

Implemented a hedging policy and a pledging policy

Implemented a strengthened recoupment policy

 

 



HIGHLIGHTS OF 2016 PAY DECISIONS
    



 

 

 

Paid bonuses, on average, at 92% of target despite overachievement of goals related to EPS, net income, cash flow, and return on assets targets and 99.8% achievement on sales target (see page 38)

 

Granted 2017 LTI awards that were targeted at the 25th percentile, consistent with lower relative total shareholder returns. Executive officers were awarded an average of 22% less LTI in 2017 than in 2016, with the CEO's LTI award also declining 22%
    


 

 

KEY FEATURES OF OUR EXECUTIVE COMPENSATION PROGRAM

The compensation program for our executive officers includes key features that align the interests of our executive officers with our business strategies and goals, as well as the interests of our shareholders. The program does not include features that could misalign these interests.

  What We Do   What We Don't Do

 

 

GRAPHIC

 

Use multiple performance hurdles to determine long-term incentive awards (Relative total shareholder return (TSR), Individual Performance, and ROE target)

 

GRAPHIC

 

No tax gross-ups under our executive officer pay program

 

 

GRAPHIC

 

Benchmark peers with investment profile, operating characteristics, and employment and business markets similar to Abbott

 

GRAPHIC

 

No guaranteed bonuses

 

 

GRAPHIC

 

Align annual incentive payouts to drivers of shareholder value (growth, EPS, etc.)

 

GRAPHIC

 

No employment contracts


 

GRAPHIC

 

Provide change in control benefits under double-trigger circumstances only

 

GRAPHIC

 

No change in control agreement for the Chief Executive Officer

 

 

GRAPHIC

 

Forfeiture for misconduct provision in equity grants and recoup compensation when warranted

 

GRAPHIC

 

No highly leveraged incentive plans that encourage excessive risk taking


 

GRAPHIC

 

Require significant share ownership for officers and directors

 

GRAPHIC

 

No immediate vesting of stock options or restricted stock

 

 

GRAPHIC

 

Apply pledging policy for Abbott shares

 

GRAPHIC

 

No hedging of Abbott shares


 

GRAPHIC

 

Cap incentive award payments

 

GRAPHIC

 

No discounted stock options

Abbott Laboratories      5


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EXECUTIVE OFFICER COMPENSATION DECISIONS BASED ON 2016 PERFORMANCE

Compensation for executive officers is determined by the Compensation Committee based on Company performance relative to our peer group, executive officer performance relative to goals, and compensation levels relative to our peer group. Despite the significant positive impact of the closing of the St. Jude Medical acquisition on our stock price (moving Abbott's relative TSR to the top of our peer group at the time the Compensation Committee awarded bonuses and made LTI awards in 2017) and the critical importance of the transaction on our long-term strategy, the pay decisions outlined below did not reflect the impact of the acquisition, as it closed after the end of 2016. Compensation decisions based on 2016 performance were made in February 2017 as follows:

    Base salary increases averaged 1.3%. The CEO did not receive an increase; his base salary was last adjusted in 2010.

    Annual incentive payouts were tied to 2016 operating performance—results were aligned with our goals and the payouts reflect that. Average bonus payouts were 92% of target despite overachievement of goals related to EPS, net income, cash flow, and return on assets targets and 99.8% achievement of the sales goal. Individual payouts were aligned with performance and ranged from 10% to 122% of target.

    Long-term incentive awards are tied to longer-term returns to shareholders—results were low relative to peers and the awards reflect that. The value of 2017 LTI awards was targeted at the 25th percentile of our peer group, consistent with lower relative total shareholder returns through 2016. Individual awards were aligned with individual performance and ranged from the 5th to the 51st percentile. On average, the value of 2017 LTI grants that were awarded to executive officers was 22% less than the value of the 2016 grants, with the CEO receiving 22% less as well. If we had granted at the 50th percentile instead of the 25th, the grant guidelines would have been approximately $2 million higher for the CEO and $650,000 higher for each of the other NEOs.

The impact of these pay decisions on our CEO's compensation is shown in the table below:

CEO Pay Comparison for Performance Years 2015 and 2016

    Pay Component     2016 Pay Based on
2015 Performance

 
  2017 Pay Based on
2016 Performance

 
  Difference  
    Base Salary     $1,900,000     $1,900,000     No Change
(unchanged since 2010)

 
    Annual Incentive       $3,300,000       $3,200,000       –$100,000
(3% decrease)
   
    Long-Term Incentives     $10,499,287
(50th percentile)

 
  $8,199,521
(25th percentile)

 
  –$2,299,766
(22% decrease)

 
    Total       $15,699,287       $13,299,521       –$2,399,766
(15% decrease)
   

It is important to note that the amounts shown in the Summary Compensation Table (page 44) reflect the annual bonus for 2016 performance, but the LTI awards shown are for 2015 performance. Due to the significantly different LTI amounts granted in 2017 (using the 25th percentile guidelines) vs. 2016 (using the 50th percentile guidelines), we have disclosed the 2017 grant in this proxy to aid shareholders in their understanding of our approach to compensation which definitively aligns our LTI grant guidelines with relative TSR (as outlined on page 35).

6      Abbott Laboratories


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GOVERNANCE HIGHLIGHTS

BOARD OF DIRECTORS

The Board of Directors regularly monitors best practices in governance and adopts measures that it determines are in the best interest of Abbott and its shareholders. Highlights of our governance practices include:

    10 of the 11 directors nominated for election are independent

    All directors elected annually by majority vote

    Independent lead director since 2005

    No former employees serve as directors

    Executive sessions of independent directors at each regularly scheduled Board meeting

    95% average attendance of all directors at Board and committee meetings in 2016

    Annual succession planning for management

    Annual Board and Board committee self-assessment

The independent directors nominated for election bring diverse and relevant skills, experience, and perspectives.

GRAPHIC   GRAPHIC   GRAPHIC   GRAPHIC   GRAPHIC
CEO EXPERIENCE   GLOBAL PERSPECTIVE   FINANCIAL ACUMEN   WOMEN OR MINORITIES   ACADEMIC LEADERS

 

GRAPHIC   GRAPHIC
     AVERAGE TENURE     AVERAGE AGE

SHAREHOLDER INTERESTS

We actively engage with our shareholders throughout the year to understand and consider issues that matter most to them. During 2016, we conducted outreach with a cross-section of shareholders representing more than 40% of our outstanding shares. We received positive feedback on the following practices:

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

    Proxy Access

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

    No shareholder rights plan or "poison pill"

Abbott Laboratories      7


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DIRECTOR NOMINEES

The Board of Directors recommends a vote FOR the election of each of the following nominees for director. All nominees are currently serving as directors, additional information about each director's background and experience can be found beginning on page 13.

    Name
Principal Occupation

Age
Director
Since


Committee Memberships  
    Robert J. Alpern, M.D.   Professor and Dean,
Yale School of Medicine

 
66   2008  

Nominations & Governance

Public Policy

 
    Roxanne S. Austin   President and CEO,
Austin Investment Advisors
    56   2000  

Audit (Chair)

Compensation

Executive

   
    Sally E. Blount, Ph.D.   Professor and Dean,
J.L. Kellogg Graduate School of Management

 
55   2011  

Nominations & Governance

Public Policy

 
    Edward M. Liddy   Retired Chairman and CEO,
The Allstate Corporation
    71   2010  

Audit

Compensation

   
    Nancy McKinstry   CEO and Chairman,
Wolters Kluwer N.V.

 
58   2011  

Audit

Public Policy

 
    Phebe N. Novakovic   Chairman and CEO,
General Dynamics Corporation
    59   2010  

Nominations & Governance

Public Policy (Chair)

Executive

   
    William A. Osborn   Retired Chairman and CEO,
Northern Trust Company

 
69   2008  

Compensation

Nominations & Governance (Chair)

Executive

 
    Samuel C. Scott III   Retired Chairman, President, and CEO,
Corn Products International, Inc.
    72   2007  

Audit

Compensation

   
    Daniel J. Starks*   Retired Chairman, President and CEO,
St. Jude Medical, Inc.

 
62   2017    
    Glenn F. Tilton   Retired Chairman of the Midwest,
JPMorgan Chase & Co.
    68   2007  

Audit

Public Policy

   
    Miles D. White   Chairman and CEO,
Abbott Laboratories

 
62   1998  

Executive (Chair)

 
*
Mr. Starks joined the Board of Directors in February 2017.

8      Abbott Laboratories


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SUSTAINABILITY

As an innovative, responsible, and sustainable business, Abbott strives to foster economic, environmental, and social well-being everywhere we operate, in everything we do, and in partnership with others.

Product Excellence—Committed to offering products and services consistent with the highest standards of quality and safety.

Improving Access—Dedicated to creating technologies and products that meet local needs around the world, as well as informing and empowering people to make well-informed choices about healthcare.

Safeguarding the Environment—We've set 2020 goals to significantly reduce our environmental impacts in the areas of carbon dioxide emissions, total water intake and total generated waste.

Our sustainability progress and efforts are recognized by 3rd party organizations.

    GRAPHIC   Dow Jones Sustainability Index Industry Group Leader for the 4th consecutive year       GRAPHIC   Currently one of only two U.S.-based companies recognized as a global industry group leader on the Dow Jones Sustainability Index    

 

 

GRAPHIC

 

Ranked No. 1 for Social Responsibility in the Medical Products and Equipment sector on the Fortune Most Admired Companies list each of the past four years

 

 

 

GRAPHIC

 

Ranked as one of the global 100 Best Corporate Citizens by Corporate Responsibility Magazine for eight consecutive years

 

 

To learn more about Abbott's sustainability efforts, please visit www.abbott.com/citizenship.

VOTING MATTERS AND BOARD RECOMMENDATIONS

    Item

  Matter

  Board Recommendation

  Page Reference
(for more information)


    Item 1       Election of 11 Directors       FOR All Nominees       13    
    Item 2       Ratification of Ernst & Young LLP as Auditors       FOR       61    
    Item 3       Say on Pay—An Advisory Vote on the Approval of Executive Compensation       FOR       63    
    Item 4       Say When on Pay—An Advisory Vote on the Approval of the Frequency of Shareholder Votes on Executive Compensation       FOR Annual
(1 Year) Shareholder
Advisory Vote
      65    
    Item 5       Approval of the Abbott Laboratories 2017 Incentive Stock Program       FOR       66    
    Item 6       Approval of the Abbott Laboratories 2017 Employee Stock Purchase Plan for Non-U.S. Employees       FOR       74    
    Item 7       Shareholder Proposal on Independent Board Chairman       AGAINST       80    

Abbott Laboratories      9


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INFORMATION ABOUT THE ANNUAL MEETING

WHO CAN VOTE

Shareholders of record at the close of business on March 1, 2017 will be entitled to notice of and to vote at the Annual Meeting. As of January 31, 2017, Abbott had 1,727,997,596 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 2017. 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. Shareholders may not cumulate their votes against a nominee. If shares are voted cumulatively and there are more nominees than there are director vacancies, 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 in their sole discretion 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. The proxy holders may not cast your vote for any nominee from whom you have withheld authority to vote.

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, the advisory vote on the frequency of shareholder votes on executive compensation, the approval of the Abbott Laboratories 2017 Incentive Stock Program, the approval of the Abbott Laboratories Laboratories 2017 Employee Stock Purchase Plan for Non-U.S. Employees,

10      Abbott Laboratories


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or the approval of a shareholder proposal, 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, the proxy will be voted FOR the ratification of Ernst & Young LLP as auditors, FOR the approval of executive compensation, FOR an annual (1 year) shareholder advisory vote on executive compensation, FOR the approval of the Abbott Laboratories 2017 Incentive Stock Program, FOR the approval of the Abbott Laboratories 2017 Employee Stock Purchase Plan for Non-U.S. Employees, and AGAINST the shareholder proposal.

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 WITHHOLD VOTES, BROKER NON-VOTES, AND ABSTENTIONS

Shares represented by proxies which are present and entitled to vote on a matter but which have elected to withhold authority to vote for one or more directors or to abstain from voting on another matter will have the effect of votes against those directors or that matter. 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 shares. 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 and the advisory vote on the approval of executive compensation are "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.

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 LLC 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 voting instructions 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 The Northern Trust Company. The members of the Investment Committee are Stephen R. Fussell, Karen M. Peterson, and Brian P. Wentworth, 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 66
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 56
President and Chief Executive Officer, Austin Investment Advisors, Newport Coast, California (Private Investment and Consulting Firm)
      

Ms. Austin is President and Chief Executive Officer 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. 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 served on the Board of Directors of Telefonaktiebolaget LM Ericsson from 2008 to 2016. Ms. Austin currently serves on the Board of Directors of AbbVie Inc., Target Corporation, and Teledyne Technologies, Inc.

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 55
Dean of the J.L. Kellogg Graduate School of Management and the Michael L. Nemmers Professor of Management and Organizations at Northwestern University, Evanston, Illinois
      

Ms. Blount has served as Dean of the J.L. Kellogg Graduate School of Management and the Michael L. Nemmers Professor of Management and Organizations 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   EDWARD M. LIDDY
Director since 2010 Age 71
Retired Chairman & CEO, The Allstate Corporation, Northbrook, Illinois (Insurance Company)
      

Mr. Liddy served as a partner in the private equity investment firm Clayton, Dubilier & Rice, LLC from January 2010 to December 2015. At the request of the Secretary of the U.S. Department of Treasury, Mr. Liddy served as Interim Chairman and Chief Executive Officer of American International Group, Inc., a global insurance and financial services holding company, from September 2008 until August 2009. 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.

Through his executive leadership at Allstate and American International Group, and his board service at several Fortune 100 companies across a broad range of industries, Mr. Liddy provides valuable insights on corporate strategy, risk management, corporate governance and many other issues facing large, global enterprises. Additionally, as a former chief financial officer, audit committee chair at Goldman Sachs and 3M Company, and partner at Clayton, Dubilier & Rice, LLC, Mr. Liddy provides significant knowledge and understanding of corporate finance, capital markets, financial reports and accounting matters.

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GRAPHIC   NANCY MCKINSTRY
Director since 2011 Age 58
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 also serves on the Board of Accenture, the Board of Overseers of Columbia Business School, and the Board of Directors of Russell Reynolds Associates. Ms. McKinstry is also a member of the European Round Table of Industrialists. Ms. McKinstry served on the Board of Directors of Telefonieaktiebolaget LM Ericsson (LM Ericsson Telephone Company) from 2004 to 2012.

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.


GRAPHIC   PHEBE N. NOVAKOVIC
Director since 2010 Age 59
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.

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GRAPHIC   WILLIAM A. OSBORN
Director since 2008 Age 69
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.


GRAPHIC   SAMUEL C. SCOTT III
Director since 2007 Age 72
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.

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PHOTO   DANIEL J. STARKS
Director since 2017 Age 62
Retired Chairman, President and Chief Executive Officer of St. Jude Medical, Inc., St. Paul, Minnesota (A Medical Device Manufacturer)
      

Mr. Starks served as the Chairman, President and Chief Executive Officer of St. Jude Medical, Inc., from 2004 until his retirement in January 2016, after which he served as its Executive Chairman of the Board until January 2017, when Abbott completed the acquisition of St. Jude Medical, Inc. Mr. Starks also served as President and Chief Operating Officer of St. Jude Medical, Inc. from 2001 to 2004 and as its President and CEO, Cardiac Rhythm Management Business from 1997 to 2001.

Having served as St. Jude Medical's Executive Chairman and its Chairman, President and Chief Executive Officer, and having joined St. Jude Medical in 1996, Mr. Starks contributes not only comprehensive and critical knowledge of St. Jude Medical's operations, but also extensive business and management experience operating a global public company in a highly regulated industry.


GRAPHIC   GLENN F. TILTON
Director since 2007 Age 68
Retired Chairman of the Midwest, JPMorgan Chase & Co., Chicago, Illinois
(Banking and Financial Services Company)
      

Mr. Tilton served as Chairman of the Midwest for JPMorgan Chase & Co. and a member of its companywide Executive Committee from June 2011 to June 2014. 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.

Having previously served as Chairman of the Midwest for JPMorgan Chase & Co., Non-Executive Chairman of the Board of United Continental Holdings, Inc., 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 62
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.

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 11 meetings in 2016. The average attendance of all directors at Board and committee meetings in 2016 was ninety-five 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, D. J. Starks, 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 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 to 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

    Has the authority to call meetings of the independent directors and, if requested by major shareholders, 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

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DIRECTOR SELECTION

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. 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. From time to time, Abbott engages an executive search firm to assist the Committee in identifying individuals qualified to be Board members.

Abbott's outline of directorship qualifications, which as part of Abbott's corporate governance guidelines, is available in the corporate governance section of Abbott's investor relations website (www.abbottinvestor.com). These qualifications describe specific characteristics that the Nominations and Governance Committee and the Board take into consideration when selecting nominees for the Board, such as: strong management experience and senior level experience in medicine, hospital administration, medical and scientific research and development, finance, international business, government, and academic administration. An individual nominee is not required to satisfy all the characteristics listed in the outline of directorship qualifications and there is no requirement that all such characteristics be represented on the Board.

In addition, 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 13 through 18.

A description of the procedure for the recommendation and nomination of directors, including by proxy access, is on page 86.

BOARD DIVERSITY AND COMPOSITION

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 relevant experience, areas of expertise, ethnicity, gender, and geography and assesses the effectiveness of the process in achieving that diversity. Fifty percent of the independent directors nominated for election are women or minorities.

The process used to identify and select nominees has resulted in an experienced, diverse, and well-rounded Board of Directors that possesses the skills and perspectives necessary for its oversight role. All of Abbott's directors exhibit:

Global business perspective

Knowledge of corporate governance requirements and practices

 

Successful track record

High integrity

 

Innovative thinking

Commitment to good
corporate citizenship

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The following table details some of the attributes, skills, and experience represented on Abbott's Board of Directors.

    Abbott Business Characteristic

  Board Attributes, Skills, and Experience

 

A Broad and Diverse Company
with Different Healthcare
Businesses

     

Senior Leadership Experience with Diverse Business Models

Financial Literacy

   
         
  A Multinational Company    

Experience as a Director or Senior Officer of a
Multinational Corporation

Global Perspective


 
                 
    A Consumer-facing Company      

Academic and Senior Management Leadership Consumer
Product Experience

Senior Leadership Experience with Diverse Business Models

   
         
  Financial Expertise and Risk
Management

 
 

Financial Literacy

Public Company Financial Experience

 
                 
    Regulated Industry      

Senior Leadership Experience in Regulated Industries

Senior Level Government Experience

   
         
  Corporate Governance    

Senior Leadership Experience

Financial Literacy

Experience with Diverse Business Models

 


Other Abbott Independent Director Metrics

The independent directors nominated for election bring diverse and relevant skills, experience, and perspectives.

GRAPHIC   GRAPHIC   GRAPHIC   GRAPHIC   GRAPHIC
CEO EXPERIENCE   GLOBAL PERSPECTIVE   FINANCIAL ACUMEN   WOMEN OR MINORITIES   ACADEMIC LEADERS

 

GRAPHIC   GRAPHIC
      AVERAGE TENURE     AVERAGE AGE

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COMMITTEES OF THE BOARD OF DIRECTORS

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

  Current Members

Audit*

Compensation

Nominations
and Governance


Public Policy

Executive

  R. J. Alpern     GRAPHIC GRAPHIC    
  R. S. Austin GRAPHIC GRAPHIC GRAPHIC
  S. E. Blount     GRAPHIC GRAPHIC    
W. J. Farrell GRAPHIC GRAPHIC GRAPHIC
  E. M. Liddy GRAPHIC GRAPHIC        
N. McKinstry GRAPHIC GRAPHIC
  P. N. Novakovic     GRAPHIC GRAPHIC GRAPHIC  
W. A. Osborn GRAPHIC GRAPHIC GRAPHIC
  S. C. Scott III GRAPHIC GRAPHIC        

 


D. J. Starks**


 






 




  G. F. Tilton GRAPHIC     GRAPHIC    
M. D. White GRAPHIC
  Total Meetings Held in 2016 7 3 4 4 0  

GRAPHIC

*
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 Audit Committee's Chair, is an "audit committee financial expert."

**
Mr. Starks joined the Board of Directors in February 2017.

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 62.

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

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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 Meridian as its compensation consultant for 2016. Meridian 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. Based on its evaluation of Meridian's independence in accordance with the New York Stock Exchange listing standards and information provided by Meridian, the Committee determined that the work performed by Meridian does not present any conflicts of interest. A copy of the Compensation Committee report is on page 41.

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 people 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 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 20 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.

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.

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 website (www.abbottinvestor.com).

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2016 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' 2016 compensation. Mr. Starks joined the Board in 2017 and did not receive any director compensation from Abbott in 2016.

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 $ 149,985 $ 0 $ 24,870 $ 25,000 $ 325,855  

R. S. Austin

148,667 149,985 0 0 0 298,652

S. E. Blount

126,000 149,985 0 5,240 25,000 306,225  

W. J. Farrell

143,333 149,985 0 47,388 0 340,706

E. M. Liddy

132,000 149,985 0 0 0 281,985  

N. McKinstry

132,000 149,985 0 0 25,000 306,985

P. N. Novakovic

140,000 149,985 0 0 0 289,985  

W. A. Osborn

150,000 149,985 0 0 0 299,985

S. C. Scott III

132,000 149,985 0 0 25,000 306,985  

G. F. Tilton

132,000 149,985 0 0 25,000 306,985
(1)
Under the Abbott Laboratories Non-Employee Directors' Fee Plan, non-employee directors earn $10,500 for each month of service as a director. Audit Committee members, other than the Audit Committee chair, receive $500 for each month of service on the Audit Committee. Prior to May 1, 2016, a chairman of a Board committee (other than the Audit Committee) received $1,000 for each month of service as chairman of a board committee and the chairman of the Audit Committee received $1,500 for each month of service as chairman of that committee. Effective as of May 1, 2016, the monthly fees for Board committee chairmen became: $2,083.33 for the Audit Committee chairman, $1,666.66 for the Compensation Committee chairman, $1,250.00 for the Public Policy Committee chairman, and $1,250.00 for the chairman of any other Board committee. In addition, the lead director earns $2,500 for each month of such service and does not receive a fee for service as Nominations and Governance Committee chairman. 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 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 shareholders meeting receives vested restricted stock units having a value of $150,000 (rounded down) under the Abbott Laboratories 2009 Incentive Stock Program. In 2016, this was 3,799 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

24      Abbott Laboratories


Table of Contents

    Abbott restricted stock units were outstanding as of December 31, 2016: R. J. Alpern, 21,783; R. S. Austin, 29,446; S. E. Blount, 15,043; W. J. Farrell, 27,557; E. M. Liddy, 17,210; N. McKinstry, 15,043; P. N. Novakovic, 17,210; W. A. Osborn, 23,700; S. C. Scott III, 25,430; and G. F. Tilton, 25,430.

(3)
The following options were outstanding as of December 31, 2016: N. McKinstry, 6,280; and P. N. Novakovic, 58,484.

(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, $25,000; S. E. Blount, $25,000; N. McKinstry, $25,000; S. C. Scott III, $25,000; and G. F. Tilton, $25,000.

Abbott Laboratories      25


Table of Contents

SECURITY OWNERSHIP OF EXECUTIVE OFFICERS AND DIRECTORS

The table below reflects the number of Abbott common shares beneficially owned as of January 31, 2017, (other than Mr. Starks for whom the date is February 16, 2017) 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 held by non-employee directors under the Abbott Laboratories Non-Employee Directors' Fee Plan and restricted stock units held by non-employee directors and executive officers.

    Name

Shares
Beneficially
Owned(1)(2)



Stock Options
Exercisable
Within 60 Days of
January 31, 2017(3)




Stock
Equivalent
Units



 
    R. J. Alpern   21,783   0   5,908    
  R. S. Austin   36,290   0   0  
    B. J. Blaser   145,062   670,017   0    
  S. E. Blount   20,143   0   0  
    W. J. Farrell   28,557   0   0    
  T. C. Freyman   556,845   1,367,802   0  
    E. M. Liddy   18,345   0   20,113    
  N. McKinstry   15,043   6,280   0  
    P. N. Novakovic   17,710   58,484   0    
  W. A. Osborn   47,700   0   26,963  
    S. C. Scott III   31,430   0   6,750    
  D. J. Starks   6,459,761   504,544   0  
    G. F. Tilton   32,780   0   28,351    
  M. J. Warmuth   82,287   700,691   0  
    M. D. White   3,159,604   4,479,130   0    
  B. B. Yoor   51,735   169,643   0  
    All directors and executive officers as a group(4)(5)   13,167,231   12,364,469   88,085    
(1)
This column includes shares held in the officers' accounts in the Abbott Laboratories Stock Retirement Trust as follows: M. D. White, 30,667; T. C. Freyman 1,144; B. B. Yoor, 2,118; and all executive officers as a group, 52,963. Each officer has shared voting power and sole investment power with respect to the shares held in his or her account.

(2)
This column 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, 21,783; R. S. Austin, 29,446; S. E. Blount, 15,043; W. J. Farrell, 27,557; E. M. Liddy, 17,210; N. McKinstry, 15,043; P. N. Novakovic, 17,210; W. A. Osborn, 23,700; S. C. Scott III, 25,430; G. F. Tilton, 25,430; and all directors as a group, 217,852. This column also includes 58,399 restricted stock units held by D. J. Starks that are payable in stock on July 4, 2017.

(3)
This column includes restricted stock units held by officers that will be payable in stock within 60 days of January 31, 2017, as follows: M. J. Warmuth, 26,367; and all executive officers as a group, 51,403.

(4)
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, 2017, these trusts owned a total of 33,715,984 approximately (2%) of the outstanding shares of Abbott.


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

(5)
Excluding the shared voting and/or investment power over the shares held by the trusts described in footnote 4, the directors and executive officers as a group together own beneficially less than one percent of the outstanding shares of Abbott.

26      Abbott Laboratories


EXECUTIVE COMPENSATION

COMPENSATION DISCUSSION AND ANALYSIS

INTRODUCTION

This Compensation Discussion and Analysis (CD&A) describes Abbott's executive compensation program in 2016. While the Summary Compensation Table on page 44 provides the required disclosures for this proxy statement, we will also discuss the LTI grant made in February 2017, since that grant was based on 2016 performance. The LTI grant disclosed in the Summary Compensation Table was made in February 2016 and was based on 2015 performance.

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 and Administration; Brian B. Yoor, Executive Vice President, Finance and Chief Financial Officer; Brian J. Blaser, Executive Vice President, Diagnostic Products; and Michael J. Warmuth, Executive Vice President, Established Pharmaceuticals. Mr. Freyman has retired.

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.

2016 PERFORMANCE

In 2016, Abbott achieved its financial commitments and operational goals and continued to shape the company for balance, breadth, and sustainable leadership to ensure we are in the right businesses that provide the best opportunities for future growth.

Abbott achieved the financial commitments and operational goals set forth at the beginning of the year:

    Named executive officers overacheived their goals related to EPS, net income, return on assets, and free cash flow, while achieving their goals related to sales at 99.8% or greater.

    Raised the dividend by nearly 7%, marking Abbott's 93rd consecutive year of dividends paid and the 45th straight year the dividend has been increased.

    Returned approximately $2.1 billion to Abbott shareholders through dividends and share repurchases.

    Re-invested more than $1.1 billion in Abbott through internal capital spending.

Abbott also initiated two major strategic decisions in 2016 to shape the company for maximum competitiveness with the divestment of Abbott Medical Optics and the acquisition of St. Jude Medical, which caps an almost 20-year process through which we have deliberately built one of the world's premier cardiac care businesses, as well as broad-based medical device leadership.

Despite the strong operational results and important strategic actions in 2016, Abbott's returns to shareholders on a 1-, 3- and 5-year basis were in the lower quartile relative to our peers. Consistent with Abbott's philosophy to align compensation with performance, these relatively lower total shareholder returns resulted in significantly below market long-term incentive grants for 2017.

Abbott Laboratories      27


PAY DECISIONS BASED ON 2016 PERFORMANCE

In February 2017, our Compensation Committee made pay decisions for our executive officers based on the design of our programs and our performance in 2016. Despite the significant positive impact of the closing of the St. Jude Medical acquisition on our stock price (moving Abbott's relative TSR to the top of our peer group at the time the Compensation Committee awarded bonuses and made LTI awards in 2017) and the critical importance of the transaction on our long-term strategy, the pay decisions outlined below did not reflect the impact of the acquisition, as it closed after the end of 2016. The results of those pay decisions were as follows:

    Base salary increases averaged 1.3%. The CEO did not receive an increase; his base salary was last adjusted in 2010.

    Average bonus payouts were 92% of target despite overachievement of goals related to EPS, net income, cash flow, and return on assets targets and 99.8% achievement of the sales target. Individual payouts were aligned with individual performance and ranged from 10% to 122% of target.

    The value of 2017 LTI awards was targeted at the 25th percentile of our peer group, consistent with lower relative total shareholder returns through 2016. Individual awards were aligned with individual performance and ranged from the 5th to the 51st percentile. On average, the value of 2017 LTI grants that were awarded to executive officers was 22% less than the value of the 2016 grants, with the CEO receiving 22% less as well. If we had granted at the 50th percentile instead of the 25th, the grant guidelines would have been approximately $2 million higher for the CEO and $650,000 higher for each of the other NEOs.

It is important to note that the amounts shown in the Summary Compensation Table (page 44) reflect the annual bonus for 2016 performance, but the LTI awards shown are for 2015 performance. Due to the significantly different LTI amounts granted in 2017 (using the 25th percentile guidelines) vs. 2016 (using the 50th percentile guidelines), we have disclosed the 2017 grant in this proxy to aid shareholders in their understanding of our approach to compensation which definitively aligns our LTI grant guidelines with relative TSR (as outlined on page 35).

28      Abbott Laboratories


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: While we target competitive total compensation, actual payouts vary based upon Company and individual performance. The Compensation Committee sets LTI awards based on relative Company performance. Each year, we look at LTI market percentiles between the 10th and the 90th to determine appropriate award levels. Actual pay reflects actual performance relative to peers.

    Aligned to our shareholders' interests: Almost two-thirds of our pay is equity-based, directly tying a significant portion of executive compensation to shareholder returns.

    Performance-based: Other than base salary, which is the smallest component of our executives' compensation, all remaining components of Total Direct Compensation (i.e., 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 the achievement of short-term goals and milestones that will accelerate our success over the long-range plan.

      Annual incentive payouts are tied to current year operating performance vs. goals

      Long-term incentive awards are tied to longer-term returns to shareholders relative to peers and sustained performance


TOTAL COMPENSATION MIX

GRAPHIC

Abbott Laboratories      29


CHANGES BASED ON SHAREHOLDER FEEDBACK AND MARKET PRACTICES

Last year, 94% of our shareholders approved the compensation of our named executive officers. During 2016, we conducted outreach with a cross-section of shareholders 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 changes to our programs.

  
RECENT EXECUTIVE COMPENSATION CHANGES
    


 
 

 

Increased the ROE target for vesting of performance shares granted in 2016 (after a similar increase for performance shares granted in 2015)

Increased director share ownership guidelines

Revised annual cash incentive plan goals and scoring methodology

Implemented a one-year minimum vesting period for long-term incentive grants

 

Introduced new long-term incentive measures to reflect sustained performance over a three-year period

Increased disclosure related to payouts for both annual and long-term incentives

Implemented a hedging policy and a pledging policy

Implemented a strengthened recoupment policy
    


 

 

These recent changes continue our practice of evolving our program based upon shareholder feedback as well as a review of market practices. Over the past several years, we have made numerous other changes to our program, including:

    Using three performance assessments to determine the amount of equity awards:

      Relative TSR (compared to peer companies)—Determines, as an aggregate target, where our equity grant guidelines should be positioned relative to the market

      Individual performance—Determines individual officer awards based on equity grant guidelines (grant guideline x individual performance factor)

      The ROE target—Ensures that performance has been sustained before awards vest

    Granting equity awards with double-trigger vesting in the event of a change in control

    Eliminating tax gross-ups in our executive officer pay program

    Engaging a Compensation Committee consultant that performs no other work for Abbott

    Adding a share retention requirement which applies until share ownership guidelines are met

    Revising executive share ownership guidelines:

      Chief Executive Officer—6 times base salary

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

      All other officers—2 times base salary

30      Abbott Laboratories


HOW EXECUTIVE PAY DECISIONS ARE MADE

The Committee makes compensation decisions in the context of the objectives of our program. The Committee ensures the compensation delivered to our executives is competitive, based on performance, balanced between the short- and long-term, aligned with shareholder interests, and does not encourage excessive risk-taking.

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.

Our shareholders compare us to other global multinational companies, not necessarily in healthcare. These companies share similar characteristics aligned with our investment identity of diversified growth and returns to shareholders.

Our peer group was selected to strike the appropriate balance between size (both revenues and market capitalization), return profiles, geographic breadth, and management and operating structure. The peer group purposely includes companies that are outside the healthcare industry.

In selecting our peer group for performance and compensation benchmarking, we considered:

    Globally diverse manufacturing-driven organizations with significant international operations

    Consumer-facing organizations

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

    Similar return of cash profiles, including dividends and share repurchases

    Similar geographic mix of revenues and profits

In 2016, the Committee reviewed the peer group with its consultant and reaffirmed that these companies continue to represent an appropriate peer group. This group has been overwhelmingly supported by our investors during shareholder outreach.

Abbott Laboratories      31


This peer 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
U.S.


 
Similar #
Employees

 
Health Care-
Related

 
Mfg. Driven/
Consumer-
Facing


 
Similar
Operating
Characteristics


 
 
    3M Company   $ 30.1   $ 107.4   ü   ü   ü   ü   ü    
  Baxter International Inc.   $ 10.2   $ 24.1   ü   ü   ü   ü   ü    
    Caterpillar, Inc.   $ 38.5   $ 54.3   ü   ü       ü   ü    
  The Coca-Cola Company   $ 42.5   $ 178.8   ü   ü     ü   ü    
    Danaher Corporation   $ 16.9   $ 53.8   ü   ü   ü   ü   ü    
  Eaton Corporation plc   $ 19.9   $ 30.3   ü   ü     ü   ü    
    E.I. du Pont de Nemours   $ 24.7   $ 63.8   ü   ü       ü   ü    
  Emerson Electric Co.   $ 14.5   $ 35.9   ü   ü     ü   ü    
    Honeywell International Inc.   $ 39.3   $ 88.3   ü   ü       ü   ü    
  Illinois Tool Works Inc.   $ 13.6   $ 43.0   ü   ü     ü   ü    
    Johnson & Johnson   $ 71.9   $ 313.4       ü   ü   ü   ü    
  Kimberly-Clark Corporation   $ 18.2   $ 40.9   ü   ü   ü   ü   ü    
    McDonald's Corporation   $ 24.6   $ 101.1   ü   ü       ü   ü    
  Medtronic, Inc.   $ 29.0   $ 97.8   ü   ü   ü   ü   ü    
    Novartis AG   $ 48.5   $ 191.4   ü   ü   ü   ü   ü    
  Proctor & Gamble Co.   $ 65.2   $ 225.0   ü   ü   ü   ü   ü    
    Thermo Fisher Scientific, Inc.   $ 18.3   $ 55.7       ü   ü   ü   ü    
  United Technologies   $ 57.4   $ 90.3   ü       ü   ü    
    Peer Group Median   $ 26.9   $ 76.1   Peer group approximates Abbott in market cap and sales    
  Abbott 12/31/16   $ 20.7   $ 56.6   ü   ü   ü   ü   ü    
    Abbott 1/4/17(2)         $ 68.5                        
(1)
Data source: S&P's Capital IQ database reflects most recently disclosed (as of January 31, 2017) trailing 12 month sales/revenue. The market cap reflects values on December 31, 2016.

(2)
Abbott acquired St. Jude Medical on January 4, 2017. During 2016, St. Jude Medical had sales of $6.0 billion.

FIXED PAY—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, contribution, unique skills, and internal equity with others at Abbott. Base salaries range from the 10th to the 90th percentile of the peer group, depending on experience, expertise, unique role requirements, and tenure. The average base salary of our executive officers was approximately at the market median. Once the rate of pay is set at the time of 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.

PERFORMANCE-BASED PAY

Abbott's primary performance-based compensation programs for executive officers are the annual cash incentive plan and the long-term incentive plan. These plans are described in more detail on the following pages. It is important to note that the annual and long-term incentive performance measures differ both in terms of the measures and the period over which results are assessed. However, both plans are formula-driven based on specific operating, strategic, and leadership results.

32      Abbott Laboratories


ANNUAL CASH INCENTIVE PLAN (PERFORMANCE INCENTIVE PLAN)

Our annual cash incentive plan is a key part of our officers' total compensation. It rewards executives for achieving specific annual goals at the corporate and divisional levels. It also rewards executives for achieving operational and strategic goals.

During 2016, Abbott's five named officers participated in the 1998 Abbott Laboratories Performance Incentive Plan (PIP), which is designed to comply with the requirements of Section 162(m) of the Internal Revenue Code of 1986 for performance-based compensation.

Annual Cash Incentives Are Capped

Each year, the Committee sets the maximum award allocations under the PIP for each named officer as a percentage of consolidated net earnings. For 2016, 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 2016, the Committee exercised its discretion to deliver PIP awards that were substantially below the maximum awards that are authorized by these formulas based on achieved performance against annual goals and other factors described below.

Process to Determine Awards

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 equity. The final payout is determined based upon operating performance relative to annual goals. This process is described below. In 2016, annual incentive payouts for Abbott's executive officers ranged from 10% to 122% of target, with an average of 92% of target.

Step One: Fund Annual Incentive Pool Based on EPS Achievement

In order for the PIP to pay out, the EPS goal (see 2016 Performance Goals for Performance Incentive Plan on page 38) must be achieved. If the EPS goal is not achieved, then the PIP is not funded and there are no payouts.

Step Two: Assess Individual Performance vs. Goals

Individual goals are finalized at the beginning of each year based upon each executive officer's responsibilities. The weighting of goals depends upon whether the executive is a Business Unit leader or a Corporate leader, as follows:

     Goal Category     Business Unit Leader     Corporate Leader  
    Sales Growth vs Peers and Plan     30%     10%  
    Financial Return       25%       40%    
    Strategic Initiatives     30%     40%  
    Leadership       15%       10%    
    Total     100%     100%  

Sales Growth Goals—To stress the importance of top-line growth, each officer is measured against Abbott's internal targets, which are established to exceed peer group growth rates.

  

 

Results

    Payout  

 

 

Sales Growth < Market Growth

    0%  

 

 

Sales Growth ³ Market Growth but < Target

      50%    

 

 

Sales Growth ³ Target

    100%  

 

 

Sales Growth Significantly > Market and Target

      125% or 150%    

Sales growth performance required to earn payouts above 100% varies by business to reflect each business's market. To exceed a target payout in Sales Growth, the business must grow market share, exceeding both peer sales growth rates and Abbott's internal targets.

Abbott Laboratories      33


Financial Return Goals–While top-line growth is important, that growth must be profitable in order to drive value for our shareholders. To stress the importance of profitability, each officer is assessed on relevant return goals, primarily earnings, margin contribution, and cash flow.

 

 

Results

    Payout  

 

 

Actual Return < Target

    0%  

 

 

Actual Return ³ Target

      100%    

 

 

Actual Return Significantly > Target

    125% or 150%  

Financial return performance required to earn payouts above 100% of target varies by business to reflect each business's market and operating environment.

Strategic Initiative Goals–Strategic initiative goals are primarily related to key planned strategic actions, such as portfolio expansion, key R&D milestones, gross margin expansion, and entry into new markets. Strategic goals are set such that fully successful achievement of the goals results in a 100% payout with no additional upside. Lower levels of achievement result in payouts of 75%, 50%, or 0% of target.

Leadership Goals–Leadership goals are primarily related to talent and succession planning initiatives. These goals are focused on stabilizing business leadership gaps, ensuring businesses have the talent they need to perform in the current period, and building our leadership bench to sustain our performance. Leadership goals are set such that fully successful achievement of the goals results in a 100% payout with no additional upside. Lower levels of achievement result in payouts of 75%, 50%, or 0% of target.

The following formula summarizes the PIP payout process, assuming the EPS goal is achieved.

    For example:

Base Salary       Bonus Target %       Individual Goal Score       Final Award Payout
$525,000   x       90%   x       95%   =       $448,875

Based on performance against goals, 2016 cash incentive payouts ranged from the 5th percentile to the 90th percentile of our peer group. The average 2016 cash incentive payout for our executive officers was at the 60th percentile of our peer group.

LONG-TERM INCENTIVE PLAN (LTI)

Our long-term incentive plan is the largest component of our executive officers' total compensation. As such, we believe it is critical that LTI performance goals reflect Company and individual performance, on both an absolute and relative basis. The LTI process used in February 2016 (described below) resulted in annual grants to executive officers ranging from the 30th percentile to the 68th percentile of our peer group, with an average of the 48th percentile. A preview of the February 2017 grant (which will be disclosed in our 2018 Summary Compensation table) is also described below.

Process to Determine Awards

Our process for determining guidelines, individual awards, and vesting of those awards incorporates:

    TSR performance relative to our peers on a one-, three-, and five-year basis
    Individual officer achievement of three-year sales, profitability, and strategic goals
    Each officer's performance relative to other officers

This process is far more rigorous than automatically granting LTI at the median of the market and adjusting the awards only for relative TSR at the end of the performance cycle to determine the extent to which awards vest.

We followed a rigorous two-stage process to determine the size of LTI awards ultimately granted to our executive officers:

Stage One: Determine LTI Awards
Stage Two: Determine if Options and Shares Vest

34      Abbott Laboratories


Stage One: Determine LTI Awards

In order to determine LTI awards, Abbott follows three steps.

Step A—Company LTI Award Guidelines—Abbott obtains survey data annually to assess the competitive LTI market for our peer group companies for each executive position. Each year, we position our LTI award guidelines relative to the competitive LTI market by comparing Abbott's TSR performance to our peers. While most of our peer companies simply set their annual LTI level at the 50th percentile of market, the following chart shows definitively how we adjust our LTI grant guidelines to align with our relative TSR performance. For example, grants made in February 2017 were granted at the 25th percentile of our peer group as illustrated in the 2016 Performance Year consistent with our relatively lower TSR vs. peers. These grants will be disclosed in the 2018 Summary Compensation Table.

     Performance
Year

 
  1 Year Relative
TSR Quartile

 
  3 Year Relative
TSR Quartile

 
  5 Year Relative
TSR Quartile

 
  LTI Award Guideline
Percentile

 
    2013     3rd     Top     Bottom     37% (February 2014 Grant)  
    2014       Top       2nd       3rd       50% (February 2015 Grant)    
    2015     2nd     3rd     Top     50% (February 2016 Grant)  
    2016       Bottom       Bottom       3rd       25% (February 2017 Grant)    

Step B—Determine Individual Officer Awards—The recommendation for each officer starts with the Company LTI award guideline (based on relative TSR performance as described above) for the officer's position, as established in Step A. Individual officer awards are then further adjusted up or down based upon assessment of their achievement of individual goals related to

    1)
    Three Year Sales and Market Growth
    2)
    Three Year Margin Contribution
    3)
    Three Year Strategic Milestones

Each officer is assigned an overall score based on whether they missed, achieved, or exceeded the specific targets in all three measures for all three years. That resulting assessment score determines the LTI performance adjustment.

Awards granted in 2016, based on individual officer performance in 2015, resulted in awards ranging from 75% to 125% of guideline award levels, with an average of 100% of guideline. These awards combined with the 50th percentile guidelines resulted in annual grants to Abbott executive officers ranging from the 30th percentile to the 68th percentile of our peer group, with an average of the 48th percentile.

Awards granted in 2017, based on individual officer performance in 2016, resulted in awards ranging from 26% to 135% of guideline award levels, with an average of 98% of guideline. These awards combined with the 25th percentile guidelines resulted in annual grants to Abbott executive officers ranging from the 5th percentile to the 51st percentile of our peer group, with an average of the 27th percentile.

Step C—Convert Individual LTI Award Values to Equity Grants—In 2016, to recognize the continued growth focus of Abbott and to directly align the interests of executive officers with the interests of our shareholders, the Compensation Committee granted the long-term incentive awards in the form of 50% stock options and 50% performance-restricted shares. This mix is consistent with the practices of our peer group and was continued for our grants in 2017.

Stage Two: Determine if Options and Shares Vest

Stock options vest over three years. Since stock options only accrue value through share price appreciation, the value realized upon the exercise of vested stock options directly aligns the compensation earned with the value shareholders received over the same period of time. Options are also aligned with shareholder value through the impact of relative TSR in determining the size of awards granted (Stage One).

Performance-restricted shares vest 1/3 each year that the performance target is achieved. Vesting is absolute–either 100% or 0%. There is no partial vesting if the target is missed or additional vesting upside if the Company over-performs. The Committee believes adjusted return on equity (ROE) is the appropriate performance measure for vesting because ROE measures how much profit the Company generates over the long-term with the capital that shareholders have invested.

Abbott Laboratories      35


Although Company TSR performance and individual officer performance are used in Stage One to grant the appropriate award level, the focus on ROE for vesting provides a second shareholder protection to ensure our growth and investment return objectives are sustained after the initial grant is made. ROE is only used for vesting; it is not used in the determination of LTI award guidelines or individual officer performance.

In 2016, the ROE vesting target to determine future vesting was increased from 11% to 12%. This increase is after a similar increase from 10% to 11% for grants made in 2015. This is consistent with our stated intent to increase our ROE and ROE targets over time. Prior to the separation of Abbott and AbbVie, the AbbVie business accounted for the majority (65%) of Abbott's adjusted net income. However, at the separation of AbbVie, Abbott retained the majority (90%) of the equity, which has resulted in lower than average ROE for Abbott since that time. (There was a similar impact on other rate of return measures, including Return on Assets.) For a reconciliation of adjusted net income to GAAP, see Annex I.       IMPACT OF ABBOTT/ABBVIE SEPARATION

GRAPHIC

PAY DECISIONS FOR NAMED EXECUTIVE OFFICERS

The following pages highlight the rationale for the pay decisions for each named officer. It is important to note that annual incentive pay decisions were made in early 2017 based on 2016 results. Long-term incentive decisions (options and performance shares) shown in the Summary Compensation Table of this proxy statement were made in early 2016 based on 2015 results (see prior year proxy statement for discussion of 2015 results). We have also included information about our February 2017 LTI grants since they were based on 2016 TSR performance and were significantly lower than those made in 2016. Specific 2016 financial goals are detailed on page 38.

Despite the significant positive impact of the closing of the St. Jude Medical acquisition on our stock price (moving Abbott's relative TSR to the top of our peer group at the time the Compensation Committee awarded bonuses and made LTI awards in 2017) and the critical importance of the transaction on our long-term strategy, the pay decisions outlined below did not reflect the impact of the acquisition, as it closed after the end of 2016.

Miles D. White

Base Salary–No increase.

Performance Incentive Plan–Mr. White's target bonus is 175% of base salary, which is equal to the median of our peer group (appropriate given his long and successful tenure). Based on performance in 2016, Mr. White received a bonus in February 2017 of $3,200,000, which was equal to 96% of his target bonus. This payout reflects his goal achievement, including 131% achievement of his free cash flow goal, overachievement of his return goals, 99.8% achievement of his sales growth goal, and overcoming significant headwinds such as the impact of a strong dollar in global markets.

Long-Term Incentives–Based on performance in 2015, Mr. White received an LTI award in February 2016 with a value of $10,499,287, which was equal to approximately 100% of his 50th percentile LTI award guideline. This award reflects Abbott's sustained strong financial returns, including exceeding its adjusted EPS growth commitments and consistently meeting or beating earnings targets annually for the past 14 years, as well as Mr. White's significant additional strategic and operational achievements, including completing the sale of the Established Pharmaceuticals developed markets business to Mylan and overcoming significant currency headwinds.

36      Abbott Laboratories


Based on performance in 2016, Mr. White received an LTI award in February 2017 with a value of $8,199,521, which was equal to approximately 100% of his 25th percentile LTI award guideline. Additional details regarding that award will be included in Abbott's 2018 proxy statement.

Thomas C. Freyman

Base Salary–Mr. Freyman received a base salary increase of 3% in March 2016. His last base salary increase was in 2013.

Performance Incentive Plan–Mr. Freyman's target bonus is 110% of his base salary. Based on performance in 2016, Mr. Freyman received a bonus in February 2017 of $1,347,500, which was equal to 122% of his target bonus. This payout reflects his goal achievement for 2016, including 131% achievement of his free cash flow goal, overachievement of his return goals, and 99.8% achievement of his sales growth goal. Mr. Freyman's strategic and leadership goals for 2016 included M&A activity support, transformation of the finance organization, and financial system conversions. His payout reflected achievement of his strategic and leadership goals in most respects.

Long-Term Incentives–Based on performance in 2015, Mr. Freyman received an LTI award in February 2016 with a value of $4,249,699, which was equal to approximately 125% of his 50th percentile LTI award guideline. This award reflects the sustained overachievement of his strategic and financial return goals.

Mr. Freyman retired in March 2017 and he did not receive an LTI award.

Brian B. Yoor

Base Salary–Mr. Yoor's annual base salary was increased from $500,000 to $600,000 in March 2016 in connection with his transition to Senior Vice President, Chief Financial Officer.

Performance Incentive Plan–Mr. Yoor's target bonus was increased in 2016 from 90% to 100% of his base salary in connection with his transition to Senior Vice President, Chief Financial Officer. Based on performance in 2016, Mr. Yoor received a bonus in February 2017 of $622,800, which was equal to 104% of his target bonus. This payout reflects his goal achievement for 2016, including 131% achievement of his free cash flow goal, overachievement of his return goals, and 99.8% achievement of his sales growth goal. Mr. Yoor's strategic and leadership goals for 2016 included M&A activity support, transformation of the finance organization, and implementation of key financing and cash flow improvement initiatives. His payout reflected achievement of his strategic and leadership goals in most respects.

Long-Term Incentives–Based on performance in 2015, Mr. Yoor received an LTI award in February 2016 with a value of $1,869,840, which was equal to approximately 110% of his 50th percentile LTI award guideline. This award reflects the sustained overachievement of his financial return and strategic goals.

Based on performance in 2016, Mr. Yoor received an LTI award in February 2017 with a value of $1,754,877, which was equal to 90% of his 25th percentile LTI award guideline. Additional details regarding that award will be included in Abbott's 2018 proxy statement.

Brian J. Blaser

Base Salary–Mr. Blaser received a base salary increase of 3% in March 2016. His last base salary increase was in 2014.

Performance Incentive Plan–Mr. Blaser's target bonus is 105% of his base salary. Based on performance in 2016, Mr. Blaser received a bonus in February 2017 of $664,300, which was equal to 91% of his target bonus. This payout reflects his 2016 goal achievement, including achievement of his sales and margin goals. Mr. Blaser's strategic and leadership goals for 2016 included delivery and launch of new technology platforms, clinical milestones, and M&A activity. His payout reflected achievement of his strategic and leadership goals in most respects.

Long-Term Incentives–Based on performance in 2015, Mr. Blaser received an LTI award in February 2016 with a value of $3,124,792, which was equal to 125% of his 50th percentile LTI award guideline. This award reflects the sustained overachievement of his financial return goals.

Based on performance in 2016, Mr. Blaser received an LTI award in February 2017 with a value of $2,339,846, which was equal to 120% of his 25th percentile LTI award guideline. Additional details regarding that award will be included in Abbott's 2018 proxy statement.

Abbott Laboratories      37


Michael J. Warmuth

Base Salary–Mr. Warmuth received a base salary increase of 3% in March 2016. His last base salary increase was in 2014.

Performance Incentive Plan–Mr. Warmuth's target bonus is 105% of his base salary. Based on performance in 2016, Mr. Warmuth received a bonus in February 2017 of $730,000, which was equal to 100% of his target bonus. This payout reflects his 2016 goal achievement, including overachievement of his sales and margin goals. Mr. Warmuth's strategic and leadership goals for 2016 included M&A activity, development of key products in priority markets, improvements in channel management. His payout reflected achievement of his strategic and leadership goals in most respects.

Long-Term Incentives–Based on performance in 2015, Mr. Warmuth received an LTI award in February 2016 with a value of $2,749,806, which was equal to 110% of his 50th percentile LTI award guideline. This award reflects the sustained overachievement of his strategic and sales goals.

Based on performance in 2016, Mr. Warmuth received an LTI award in February 2017 with a value of $2,632,337, which was equal to 135% of his 25th percentile LTI award guideline. Additional details regarding that award will be included in Abbott's 2018 proxy statement.

2016 PERFORMANCE GOALS FOR PERFORMANCE INCENTIVE PLAN

DISCUSSION OF NAMED OFFICERS' ACHIEVEMENT OF GOALS DURING 2016

FINANCIAL GOALS

The results shown below reflect an increase of 4.8% in operational sales excluding the impact of foreign exchange and an increase of 2.3% in adjusted diluted EPS from continuing operations. For a reconciliation to GAAP, see Annex 1.

 

Executive


Metric

2016
Expected
Results



2016
Results
Achieved



Percentage
Achieved


 

Miles D. White

 

Adjusted Sales(1)

 

$20.6 Billion

 

$20.5 Billion

 

99.8%

   

      Adjusted Diluted EPS(2)   $2.15   $2.20   102.3%    

      Adjusted Net Income(2)   $3.19 Billion   $3.28 Billion   102.8%    

      Adjusted Return on Assets(2)   9.5%   9.8%   103.2%    

      Adjusted Free Cash Flow(2)(3)   $1.6 Billion   $2.1 Billion   131.3%    

 

Thomas C. Freyman

 

Adjusted Sales(1)

 

$20.6 Billion

 

$20.5 Billion

 

99.8%

 

 

  Adjusted Diluted EPS(2)   $2.15   $2.20   102.3%  

 

  Adjusted Free Cash Flow(2)(3)   $1.6 Billion   $2.1 Billion   131.3%  

 

Brian B. Yoor

 

Adjusted Sales(1)

 

$20.6 Billion

 

$20.5 Billion

 

99.8%

   

      Adjusted Diluted EPS(2)   $2.15   $2.20   102.3%    

      Adjusted Free Cash Flow(2)(3)   $1.6 Billion   $2.1 Billion   131.3%    

 

Brian J. Blaser

 

Adjusted Division Net Sales(1)

 

$4.8 Billion

 

$4.8 Billion

 

100.8%

 

 

  Adjusted Division Margin(2)   $1,161 Million   $1,180 Million   101.6%  

 

Michael J. Warmuth

 

Adjusted Division Net Sales(1)

 

$3.8 Billion

 

$3.9 Billion

 

102.6%

   

      Adjusted Division Margin(2)   $679 Million   $694 Million   102.2%    
(1)
Reflects a Sales Growth goal under the annual incentive plan. Adjusted Sales exclude the impact of foreign exchange on actual sales relative to the goal target.

(2)
Reflects a Financial Return goal under the annual incentive plan.

(3)
Adjusted Free Cash Flow metric was used in lieu of prior year Operating Cash Flow. Adjusted Free Cash Flow equates to Operating Cash Flow less capital expenditures.

38      Abbott Laboratories


BENEFITS AND 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 officers' actual annual trust earnings and the rate used to calculate trust funding (currently 8%) while they are employed. Amounts deposited in the individual trusts are not tax deferred.

 
 

     

Officers do not 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 the Company.

   

 

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% 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%) 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. Officers do not 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.

 

 

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 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.

 

Abbott Laboratories      39


 

Benefits and Perquisites


Description

 

 

 

 

 

 

 

 

 

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%) 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.

 

SHARE OWNERSHIP AND RETENTION 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.

  

 

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  

Any officer who has not achieved at least 50% of the stock ownership guideline after three years in their current position will be required to hold 50% of future equity awards until they meet the ownership guideline.

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

HEDGING

Directors and officers are prohibited from entering into or engaging in any financial transaction that is designed to reduce the financial risk associated with owning Abbott stock. These financial transactions include, but are not limited to, engaging in short sales, derivative transactions (such as equity swaps, straddles, puts, or calls), and hedging or monetizing transactions (such as collars, exchange funds, or prepaid forward variable contracts) that are linked directly to Abbott stock.

PLEDGING

Directors and officers are prohibited from holding Abbott stock in a margin account, pledging Abbott stock, or otherwise securing any of their obligations by assigning Abbott stock as collateral. The Compensation Committee, or its delegate, may grant an exception provided that:

    The director or officer meets Abbott's applicable minimum stock ownership guideline; and

    Only Abbott stock in excess of the applicable minimum stock ownership guideline is held in the margin account, pledged, or assigned as collateral.

40      Abbott Laboratories


RECOUPMENT POLICY

In 2015, following discussions by management with shareholders, the Compensation Committee implemented a recoupment policy. The Compensation Committee has broad discretion to administer and implement the policy and seek recoupment of 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 that causes significant financial harm to Abbott. The Compensation Committee may recover incentive compensation awarded to a senior executive in the prior three years or reduce future awards. The policy will not affect awards made prior to its effective date or following a change in control.

COMPLIANCE

The Committee considers the deductibility of executive compensation under Internal Revenue Code Section 162(m) and 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, Abbott may provide compensation that is not deductible. See the section captioned "Plan Summary" on page 67 for more information about Code Section 162(m).

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

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COMPENSATION RISK ASSESSMENT

During 2016, 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:

GRAPHIC   Compensation Committee chaired by independent, non-employee director

GRAPHIC

 

Representation from the Audit Committee on the Compensation Committee

GRAPHIC

 

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

GRAPHIC

 

Robust review of compensation program elements and key performance drivers

GRAPHIC

 

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

GRAPHIC

 

Incorporation of multiple program requirements that mitigate excessive risk-taking (e.g., recoupment policy, stock ownership guidelines)

Based on this assessment, Abbott determined its compensation and benefit programs appropriately align employees compensation 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:

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

    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., equity awards that vest over multi-year periods, defined benefit pension plan).

    Annual benchmarking ensures performance achievement and incentive payout opportunities that are aligned with a peer group that reflects the size, investment profile, operating characteristics, and employment and business markets of Abbott. Appropriateness of this group is assessed annually by the Compensation Committee's independent consultant and approved by the Compensation Committee.

    Abbott's annual incentive plan 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 duplication across incentive plans.

    Abbott's long-term incentive plan focuses on longer-term operating performance and shareholder returns, (e.g., in 2016, roughly 67% of CEO and 66% of other named officer total compensation was in the form of long-term equity incentives that can be earned or vest over multiple years).

42      Abbott Laboratories


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    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 reprice stock options, award discounted stock options, or immediately vest stock options or restricted stock. The equity awards are based on multiple performance factors. Both executive and Director share ownership guidelines and share retention requirements promote alignment with shareholders.

    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, uncapped incentive award payments, unreasonable thresholds, or steep payout cliffs at certain levels that may encourage short-term business decisions to meet payout thresholds.

    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 that caused significant financial harm to Abbott.

    Abbott's hedging policy prohibits directors and officers from entering into financial transactions designed to reduce the financial risk associated with owning Abbott shares.

    Abbott's pledging policy prohibits directors and officers from holding Abbott shares in a margin account, pledging Abbott shares, or securing obligations by assigning Abbott shares as collateral unless granted an exception by the Compensation Committee.

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

Abbott Laboratories      43


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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
($)(2)

 
Stock
Awards
($)(3)


 
Option
Awards
($)(4)


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



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







 
All Other
Compensation
($)(7)


 
Total
($)

 
Total Without
Change in
Pension Value
($)(8)



 
 
    Miles D. White,   2016   $1,900,000   $5,249,288   $5,249,999   $3,200,000   $3,860,715   $   825,589   $20,285,591   $17,362,394    
    Chairman of the   2015   1,900,000   6,247,971   6,249,997   3,300,000   612,230   1,091,506   19,401,704   19,401,704    
    Board, Chief   2014   1,973,077   4,649,999   4,649,997   3,800,000   1,552,732   1,106,436   17,732,241   16,707,564    
    Executive Officer                                        
    and Director                                        
  Thomas C. Freyman(1),   2016   999,443   2,124,703   2,124,996   1,347,500   252,255   152,655   7,001,552   6,916,386    
  Executive Vice   2015   975,100   1,899,369   1,899,996   1,019,000   110,563   163,625   6,067,653   6,067,653    
  President, Finance   2014   1,012,604   1,281,024   1,281,048   1,200,000   2,369,141   164,011   7,307,828   5,021,087    
  and Administration                      
    Brian B. Yoor,   2016   584,231   934,841   934,999   622,800   453,273   60,223   3,590,367   3,142,977    
    Executive Vice President,   2015   437,884   841,779   833,069   427,500   131,926   40,493   2,712,651   2,583,215    
    Finance and Chief                                        
    Financial Officer                                        
  Brian J. Blaser,   2016   692,057   1,562,293   1,562,499   664,300   554,891   66,598   5,102,638   4,640,398    
  Executive Vice   2015   675,000   1,154,609   1,154,997   700,000   230,027   75,336   3,989,969   3,810,032    
  President, Diagnostic   2014   690,000   1,119,262   1,119,298   668,000   563,615   90,094   4,250,269   3,713,941    
  Products                      
    Michael J. Warmuth,   2016   691,875   1,374,810   1,374,996   730,000   905,549   281,809   5,359,039   4,623,519    
    Executive Vice   2015   675,000   1,207,092   1,207,497   700,000   109,579   872,118   4,771,286   4,769,268    
    President, Established                                        
    Pharmaceuticals                                        
(1)
Mr. Freyman has retired.

(2)
In a typical year, such as 2016 and 2015, Abbott's U.S. salaried employees are paid on a bi-weekly 26 pay period schedule. 2014 included an extra pay period for Abbott's U.S. salaried employees, resulting in salaries approximately 3.8 percent higher than in a typical year having 26 pay periods.

(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. 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.

(4)
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 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 9, entitled "Incentive Stock Program" of Abbott's Notes to Consolidated Financial Statements included under Item 8, "Financial Statements and Supplementary Data" in Abbott's 2016 Annual Report on Securities and Exchange Commission Form 10-K.

(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, Freyman, and Blaser, the amounts shown alongside the officer's name are for 2016, 2015, and 2014, respectively. For Messrs. Yoor and Warmuth, the amounts shown are for 2016 and 2015, respectively.

44      Abbott Laboratories


Table of Contents


Abbott Laboratories Annuity Retirement Plan


M. D. White: $146,866 / $44,424 / $254,100; T. C. Freyman: $38,245 / $70,697 / $266,632; B. B. Yoor: $51,896 / ($2,330); B. J. Blaser: $43,363 / $10,350 / $65,871; and M. J. Warmuth: $101,534 / $1,750.


Abbott Laboratories Supplemental Pension Plan


M. D. White: $2,776,331 / ($332,475) / $770,577; T. C. Freyman: $46,921 / ($1,055,904) / $2,020,109; B. B. Yoor: $395,494 / $131,766; B. J. Blaser: $418,877 / $169,587 / $470,457; and M. J. Warmuth: $633,986 / $268.


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: $937,518 / $612,230 / $528,055; T. C. Freyman: $167,089 / $110,563 / $82,400; B. B. Yoor: $5,883 / $2,490; B. J. Blaser: $92,651 / $50,090 / $27,287; and M. J. Warmuth: $170,029 / $107,561.

(7)
The amounts shown below are reported in this column.


For Messrs. White, Freyman, and Blaser, the amounts shown alongside the officer's name are for 2016, 2015, and 2014, respectively. For Messrs. Yoor and Warmuth, the amounts shown are for 2016 and 2015, respectively.


Earnings on Non-Qualified Defined Benefit and Non-Qualified Defined Contribution Plans (net of the reportable interest included in footnote 6).


M. D. White: $306,382 / $567,345 / $596,788; T. C. Freyman: $62,434 / $75,485 / $84,855; B. B. Yoor: $0 / $304; B. J. Blaser: $13,484 / $11,863 / $27,727; and M. J. Warmuth: $55,085 / $62,146.


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. Yoor, the 1986 Abbott Laboratories Management Incentive Plan (although none of the named officers currently receives awards under the Management Incentive Plan). These amounts include the trusts' earnings (net of the reportable interest included in footnote 6).


Employer Contributions to Defined Contribution Plans


M. D. White: $95,000 / $95,000 / $98,654; T. C. Freyman: $49,972 / $48,755 / $50,630; B. B. Yoor: $29,212 / $21,894; B. J. Blaser: $34,603 / $33,750 / $34,500; and M. J. Warmuth: $34,594 / $33,750.


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: $204,527 / $216,811 / $217,954; and T. C. Freyman: $14,963 / $15,972 / $9,682.


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: $219,680 / $212,350 / $193,040. 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: $20,349 / $18,916 / $15,395; B. B. Yoor: $20,178 / $18,295; B. J. Blaser: $18,511 / $22,236 /

Abbott Laboratories      45


Table of Contents

    $27,867; and M. J. Warmuth: $7,906 / $7,748. The amounts paid to Mr. Warmuth were paid in Swiss francs and converted to U.S. dollars at the December 31, 2016 exchange rate of 1.025 U.S. dollars to the Swiss Franc and at the December 31, 2015 exchange rate of 1.0045 U.S. dollars to the Swiss Franc, respectively.


For Messrs. Freyman, Yoor, Blaser, and Warmuth, the following costs associated with financial planning are included: T. C. Freyman: $4,937 / $4,497 / $3,449; B. B. Yoor: $10,833 / $0; B. J. Blaser: $0 / $7,487 / $0; and M. J. Warmuth: $10,000 / $10,000.


For Mr. Warmuth, this amount includes $174,224 and $167,659 for expatriate program benefits (for 2016 and 2015, respectively) and $590,815 in 2015 for a tax equalization payment (to avoid double taxation in the United States and Switzerland) under Abbott's program for employees working on expatriate assignments. In 2016, Mr. Warmuth did not receive a tax equalization payment. The 2015 tax equalization payment was in Swiss francs and converted to U.S. dollars at the December 31, 2015 exchange rate of 1.0045 U.S. dollars to the Swiss franc.


The named officers are also eligible to participate in an executive disability benefit described on page 58.

(8)
To demonstrate how year over year changes in pension value impact total compensation, as determined under SEC rules, we have included this column to show total compensation without pension value changes. The amounts reported in this column are calculated by subtracting the change in pension value reported in the Change in Pension Value and Non-qualified Deferred Compensation Earnings column, as described in footnote 6 to this table, from the amounts reported in the Total column. The amounts reported in this column differ from, and are not a substitute for, the amounts reported in the Total column.

46      Abbott Laboratories


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2016 GRANTS OF PLAN-BASED AWARDS

            Estimated Future Payouts Under Non-Equity Incentive Plan Awards(1)

Estimated
Future
Payouts
Under Equity
Incentive
Plan Awards






All Other
Option
Awards:
Numbers of
Securities
Underlying






Exercise
or Base
Price of
Options




Closing
Market
Price on



Grant Date
Fair Value
of Stock
and




 
                   
    Name

Grant
Date


Target
($)


Maximum
($)


Target
(#)(2)(3)


Options
(#)


Awards
($/Sh.)


Grant
Date


Option
Awards


 
    M. D. White   2/19/16           136,718               $5,249,288(5)    
        2/19/16               1,198,630(4)   $38.40   $38.53   5,249,999(6)    
  T. C. Freyman   2/19/16       55,338         2,124,703(5)  
    2/19/16         485,159(4)   38.40   38.53   2,124,996(6)  
    B. B. Yoor   2/19/16           24,348               934,841(5)    
        2/19/16               213,470(4)   38.40   38.53   934,999(6)    
  B. J. Blaser   2/19/16       40,690         1,562,293(5)  
    2/19/16         356,735(4)   38.40   38.53   1,562,499(6)