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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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Preliminary Proxy Statement

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

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Definitive Proxy Statement

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Definitive Additional Materials

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Soliciting Material under §240.14a-12

 

Abbott Laboratories

(Name of Registrant as Specified In Its Charter)

 

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

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Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
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Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

 

 

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

 







On the Cover: Tyrone Morris


Milwaukee, Wisconsin


    
Tyrone Morris is a very busy man. With
a restaurant to run and a weekly bowling
league to dominate, he doesn't let
anything slow him down—not even heart
failure. Abbott technologies have let him
get back to leading the life he wants to
live.


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

 
20

The Board of Directors

  20

Leadership Structure

  20

Director Selection

  21

Board Diversity and Composition

  22

Board Evaluation Process

  23

Committees of the Board of Directors

  24

Communicating with the Board of Directors

  26

Corporate Governance Materials

  26

2019 Director Compensation

  27

Security Ownership of Executive Officers and Directors

 
29

Executive Compensation

 
30

Compensation Discussion and Analysis

  30

Compensation Committee Report

  50

Compensation Risk Assessment

  51

Summary Compensation Table

  53

2019 Grants of Plan-Based Awards

  55

2019 Outstanding Equity Awards at Fiscal Year-End

  56

2019 Option Exercises and Stock Vested

  62

Pension Benefits

  62

Potential Payments Upon Termination or Change in Control

  65

CEO Pay Ratio

  67

 
  PAGE

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

  68

Report of the Audit Committee

  69

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

 
70

Shareholder Proposals

 
71

Shareholder Proposal on Lobbying Disclosure (Item 4 on Proxy Card)

  72

Proponent's Statement in Support of Shareholder Proposal

  72

Board of Directors' Statement in Opposition to the Shareholder Proposal

  73

Shareholder Proposal on Non-GAAP Financial Performance Metrics Disclosure (Item 5 on Proxy Card)

  74

Proponent's Statement in Support of Shareholder Proposal

  74

Board of Directors' Statement in Opposition to the Shareholder Proposal

  75

Shareholder Proposal on Shareholder Voting on By-law Amendments (Item 6 on Proxy Card)

  76

Proponent's Statement in Support of Shareholder Proposal

  76

Board of Directors' Statement in Opposition to the Shareholder Proposal

  77

Shareholder Proposal on Simple Majority Vote (Item 7 on Proxy Card)

  78

Proponent's Statement in Support of Shareholder Proposal

  78

Board of Directors' Statement in Opposition to the Shareholder Proposal

  79

Approval Process for Related Person Transactions

 
80

Additional Information

 
81

Information Concerning Security Ownership

  81

Date for Receipt of Shareholder Proposals for the 2021 Annual Meeting Proxy Statement

  81

Procedure for Recommendation and Nomination of Directors and Transaction of Business at Annual Meeting

  82

General

  83

Exhibit A—Director Independence Standard

 
A-1

Reservation Form for Annual Meeting

 
Back Cover

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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

YOUR VOTE IS IMPORTANT

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


Important Notice Regarding the Availability of Proxy Materials for the Shareholder Meeting to Be Held on April 24, 2020

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 24, 2020, at 9:00 a.m. for the following purposes:

    To elect the 14 directors named in this proxy statement to hold office until the next Annual Meeting or until the next meeting of shareholders at which directors are elected (Item 1 on the proxy card),

    To ratify the appointment of Ernst & Young LLP as auditors of Abbott for 2020 (Item 2 on the proxy card),

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

    To transact such other business as may properly come before the meeting, including consideration of shareholder proposals, if presented at the meeting (Items 4, 5, 6, and 7 on the proxy card).

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

The Board of Directors recommends that you vote AGAINST Items 4, 5, 6, and 7.

The close of business on February 26, 2020, 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 2020 Proxy Statement and 2019 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 17, 2020. 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 13, 2020

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PROXY SUMMARY

This summary contains highlights about Abbott and the upcoming 2020 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 by the Board of Directors on behalf of Abbott for use at the Annual Meeting of Shareholders. The meeting will be held on April 24, 2020, 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 13, 2020.

ACHIEVING LEADING LONG-TERM GROWTH

Abbott's three-year total shareholder return (TSR) of 139.5% is more than twice that of the peer group median and the broader Standard & Poor's 500 (S&P 500) and Dow Jones Industrial Average (DJIA) market indices. These consistent above-market returns are driven by the strength of our leadership positions in some of the largest and fastest growing markets in healthcare and innovative product portfolios across our businesses.

Abbott delivered strong returns for shareholders in 2019 and achieved or exceeded the financial targets set at the beginning of last year. Abbott's one-year TSR was 22.1%, delivering significant shareholder returns on top of the one-year TSR of 29% in 2018, which ranked #1 in our peer group.


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In addition to delivering significant shareholder returns, Abbott continued to take important steps to position the Company for long-term, sustainable growth.

    Increased investments to sustain growth of several important products, including:

        FreeStyle Libre®, our easy-to-use and affordable revolutionary continuous glucose monitor

        MitraClip®, the market-leading device for the minimally invasive treatment of mitral regurgitation

        Alinity®, our suite of innovative diagnostic instruments

    Achieved several important product approvals in 2019 across our businesses that will be significant contributors to growth in the coming years.

    Returned $2.3B to shareholders through dividends in 2019 and announced a 12.5% increase to the dividend payable in 2020, demonstrating Abbott's financial strength and commitment to shareholder returns.

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EXECUTIVE COMPENSATION

SHAREHOLDER FEEDBACK

During 2019, we conducted extensive shareholder outreach to discuss our compensation program, among other topics. In the spring, we engaged shareholders representing over 65% of our outstanding shares in an open dialogue to discuss various topics, including the enhanced disclosures in our 2019 proxy that furthered shareholder understanding of how pay decisions are made and how the metrics we use are linked to business strategy and goals. Their feedback was overwhelmingly positive, which was reflected in the 94% support for Say-on-Pay Vote.

In the fall, we continued our dialogue with shareholders and shared the process we used to review and update our peer group in 2019 to better reflect Abbott's size and complexity. Shareholders were highly supportive of our approach and agreed with the changes approved by the Compensation Committee. Additional information regarding the changes to Abbott's peer group can be found on page 32 of this proxy statement.

KEY FEATURES OF OUR EXECUTIVE COMPENSATION PROGRAM

The following practices and policies ensure alignment of interests between shareholders and executives, and effective ongoing compensation governance.

    COMPENSATION PRACTICE     ABBOTT POLICY     MORE INFORMATION
ON PAGE

 
    Compensation is Market-Based     Yes     Benchmark peers with investment profiles, operating characteristics, and employment and business markets similar to Abbott. Annual incentive plan goals are set to exceed market growth in relevant markets/business segments     32-33  
    Compensation is Performance-Based       Yes       Short-term and long-term incentive awards are 100% performance based. Annual incentive plan goals are set to exceed market growth in relevant markets/business segments       33    
    Double-Trigger Change in Control     Yes     Provide change in control benefits under double-trigger circumstances only     65-67  
    Recoupment Policy       Yes       Forfeiture for misconduct provision in equity grants and recoup compensation when warranted       50    
    Robust Share Ownership Guidelines     Yes     Require significant share ownership for officers and directors, and share retention requirements until guidelines are met     27-28 and 49  
    Capped Incentive Awards       Yes       Incentive award payments are capped       33 and 51    
    Independent Compensation Committee Consultant     Yes     Committee consultant performs no other work for Abbott     25  
    Tax Gross Ups       No       No tax gross ups under our executive officer pay program       48-49 and 66    
    Guaranteed Bonuses     No     No guaranteed bonuses     33  
    Employment Contracts       No       No employment contracts       65    
    Excessive Risk Taking     No     No highly leveraged incentive plans that encourage excessive risk taking     51-52  
    Hedging of Company Shares       No       No hedging of Abbott shares is allowed       49    
    Discounted Stock Options     No     No discounted stock options are allowed or granted     51  

Details of the compensation decisions made for our named executive officers are outlined on pages 38 to 47.

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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 Former Dean,   69   2008  

Nominations and

 
        Yale School of Medicine           Governance  
           

Public Policy

 
    Roxanne S. Austin   President and CEO,     59   2000  

Audit

   
        Austin Investment Advisors            

Compensation (Chair)

   
                     

Executive

   
    Sally E. Blount, Ph.D.   Professor and Former Dean,   58   2011  

Nominations and

 
        J.L. Kellogg Graduate School           Governance  
      of Management      

Public Policy

 
    Robert B. Ford   President and COO, Abbott Laboratories     46   2019  

Executive

   
    Michelle A. Kumbier   Chief Operating Officer,   52   2018  

Audit

 
      Harley-Davidson Motor Company      

Compensation

 
    Edward M. Liddy   Retired Chairman and CEO,     74   2010  

Audit (Chair)

   
        The Allstate Corporation            

Compensation

   
                     

Executive

   
    Darren W. McDew   Retired General, U.S. Air Force, and   59   2019  

Nominations and

 
      Former Commander of U.S.           Governance  
      Transportation Command      

Public Policy

 
    Nancy McKinstry   CEO and Chairman of the     61   2011  

Audit

   
        Executive Board,            

Nominations and

   
        Wolters Kluwer N.V.                 Governance    
    Phebe N. Novakovic   Chairman and CEO,   62   2010  

Compensation

 
      General Dynamics Corporation      

Public Policy (Chair)

 
           

Executive

 
    William A. Osborn   Retired Chairman and CEO,     72   2008  

Compensation

   
    (Lead Independent Director)   Northern Trust Corporation            

Nominations and Governance (Chair)

   
                     

Executive

   
    Daniel J. Starks   Retired Chairman, President and CEO,   65   2017  

Public Policy

 
      St. Jude Medical, Inc.        
    John G. Stratton   Retired Executive Vice President and     59   2017  

Nominations and

   
        President of Global Operations,                 Governance    
        Verizon Communications Inc.            

Public Policy

   
    Glenn F. Tilton   Retired Chairman, President and CEO,   71   2007  

Audit

 
      UAL Corporation      

Public Policy

 
    Miles D. White   Chairman and CEO,     65   1998  

Executive (Chair)

   
        Abbott Laboratories                  

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CORPORATE GOVERNANCE

Abbott is committed to strong corporate governance that is aligned with shareholder interests. Our Board spends significant time with the Company's senior management to understand the dynamics, issues, and opportunities for Abbott. During these interactions, directors provide insights and ask probing questions which guide management decision-making. This collaborative approach to risk oversight and emphasis on long term sustainability begins with our leaders and is engrained in the culture of our Company. The Board also regularly monitors leading practices in governance and adopts measures that it determines are in the best interest of Abbott and its shareholders.

CEO SUCCESSION PLANNING:

In November 2019, Abbott announced that Miles D. White will be stepping down as Chief Executive Officer on March 31, 2020, after a remarkable 21-year tenure. The Board of Directors appointed Robert B. Ford, Abbott's President and Chief Operating Officer and a 24-year Abbott veteran, to succeed Miles White as Chief Executive Officer. Mr. White will remain Executive Chairman of the Board.

With this transition, Mr. Ford will become the 13th CEO of Abbott in its 131-year history, all having been appointed from within, a testament to Abbott's strong management philosophy and succession-planning discipline.

BOARD GOVERNANCE HIGHLIGHTS:

Lead Independent Director with Distinct Responsibilities


  

 

Elected annually by independent directors

 

  

 

Authority to call meetings of independent directors

  

 

Liaises between chairman and independent directors

 

  

 

Reviews matters such as meeting topics and schedules

  

 

Consults and engages directly with major shareholders

 

  

 

Presides over executive sessions of independent directors at each regularly scheduled Board meeting

Robust Board Evaluation and Refreshment Process

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Other Board Governance Highlights

    Key standing Board Committees are fully independent: Audit, Compensation, Public Policy and Nominations and Governance

    All directors elected annually by majority vote

    Board conducts annual succession planning review of company management

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Highly qualified Board, with broad diversity across backgrounds, skills and experiences

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SHAREHOLDER OUTREACH:

Active shareholder engagement throughout the year is essential to maintaining good corporate governance. We routinely seek investor input on a variety of topics, including corporate governance, executive compensation, sustainability and other strategic matters. During 2019, we conducted outreach with a cross-section of shareholders representing more than 65% of our outstanding shares. Investor sentiment and specific feedback was summarized and shared with executive management and the Board of Directors as appropriate.

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SUSTAINABILITY

At Abbott, we believe that being a responsible and sustainable business is an essential foundation for helping people live fuller, healthier lives. Our Sustainability efforts are focused on the most relevant industry and company-specific risks and opportunities. The key areas of focus listed below are the basis of our Sustainability strategy. These areas have been identified through an in-depth materiality analysis, directed by executive management, and in partnership with several, diverse stakeholders. We aim to deliver sustainable, responsible growth that improves lives and creates value in communities around the world.

Innovation, Access & Affordability   Talent   Product Quality

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Robust internal innovation process that targets the world's most pressing healthcare challenges and incorporates access and affordability considerations into the design process

 

Award winning development programs, integrated talent management and succession planning processes

 

Focused on ensuring the highest quality standards and systems

 

Climate & Water Use   Supply Chain, Packaging & Waste   Data & Data Privacy

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Active management of our environmental impact throughout our value chain

 

Committed to maintaining a high-quality, sustainable and resilient supply chain

 

Utilizing data to create healthcare solutions while ensuring responsible data protection

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

SELECT RECOGNITION BY THIRD-PARTY ORGANIZATIONS

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Fortune's Most Admired Companies list in the Medical Products and Equipment sector for the past 7 years.

Dow Jones Sustainability Index Industry Group Leader for 7 consecutive years.

Recognized by Working Mother, Great Place to Work, DiversityInc, Science and many other publications for workplace leadership and diversity.

Member of the elite S&P 500 Dividend Aristocrats Index, which recognizes companies who have raised their dividend payout annually for at least 25 consecutive years. In December 2019, Abbott announced the 48th consecutive year of increasing the quarterly dividend.

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VOTING MATTERS AND BOARD RECOMMENDS

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Election of 14 Directors Named in this Proxy Statement: The Board recommends a vote FOR

Highly qualified Board, with diversity in backgrounds, skills and experiences.

Relevant expertise to provide oversight and guidance for Abbott's diversified operating model. See pages 13 to 19 for more information.

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Ratification of Ernst & Young as Auditors: The Board recommends a vote FOR

Independent firm with significant industry and financial reporting expertise.

See pages 68 to 69 for more information.

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Say on Pay: Advisory Vote on the Approval of Executive Compensation: The Board recommends a vote FOR

Market-based structure producing differentiated awards based on both company and individual performance, managed with independent oversight by the Compensation Committee.

Aligned to drive Abbott's strategic priorities, reflects consistent above-market TSR including #1 Relative TSR for 3-year timeframe. See page 70 for more information.

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The Board recommends a vote AGAINST

Proposal 4: Lobbying Disclosure

Proposal 5: Non-GAAP Financial Performance Metrics Disclosure

Proposal 6: Shareholder Voting on By-law Amendments

Proposal 7: Simple Majority Vote

See pages 71 to 79 for more information.

GRAPHIC       9


INFORMATION ABOUT THE ANNUAL MEETING

WHO CAN VOTE

Shareholders of record at the close of business on February 26, 2020 will be entitled to notice of and to vote at the Annual Meeting. As of January 31, 2020, Abbott had 1,763,433,243 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 2020. 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 14 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 14 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, or the approval of a shareholder proposal, or where the shareholder has abstained on these matters, the shares represented by the proxy will be

10       GRAPHIC


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, and AGAINST the shareholder proposals.

Aside from matters set forth in this proxy statement, 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 the absence of instructions on matters the New York Stock Exchange considers "routine", such as the ratification of the appointment of the auditors. They do not have discretionary authority to vote shares in absence of instructions on "non-routine" matters. The election of directors, the advisory vote on the approval of executive compensation, and shareholder proposals 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 Morrow Sodali 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 Mary K. Moreland, 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 69
Ensign Professor of Medicine and Professor of Internal Medicine, and
Former Dean of Yale School of Medicine, New Haven, Connecticut
    

Dr. Alpern has served as the Ensign Professor of Medicine and Professor of Internal Medicine at Yale School of Medicine since June 2004. From June 2004 to January 2020, Dr. Alpern served as Dean of Yale School of Medicine. From July 1998 to May 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 Tricida, Inc. and served as a Director on the Board of Yale New Haven Hospital from October 2005 through January 2020.

As a result of his long-tenured leadership positions at the Yale School of Medicine and The University of Texas Southwestern Medical Center, and as a former 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 59
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, and chairs the U.S. Mid-Market Investment Advisory Committee of EQT Partners. Previously, 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 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., CrowdStrike Holdings, Inc., Target Corporation, and Teledyne Technologies, Inc. Ms. Austin will not stand for re-election at Target Corporation's June 2020 annual meeting of shareholders.

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 58
Michael L. Nemmers Professor of Strategy and Former Dean of the J.L. Kellogg
Graduate School of Management at Northwestern University, Evanston, Illinois
    

Ms. Blount is the Michael L. Nemmers Professor of Strategy and former Dean of the J.L. Kellogg Graduate School of Management at Northwestern University from 2010 to 2018. 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. Ms. Blount currently serves on the Board of Directors of Ulta Beauty, Inc. and the Joyce Foundation.

Having served 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 ROBERT B. FORD

Director since 2019 Age 46
President and Chief Operating Officer, Abbott Laboratories
    

Mr. Ford has served as Abbott's President and Chief Operating Officer since 2018 and will succeed Mr. White as Abbott's Chief Executive Officer on March 31, 2020. Mr. Ford served as the Executive Vice President, Medical Devices from 2015 to 2018, Senior Vice President, Diabetes Care from 2014 to 2015, and Vice President, Diabetes Care, Commercial Operations from 2008 to 2014. Prior to 2008, he served in various leadership roles across Abbott's Diagnostics, Nutrition, and Diabetes Care businesses in the U.S. and Latin America. Mr. Ford joined Abbott in 1996.

Having held leadership positions across several of Abbott's businesses and ultimately assuming responsibility for all of Abbott's operating businesses as Chief Operating Officer, Mr. Ford contributes an extensive knowledge of the Company's global operations, a wide breadth of experience in strategy and execution, and valuable insights into global healthcare markets.

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GRAPHIC MICHELLE A. KUMBIER

Director since 2018 Age 52
Senior Vice President and Chief Operating Officer of Harley-Davidson Motor Company,
Milwaukee, Wisconsin (Motorcycle and Related Products Manufacturer)

Ms. Kumbier has served as Senior Vice President and Chief Operating Officer of Harley-Davidson Motor Company since October 2017. Previously, she served as its Senior Vice President, Motor Company Product and Operations from May 2015 to October 2017, as its Senior Vice President of Motorcycle Operations from September 2012 to April 2015, and as its Senior Vice President, Product Development from November 2010 to August 2012.

As the Senior Vice President and Chief Operating Officer of Harley-Davidson Motor Company, Ms. Kumbier contributes extensive experience in the management of a multinational public company, including significant manufacturing, product development, business development, and strategic planning experience.


GRAPHIC EDWARD M. LIDDY

Director since 2010 Age 74
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. Mr. Liddy has reached the mandatory retirement age for directors at both Boeing and 3M and will not stand for re-election at either company's 2020 Annual Meeting.

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 DARREN W. MCDEW

Director since 2019 Age 59
Retired General, United States Air Force, and Former
Commander of U.S. Transportation Command, Scott Air Force Base, Illinois

General McDew is a retired four-star general who served for 36 years in the United States military before retiring in October 2018. From August 2015 to August 2018, General McDew served as Commander, U.S. Transportation Command, the single manager for global air, land and sea transportation for the U.S. Department of Defense. Previously, he also served as Vice Director for Strategic Plans and Policy for the Joint Chiefs of Staff, Military Aide to the President, Director of Air Force Public Affairs, and Chief of Air Force Senate Liaison Division. General McDew currently serves on the Board of Directors of the Boys and Girls Club of America, United Services Automobile Association, and Rolls-Royce, North America, Inc.

Through his extensive leadership in the U.S. Air Force, General McDew contributes significant experience managing large, complex global operations, including strategic planning, security and risk management, cybersecurity, and supply chain and infrastructure management.


GRAPHIC NANCY MCKINSTRY

Director since 2011 Age 61
Chief Executive Officer and Chairman of the Executive Board of Wolters Kluwer N.V.,
Alphen aan den Rijn, the Netherlands (Global Information, Software, and Services Provider)
    

Ms. McKinstry has been the Chief Executive Officer and Chairman of the Executive Board of Wolters Kluwer N.V. since September 2003 and a member of its Executive Board since June 2001. Ms. McKinstry serves on the Board of Accenture plc, 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 Telefonaktiebolaget 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.

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GRAPHIC PHEBE N. NOVAKOVIC

Director since 2010 Age 62
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 Chairman and Chief Executive Officer of General Dynamics Corporation, Ms. Novakovic has strong management experience with a major public company, including significant marketing, operational and manufacturing experience, and contributes valuable insights into finance and capital markets. Her tenure with the Office of Management and Budget and as Special Assistant to the Secretary and Deputy Secretary of Defense enables her to provide government perspective and experience in a highly regulated industry.

 

GRAPHIC WILLIAM A. OSBORN
Lead Independent Director


Director since 2008 Age 72
Retired Chairman and Chief Executive Officer of Northern Trust Corporation (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. Mr. Osborn served on the Board of Directors of Nicor, Inc. from 1999 to 2006 and on the Board of Directors of Tribune Company from 2001 to 2012.

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

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GRAPHIC DANIEL J. STARKS

Director since 2017 Age 65
Retired Chairman, President and Chief Executive Officer of St. Jude Medical, Inc.,
St. Paul, Minnesota (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. Mr. Starks also served as President and Chief Operating Officer of St. Jude Medical 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 JOHN G. STRATTON

Director since 2017 Age 59
Retired Executive Vice President and President of Global Operations, Verizon Communications Inc.,
New York, New York (Telecommunications and Media Company)
    

Mr. Stratton served as Executive Vice President and President of Global Operations of Verizon Communications Inc. from February 2015 to December 2018. Previously, he served as Executive Vice President and President of Global Enterprise and Consumer Wireline from April 2014 to February 2015, as President of Verizon Enterprise Solutions from January 2012 to April 2014, and as Chief Operating Officer and Executive Vice President of Verizon Wireless from October 2010 to January 2012. Mr. Stratton currently serves on the Board of Directors of General Dynamics Corporation. Mr. Stratton also served as a member of The President's National Security Telecommunications Advisory Committee from October 2012 to July 2018 and as Director of the Cellular Telecommunications Industry Association from February 2015 to July 2018.

Through his executive leadership at Verizon Communications, Mr. Stratton contributes extensive business and management experience operating a global public company such as Abbott, including valuable insights on corporate strategy and risk management. His service on the National Security Telecommunications Advisory Committee enables him to provide government perspective and experience in a highly regulated industry.

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GRAPHIC GLENN F. TILTON

Director since 2007 Age 71
Retired Chairman, President and Chief Executive Officer of UAL Corporation,
Chicago, Illinois (Airline Holding Company)
    

Mr. Tilton served as Chairman, President and Chief Executive Officer of UAL Corporation, and Chairman and Chief Executive Officer of United Air Lines, Inc., an air transportation company and wholly owned subsidiary of UAL Corporation, from September 2002 to October 2010. Mr. Tilton also served on the Board of United Continental Holdings, Inc. from 2001 to 2013 and served as its Non-Executive Chairman of the Board from October 2010 to December 2012. 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 as Chairman of the Midwest for JPMorgan Chase & Co. and a member of its companywide Executive Committee from June 2011 to June 2014.

Having previously served as Chief Executive Officer of UAL Corporation and United Air Lines, Non Executive Chairman of the Board of United Continental Holdings, Inc., Chairman of the Midwest for JPMorgan Chase & Co., Chairman, President, and 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.

 

GRAPHIC MILES D. WHITE

Director since 1998 Age 65
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 7 meetings in 2019. The average attendance of all directors at Board and committee meetings in 2019 was 95% and each director attended at least 75% 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, M. A. Kumbier, E. M. Liddy, D. W. McDew, N. McKinstry, P. N. Novakovic, W. A. Osborn, S. C. Scott III, D. J. Starks, J. G. Stratton, 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 or their family members 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

Miles D. White has served as Abbott's Chairman and Chief Executive Officer since 1999. In November 2019, Abbott announced that Mr. White will step down as Chief Executive Officer on March 31, 2020 and remain Executive Chairman. The Board also unanimously appointed Robert B. Ford, the current President and Chief Operating Officer and a 24-year Abbott veteran, to succeed Mr. White as Chief Executive Officer and named him to the Board, effective November 12, 2019.

The Board is actively involved in succession planning and is focused on ensuring leadership continuity. The Board believes that the continuation of Mr. White's service as Executive Chairman is in the best interests of Abbott and its shareholders. Mr. White contributes comprehensive, in-depth knowledge of Abbott's businesses and the global health care industry, as well as valuable insights on leadership and strategy. The Board believes that his advice and guidance to Mr. Ford and the Board will help facilitate a successful leadership transition.

The Board also has a lead independent director that is chosen by and from the independent members of the Board of Directors. Currently, the Chair of the Nominations and Governance Committee, Mr. Osborn, is the lead independent director, whose key functions and responsibilities include:

    Serve as liaison between the Chairman of the Board and the independent directors,

    Facilitate communication with the Board and preside over regularly conducted executive sessions of the independent directors or sessions where the Chairman of the Board is not present,

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

    Lead annual performance reviews of individual directors and the full Board,

    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, and

    Communicate regularly with the Chairman of the Board regarding appropriate agenda topics and other Board related matters.

The Board reviews its leadership structure on at least an annual basis. The Board has determined that this leadership structure 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.

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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 is 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, technology, 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 19.

A description of the procedure for the recommendation and nomination of directors, including by proxy access, is on page 82.

GRAPHIC       21


BOARD DIVERSITY AND COMPOSITION

In the process of identifying nominees to serve as members 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.

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

     Global business perspective        Successful track record        Innovative thinking

  

 

Knowledge of corporate governance requirements and practices

 

  

 

High integrity

 

  

 

Commitment to good
corporate citizenship

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22       GRAPHIC


BOARD EVALUATION PROCESS

Each year, Abbott's directors evaluate the effectiveness of the Board and its Committees in performing its governance and risk oversight responsibilities. Directors assess the performance of their peers, as well as the full Board of Directors and each of the Committees on which they serve, as follows:

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GRAPHIC       23


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.

All members of the Audit Committee, Compensation Committee, Nominations and Governance Committee, and Public Policy Committee are independent. These Committees are governed by written charters setting forth their respective responsibilities, and each Committee reviews its charter at least annually, with any changes being recommended to the full Board for approval. Copies of the Committee charters are all available in the governance section of Abbott's investor relations website (www.abbottinvestor.com).

  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    
R. B. Ford GRAPHIC
  M. A. Kumbier GRAPHIC GRAPHIC        
E. M. Liddy GRAPHIC GRAPHIC GRAPHIC
  D. W. McDew     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 GRAPHIC
  J. G. Stratton     GRAPHIC GRAPHIC    
G. F. Tilton GRAPHIC GRAPHIC
  M. D. White         GRAPHIC  
Total Meetings Held in 2019 7 4 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 Edward M. Liddy, the Audit Committee's Chair, is an "audit committee financial expert."

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,

24       GRAPHIC


    Legal and regulatory compliance relating to financial matters, including accounting, auditing, financial reporting, and securities law issues, and

    Enterprise risk management, including major financial and cybersecurity risk exposures.

In performing these functions, the Audit Committee meets regularly with the independent auditor, Abbott's management, and Abbott's internal auditors to review the adequacy, effectiveness and quality of Abbott's accounting and financial reporting principles, policies, procedures and controls, as well as Abbott's enterprise risk management, including Abbott's risk assessment and risk management policies.

A copy of the report of the Audit Committee is on page 69.

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. Its primary responsibilities include:

    Review director compensation annually and recommend to the full Board both the amount and the allocation 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.

    Review, approve, and administer the incentive compensation plans in which any executive officer participates and all of Abbott's equity-based plans. The Compensation Committee may delegate the responsibility to administer and make grants under these plans to management, except to the extent that such delegation would be inconsistent with applicable law or regulation or with the listing rules of the New York Stock Exchange.

    Engage 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, including peer groups against which performance and pay should be examined, financial metrics to be used to assess Abbott's relative performance, competitive 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.

The Compensation Committee engaged Meridian Compensation Partners, LLC as its compensation consultant for 2019. Meridian performs no other work for Abbott. 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 50.

Nominations and Governance Committee

The Nominations and Governance Committee assists the Board in fulfilling its oversight responsibility with respect to governance matters. Its primary responsibilities include:

    Assist the Board in identifying individuals qualified to become Board members, and recommend to the Board the nominees for election as directors at the next annual meeting of shareholders,

    Recommend to the Board the people to be elected as executive officers of Abbott,

    Develop and recommend to the Board the corporate governance guidelines applicable to Abbott, and

    Serve 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 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 21 in the section captioned, "Director Selection."

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Public Policy Committee

The Public Policy Committee assists the Board of Directors in fulfilling its oversight responsibility with respect to:

    Certain areas of legal and regulatory compliance, including evaluating Abbott's compliance policies and practices and reviewing Abbott's compliance program,

    Governmental affairs and healthcare compliance issues that affect Abbott, and

    Abbott's public policy, including evaluating Abbott's social responsibility policies and practices and reviewing social, political, economic, and environmental trends and public policy issues that affect or could affect Abbott's business activities, performance, and public image.

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 Chair of the Nominations and Governance Committee, who acts as the lead independent director, or to the independent directors c/o Abbott Laboratories, 100 Abbott Park Road, D-364, AP6D, Abbott Park, Illinois 60064, 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 Abbott 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).

26       GRAPHIC


2019 DIRECTOR COMPENSATION

Messrs. White and Ford are 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 2017 Incentive Stock Program.

The following table sets forth a summary of the non-employee directors' 2019 compensation.

Name


Fees Earned
or Paid in Cash
($)(1)



Stock
Awards
($)(2)



Option
Awards
($)(3)



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








All Other Compensation ($)(5)

Total
($)


R. J. Alpern

$ 126,000 $ 174,910 $ 0 $ 64,323 $ 25,000 $ 390,233  

R. S. Austin

152,000 174,910 0 0 0 326,910

S. E. Blount

126,000 174,910 0 10,355 25,000 336,265  

M. A. Kumbier

132,000 174,910 0 0 0 306,910

E. M. Liddy

151,000 174,910 0 0 0 325,910  

D. W. McDew

31,500 0 0 0 0 31,500

N. McKinstry

132,000 174,910 0 0 0 306,910  

P. N. Novakovic

141,000 174,910 0 0 0 315,910

W. A. Osborn

156,000 174,910 0 0 0 330,910  

S. C. Scott III

132,000 174,910 0 0 25,000 331,910

D. J. Starks

126,000 174,910 0 0 0 300,910  

J. G. Stratton

126,000 174,910 0 0 0 300,910

G. F. Tilton

132,000 174,910 0 0 25,000 331,910  
(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. Board Committee chairs receive monthly fees of: $2,083.33 for the Audit Committee chair, $1,666.66 for the Compensation Committee chair, $1,250.00 for the Public Policy Committee chair, and $1,250.00 for the chair of any other Board committee. In addition, the lead independent director earns $2,500 for each month of such service and does not receive a fee for service as Nominations and Governance Committee chair. 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 shares. 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 shares at year-end.

(2)
The amounts reported in this column represent the aggregate grant date fair value of the awards calculated 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 $175,000 (rounded down) under the Abbott Laboratories 2017 Incentive Stock Program (effective as of the 2020 Annual Meeting, this will increase to $185,000 (rounded down)). In 2019, this was 2,241 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 common

GRAPHIC       27


    share for each restricted stock unit outstanding under the Incentive Stock Program. Each director is required to own, within five years of becoming a director, the number of shares of Abbott stock having a fair market value equal to four times the annual director fees earned or paid in cash. All directors with five years tenure meet or exceed the guidelines. The following Abbott restricted stock units were outstanding as of December 31, 2019: R. J. Alpern, 30,406; R. S. Austin, 38,069; S. E. Blount, 23,666; M. A. Kumbier, 2,241; E. M. Liddy, 25,833; N. McKinstry, 23,666; P. N. Novakovic, 25,833; W. A. Osborn, 32,323; S. C. Scott III, 34,053; D. J. Starks, 8,623; J. G. Stratton, 5,186; and G. F. Tilton, 34,053.

(3)
The following options were outstanding as of December 31, 2019: R. S. Austin, 47,883; E. M. Liddy, 46,743; N. McKinstry, 47,902; P. N. Novakovic, 102,943; W. A. Osborn, 49,190; and S. C. Scott III, 41,622.

(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 represent charitable matching grant contributions, as follows: R. J. Alpern, $25,000; S. E. Blount, $25,000; S. C. Scott III, $25,000; and G. F. Tilton, $25,000.

28       GRAPHIC


SECURITY OWNERSHIP OF EXECUTIVE OFFICERS AND DIRECTORS

The table below reflects the number of Abbott common shares beneficially owned as of January 31, 2020 by each director, the Chief Executive Officer, the Chief Financial Officer, and the three other most highly paid executive officers in 2019 (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, named officers, and executive officers.

    Name

Shares
Beneficially
Owned(1)(2)



Stock Options
Exercisable
Within 60 Days of
January 31, 2020(3)




Stock
Equivalent
Units



 
    R. J. Alpern   30,406   0   7,766    
  R. S. Austin   44,913   47,883   0  
    S. E. Blount   26,266   0   0    
  L. D. Earnhardt   56,946   0   0    
    R. B. Ford   197,382   926,022   0    
  M. A. Kumbier   3,258   0   0  
    E. M. Liddy   28,153   46,743   21,268    
  D. W. McDew   0   0   0  
    N. McKinstry   23,666   47,902   0    
  P. N. Novakovic   26,333   102,943   0  
    W. A. Osborn   56,323   49,190   28,512    
  D. G. Salvadori   95,088   461,015   0    
    S. C. Scott III   40,053   41,622   7,138    
  D. J. Starks   7,018,683   0   0  
    J. G. Stratton   8,641   0   4,651    
  G. F. Tilton   41,403   0   32,710  
    M. D. White   3,194,710   5,417,294   0    
  B. B. Yoor   116,620   184,281   0  
    All directors and executive officers as a group(4)(5)   12,502,322   12,334,341   102,045    
(1)
This column includes shares held in the officers' accounts in the Abbott Laboratories Stock Retirement Trust as follows: M. D. White, 34,239; B. B. Yoor, 2,239; and all executive officers as a group, 69,290. 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, 30,406; R. S. Austin, 38,069; S. E. Blount, 23,666; M. A. Kumbier, 2,241; E. M. Liddy, 25,833; N. McKinstry, 23,666; P. N. Novakovic, 25,833; W. A. Osborn, 32,323; S. C. Scott III, 34,053; D. J. Starks, 8,623; J. G. Stratton, 5,186; G. F. Tilton, 34,053; and all directors as a group, 283,952.

(3)
This column also includes 66,145 restricted stock units held by all named officers and executive officers as a group that will be payable in stock within 60 days of January 31, 2020.

(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, 2020, these trusts owned a total of 30,557,888 (1.7%) 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, named officers, and executive officers as a group together own beneficially less than one percent of the outstanding shares of Abbott.

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EXECUTIVE COMPENSATION

COMPENSATION DISCUSSION AND ANALYSIS

INTRODUCTION

This Compensation Discussion and Analysis (CD&A) describes Abbott's executive compensation program in 2019. In particular, this CD&A explains how the Compensation Committee (the Committee) and Board of Directors made compensation decisions for the Company's executives, including the five named officers: Miles D. White, Chairman of the Board and Chief Executive Officer; Robert B. Ford, President and Chief Operating Officer; Brian B. Yoor, Executive Vice President, Finance and Chief Financial Officer; Lisa Earnhardt, Executive Vice President, Medical Devices; and Daniel G. Salvadori, Executive Vice President, Nutritional Products.

The CD&A also describes 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. This year's CD&A reflects the feedback from our shareholders gathered during our 2019 shareholder outreach described on page 31.

2019 PERFORMANCE

Abbott's three-year total shareholder return (TSR) of 139.5% is more than twice that of the peer group median and the broader Standard & Poor's 500 (S&P 500) and Dow Jones Industrial Average (DJIA) market indices. These consistent above-market returns are driven by the strength of our leadership positions in some of the largest and fastest growing markets in healthcare and innovative product portfolios across our businesses.

Abbott delivered strong returns for shareholders in 2019 and achieved or exceeded the financial targets set at the beginning of last year. Abbott's one-year TSR was 22.1%, delivering significant shareholder returns on top of the one-year TSR of 29% in 2018, which ranked #1 in our peer group.

    Primary performance metric for long-term incentive program    

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In addition to delivering significant shareholder returns, Abbott continued to take important steps to position the Company for long-term, sustainable growth.

    Increased investments to sustain growth of several important products including:

    FreeStyle Libre®, our easy-to-use and affordable revolutionary continuous glucose monitor

    MitraClip®, the market-leading device for the minimally invasive treatment of mitral regurgitation

    Alinity®, our suite of innovative diagnostic instruments

    Achieved several important product approvals in 2019 across our businesses that will be significant contributors to growth in the coming years.

    Returned $2.3B to shareholders through dividends in 2019 and announced a 12.5% increase to the dividend payable in 2020, demonstrating Abbott's financial strength and commitment to shareholder returns.

CHANGES BASED ON SHAREHOLDER FEEDBACK AND MARKET PRACTICES

During 2019, we conducted extensive shareholder outreach to discuss our compensation program.

In the spring, we engaged shareholders representing over 65% of our outstanding shares in an open dialogue to discuss various topics, including the enhanced disclosures in our 2019 proxy that furthered shareholder understanding of how pay decisions are made and how the metrics we use are linked to our business strategy and goals. Their feedback was overwhelmingly positive which was also reflected in the 94% support for the Say-on-Pay Vote.

In the fall, we continued our dialogue with shareholders and shared the process we used to review and update our peer group in 2019 to better reflect Abbott's size and complexity. Shareholders were very supportive of our approach and agreed with the changes approved by the Compensation Committee. Additional information regarding the changes to Abbott's peer group can be found on page 32 of this proxy statement.

As illustrated in the table below, over the past several years we have made numerous changes to our program and our proxy statement based on feedback from our shareholders as well as a review of market practices.

  
RECENT EXECUTIVE COMPENSATION CHANGES
    


 
 

 

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

Revised annual cash incentive plan goals and weighting

Changed performance-based restricted stock awards to vest only over a 3-year term with no more than one-third of the award vesting in any one year

Implemented a strengthened recoupment policy

 

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

Increased director share ownership guidelines

Increased the ROE target for vesting of performance restricted shares

Updated peer group to reflect increased size and complexity of business
    


 

 

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ABBOTT'S PEER GROUP FOR PAY AND COMPANY PERFORMANCE BENCHMARKING

To determine the competitiveness of our compensation and benefit programs, the Committee, in consultation with its independent consultant, annually compares the level of compensation, pay practices, and our relative performance to those of peer companies. As we previewed in last year's proxy, our Compensation Committee reviewed our peer group in 2019 to determine whether any changes were necessary to better reflect the increased size (sales and market capitalization) and complexity of Abbott's business.

Based on this review, the Compensation Committee revised the peer group to reflect the breadth of our business, reflecting our diverse and balanced portfolio. This new peer group strikes the appropriate balance between size (revenue and market capitalization between approximately one-third and three times Abbott's), return profiles, geographic breadth, and management and operating structure. This approach has been overwhelmingly supported by our investors during shareholder outreach.

The updated peer group is summarized below, showing the primary characteristics for each company selected, including the Abbott business segment(s) represented by the peer company.

  Company Name Sales/
Rev.(1)
(billions)
Market
Cap(1)
(billions)
% Rev.
Outside
U.S.
Similar #
Employees
Mfg. Driven/
Consumer-
Facing
Abbott Business Segment(s)
Represented
 
  3M Company $ 32.1 $ 101.5 ü ü ü Diagnostics  
  Becton Dickinson $ 17.3 $ 73.6 ü ü ü Diagnostics, Medical Devices  
  Boston Scientific $ 10.4 $ 63.0 ü   ü Medical Devices  
Bristol-Myers Squibb $ 24.2 $ 150.5 ü ü Established Pharmaceuticals  
  The Coca-Cola Company $ 37.3 $ 237.1 ü ü ü Nutrition  
Danaher Corporation $ 19.9 $ 110.2 ü ü ü Diagnostics  
  Honeywell International $ 36.7 $ 126.5 ü ü ü Diagnostics, Medical Devices  
Johnson & Johnson $ 82.1 $ 383.9 ü ü ü Diagnostics, Established Pharmaceuticals, Medical Devices  
  Medtronic $ 30.9 $ 152.1 ü ü ü Medical Devices  
Merck $ 46.0 $ 231.6 ü ü ü Established Pharmaceuticals  
  Mondelez International $ 25.9 $ 79.3 ü ü ü Nutrition  
Procter & Gamble $ 69.6 $ 311.5 ü ü ü Nutrition  
  Reckitt Benckiser(2) $ 16.2 $ 57.6 ü ü ü Nutrition  
Stryker Corporation $ 14.9 $ 78.6 ü Medical Devices  
  Thermo Fisher Scientific $ 25.5 $ 130.3 ü ü ü Diagnostics  
United Technologies $ 77.0 $ 129.3 ü ü Diagnostics  
  Peer Group Median $ 28.3 $ 127.9          
Abbott $ 31.9 $ 153.5 ü ü ü  
  Abbott Percentile Rank 59th 73rd          
(1)
Data source: Nasdaq IR Insight database reflects most recently disclosed (as of January 31, 2020) trailing 12-month sales/revenue. The market cap reflects values on December 31, 2019.

(2)
Revenue/Market Cap converted to USD for OUS companies.

32       GRAPHIC


BASIS FOR COMPENSATION DECISIONS

Abbott and its Compensation Committee have designed a compensation program that balances short- and long-term objectives to focus our executives on actions that create value today, while building for sustainable future success. Approximately two-thirds of our pay is equity-based, directly tying a significant portion of executive compensation to shareholder returns.

Our compensation program is market-based (to ensure our ability to attract and retain talented executives) and produces compensation outcomes that are performance-based (to incent the achievement of profitable growth that increases shareholder value).

COMPENSATION PROGRAM IS MARKET-BASED

All components of total direct compensation are market-based. Each year, the Compensation Committee reviews market data with the independent compensation consultant to ensure our programs are aligned and our officers are positioned appropriately relative to the market.

Base Salary

Base salary targets are initially set using the median of the peer group as a benchmark. Base salaries then vary depending on the officer's experience, expertise, and performance. The average base salary of our executive officers is approximately at the market median.

Annual Incentive Plan

Annual incentive targets are initially set using the median of the peer group as a benchmark. The targets may vary based on other factors, including internal pay comparisons. Further linkage to the market is achieved by setting targets that require our officers to exceed the anticipated growth of the market in which they compete in order to achieve a target payout of their annual incentives.

Long-Term Incentive Plan (LTI)

To set annual LTI award guidelines, the Committee first reviews LTI grants made by peer companies to identify the competitive market range. Each year the guidelines are set at the appropriate level within the competitive market range based on Abbott's relative performance, as described on the following page. 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 grants long-term incentive awards in the form of 50% stock options and 50% performance restricted shares. This mix of incentive awards is consistent with our peers.

COMPENSATION OUTCOMES ARE 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 incentive, performance-based restricted stock awards, and stock options) are aligned with individual, business segment and Company performance.

Annual Incentive Plan

In order for the annual incentive plan to pay out, the EPS goal must be achieved. If the EPS goal is not achieved, then the annual incentive plan is not funded. Final payouts are determined based upon performance relative to annual goals and are capped as a percentage of consolidated net earnings (CEO cap is 0.15%; COO cap is 0.10%; other NEO cap is 0.075%). The following formula summarizes the annual incentive payout process for officers, assuming the EPS goal is achieved.

For example:

BASE SALARY       BONUS TARGET %      

TOTAL GOAL SCORE

      AWARD PAYOUT
 $525,000   x   90%   x  

95%

  =   $448,875
 

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For 2019 performance, annual incentive payouts for Abbott executive officers averaged 96% of target. For individual calculations for each named officer, see pages 38 to 47. The annual incentive plan is formula driven based on financial, strategic, and talent and succession results. Officer financial goals are based on adjusted measures that reflect the true results of our ongoing operations and are set based on the expected market growth of the businesses in the markets in which we compete.

Long-Term Incentive Plan

Throughout the process, Abbott's awards are based on Company and individual performance, from guideline positioning all the way through vesting. Conversely, most other companies reflect performance only at the company level, through relative TSR at vesting. Thus, Abbott's process is much more rigorous and performance-based than other companies' programs.

The Committee positions LTI award guidelines relative to the market by comparing Abbott's 3-year TSR performance against our peers. 5- and 1-year TSR performance are also referenced to ensure long-term performance is sustained, and current performance is on track with shareholder expectations.

For example, guidelines for grants made in February 2019 were set at the 75th percentile of our peer group, reflecting 100th percentile relative 3-year TSR performance for the period ending in 2018. The 5-year TSR ranked at the 100th percentile of our peer group for the period ending in 2018, while the 1-year TSR was at the 94th percentile of our peer group.

The recommendation for each officer starts with the Company LTI award guideline (based on relative TSR performance and market data as described above) for the officer's position and is adjusted based upon assessment of their sustained contributions over the last three years. Contribution scores are totaled and used to adjust each officer's award guideline. Final awards may be increased or decreased based on the long-term impact each individual officer had on the organization. For example:

    SAMPLE INDIVIDUAL LTI PERFORMANCE ASSESSMENT
 
    METRIC     2016     2017     2018     OVERALL  
                   
    Sales and Market Growth Contribution     Met (0)     Did not meet (-1)     Exceeded (+1)     0  
                   
    Margin Contribution       Met (0)       Met (0)       Exceeded (+1)       +1    
    Strategic Financial Contribution     Met (0)     Met (0)     Met (0)     0  
                   
                            Total       +1    
                LTI Adjustment
  110%  
                   

 

 LTI ADJUSTMENT LEGEND
 TOTAL   RESULT
 
 +3 or More   125%
 
 +1 or +2   110%
 0   100%
 
 -1 or -2   90%
 -3 or Less   75%
 

Awards granted in 2019, based on individual officer performance for the three-year period ending in 2018, resulted in awards ranging from the 54th percentile to the 90th percentile of our peer group, with an average of the 78th percentile. For individual calculations for each named officer, see pages 38 to 47.

Since stock options realize value only 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. Options are also aligned with shareholder value through the impact of relative TSR in determining the LTI award guidelines.

34       GRAPHIC


Performance restricted shares vest one-third each year only if the Adjusted Return on Equity (ROE) performance target is achieved. Vesting is absolute—either 100% or 0%. There is no partial vesting if the target is missed and no additional vesting upside if the Company over-performs. The Committee believes Adjusted 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 and is a measure reflecting deployment of capital or capital allocation. Adjusted ROE reflects earnings from continuing operations excluding specified items, such as intangible amortization expense and various other costs including expenses related to restructuring actions or business acquisitions. Adjusted ROE also excludes the impact of foreign exchange on equity.

In 2019, the Adjusted ROE vesting target to determine future vesting was increased from 12% to 13%. This increase follows similar increases in prior years, which have increased this target 30% since 2014. This is consistent with our stated intent to increase our Adjusted ROE targets over time following the separation of AbbVie, which had a significant impact on our ROE and other return measures, including Return on Assets (ROA).

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. While Abbott's ROE was disproportionally lower following the AbbVie separation, shareholders that retained their Abbott and AbbVie shares the past six years since the AbbVie separation would have seen a 168% appreciation in their holdings.

 

IMPACT OF ABBOTT/ABBVIE SEPARATION

GRAPHIC

Summary of LTI Process

The graphic below summarizes the LTI process and its direct linkage to the market and company and individual performance.

GRAPHIC

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COMPENSATION PROGRAM IS DIRECTLY LINKED TO BUSINESS STRATEGY

Our compensation program is also linked directly to our business strategy, to ensure that officers are focused on those activities that drive our business strategy and create value for shareholders.

The table below explains the strategic link of the key metrics used in our annual and long-term incentive plans.

    EVALUATION OF PERFORMANCE
 
    METRIC     STRATEGIC LINK
       
    Our annual incentive plan is aligned to the following drivers of shareholder value:    
    Sales     Measures Abbott's ability to compete effectively in the markets in which we participate and focuses management on achieving strong top-line growth, consistent with our business strategy.  
       
    Diluted EPS       Basis on which Abbott sets annual performance expectations and consistent with how we report operating results to the financial community.    
    Return on Assets     Measures profitability and how effectively Company assets are used to generate profit.  
       
    Free Cash Flow       Recognizes the importance of generating cash to fund ongoing investments in our business and to pay down debt, pay dividends, and fund investments outside of capital expenditures.    
    Our long-term incentive plan relies on the following Company metrics, and 3-year sustained individual performance metrics, to determine award value:    
    Total Shareholder Return     Measures Abbott's stock and dividend performance against our peer group. Used to position LTI award guidelines relative to the market.  
       
    3-year LTI Contribution Metrics       Measures how each officer has performed relative to their sales, margin, and strategic financial contribution goals. Used to adjust LTI award guidelines to reflect individual performance.    
    Return on Equity     Measures how much profit Abbott generates over the long-term with the capital that shareholders have invested. Used to determine if performance-restricted awards vest.  
       

Officer financial goals are set and assessed based on adjusted measures that the Committee believes more accurately reflect the results of our ongoing operations. We make certain adjustments for specified items, whether favorable or unfavorable, that are unusual or unpredictable, such as cost reduction initiatives, restructuring programs, integration activities and other business acquisition-related costs, and the impact of significant tax changes. We also exclude intangible amortization expense to provide greater visibility on the results of operations excluding these costs, similar to how Abbott's management internally assesses performance.

The Committee believes these adjusted measures provide a more stable assessment of Abbott's core business and encourage decision-making that considers long-term value. They also align compensation goals with the financial guidance we communicate to investors, which is also based on adjusted measures.

COMPENSATION LINK TO SUSTAINABILITY

Our leadership covenant includes commitments to multiple environmental, social and governance efforts. Examples include:

    A sustainable infrastructure to drive quality, environmental, health and safety performance

    Human capital management to ensure an inclusive culture and the fair and balanced treatment of our employees

    Quality products provided at competitive prices to patients and consumers at hospitals and retailers

    Abbott's Code of Conduct to ensure adequate internal controls for financial reporting and compliance with applicable laws and regulations.

36       GRAPHIC


Since this covenant is considered the minimum requirement of being an officer at Abbott, any officer that does not fulfill the covenant can receive a reduction of up to 100% of their annual incentive and/or long-term incentive awards.

In addition, we maintain several sustainability commitments, which are further described in our Proxy Summary on page 8, and include:

    Innovation, Access and Affordability

    Talent

    Product Quality

    Data and Data Privacy

    Supply Chain, Packaging and Waste

    Climate and Water Use

PAY DECISIONS FOR NAMED EXECUTIVE OFFICERS

The following pages detail the goals and metrics used to determine each named officer's payout under our annual and long-term incentive plans. For some goals, the target is not disclosed for competitive reasons. The long-term incentive decisions shown in the Summary Compensation Table of this proxy statement and detailed here were based upon performance through 2018, whereas the annual incentive plan payouts are based upon performance during 2019.

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NAMED EXECUTIVE OFFICER COMPENSATION DECISIONS

GRAPHIC MILES D. WHITE
 
Chairman of the Board, Chief Executive Officer and Director Since 1999
    
    

Base Salary

Mr. White's annual base salary of $1,900,000 has not changed since 2010.

Annual Incentive Plan

Mr. White's target bonus of 175% was not changed during 2019. Based on performance in 2019, Mr. White received a bonus in February 2020 which was calculated as follows:

  2018
2019 GOAL MEASUREMENT
2019
  GOAL
  RESULTS
ACHIEVED


  GOAL
WEIGHT


  THRESHOLD
  TARGET
  MAXIMUM
  RESULTS
ACHIEVED


  GOAL SCORE
 
  FINANCIAL METRICS(1)
 
  Adjusted Sales(2) $31.2B 25% $31.65B $31.80B $31.95B $31.96B 37.5%
 
  Adjusted Diluted EPS   $2.88   25%   $3.15   $3.20   $3.25   $3.24   35.0%  
 
  Adjusted ROA 9.2% 10% 10.5% 10.6% 10.7% 10.9% 15.0%
 
  Free Cash Flow(3)   $4.9B   10%   $4.1B   $4.3B   $4.5B   $4.5B   15.0%  
 
  STRATEGIC METRICS   
 
  Diabetes Care Sales Growth 10% 92.6% of Target Target 106.8% of Target >Maximum 15.0%
 
  Structural Heart Sales Growth   10%   76.2% of Target   Target   109.5% of Target   >Maximum   15.0%  
 
  Alinity C/I Instrument Placements 10% 85.5% of Target Target 103.2% of Target <Threshold 0.0%
 
                         Total   132.5%  

 

BASE SALARY       BONUS TARGET %      

TOTAL GOAL SCORE

      AWARD PAYOUT
 $1,900,000   x   175%   x   132.5%   =   $4,405,625
    (1)
    Adjusted Sales exclude the impact of foreign exchange on actual sales relative to the goal target. Adjusted Diluted EPS is diluted earnings per common share from continuing operations excluding specified items, such as intangible amortization expense and various other costs including expenses related to restructuring actions or business acquisitions. Adjusted Return on Assets (ROA) reflects earnings from continuing operations, excluding interest expense and specified items. Adjusted ROA also reflects total assets less current liabilities excluding short-term borrowings. Diabetes Care, Structural Heart and Nutrition Sales Growth exclude the impact of foreign exchange. Free Cash Flow equals Operating Cash Flow less acquisitions of property and equipment.

    (2)
    Set based on expected market growth of the businesses and markets in which we compete. To achieve target payout, must increase market share.

    (3)
    2019 target lower than 2018 results due to increased capital expenditures to support strategic initiatives and timing of pension funding and tax payments.

38       GRAPHIC


      
    

Long-Term Incentives

Based on the Committee's review of Abbott and individual performance through 2018, Mr. White received an LTI award in February 2019 with a value of $15,125,000, which was equal to 125% of his LTI award guideline. Additional calculation details are as follows:

LTI AWARD GUIDELINE       LTI ADJUSTMENT      

AWARD ALLOCATION

      AWARD
VALUE

$12,100,000
  x  
125%
  x  

50% Stock Options(1)

  =   $7,562,500
 
                 50% Performance Restricted Shares(2)       $7,562,500
                Total       $15,125,000

 

    INDIVIDUAL LTI PERFORMANCE ASSESSMENT
    METRIC     2016     2017     2018     OVERALL  
                   
    Sales and Market Growth Contribution     Did not meet (-1)     Met (0)     Exceeded (+1)     0  
                   
    Margin Contribution       Exceeded (+1)       Exceeded (+1)       Exceeded (+1)       +3    
    Strategic Financial Contribution     Exceeded (+1)     Exceeded (+1)     Exceeded (+1)     +3  
                   
                            Total       +6