UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
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Check the appropriate box:
| ¨ | Preliminary Proxy Statement | |
| ¨ | Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) | |
| þ | Definitive Proxy Statement | |
| ¨ | Definitive Additional Materials | |
| ¨ | Soliciting Material Pursuant to §240.14a-12 |
Halyard Health, Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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 | March 9, 2018
Joseph F. Woody Chief Executive Officer
| ||
Fellow Stockholders:
It is our pleasure to invite you to the Annual Meeting of Stockholders of Halyard Health, Inc. (the “Company”). The meeting will be held on Thursday, April 26, 2018, at 9:00 a.m. Eastern time at the Company’s headquarters located at 5405 Windward Parkway, Alpharetta, Georgia 30004.
At the Annual Meeting, stockholders will be asked to elect three directors for a three-year term, ratify the selection of the Company’s independent auditors, and approve the compensation for our named executive officers. These matters are fully described in the accompanying Notice of Annual Meeting and proxy statement.
Your vote is important.Regardless of whether you plan to attend the meeting, we urge you to vote your shares as soon as possible. You may vote using the included proxy card by completing, signing, and dating it, then returning it by mail. You may also vote your shares by using the telephone or Internet by following the instructions set forth on the proxy card. Additional information about voting your shares is included in the proxy statement.
Sincerely,
Joseph F. Woody Chief Executive Officer |
March 9, 2018
Notice of Annual Meeting of Stockholders
TO BE HELD
April 26, 2018
Important Notice Regarding Availability of Proxy Materials for the Stockholders Meeting to be held on April 26, 2018
This proxy statement along with ourAnnual Report on Form 10-K for the fiscal year ended December 31, 2017, are available at www.proxyvote.com.
The Annual Meeting of Stockholders of Halyard Health, Inc. (the “Company”) will be held at the Company’s headquarters, which is located at 5405 Windward Parkway, Alpharetta, Georgia 30004, on Thursday, April 26, 2018, at 9:00 a.m. Eastern time for the following purposes:
| 1. | To elect as directors the three nominees named in the accompanying proxy statement for a three-year term; |
| 2. | To ratify the selection of Deloitte & Touche LLP as our independent auditors for 2018; |
| 3. | To approve a non-binding resolution to approve the compensation of our named executive officers; and |
| 4. | To take action upon any other business that may properly come before the meeting or any adjournments of the meeting. |
Stockholders of record at the close of business on March 2, 2018, are entitled to notice of and to vote at the meeting or any adjournments.
It is important that your shares be represented at the meeting. I urge you to vote promptly by using the telephone or Internet or by signing, dating, and returning the enclosed proxy card.
To attend in person, please register by following the instructions on page 4. If you plan to attend the meeting, we ask that you nevertheless vote promptly by using the telephone or Internet or by signing, dating, and returning the enclosed proxy card. You may revoke your proxy and vote your shares in person if you would like to do so.
By Order of the Board of Directors.
Ross Mansbach
Vice President—
Deputy General Counsel
and Corporate Secretary
Table Of Contents
| Information About Our Annual Meeting |
| Halyard Health, Inc. | 5405 Windward Parkway | Alpharetta, GA 30004 | 678-425-9273 March 9, 2018 |
On behalf of the Board of Directors of Halyard Health, Inc. (the “Company”), we are soliciting your proxy for use at the 2018 Annual Meeting of Stockholders,to be held on April 26, 2018, at 9:00 a.m. Eastern time at the Company’s headquarters located at 5405 Windward Parkway, Alpharetta, Georgia 30004.
At the Annual Meeting, stockholders will vote on the following matters:
| 1. | The election of the three nominees named in this proxy statement as directors for a three-year term; |
| 2. | The ratification of the selection of Deloitte & Touche LLP as our independent auditors for 2018; |
| 3. | A non-binding resolution to approve the compensation of our named executive officers; and |
| 4. | Any other business that may properly come before the meeting or any adjournments of the meeting. |
Our Board of Directors recommends that you vote your sharesFOReach of proposals one through three.
How We Provide Proxy Materials
We began providing our proxy statement and form of proxy to stockholders on March 9, 2018.
As Securities and Exchange Commission (“SEC”) rules permit, we are making our proxy statement and our annual report available to many of our stockholders via the Internet rather than by mail. This reduces printing and delivery costs and supports our sustainability efforts. You may have received in the mail a “Notice of Electronic Availability” explaining how to access this proxy statement and our annual report on the Internet and how to vote online. If you received this Notice but would like to receive a paper copy of the proxy materials, you should follow the instructions contained in the Notice for requesting these materials.
If you were a stockholder of record at the close of business on the record date of March 2, 2018, you are eligible to vote at the meeting. Each share of our common stock that you own entitles you to one vote. Shares may not be voted cumulatively.
As of the record date, 46,923,794 shares of common stock were outstanding.
If your shares are held by a bank or brokerage firm, you are considered the “beneficial owner” of the shares held in “street name.” If your shares are held in street name, your bank or brokerage firm (the record holder of your shares) forwarded to you these proxy materials, along with a voting instruction card. As the beneficial owner, you have the right to direct your record holder how to vote your shares, and the record holder is required to vote your shares in accordance with your instructions. If you do not give instructions to your bank or brokerage firm, it will nevertheless be entitled to vote your shares with respect to “routine” items, but it will not be permitted to vote your shares with respect to “non-routine” items. In the case of non-routine items, your shares will be considered “broker non-votes” on those proposals.
If you are the record holder of shares of our common stock as of the record date, you may vote by using the telephone or Internet, by completing and returning the enclosed proxy card by mail, or by voting in person at the meeting. To vote by telephone or Internet, see the instructions on the proxy card and have the proxy card available when you place your telephone call or access the Internet website. To vote your proxy by mail, or by voting in person at the meeting, mark your
 | 2018 Proxy Statement | 1 |
Information About Our Annual Meeting
vote on the proxy card, then follow the instructions on the card to return it by mail.
If your shares are held in street name, please follow the instructions on the voting instruction card to vote your shares.
If you are the record holder of your shares and you attend the meeting, you may deliver your completed proxy card in person. Additionally, we will pass out written ballots to registered stockholders who wish to vote in person at the meeting.Beneficial owners of shares held in street name who wish to vote at the meeting will need to obtain a power of attorney or proxy from their record holder to do so.
If you return a completed and properly signed proxy card prior to the meeting, or if you vote by telephone or the Internet prior to the meeting, the persons named as proxies on the proxy card will vote your shares according to your directions. The voting results will be certified by independent Inspectors of Election.
If you are a stockholder of record and you sign and return your proxy card, or if you vote by using the telephone or Internet, but you do not specify how you want to vote your shares, the persons named as proxies on the proxy card will vote your shares as follows:
| • | FOR the election of directors named in this proxy statement; |
| • | FOR ratification of the selection of our independent auditors; and |
| • | FOR approval of the compensation of our named executive officers. |
If any other matters are properly presented at the Annual Meeting for consideration, the persons named as proxies on the proxy card will vote as recommended by the Board of Directors or, if no recommendation is given, in their discretion.
Effect of Not Instructing Your Broker
Routine Matters.If your shares are held in street name and you do not instruct the broker on how to vote your shares, your broker may choose to leave your shares unvoted or to vote your shares on routine
matters. “Proposal 2 — Ratification of Auditors” is the only routine matter on the agenda at this year’s Annual Meeting.
Non-Routine Matters. Without instructions from you on how to vote your shares, your broker cannot vote your shares on non-routine matters, including Proposals 1 and 3, resulting in what are known as “broker non-votes.” Broker non-votes will not be considered present or entitled to vote on non-routine matters and will also not be counted for the purpose of determining the number of votes cast on these proposals. Broker non-votes will not affect the outcome of any proposals considered at the Annual Meeting.
How Withhold Votes and Abstentions
Will be Counted
Election of Directors.“Withhold” votes for the election of directors will have no impact on the outcome of the vote. They will not be counted for the purpose of determining the number of votes cast or as votes “for” or “against” a nominee.
Other Proposals.Abstentions will be counted:
| • | in determining the total number of shares entitled to vote on a proposal, and |
| • | as votes against a proposal |
How To Revoke or Change Your Vote
If you are a stockholder of record, there are several ways to revoke or change your vote:
| • | Mail a revised proxy card with a later date or a written notice of revocation with a later date to the Corporate Secretary of the Company (the revised proxy card or notice of revocation must be received by close of business on April 25, 2018). Use the following address: Halyard Health, Inc., Attn: Corporate Secretary, 5405 Windward Parkway, Suite 100 South, Alpharetta, GA 30004. |
| • | Use the telephone voting procedures or Internet voting website (the revocation or change must be completed by 11:59 p.m. Eastern time on April 25, 2018). |
| • | Attend the meeting and vote in person. Please note that attendance at the meeting will not revoke a proxy if you do not actually vote at the meeting. |
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Information About Our Annual Meeting
If you hold your shares in street name, the above options for changing your vote or revoking your instructions do not apply and you must follow the instructions received from your bank or broker to change your vote or revoke your proxy.
There must be a quorum to conduct business at the Annual Meeting, which is established by having a majority of the outstanding shares of our common stock present in person or represented by proxy. If you vote, your shares will be included in the number of shares to establish the quorum. Abstentions (or “Withhold” votes for the elections of directors) or proxy cards returned without voting instructions and broker non-votes will be counted as present for the purpose of determining whether the quorum requirement is satisfied.
Election of Directors. The Company has a “plurality-plus” voting policy for directors in uncontested elections. Under our “plurality-plus” voting policy, if any nominee for director receives a greater number of votes “withheld” than votes “for” such nominee in an uncontested election, he or she will promptly tender his or her resignation. The Governance Committee, without the participation of the director who tendered his or her resignation, will then take action to accept or reject the director’s resignation and submit its recommendation to the full Board of Directors. The full Board of Directors, without the participation of the director who tendered his or her resignation, will accept or reject the resignation within 90 days of the certification of the election results and, if it chooses not to accept the resignation, will promptly disclose its decision in a Form 8-K or similar filing with the SEC. Further details about our “plurality plus” policy are included in our Corporate Governance Policies, which are available in the Investors’ section of our website at www.halyardhealth.com.
Other Proposals or Matters. Approval requires the affirmative vote of a majority of shares that are present at the Annual Meeting in person or by proxy and entitled to vote on the proposal.
If you are a stockholder of record and you do not sign and return a proxy card or vote by telephone or the Internet, your shares will not count toward the quorum requirement and will not affect the outcome of any proposal at the Annual Meeting.
If you are a stockholder of record, you or your duly appointed representative may attend the Annual Meeting in person. Returning your proxy card will not affect your right to attend the Annual Meeting and to vote in person. If you do plan to attend, we ask that you inform us electronically, by telephone, or by checking the appropriate box on your proxy form. This will assist us with meeting preparations and help to expedite your admittance.
If your shares are not registered in your own name and you would like to attend the meeting, please ask the broker, trust, bank or other nominee that holds your shares to provide you with written proof of your share ownership as of the record date. This will enable you to gain admission to the meeting.
If you need directions to the meeting, please contact Stockholder Services by telephone at 678-425-9273 or by e-mail at stockholder.services@hyh.com. Please bring a driver’s license or other photo-identification with you to the meeting to facilitate admission to the meeting.
The Company will bear all costs of this proxy solicitation, including the cost of preparing, printing and delivering materials, and the out-of-pocket expenses of brokers, fiduciaries and other nominees who forward proxy materials to stockholders. In addition to mail and electronic means, our employees may solicit proxies by telephone or otherwise. Our employees will not receive additional compensation for such solicitations. We have retained D. F. King & Co., Inc., to aid in the solicitation at a cost of approximately $10,000 plus reimbursement of out-of-pocket expenses.
| | 2018 Proxy Statement | 3 |
| Corporate Governance |
Our governance structure and processes are based on a number of important governance documents including our Code of Conduct, Certificate of Incorporation, Corporate Bylaws, Corporate Governance Policies and our Board Committee Charters. These documents, which are available in the Investor’s section of our website at www.halyardhealth.com, guide the Board and our management in the execution of their responsibilities.
The Company believes that there is a direct connection between good corporate governance and long-term, sustained business success, and we believe it is important to uphold sound governance practices. As such, the Board reviews its governance practices and documents on an ongoing basis, and it considers changing regulatory requirements, governance trends, and issues raised by our stockholders. After careful evaluation, we may periodically make governance changes in view of these matters to maintain current good governance practices and promote stockholder value.
We believe we are in compliance with all applicable corporate governance requirements of the New York Stock Exchange (“NYSE”), the SEC, the Sarbanes-Oxley Act of 2002 and the provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 that have become effective as of the date of this proxy statement.
Prior to June 23, 2017, Robert E. Abernathy served as the Company’s Chairman of the Board (“Chairman”) and Chief Executive Officer (“CEO”), and Ronald Dollens served as the Company’s independent Lead Director. Mr.Abernathy retired as CEO on June 23, 2017, and as Chairman on September 1, 2017. Mr. Dollens assumed the role of Chairman on September 1, 2017, and at that time the Board ceased designating a separate independent Lead Director. The Board believes that this leadership structure provides for dynamic Board leadership while maintaining strong independence and oversight.
Consistent with this leadership structure, at least once a quarter our Chairman, who is an independent director, chairs executive sessions of our non-management directors. Members of the Company’s senior management team do not attend these sessions.
Under current circumstances, it is the Board’s view that separate Chairman and CEO roles promotes candid discourse and responsible corporate governance. The Board retains the discretion to combine the Chairman and CEO roles, and appoint an independent Lead Director, at any time if it deems that to be in the best interest of our Company and stockholders.
Ronald Dollens serves as our independent Chairman. Our Corporate Governance Policies outline the significant roles and responsibilities of the Chairman, which include:
| • | Presiding over meetings of the Board and stockholders and providing perspective to the CEO regarding discussions at these meetings |
| • | Chairing executive sessions at which non-management directors meet outside management’s presence, and providing feedback from such sessions to the CEO |
| • | Serving as the Chair of the Executive Committee |
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Corporate Governance
| • | Coordinating the activities of the independent directors and serving as a liaison between the independent directors, as a group, and the CEO |
| • | Approving agendas and schedules for Board meetings |
| • | Reviewing, approving, and revising materials for distribution to the Board, in connection with Board meetings or otherwise, as appropriate |
| • | Leading (with the Chairman of the Governance Committee) the annual Board evaluation |
| • | Leading (with the Chairman of the Compensation Committee) the Board’s review and discussion of the CEO’s performance and compensation |
| • | Providing feedback to individual directors following their periodic evaluations |
| • | Acting as a direct conduit to the Board for stockholders, employees, and others according to the Board’s policies |
| • | Assuming such other responsibilities that the Board may designate from time to time. |
We believe our independent board helps ensure good corporate governance and strong internal controls.
Our Corporate Governance Policies, as adopted by the Board, provide independence standards consistent with the rules and regulations of the SEC and the listing standards of the NYSE. Our independence standards can be found in Section 17 of our Corporate Governance Policies.
The Governance Committee of the Board has determined that all directors and nominees, except for Joseph F. Woody, are independent directors and meet the independence standards in our Corporate Governance Policies.
The Board of Directors met 21 times in 2017. All of the directors attended in excess of 75 percent of the total number of meetings of the Board and the committees on which they served.
Although we do not have a formal policy with respect to director attendance at annual meetings, all directors attended the 2017 Annual Meeting, and we expect that all directors, including those standing for election, will be in attendance at the Annual Meeting on April 26, 2018.
In 2017, the standing committees of the Board included the Audit Committee, Compensation Committee, Compliance Committee, Governance Committee, and Executive Committee. In compliance with applicable NYSE corporate governance listing standards, the Board has adopted Charters for all Committees except the Executive Committee.
Our Committee Charters are available in the Investors section of our website at www.halyardhealth.com.
As set forth in our Corporate Governance Policies, and in the charter of each individual committee, the Board’s committees all have the authority to retain independent advisors and consultants, with all costs paid by the Company.
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Corporate Governance
Audit Committee
Chairman: Heidi Kunz Other members: Gary Blackford and Patrick O’Leary |
The Board has determined that Ms. Kunz and Messrs. Blackford and O’Leary are “audit committee financial experts” under SEC rules and regulations. In addition, all Audit Committee members satisfy the NYSE’s financial literacy requirements and qualify as independent directors under our Corporate Governance Policies.
No member of the Audit Committee serves on the audit committees of more than three public companies. Under our Audit Committee Charter and NYSE corporate governance listing standards, if a member were to serve on more than three such committees, the Board would then determine whether this situation impairs the member’s ability to serve effectively on our Audit Committee, and we would post information about this determination on the Investors section of our website at www.halyardhealth.com.
The Committee met 6 times in 2017, including once in joint session with the Compliance Committee.
The Committee’s principal functions, as specified in its Charter, include:
| • | Overseeing: |
| • | the quality and integrity of our financial statements | |
| • | our compliance programs in coordination with our Compliance Committee | |
| • | our hedging strategies and policies | |
| • | the independence, qualification, and performance of our independent auditors | |
| • | the performance of our internal auditors |
| • | Selecting and engaging our independent auditors, subject to stockholder ratification | |
| • | Pre-approving all audit and non-audit services that our independent auditors provide | |
| • | Reviewing the scope of audits and audit findings, including any comments or recommendations of our independent auditors | |
| • | Establishing policies for our internal audit programs | |
| • | Overseeing our risk management program and receiving periodic reports from management on risk assessments, the risk management process, and issues related to the risks of managing our business |
For additional information about the Audit Committee’s oversight activities with respect to our 2017 financial statements, see “Proposal 2. Ratification of Auditors — Audit Committee Report.”
Compensation Committee
Chairman: Julie Shimer Other members: John Byrnes, William Hawkins, and Maria Sainz. |
Each member of this Committee is an independent director. The Committee met 7 times in 2017.
The Committee’s principal functions, as specified in its Charter, include:
| • | Establishing and administering the policies governing annual compensation and long-term compensation, including stock option awards, restricted stock awards, and restricted share unit awards, such that the policies are designed to align compensation with our overall business strategy and performance | |
| • | Setting, after an evaluation of his overall performance, the compensation level of the CEO |
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Corporate Governance
| • | Determining, in consultation with the CEO, compensation levels and performance targets for our executive officers | |
| • | Setting annual targets and certifying awards for corporate performance under our corporate incentive compensation plans | |
| • | Advising the Board on outside director compensation | |
| • | Overseeing: |
| • | leadership development for senior management and future senior management candidates | |
| • | a periodic review of our long-term and emergency succession planning for the CEO and other key officer positions, in conjunction with our Board | |
| • | key organizational effectiveness and engagement policies |
| • | Annually reviewing our compensation policies and practices for the purpose of mitigating risks arising from these policies and practices that could reasonably have a material adverse effect on the Company |
Roles of the Committee and the CEO in Compensation Decisions
Each year, the Committee reviews and sets the compensation of our executive officers, including our CEO.
The Committee’s Charter does not permit the Committee to delegate to anyone the authority to establish any compensation policies or programs for the executive officers. With respect to officers that are not executive officers (our “non-executive officers”), our CEO has the authority to establish compensation programs and, subject to certain limits, to approve equity grants. However, only the Committee may make equity grants to our executive officers.
Our CEO makes a recommendation to the Committee each year on the appropriate target annual compensation for each of the other executive officers. The Committee makes the final determination of the target annual compensation for each executive officer, including our CEO. While our CEO and Chief Human Resources Officer typically each attend Committee meetings, none of the other executive officers is present during the portion of the Committee meetings when compensation for executive officers is set. In addition, neither our CEO nor our Chief Human Resources Officer is present during the portion of the Committee meetings when their compensation is set.
For additional information on the Committee’s processes and procedures for determining executive compensation, and for a detailed discussion of our compensation policies, see “Compensation Discussion and Analysis.”
Use of Compensation Consultants
The Committee’s Charter authorizes the Committee to retain advisors, including compensation consultants, to assist it in its work. The Committee believes that compensation consultants can provide important market information and perspectives that can help it determine compensation programs that best meet the objectives of our compensation policies. In selecting a consultant, the Committee evaluates the independence of the firm as a whole and of the individual advisors who will be working with the Committee.
The Committee retains an independent executive compensation consultant who, according to the Committee’s written policy, provides services solely to the Committee and not to the Company. The Committee’s consultant has no other business relationship with the Company and receives no payments from the Company other than fees for services to the Committee. The consultant reports directly to the Committee, and the Committee may replace the consultant or hire additional consultants at any time. The Committee has selected Meridian Compensation Partners, LLC (“Meridian”) as its independent consultant.
In 2017, the scope of activities for the Committee’s independent compensation consultant included:
| • | Conducting a review of the executive compensation peer group | |
| • | Reviewing and commenting on the Company’s executive compensation programs | |
| • | Conducting a risk assessment of the Company’s executive compensation programs | |
| • | Attending Committee meetings | |
| • | Periodically consulting with the Chairman of the Committee |
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Corporate Governance
Committee Assessment of Consultant Conflicts of Interest. The Committee has reviewed whether the work provided by Meridian raises any conflict of interest. Factors considered by the Committee include: (1) whether other services are provided to the Company by the consultant; (2) what percentage of the consultant’s total revenue is made up of fees from the Company; (3) policies or procedures of the consultant that are designed to prevent a conflict of interest; (4) any business or personal relationships between individual consultants involved in the engagement and Committee members; (5) any shares of the Company stock owned by individual consultants involved in the engagement; and (6) any business or personal relationships between our executive officers and the consulting firm or the individual consultants involved in the engagement. Based on its review, the Committee does not believe that the compensation consultants that performed services to the Committee in 2017 have a conflict of interest with respect to the work performed for the Committee.
Committee Report
The Committee has reviewed the “Compensation Discussion and Analysis” section of this proxy statement and has recommended that it be included in this proxy statement. The Committee’s report is located at “Compensation Discussion and Analysis — Compensation Committee Report.”
Compensation Committee Interlocks and Insider Participation
The members of the Compensation Committee during 2017 were Dr. Shimer, Messrs. Byrnes and Hawkins, and Ms. Sainz. None of the members of the Compensation Committee was, during 2017, a current or former officer or employee of the Company. Also, none of the members of the Compensation Committee had any relationship with the Company in 2017 requiring disclosure under Item 404 of Regulation S-K. For information about the Company’s policies on transactions with related parties, see “Transactions with Related Parties” later in this proxy statement. During 2017, none of our executive officers served as a member of the board of directors or compensation committee of any entity that had one or more executive officers serving as a member of our Board of Directors or Compensation Committee.
Compliance Committee
Chairman: William Hawkins Other Members: John Byrnes, Maria Sainz, and Julie Shimer |
Each member of this Committee is an independent director. The Committee met 5 times in 2017, including once in joint session with the Audit Committee.
The Committee’s principal functions, as specified in its Charter, include the following:
| • | Overseeing the Company’s compliance program in the areas of Code of Conduct, Conflicts of Interest, Consumer Protection, Ethics, Environment, Government Relations, Health and Safety, Customs and Export Controls, False Claims, Foreign Corrupt Practices Act and similar anti-bribery laws, Fraud and Abuse Laws including Anti-Kickback, Information Systems Security, Intellectual Property, International Distributors, Labor & Employment, Physical Security, Quality, Recalls, Regulatory, including FDA, Safety, Sunshine Act, and Transportation | |
| • | Overseeing the Company’s sustainability, corporate social responsibility, and corporate citizenship matters | |
| • | Monitoring the Company’s efforts to implement programs, policies, and procedures relating to compliance matters | |
| • | Overseeing the investigation of any significant instances of noncompliance with laws or the Company’s compliance program, policies, or procedures, other than any instances involving financial noncompliance | |
| • | Reviewing the Company’s compliance risk assessment plan | |
| • | Identifying and investigating emerging compliance issues and trends which may affect the Company |
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Corporate Governance
Governance Committee
Chairman: Gary D. Blackford Other Members: Heidi Kunz and Patrick O’Leary |
Each member of this Committee is an independent director. The Committee met 5 times in 2017.
The Committee’s principal functions, as specified in its Charter, include the following:
| • | Overseeing the screening and recruitment of prospective Board members and making recommendations to the Board of Directors regarding specific director nominees, as well as overseeing the process for Board nominations | |
| • | Overseeing corporate governance matters, including developing and recommending to the Board changes to our Corporate Governance Policies | |
| • | Advising the Board on: |
| • | Board organization, membership, function, and performance | |
| • | committee structure and membership | |
| • | policies and positions regarding significant stockholder relations issues |
| • | Reviewing director independence standards and making recommendations to the Board with respect to the determination of director independence | |
| • | Monitoring and recommending improvements to the Board’s practices and procedures | |
| • | Reviewing stockholder proposals and considering how to respond to them |
The Committee, in accordance with its Charter and our Certificate of Incorporation, has established criteria and processes for director nominations, including those proposed by stockholders. Those criteria and processes are described in “Proposal 1. Election of Directors — Process and Criteria for Nominating Directors” and “Other Information — Stockholder Nominations for Board of Directors.”
Executive Committee
Chairman: Ron Dollens (Chairman of the Board) Other Members: Heidi Kunz, William Hawkins, Julie Shimer, and Joseph Woody |
The Committee did not meet in 2017.
The Committee’s principal function is to exercise, when necessary between Board meetings, the Board’s powers to direct our business and affairs. Accordingly, the Committee has no regularly scheduled meetings and it is expected that, each year, the Committee will meet infrequently or not at all.
The Board has established processes by which stockholders and other interested parties may communicate with the Board, as well as with the Audit Committee and Compliance Committee. Those processes can be found in the Investors section of our website at www.halyardhealth.com.
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Corporate Governance
Other Corporate Governance Policies and Practices
Corporate Governance Policies. The Board has adopted Corporate Governance Policies. These policies guide the Company and the Board on matters of corporate governance, including: director responsibilities, Board committees and their charters, director independence, director compensation and performance assessments, director orientation and education, director access to management, Board access to outside financial, business, and legal advisors, and management development and succession planning. To see these policies, go to the Investors section of our website at www.halyardhealth.com.
Code of Conduct. The Company has a Code of Conduct that applies to all of our directors, executive officers and employees, including our CEO, Chief Financial Officer, and Vice President and Controller. It is available in the Investors section of our website at www.halyardhealth.com. Any amendments to or waivers of our Code of Conduct applicable to our CEO, Chief Financial Officer, or Vice President and Controller will also be posted at that location.
Board and Management Roles in Risk Oversight.The Board is responsible for providing risk oversight with respect to our operations. In connection with this oversight, the Board particularly focuses on our strategic and operational risks, as well as related risk mitigation. In addition, the Board reviews and oversees management’s response to key risks facing the Company.
The Board’s committees review particular risk areas to assist the Board in its overall risk oversight of the Company:
| • | The Audit Committee monitors risks relating to such matters as our internal controls, financial statement integrity and fraud risks, and related risk mitigation. In connection with this oversight, the Audit Committee receives regular reports from management on risk assessments, the risk management process, and issues related to the risks of managing our business. The Audit Committee also receives an annual enterprise risk management update, which discusses our key financial, strategic, operational and compliance risks. |
| • | The Compensation Committee reviews the risk profile of our compensation policies and practices. This process includes a review of an assessment of our compensation programs, as described in “Compensation Discussion and Analysis — Analysis of Compensation-Related Risks.” |
| • | The Compliance Committee monitors risks relating to certain compliance matters, such as those described in the section “Compliance Committee,” and recommends appropriate actions in response to those risks. |
| • | The Governance Committee monitors risks relating to governance matters and recommends appropriate actions in response to those risks. |
Complementing the Board’s overall risk oversight, our senior executive team identifies and monitors key enterprise-wide and business unit risks, providing the basis for the Board’s risk review and oversight process. Our senior management team is supported by management members from core business units and from our finance, treasury, information technology, global risk management, compliance and legal functions. Management identifies significant risks for review and updates our policies for risk management in areas such as hedging, foreign currency, and country risks, product liability, property and casualty risks, and supplier and customer risks. The Board believes the allocation of risk management responsibilities described above supplements the Board’s leadership structure by allocating risk areas to an appropriate committee for oversight, allows for an orderly escalation of issues as necessary, and helps the Board satisfy its risk oversight responsibilities.
| 10 | 2018 Proxy Statement | |
Corporate Governance
Whistleblower Procedures. The Audit Committee has established procedures for receiving, recording and addressing any complaints we receive regarding accounting, internal accounting controls, or auditing matters, and for the confidential and anonymous submission, by our employees or others, of any concerns about our accounting or auditing practices. The Compliance Committee has adopted similar procedures for receiving, recording, and addressing any complaints we receive regarding compliance matters other than those addressed by the Audit Committee. The Audit Committee’s and Compliance Committee’s procedures are available in the Investor’s section of our website at www.halyardhealth.com. We also maintain a toll-free Code of Conduct telephone line and a website, each allowing our employees and others to voice their concerns anonymously.
Management Succession Planning. In conjunction with the Board, the Compensation Committee is responsible for periodically reviewing the long-term management development plans and succession plans for the CEO and other key officers, as well as the emergency succession plan for the CEO and other key officers if any of these officers unexpectedly becomes unable to perform his or her duties.
Disclosure Committee. We have established a Disclosure Committee to assist in fulfilling our obligations to maintain disclosure controls and procedures and to coordinate and oversee the process of preparing our periodic securities filings with the SEC. This committee is composed of members of management and is chaired by our Vice President and Controller.
No Executive Loans. We do not extend loans to our executive officers or directors and therefore do not have any such loans outstanding.
Charitable Contributions. The Governance Committee has adopted guidelines for the review and approval of charitable contributions by the Company to organizations or entities with which a director or an executive officer may be affiliated. We will disclose in the Investors section of our website at www.halyardhealth.com any contributions made by us to a tax-exempt organization under the following circumstances:
| • | An independent director serves as an executive officer of the tax-exempt organization; and | |
| • | If within the preceding three years, contributions in any single year from the Company to the organization exceeded the greater of $1 million or 2 percent of the tax-exempt organization’s consolidated gross revenues. |
| 2018 Proxy Statement | 11 |
Our Board is divided into three classes, as required by our Certificate of Incorporation, with one class of directors elected each year for a three-year term. As of the date of this proxy statement, the Board consists of nine directors. Three of the directors have terms that expire at this year’s Annual Meeting (Class of 2018), three have terms that expire at next year’s Annual Meeting (Class of 2019), and three have terms that expire at the 2020 Annual Meeting (Class of 2020).
The three nominees standing for election at the Annual Meeting are being nominated to serve for a term to expire at the 2021 Annual Meeting of Stockholders (Class of 2021), and until their successors have been duly elected and qualified. All nominees have advised us that they will serve if elected; however, should any nominee become unable to serve, the Board may reduce the number of directors to be elected or select a substitute nominee. If the Board selects a substitute nominee, the shares represented by valid proxies will be voted for the substitute nominee, other than shares voted “Withhold” with respect to the original nominee.
Given the independent status of the nominees, if all nominees are elected at the Annual Meeting, eight of the nine directors on our Board will be independent directors.
Process and Criteria for Nominating Directors
The Board is responsible for approving candidates for Board membership. The Board has delegated the screening and recruitment process to the Governance Committee, in consultation with the Chairman and CEO. The Committee therefore recommends to the Board any new appointments and nominees for election as directors at our annual meeting of stockholders. It also recommends nominees to fill any vacancies. As provided in our Certificate of Incorporation, the Board may elect a new director when a vacancy occurs between annual meetings of stockholders.
The Committee may receive recommendations for Board candidates from various sources, including our directors, management, and stockholders. Stockholders may submit recommendations for Board candidates to the Chairman of the Governance Committee at Halyard Health, Inc., c/o Corporate Secretary, 5405 Windward Parkway, Suite 100 South, Alpharetta, GA 30004. Board candidates recommended by stockholders are evaluated using the same criteria as candidates recommended by other sources. For details on this process, see “Other Information — Stockholder Nominations for Board of Directors.” In addition, the Governance Committee may periodically retain a search firm to assist it in identifying and recruiting director candidates meeting the criteria specified by the Committee.
The Committee believes that the criteria for director nominees should foster effective corporate governance, support our strategies and businesses, take diversity into account, and ensure that our directors, as a group, have an overall mix of the attributes needed for an effective Board. The criteria should also support the successful recruitment of qualified candidates.
Qualified candidates for director are those who, in the judgment of the Committee, possess all of the personal attributes and a sufficient mix of the experience attributes listed below to ensure effective service on the Board.
| 12 | 2018 Proxy Statement | |
Proposal 1. Election of Directors
PERSONAL ATTRIBUTES
Leadership
| • | Lead in personal and professional lives. |
Ethical Character
| • | Possess high standards for ethical behavior. |
Collaborative
| • | Actively participate in Board and committee matters. |
Independence
| • | Independent of management and Company (for non-management directors only). |
Ability to communicate
| • | Possess good interpersonal skills. |
Effectiveness
| • | Bring a proactive and solution-oriented approach. |
EXPERIENCE ATTRIBUTES
| ATTRIBUTE | FACTORS THAT MAY BE CONSIDERED | |||
| Financial acumen | • | Satisfies the financial literacy requirements | ||
| Has good knowledge of business | of the NYSE | |||
| finance and financial statements | • | Qualifies as an audit committee financial expert under the rules and regulations of the SEC | ||
| • | Has an accounting, finance or banking background | |||
| General business experience | • | Has leadership experience as a chief or senior executive officer | ||
| Possesses experience that will aid in | • | Has experience setting compensation | ||
| judgments concerning business issues | ||||
| Industry knowledge Possesses knowledge about | • | Has substantial knowledge of the healthcare industry, including with respect to caregiving, cost reimbursement or regulatory environment | ||
| our industries | • | Has governance/public company board experience | ||
| Diversity of background and | • | Brings a diverse viewpoint that is representative of our customer, | ||
| viewpoint | consumer, employee, and stockholder base | |||
| Brings to the Board an appropriate | • | Provides a different perspective (stemming, for example, from an | ||
| level of diversity | academic background or experience from outside the healthcare | |||
| industries) | ||||
| Special business experience | • | Has international experience | ||
| Possesses global management | • | Has a track record of successful innovation | ||
| experience and experience with | • | Has supply chain management expertise | ||
| healthcare supplies and medical | ||||
| devices | ||||
| 2018 Proxy Statement | 13 |
Proposal 1. Election of Directors
Committee Review of Attributes of Current Directors
The Governance Committee has reviewed the background of each of our current directors and their service on the Board in light of the personal and experience attributes described above. The Committee has determined that each director possesses all of the personal attributes as well as a sufficient mix of the experience attributes.
For details about each director’s specific experience attributes, see “The Nominees” and “Directors Continuing in Office” below.
As noted above, the Governance Committee believes that diversity of backgrounds and viewpoints is a key attribute for directors. As a result, the Committee seeks to have a diverse Board that is representative of our customer, product user, employee and stockholder base. While the Committee carefully considers this diversity when considering nominees for director, the Committee has not established a formal policy regarding diversity in identifying director nominees.
The following three individuals are nominated for election to the Board for a three-year term expiring at the 2021 Annual Meeting of Stockholders (Class of 2021):
William A. Hawkins
| William A. Hawkins,age 63, was elected to our Board of Directors in December 2015. Mr. Hawkins is the Chairman of our Compliance Committee. Mr. Hawkins serves as a Senior Advisor to EW Healthcare Partners. He also serves as the Lead Director at Immucor, Inc., a leading provider of transfusion and transplantation diagnostic products worldwide. He served as President and Chief Executive Officer of Immucor from October 2011 to July 2015. From 2008 to 2011, he served as Chairman and Chief Executive Officer of Medtronic, Inc., a global leader in medical technology. He served as President and Chief Executive Officer of Medtronic, Inc. from 2007 to 2008, President and Chief Operating Officer of Medtronic, Inc. from 2004 to 2007, and Senior Vice President and President, Vascular of Medtronic, Inc. from 2001 to 2004. From 1998 to 2001 Mr. Hawkins served as President and Chief Executive Officer of Novoste Corporation, a medical equipment company. Prior thereto, Mr. Hawkins served in a variety of senior roles at American Home Products, a consumer products company, Johnson & Johnson, a healthcare company, Guidant Corporation, a medical products company, and Eli Lilly and Company, a global pharmaceutical company. Mr. Hawkins also serves as Chairman of the Board of KeraNetics, LLC, and Bioventus, LLC, and as a director of Trice Medical, Inc., and Baebies, Inc., all of which are medical products companies. Mr. Hawkins has been a member of the Duke University Board of Trustees since 2011. Mr. Hawkins was selected to serve as a member of our Board of Directors due to his leadership experience as a chief executive officer, knowledge of, and experience in, the healthcare industry, international experience and governance and public company board experience. | |
Gary D. Blackford | Gary D. Blackford,age 60, was elected to our Board in October 2014. Mr. Blackford is the Chairman of our Governance Committee. From 2002 until February 2015, Mr. Blackford was the Chairman of the Board and Chief Executive Officer of Universal Hospital Services, Inc. (“UHS”), a leading, nationwide provider of medical technology outsourcing and services to the health care industry. Mr. Blackford was the Chief Executive Officer of Curative Health Services, Inc., a specialty pharmacy and health services company, from 2001 to 2002. He was also the Chief Executive Officer of ShopforSchool, Inc., an online retailer, from 1999 to 2001. Mr. Blackford has been a director of Wright Medical Group, N.V. (WMGI), since 2008, ReShape Lifesciences, Inc. (RSLS), since 2016, PipelineRX, Inc. (private), since 2016, and Children’s Hospitals and Clinics of Minnesota since 2017. Mr. Blackford has been selected to serve as a member of our Board of Directors |
| 14 | 2018 Proxy Statement |  |
Proposal 1. Election of Directors
due to his executive leadership experience as a chief executive officer, financial literacy and experience in finance and accounting, international experience, and governance and public company board experience. | ||
Patrick J. O’Leary
| Patrick J. O’Leary,age 60, was elected to our Board in October 2014. Mr. O’Leary served as Executive Vice President and Chief Financial Officer of SPX Corporation, a global industrial and technological services and products company, from December 2004 until August 2012, when he retired. Prior to that time, he served as Chief Financial Officer and Treasurer of SPX Corporation from October 1996 to December 2004. Mr. O’Leary has been a director of PulteGroup, Inc. (NYSE: PHM), since 2005 and a director and Chairman of SPX Corporation (NYSE: SPXC), since 2015. Mr. O’Leary has been selected to serve as a member of our Board of Directors due to his executive leadership experience as a chief financial officer, financial literacy and experience in finance and accounting, international experience, and governance and public company board experience.
|
| The Board of Directors unanimously recommends a vote FOR the election of each of the three nominees for director named above. |
| | 2018 Proxy Statement | 15 |
Proposal 1. Election of Directors
Directors Continuing in Office
The following members of the Board of Directors are continuing in office and have terms expiring as indicated below:
Term Expiring at the 2020 Annual Meeting (Class of 2020):
Joseph F. Woody
| Joseph F. Woody,age 52, was appointed as our CEO and elected as a member of our Board of Directors as of June 26, 2017. Mr. Woody has more than 20 years of experience in the healthcare sector. Prior to joining the Company, Mr. Woody served as Director, President and Chief Executive Officer of Acelity Holdings, Inc. (“Acelity”), a global advanced wound care and regenerative medicine company, from August 2015 until April 2017. Prior to that, Mr. Woody served as President and Chief Executive Officer for the combined organization of Kinetic Concepts, Inc. (“ KCI”), LifeCell Corporation (“LifeCell”), and Systagenix Wound Management B.V., which became Acelity, from September 2013 until August 2015. Prior to that, Mr. Woody served in leadership roles at KCI and LifeCell from November 2011 until September 2013, having been promoted to President and Chief Executive Officer of KCI in January 2012 and interim Chief Executive Officer of LifeCell in April 2013. Previously, Mr. Woody served as global president of Vascular Therapies for Covidien plc., and global president for Smith & Nephew Advanced Wound Management, and he held other leadership positions at Alliance Imaging, Inc., Acuson and GE Medical Systems. Mr. Woody was selected to serve as a member of the Board of Directors due to his leadership experience as our CEO, and knowledge of, and experience in, the healthcare industry, including significant acquisition and integration experience, international experience, and company board experience. | |
Ronald W. Dollens | Ronald W. Dollens,age 71, was elected to our Board in October 2014, and as Chairman of the Board in September 2017. As Chairman of the Board, Mr. Dollens serves as the Chairman of the Executive Committee. Mr. Dollens retired as the President and Chief Executive Officer of Guidant Corporation, a global producer of cardiovascular therapeutic devices and related products, in 2005, where he had served since its spin-off from Eli Lilly & Company in 1994. Prior to that time, he held various management positions at Eli Lilly & Company from 1972 until 1994. From 2000 until 2011, he served on the Board of Directors of Kinetic Concepts, Inc., a publicly-traded global medical technology company devoted to the discovery, development, manufacturing and marketing of innovative, high-technology therapies and products, and served as Chairman from 2005 until 2011. Mr. Dollens has also served on the Board of Directors of Abiomed, Inc. from 2006 until October 2010, and Beckman Coulter, Inc. from 1999 until April 2005. Mr. Dollens has been selected to serve as the Chairman of our Board of Directors due to his leadership experience as a chief executive officer, knowledge of, and experience in, the healthcare industry, international experience and governance and public company board experience. | |
Heidi Kunz | Heidi Kunz,age 63, was elected to our Board in October 2014. Ms. Kunz is the Chairperson of the Audit Committee. Ms. Kunz retired as the Executive Vice President and Chief Financial Officer of Blue Shield of California, a not-for-profit health plan provider, where she served from 2003 to 2012. Prior to that time, she served as the Executive Vice President and Chief Financial Officer of Gap, Inc., a multinational clothing and accessories retailer, from 1999 until 2003. Ms. Kunz also serves as a director of Agilent Technologies, Inc., a public research development and manufacturing company, and as a director of Financial Engines, Inc., an investment advisement company. Ms. Kunz has been selected to serve as a member of our Board of Directors due to her executive leadership experience as a chief financial officer, financial literacy and experience in finance and accounting, knowledge of, and experience in, the healthcare industry, international experience and governance and public company board experience. |
| 16 | 2018 Proxy Statement | |
Proposal 1. Election of Directors
Term Expiring at the 2019 Annual Meeting (Class of 2019):
John P. Byrnes | John P. Byrnes,age 59, was elected to our Board in October 2014. Mr. Byrnes served as the Chairman of the Board of Lincare Holdings, Inc. (“Lincare”), a provider of home respiratory care, infusion therapy and medical equipment, from March 2000 through March 2015 and as a director of Lincare from May 1997 to August 2015. Mr. Byrnes was the Chief Executive Officer of Lincare from 1997 until March 2015 and served as Lincare’s President from June 1996 until April 2003. Prior to becoming Lincare’s President, Mr. Byrnes served in a number of capacities at Lincare over a ten-year period, including serving as Chief Operating Officer throughout 1996. Mr. Byrnes was a director of Kinetic Concepts, Inc., a publicly-traded global medical technology company devoted to the discovery, development, manufacturing and marketing of innovative, high-technology therapies and products, from January 2003 until February 2011 and of U.S. Renal Care, Inc., a dialysis provider, from August 2005 until 2012. Mr. Byrnes has served on the Board of Tenet Healthcare Corporation since 2016. Mr. Byrnes has been selected to serve as a member of our Board of Directors due to his leadership experience as a chief executive officer, knowledge of, and experience in, the healthcare industry, international experience and governance and public company board experience. | |
Maria Sainz
| Maria Sainz,age 52, was elected to our Board in February 2015. Ms. Sainz has served as the President and Chief Executive Officer of Cardiokinetix, a medical device company pioneering a catheter-based treatment for heart failure, from May 2012 through June 2017. She was the President and Chief Executive Officer of Concentric Medical, Inc., a developer of minimally invasive products for the treatment of acute ischemic stroke, from April 2008 until May 2012. In October 2011, Concentric Medical was acquired by Stryker Corporation, a medical technology company, where she was named General Manager of the business unit of Stryker Neurovascular. From 2006 to 2008, Ms. Sainz led integration activities following the acquisition of Guidant Corporation by Boston Scientific. From February 2003 through July 2006, Ms. Sainz served as President of the Cardiac Surgery division of Guidant Corporation. From January 2001 through February 2003, Ms. Sainz served as Vice President, Global Marketing for the Vascular Intervention division of Guidant Corporation. From late 1998 through early 2001, Ms. Sainz served as Vice President of the Intermedics Cardiac Rhythm Management business of Guidant Corporation in Europe. Ms. Sainz also serves as a director of Orthofix International, N.V, a global medical device company, MRI Interventions, Inc., a medical device company, and Levita Magnetics, a private medical start up. Ms. Sainz has been selected to serve as a member of our Board of Directors due to her leadership experience as a chief executive officer, knowledge of, and experience in, the healthcare industry, international experience, and public company board experience. | |
Dr. Julie Shimer | Dr. Julie Shimer,age 65, was elected to our Board in October 2014. Dr. Shimer is the Chairman of the Compensation Committee. She is currently a private investor and has 30 years of product development experience, including many years with major communications companies. From March 2007 to April 2012 she served as Chief Executive Officer of Welch Allyn, Inc., a manufacturer of frontline medical products and solutions, having served on the board of directors beginning in July 2002. Previously, Dr. Shimer was President, Chief Executive Officer, and a member of the board of directors of Vocera Communications, Inc., a provider of wireless communications systems. She also has served as general manager at 3Com Corporation and Motorola and has been a product development leader at Motorola and AT&T Bell Laboratories. She has served as the Chairwoman of Empire State Development Corp., the State of New York’s economic development organization, and as an advisor to two private companies, Kitchology, a mobile platform empowering families dealing with special diets through the power of technology and community, and CPLANE Networks, a leader in end-to-end data center and wide area network service orchestration that enables software-defined networking (SDN) and network function virtualization (NFV) services to be launched and managed in a single environment. She also serves on the boards of directors of three nonprofit organizations. Dr. Shimer serves as a director of Netgear, Inc., a provider of home and small business network solutions, and Windstream, a leading telecommunications and cloud services provider. Dr. Shimer has been selected to serve as a member of our Board of Directors due to her leadership experience as a chief executive officer, knowledge of, and experience in, the healthcare industry, international experience and governance and public company board experience. |
| | 2018 Proxy Statement | 17 |
Proposal 1. Election of Directors
Directors who are not officers or employees of the Company or any of our subsidiaries, affiliates or equity companies are Outside Directors for compensation purposes and are compensated for their services under our Outside Directors’ Compensation Plan. All independent directors currently on our Board are Outside Directors and are compensated under this Plan.
Our objectives for Outside Director compensation are:
| • | to attract qualified candidates for Board service |
| • | to remain competitive with the median compensation paid to Outside Directors of comparable companies |
| • | to keep pace with changes in practices in director compensation |
| • | to reinforce our practice of encouraging stock ownership by our directors |
In 2015, our Outside Director compensation was established based on the median non-management director compensation for our peers.
The table below shows how we structure Outside Director compensation:
Board Members
Cash retainer: $70,000 annually, paid in four quarterly payments at the beginning of each quarter.
Restricted share units: Annual grant with a value of $140,000, awarded and valued on the first business day of the year.
Chairman of the Board
Additional cash compensation of $115,000, paid in four quarterly payments at the beginning of each quarter.
Lead Director
Additional cash compensation of $20,000, paid in four quarterly payments at the beginning of each quarter.
Committee Chairs
Additional cash compensation of $15,000, paid in four quarterly payments at the beginning of each quarter.
New Outside Directors receive a pro-rated annual retainer and grant of restricted share units based on the month when they join the Board.
We also reimburse Outside Directors for expenses incurred in attending Board or committee meetings.
Restricted share units are not shares of our common stock. Rather, restricted share units represent the right to receive a pre-determined number of shares of our common stock within 90 days following a “restricted period” that begins on the date of grant and expires on the date the Outside Director retires from or otherwise terminates service on the Board. In this way, they align the director’s interests with the interests of our stockholders. Outside Directors may not dispose of the units or use them in a pledge or similar transaction. Outside Directors also receive additional restricted share units equivalent in value to the dividends, if any, that would have been paid to them if the restricted share units granted to them were shares of our common stock. The Company does not currently pay dividends on its common stock.
| 18 | 2018 Proxy Statement | |
Proposal 1. Election of Directors
2017 Outside Director Compensation
The following table shows the compensation paid to each Outside Director for his or her service in 2017:
| NAME | FEES EARNED OR PAID IN CASH ($) | STOCK AWARDS ($)(1)(2) | TOTAL ($) |
| Gary D. Blackford | 85,000 | 140,000 | 225,000 |
| John P. Byrnes | 70,000 | 140,000 | 210,000 |
| Ronald W. Dollens | 145,417(3) | 140,000 | 285,417 |
| William A. Hawkins, III | 85,000 | 140,000 | 225,000 |
| Heidi Kunz | 85,000 | 140,000 | 225,000 |
| Patrick O’Leary | 70,000 | 140,000 | 210,000 |
| Maria Sainz | 70,000 | 140,000 | 210,000 |
| Dr. Julie Shimer | 85,000 | 140,000 | 225,000 |
| (1) | Amounts shown reflect the grant date fair value of those grants, determined in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718 — Stock Compensation (“ASC Topic 718”) for restricted share unit awards granted pursuant to our Outside Directors’ Compensation Plan. See Note 12 to our audited consolidated and combined financial statements included in our Annual Report on Form 10-K for 2017 for the assumptions used in valuing these restricted share units. |
| (2) | Each director received 3,749 restricted share units on January 3, 2017. |
| (3) | Mr. Dollens assumed the role of Chairman of the Board effective September 1, 2017. Prior to that date, his compensation was as the Lead Director, and after that date his compensation was as Chairman of the Board, as described above. |
Other than the cash retainer and grants of restricted share units previously described, no Outside Director received any compensation or perquisites from the Company for services as a director in 2017.
A director who is not an Outside Director does not receive any compensation for services as a member of the Board or any committee, but is reimbursed for expenses incurred as a result of the services.
| 2018 Proxy Statement | 19 |
The Audit Committee of the Board of Directors is directly responsible for the appointment, compensation, retention, and oversight of our independent auditors. The Audit Committee is also responsible for overseeing the negotiation of the audit fees associated with retaining our independent auditors. To assure continuing auditor independence, the Audit Committee periodically considers whether a different audit firm should perform our independent audit work. Also, in connection with the mandated rotation of the independent auditor’s lead engagement partner, the Audit Committee and its chairman are directly involved in the selection of the lead engagement partner.
For 2017, the Audit Committee has selected Deloitte & Touche LLP (along with its member firms and affiliates, “Deloitte”) as the independent registered public accounting firm to audit our financial statements. In engaging Deloitte for 2018, the Audit Committee utilized a review and selection process that included the following:
| • | a review of management’s assessment of the services Deloitte provided in 2017 |
| • | discussions, in executive session, with the Chief Financial Officer and the Vice President and Controller regarding their viewpoints on the selection of the 2018 independent auditors and on Deloitte’s performance |
| • | discussions, in executive session, with representatives of Deloitte about their possible engagement |
| • | Audit Committee discussions, in executive session, about the selection of the 2018 independent auditors |
| • | a review and approval of Deloitte’s proposed estimated fees for 2018 |
| • | a review and assessment of Deloitte’s independence |
The Audit Committee and the Board believe that the continued retention of Deloitte to serve as our independent auditor is in the best interests of the Company and its stockholders, and they recommend that stockholders ratify this selection.
Representatives of Deloitte are expected to be present at the Annual Meeting with the opportunity to make a statement if they desire to do so and will be available to respond to appropriate questions.
Stockholders are not required to ratify the appointment of Deloitte as our independent auditor. However, we are submitting the ratification to our stockholders as a matter of good corporate practice. If our stockholders fail to ratify the appointment of Deloitte, or even if our stockholders do ratify the appointment of Deloitte, the Audit Committee in its discretion may select a different independent auditor at any time during the year if it determines that such change would be in the best interest of the Company and our stockholders.
| The Board of Directors unanimously recommends a vote FOR ratification of Deloitte’s selection as theCompany’s auditor for 2018. |
| 20 | 2018 Proxy Statement | |
Proposal 2. Ratification of Auditors
Principal Accounting Firm Fees
Our aggregate fees to Deloitte (excluding value added taxes) with respect to the fiscal years ended December 31, 2017 and 2016, were as follows:
| NAME | 2017 ($) | 2016 ($) |
| Audit Fees(1) | 3,512,000 | 3,894,391 |
| Audit-Related Fees(2) | 1,830,000 | — |
| Tax Fees(3) | 15,000 | 360,150 |
| All Other Fees | 245,000 | — |
| (1) | These amounts represent fees billed or expected to be billed for professional services rendered by Deloitte for the audit of the Company’s annual financial statements for the fiscal years ended December 31, 2017 and December 31, 2016, reviews of the financial statements included in the Company’s Form 10-Qs, and other services that are normally provided by the independent registered public accounting firm in connection with statutory or regulatory filings or engagements for each of those fiscal years, including: fees for consolidated financial audits, statutory audits, comfort letters, attest services, consents, assistance with and review of SEC filings and other related matters. |
| (2) | These amounts represent aggregate fees billed or expected to be billed by Deloitte for assurance and related services reasonably related to the performance of the audit or review of our financial statements for the fiscal years ended December 31, 2017 and December 31, 2016, which are not included in the audit fees listed above. The audit-related fees in 2017 were associated with Deloitte’s work on carve-out financials for the company’s S&IP business as part of the sale of that business to Owens & Minor, Inc. |
| (3) | These amounts represent Deloitte’s aggregate fees for tax compliance, tax advice and tax planning for 2017 and 2016. |
Audit Committee Approval of Audit and Non-Audit Services
Using the following procedures, the Audit Committee pre-approves all audit and non-audit services provided by Deloitte to the Company:
| • | Before the first face-to-face Audit Committee meeting of the year, our Vice President and Controller prepares a detailed memorandum regarding non-audit services to be provided by Deloitte during the year. This memorandum includes the services to be provided, the estimated cost of these services, reasons why it is appropriate to have Deloitte provide these services, and reasons why the requested service is not inconsistent with applicable auditor independence rules; |
| • | At the first face-to-face Audit Committee meeting each year, our Vice President and Controller presents a proposal, including fees, to engage Deloitte for audit and non-audit services; and |
| • | Before each subsequent meeting of the Audit Committee, our Vice President and Controller prepares an additional memorandum that includes updated information regarding the approved services and highlights any new audit and non-audit services to be provided by Deloitte. All new non-audit services to be provided are described in individual requests for services. |
The Audit Committee reviews the requests presented in these proposals and memoranda and approves all services it finds acceptable.
To ensure prompt handling of unexpected matters, the Audit Committee has delegated to the Chairperson of the Audit Committee the authority to amend or modify the list of audit and non-audit services and fees between meetings, as long as the additional or amended services do not affect Deloitte’s independence under applicable rules. Any actions taken under this authority are reported to the Audit Committee at its next meeting.
All Deloitte services and fees in 2017 were pre-approved by the Audit Committee or the Audit Committee Chairperson.
| 2018 Proxy Statement | 21 |
Proposal 2. Ratification of Auditors
In accordance with its Charter adopted by the Board, the Audit Committee assists the Board in overseeing the quality and integrity of the Company’s accounting, auditing, and financial reporting practices.
In discharging its oversight responsibility for the audit process, the Audit Committee obtained from the independent registered public accounting firm (the “auditors”) a formal written statement describing all relationships between the auditors and the Company that might bear on the auditors’ independence, as required by Public Company Accounting Oversight Board (“PCAOB”) Rule 3526,Communication with Audit Committees Concerning Independence,discussed with the auditors any relationships that may impact their objectivity and independence, and satisfied itself as to the auditors’ independence. The Audit Committee also discussed with management, the internal auditors, and the auditors, the quality and adequacy of the Company’s internal controls and the internal audit function’s organization, responsibilities, budget, and staffing. The Audit Committee reviewed with both the auditors and the internal auditors their audit plans, audit scope, and identification of audit risks.
The Audit Committee discussed and reviewed with the auditors all communications required by the PCAOB’s auditing standards, including those required by PCAOB AS 16, “Communication with Audit Committees.” Also, with and without management present, it discussed and reviewed the results of the auditors’ examination of our financial statements.
Management is responsible for preparing the Company’s financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and for establishing and maintaining the Company’s internal control over financial reporting. The auditors have the responsibility for performing an independent audit of the Company’s financial statements, and expressing opinions on the conformity of the Company’s financial statements with GAAP. The Audit Committee discussed and reviewed the Company’s audited financial statements as of and for the fiscal year ending December 31, 2017, with management and the auditors.
Based on the above-mentioned review and discussions with management and the auditors, the Audit Committee recommended to the Board that the Company’s audited financial statements be included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017, for filing with the SEC. The Audit Committee also has selected and recommended to the Company’s stockholders for ratification the reappointment of Deloitte as the independent registered public accounting firm for 2018.
AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
Heidi Kunz, Chairperson
Patrick O’Leary
Gary Blackford
| 22 | 2018 Proxy Statement | |
| Proposal 3. Advisory Vote to Approve Named Executive Officer Compensation |
In the Compensation Discussion and Analysis that follows, we describe in detail our executive compensation program, including its objectives, policies, and components. Our executive compensation program seeks to align the compensation of our executives with the objectives of our business plans and strategies. To this end, the Compensation Committee (the “Committee”) approved an executive compensation program for 2017 that was designed to achieve the following objectives:
| • | Pay-for-Performance. Support a performance-oriented environment that rewards achievement of our financial and non-financial goals. |
| • | Focus on Long-Term Success.Reward executives for long-term strategic management and stockholder value enhancement. |
| • | Stockholder Alignment. Align the financial interest of our executives with those of our stockholders. |
| • | Quality of Talent.Attract and retain executives whose abilities are considered essential to our long-term success. |
For a more detailed discussion of how our executive compensation program reflects these objectives, including information about the 2017 compensation of our named executive officers, see “Compensation Discussion and Analysis,” below.
We are asking our stockholders to support our executive compensation as described in this proxy statement. This proposal, commonly known as a “say-on-pay” proposal, gives our stockholders the opportunity to express their views on our executive compensation. This vote is not intended to address any specific item of compensation, but rather the overall compensation of our executives and the objectives, policies, and practices described in this proxy statement. Accordingly, our stockholders are being asked to vote on the following non-binding resolution at the Annual Meeting:
RESOLVED, that the compensation paid to the Company’s named executive officers, as disclosed pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, compensation tables, and narrative discussion, is hereby approved by the Company’s stockholders on an advisory basis.
The say-on-pay vote is advisory and is therefore not binding on the Company, the Committee, or our Board. Nonetheless, the Committee and our Board value the opinions of our stockholders. Therefore, to the extent there is any significant vote against the executive compensation as disclosed in this proxy statement, the Committee and our Board will consider our stockholders’ concerns and will evaluate whether any actions are necessary to address those concerns.
| The Board of Directors unanimously recommends a vote FOR the approval of named executive officer compensation, as disclosed in this proxy statement pursuant to the SEC’s compensation disclosure rules. |
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| Compensation Discussion and Analysis |
This Compensation Discussion and Analysis (“CD&A”) is intended to provide investors with an understanding of the compensation policies and decisions regarding 2017 compensation for our named executive officers as well as information on 2018 compensation decisions as of the date of this proxy statement.
For 2017, our named executive officers were:
| NAMED EXECUTIVE OFFICER | TITLE |
| Joseph F. Woody | Chief Executive Officer |
| Robert E. Abernathy | Retired Chairman of the Board and Chief Executive Officer |
| Steven E. Voskuil | Senior Vice President and Chief Financial Officer |
| Rhonda D. Gibby | Senior Vice President and Chief Human Resources Officer |
| Christopher M. Lowery | Senior Vice President and Chief Operating Officer |
| John W. Wesley | Senior Vice President and General Counsel |
To assist stockholders in finding important information, this CD&A is organized as follows:
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Compensation Discussion and Analysis
Compensation Executive Summary
This executive summary provides a brief overview of our key accomplishments in 2017 and our key compensation principles and practices.
2017 Highlights
Business and Results:
| • | 2017 net sales for the Company were $1.624 million, a 2% increase over 2016 net sales of $1.592 million. 2017 net sales of Medical Devices were $612 million, an 8% increase over 2016 net sales of $566 million, including 3% growth attributed to the Company’s acquisition of Corpak. As described later in this CD&A, 2017 net sales on a constant currency basis and adjusted to eliminate sales to Kimberly-Clark and the impact of the Corpak acquisition, which we refer to as Adjusted Net Sales, was a performance metric under our 2016 incentive compensation programs. |
| • | 2017 net income for the Company was $79 million, a 99% increase over 2016 net income of $40 million. For 2017, adjusted net income was $110 million, a 19% increase over 2016 net income of $93 million. |
| • | 2017 diluted earnings per share were $1.69, a 99% increase over 2016 diluted earnings of $0.85 per share. For 2017 adjusted diluted earnings per share were $2.35, an 18% increase over 2016 adjusted diluted earnings of $1.99 per share. As described |
| later in this CD&A, 2017 adjusted diluted earnings per share was a performance metric under our 2017 incentive compensation programs. |
Adjusted net income and adjusted diluted earnings per share are non-GAAP financial measures. A description of these measures and a reconciliation to the most directly comparable GAAP financial measures is provided in Appendix A to this 2018 Proxy Statement.
Performance-Based Compensation
Pay-for-performance is a key objective of our compensation program. Consistent with that objective, performance-based compensation constituted a significant portion of our named executive officers’ target direct annual compensation for 2017. Also, to further align the financial interests of our executives with those of our stockholders, a majority of our executives’ target direct annual compensation for 2017 was equity-based. As discussed later in this CD&A, because the Company’s and management’s performance was above expectations for the year, management’s compensation for 2017 was above target.
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Compensation Discussion and Analysis
Compensation Design Principles And Governance Practices
The design principles for our executive compensation program are intended to protect and promote the interests of our stockholders. Below we summarize certain practices we have implemented to drive performance and those we have not implemented because we do not believe they would serve our stockholders’ long-term interests:
| What We Do | What We Don’t Do | |
Pay for performance Perform an annual compensation risk assessment Utilize an independent compensation consultant Require that change-in-control agreements contain a double trigger Maintain share ownership guidelines Maintain a clawback policy on incentive payments in case of financial restatement Benchmark our compensation practices to ensure executive compensation is consistent with our peer group Cap short and long-term incentive payments at reasonable levels | Maintain employment contracts Provide excise tax gross-up on change-in-control payments or perquisites (other than on certain relocation benefits) Allow repricing of underwater options without stockholder approval Allow current payment of dividends or dividend equivalents on unearned long-term incentives Provide more than minimal perquisites Allow executive officers to engage in hedging or pledging transactions |
Committee Consideration Of Stockholder Advisory Votes On Compensation
At our 2017 Annual Meeting, our executive compensation program received the support of over 95 percent of shares represented at the meeting. Our Compensation Committee (the “Committee”) has considered the results of this vote and views this outcome as evidence of stockholder support of its executive compensation decisions and policies.
As noted under “Proposal 3. Advisory Vote to Approve Named Executive Officer Compensation,” the Committee will continue to review stockholder votes on our executive compensation and determine whether to make any changes to the program in light of those vote results.
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Compensation Discussion and Analysis
Executive Compensation Objectives and Policies
The Committee is responsible for establishing and administering our policies governing the compensation of our executive officers. The Committee reviews our executive officer compensation objectives and policies annually, including determining whether they continue to support our business objectives and are consistent with the Committee’s charter.
Our 2017 executive officer compensation policies were designed to achieve the following objectives:
| OBJECTIVE | DESCRIPTION | RELATED POLICIES |
| Pay for Performance | Support a performance-orientedenvironment that rewardsachievement of our financial andnon-financial goals. | The majority of executive officer payvaries with the levels at which annualand long-term performance goalsare achieved. Performance goalsare aligned with our strategies forsustained growth and profitability. |
| Focus on Long-Term Success | Reward executive officers forlong-term strategic management andstockholder value enhancement. | A significant component of executiveofficer annual target compensationis in the form of performance-basedrestricted share units. The number ofshares actually received on payoutof these units depends on ourperformance over a three-year period. |
| Stockholder Alignment | Align the financial interest of ourexecutive officers with those of ourstockholders. | Equity-based awards make up thelargest part of executive officer annualtarget compensation. Our executiveofficers also receive stock options,which vest over time and have valueonly if our stock price rises after theoption grants are made. We also haveother policies that link our executiveofficers’ interests with those ofour stockholders, including stockownership guidelines. |
| Quality of Talent | Attract and retain executive officerswhose abilities are consideredessential to our long-term success asa global company. | The Committee reviews peer groupdata to ensure our executive officercompensation program remainscompetitive so we can continue toattract and retain this talent. |
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Compensation Discussion and Analysis
Executive Compensation Design Philosophy and Guiding Principles
The Committee has adopted the following design philosophies to guide the manner in which the key executive officer compensation objectives and policies are implemented:
| PHILOSOPHY | DESCRIPTION | GUIDING PRINCIPLES |
| Aligned | A majority of executive officercompensation should be at riskand vary with the performanceoutcomes of stockholders | • 50% or more of executive officer compensation is incentivebased • Incentive metrics aligned to stockholder value •Performance goals should generally reflect year-over-yeargrowth to achieve target funding • No annual grants of time-based restricted share units toexecutive officers • Within business groups, a majority of performance is placedon business unit performance goals |
| Compelling | The value and structure ofexecutive officer compensationprovided should assist in theattraction of key executive talent | • Base salaries at or above the 50th percentile with variancebased on skills, experience, and performance • Actual total compensation payout opportunities are set wellabove the 50th percentile, allowing for meaningful upsidepayouts for over performance |
| Simple | The executive officercompensation arrangementsshould maximize simplicity andfocus on broad performancefactors | • Use minimal number of metrics; typically one or two • Strategic metrics (i.e., non-financial) are generally avoided • Special or one-time incentive awards are used sparingly • Perquisites and other special executive benefits are generallyavoided |
| Sound | Executive officer compensationpolicies and structure shouldsupport strong corporategovernance and drive anownership culture amongexecutives | • Ownership culture is reinforced through use of goodgovernance • Individual contracts are avoided and severance practicesshould be conservative • Compensation deferral opportunities provided consistentwith market practices • Encourage innovation while deterring excessive risk taking |
The Committee retains the right to deviate from the guiding principles set out above whenever it determines that to do so is consistent with our overall executive officer compensation objectives and is in the best interest of the Company and its stockholders.
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Compensation Discussion and Analysis
Components of Our Executive Compensation Program
The table below gives an overview of the compensation components used in our 2017 executive officer compensation program and matches each with one or more of the objectives described above.
| COMPONENT | OBJECTIVES | PURPOSE | TARGET COMPETITIVE POSITION |
| Base salary | Quality of talent | Provide annual cash income basedon: • level of responsibility, performanceand experience •comparison to market payinformation | • Compared to median of peer group • Actual base salary will vary basedon the individual’s performanceand experience in the position |
| Annual cashincentive | Pay-for-performance Qualityof talent | Motivate and rewardachievement of annualperformance goals | • Target compared to median of peergroup • Actual payout will vary based onactual corporate and business unitor staff function performance |
| Long-termequityincentive | Stockholder alignmentFocus on long-termsuccessPay-for-performance Quality of talent | Provide an incentive to deliverstockholder value and to achieveour long-term objectives throughawards of: •performance-based restrictedshare units • stock option grants Time-vested restricted share unitsmay be granted from time to timefor recruiting, retention or otherpurposes | • Target compared to median of peergroup • Actual payout of performance-based restricted share units willvary based on actual performance • Actual payout will also vary basedon actual stock price performance |
| Retirementbenefits | Quality of talent | Provide competitive retirement planbenefits through 401(k) plan andother defined contribution plans | • Benefits comparable to those ofpeer group |
| Perquisites | Quality of talent | Provide minimal market-basedadditional benefits | • Determined by the Committee |
| Post-termination compensation(severance and change ofcontrol) | Quality of talent | Encourage attraction and retentionof executives critical to our long-termsuccess and competitiveness: • Severance Pay Plan, whichprovides eligible employees,including executives, withpayments and benefits in the eventof certain involuntary terminations • Executive Severance Plan, whichprovides eligible executives withpayments in the event of a qualifiedseparation from service following achange of control | • Determined by the Committee |
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Compensation Discussion and Analysis
This section describes the processes followed in setting 2017 target annual compensation for our executive officers.
FOCUS ON TOTAL DIRECT ANNUAL COMPENSATION
In setting 2017 compensation for our executive officers, including our Chief Executive Officer (“CEO”), the Committee focused on total direct annual compensation, which consists of annual cash compensation (base salary and target annual cash incentive) and long-term equity incentive compensation (performance-based restricted share units and stock options). The Committee considered annual cash and long-term equity incentive compensation both separately and as a package to help ensure that the executive officer compensation objectives are met.
BENCHMARKING – EXECUTIVE COMPENSATION PEER GROUP
To ensure that our executive officer compensation program is reasonable and competitive in the marketplace, our program is compared to programs at other companies. In setting 2017 compensation for our executive officers, the Committee used the following peer group for the Company’s executive compensation:
| 2017 Executive Compensation Peer Group | ||
| Align Technology, Inc. | Haemonetics Corporation | NuVasive, Inc. |
| C.R. Bard, Inc. | Hill-Rom Holdings, Inc. | ResMed Inc. |
| CONMED Corporation | Invacare | Sirona Dental Systems, Inc. |
| The Cooper Companies, Inc. | Hologic, Inc. | STERIS Corporation |
| DENTSPLY International Inc. | Integer Holdings Corp | Teleflex Incorporated |
| Edwards Lifesciences Corp | Integra Lifesciences Holding Corp | Varian Medical Systems, Inc. |
| Greatbatch, Inc. | Merit Medical Systems, Inc. | West Pharmaceutical Services, Inc. |
The peer group is intended to consist of companies with whom we compete for talent. We believe that we generally compete for talent with healthcare and medical device companies with annual revenues ranging from approximately one-third to three times our annual revenues.
The Committee (working with its independent compensation consultant) reviews the executive compensation peer group annually to ensure that it continues to serve as an appropriate comparison for our compensation program.
PROCESS FOR SETTING TOTAL DIRECT ANNUAL COMPENSATION TARGETS
In setting the total direct annual compensation of our executive officers, both market data provided by the independent compensation consultant and information on the performance of each executive officer for prior years is evaluated. To remain competitive in the
marketplace for executive talent, the target levels for the executive officers’ compensation components, including our CEO, are compared to the median of the peer group.
To reinforce a pay-for-performance culture, targets for individual executive officers may be set above or below this median depending on the individual’s performance in prior years and experience in the position, as well as any applicable retention concerns. The Committee believes that comparing target levels to the median, setting targets as described above, and providing incentive compensation opportunities that will enable executives to earn above-target compensation if they deliver above-target performance on their performance goals, are consistent with the objectives of our executive officer compensation policies. In particular, the Committee believes that this approach enables us to attract and retain skilled and talented executive officers to guide and lead our businesses and supports a pay-for-performance culture.
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Compensation Discussion and Analysis
When setting annual compensation for our executive officers, the Committee considers each compensation component (base salary, annual cash incentive and long-term equity incentive), but its decision regarding a particular component does not necessarily impact its decision about other components.
In setting compensation for executive officers that join us from other companies, the Committee will evaluate both market data for the position to be filled and the candidate’s compensation history. The Committee recognizes that in order to successfully recruit a candidate to leave his or her current position and to join the Company, the candidate’s compensation package may have to exceed his or her current compensation, which could result in a compensation package above the median of our peer group.
CEO TOTAL DIRECT ANNUAL COMPENSATION
Our CEO’s total direct annual compensation is determined in the same manner as the direct annual compensation of the other named executive officers. The difference between our CEO’s compensation and that of the other named executive officers reflects the fact that our CEO’s responsibilities for management and oversight of a global enterprise are significantly greater than those of the other executive officers. As a result, the market pay level for our CEO is appropriately higher than the market pay for our other executive officer positions.
TOTAL DIRECT ANNUAL COMPENSATION TARGETS FOR 2017
Consistent with the focus on total direct annual compensation, the Committee established the following 2017 direct annual compensation targets for our named executive officers based on their roles and responsibilities:
| NAME | 2017 TOTAL DIRECT ANNUAL COMPENSATION TARGET ($) |
| Joseph F. Woody | 5,442,750 |
| Robert E. Abernathy | 4,724,992 |
| Steven E. Voskuil | 1,539,225 |
| Rhonda D. Gibby | 831,415 |
| Christopher M. Lowery | 1,918,690 |
| John W. Wesley | 1,080,000 |
These 2017 direct annual compensation target amounts differ from the amounts set forth in the Summary Compensation Table in the following ways:
| • | Amounts paid or payable to Mr. Woody and Mr. Abernathy are prorated for the portion of the year in which they held their positions, while the amounts in the table above reflect full year targets. |
| • | Annual cash incentive compensation is included at the target level, while the Summary Compensation Table reflects the actual higher amounts earned for 2017; |
| • | Performance-based restricted share units are valued for direct annual compensation target purposes as equal to the value of a share of Halyard common stock on the date of grant, while the Summary Compensation Table reflects the grant date fair value as determined in accordance with ASC Topic 718 and as required by SEC rules (see Note 12 to our audited consolidated and combined financial statements included in our Annual Report on Form 10-K for the year-ended December 31, 2017, for the assumptions used in valuing performance-based restricted share units); and |
| • | In setting total direct annual compensation targets, the Committee does not include deferred compensation earnings or other compensation, while those amounts are required to be included in the Summary Compensation Table. |
Executive Compensation for 2017
To help achieve the objectives discussed above, our executive officer compensation program for 2017 consisted of fixed and performance-based components, as well as short-term and long-term components.
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Compensation Discussion and Analysis
BASE SALARY
To attract and retain high-caliber executives, we pay our executive officers an annual fixed salary that we believe to be competitive in the marketplace.
Salary ranges and individual salaries for executive officers are reviewed annually, and salary adjustments generally are effective on April 1 of each year. In determining individual salaries, salary levels for similar positions at our peer group companies are considered, as well as the executive officer’s performance and experience in his or her position. This performance evaluation is based on how the executive officer performs during the year against results-based objectives established at the beginning of the year. In general, an experienced executive officer who is performing at a satisfactory level will receive a base salary at or around the median of our peer group companies. However, executive officers may be paid above or below the median depending on their experience and performance. From time to time, if warranted, executive officers and other employees may receive additional salary increases because of promotions, changes in duties and responsibilities, retention concerns, or market conditions.
The following table shows the 2017 base salaries in effect for each named executive officer during the year.
| NAME | 2017 BASE SALARY JANUARY TO MARCH ($) | 2017 BASE SALARY APRIL TO DECEMBER ($) |
| Joseph F. Woody | N/A | 885,000 |
| Robert E. Abernathy | 837,375 | 862,496 |
| Steven E. Voskuil | 436,450 | 449,544 |
| Rhonda D. Gibby | 314,650 | 320,943 |
| Christopher M. Lowery | 482,125 | 496,589 |
| John W. Wesley | 393,750 | 393,750 |
ANNUAL CASH INCENTIVE PROGRAM
Consistent with our pay-for-performance compensation objective, our executive officer compensation program includes an annual cash incentive program to motivate and reward executives to achieve annual performance objectives established by the Committee.
2017 TARGETS
The target payment amount for annual cash incentives is a percentage of the executive officer’s base salary. The range of possible payouts is expressed as a percentage of the target payment amount. These ranges are set based on competitive factors. The following table sets forth the target payment amounts and range of possible payouts for each named executive officer in 2017:
TARGET PAYMENT AMOUNTS AND RANGE OF POSSIBLE PAYOUTS FOR
2017 ANNUAL CASH INCENTIVE PROGRAM
| NAME | TARGET PAYMENT AMOUNT | RANGE OF POTENTIAL PAYOUT |
| Joseph F. Woody | 115% of base salary | 0% - 225% of target payment amount |
| Robert E. Abernathy | 100% of base salary | 0% - 225% of target payment amount |
| Steven E. Voskuil | 70% of base salary | 0% - 225% of target payment amount |
| Rhonda D. Gibby | 50% of base salary | 0% - 225% of target payment amount |
| Christopher M. Lowery | 85% of base salary | 0% - 225% of target payment amount |
| John W. Wesley | 60% of base salary | 0% - 225% of target payment amount |
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Compensation Discussion and Analysis
2017 Performance Goals, Performance Assessments, and Payouts
Payment amounts under the annual cash incentive program are dependent on performance measured against goals established at the beginning of the year. These performance goals are derived from our financial goals.
The table below shows the performance goals and weights established for 2017:
ANNUAL CASH INCENTIVE PROGRAM
2017 PERFORMANCE GOALS AND WEIGHTS
| JOSEPH F. WOODY | ROBERT E. ABERNATHY | STEVEN E. VOSKUIL | RHONDA D. GIBBY | CHRISTOPHER M. LOWER | JOHN W. WESLEY | |
| Adjusted Net Sales | 50% | 50% | 50% | 50% | 50% | 50% |
| Adjusted EPS | 50% | 50% | 50% | 50% | 50% | 50% |
| Cash conversion cycle | multiplier | multiplier | multiplier | multiplier | multiplier | multiplier |
In February 2018, the Committee determined the extent to which the goals were met in 2017 and the resulting payout. Below we explain how the Committee assessed the performance of the goals for the year and show the payout that was determined.
For 2017, the Committee chose the following as the performance goals for the annual cash incentive program:
| 2017 GOAL | EXPLANATION | REASON FOR USE AS APERFORMANCE MEASURE |
| Adjusted Net Sales | Net sales for 2017 on a constant currency basis, and adjusted to eliminate sales to Kimberly-Clark and corporate sales | A key indicator of overall growth |
| Adjusted EPS | Diluted net income per share, adjusted for spin-off related charges, intangible asset amortization, certain litigation costs, the impact of the Corpak acquisition, and the impact of certain tax reforms | A key indicator of overall performance |
| Cash Conversion Cycle | Days it takes to convert raw materials into finished goods and then collect on the sales of those finished goods | A measure of operational efficiency |
To determine the payout percentage, the Committee used the following process:
First, it determined an initial payout percentage based on how the Company performed against the adjusted net sales and adjusted EPS goals. For 2017, the Committee set these goals and the corresponding initial payout percentages at the following levels:
| RANGE OF PERFORMANCE LEVELS | |||
| MEASURE (EACH WEIGHTED 50%) | THRESHOLD | TARGET | MAXIMUM |
| Adjusted Net Sales (millions) | $ 1,473 | $ 1,550 | $ 1,628 |
| Adjusted EPS | $ 1.77 | $ 1.97 | $ 2.27 |
| Initial Payout Percentage | 0% | 100% | 200% |
Second, the Committee applied a multiplier to this initial payout percentage. The multiplier was based on how the Company performed against its cash conversion cycle goals. Depending on the level of improvement in cash conversion cycle, the multiplier would either decrease or increase the initial payout percentage (but the amount of the final payout percentage could not exceed a 225 percent cap).
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Compensation Discussion and Analysis
For 2017, the Committee set the following ranges for this cash conversion cycle multiplier:
| RANGE OF PERFORMANCE LEVELS | |||
| THRESHOLD | TARGET | MAXIMUM | |
| Cash Conversion Cycle | 114 days | 104 days | 95 days |
| Cash Conversion Cycle Multiplier Applied to Initial Payout Percentage | 0.8 x | 1.0 x | 1.2 x |
Actual results and actual payout percentages.For 2017, the Committee determined that the Company’s adjusted net sales were $1,542 million and its adjusted EPS was $2.33. Based on these results, the Committee determined the initial payout percentage to be 144.8 percent of target. To this percentage, the Committee then applied a cash conversion cycle multiplier of 115.6 percent, which was based on the actual 2017 cash conversion cycle of 97 days. After taking into account performance on all of these goals, the Committee determined that the payout percentage for achieving the 2017 performance goals should be 167.4 percent of target.
ANNUAL CASH INCENTIVE PAYOUTS FOR 2017
The following table shows the payout opportunities and the actual payouts of annual cash incentives for 2017 for each of our named executive officers. Payouts were based on the payout percentages for each element, weighted for each executive as shown above.
| ANNUAL INCENTIVE TARGET OPPORTUNITY | ANNUAL INCENTIVE MAXIMUM OPPORTUNITY | ACTUAL 2017 ANNUAL INCENTIVE PAYOUT | ||||
| NAME | % OF BASE SALARY | AMOUNT ($) | % OF TARGET | AMOUNT ($) | % OF TARGET | AMOUNT ($) |
| Joseph F. Woody | 115% | 1,017,750 | 225% | 2,289,938 | 167.4% | 884,124* |
| Robert E. Abernathy | 100% | 862,496 | 225% | 1,940,616 | 167.4% | 952,032** |
| Steven E. Voskuil | 70% | 314,681 | 225% | 708,032 | 167.4% | 522,939 |
| Rhonda D. Gibby | 50% | 160,472 | 225% | 361,062 | 167.4% | 267,312 |
| Christopher M. Lowery | 85% | 422,101 | 225% | 949,727 | 167.4% | 701,451 |
| John W. Wesley | 60% | 236,250 | 225% | 531,563 | 167.4% | 395,482 |
*Mr. Woody’s incentive payout for 2017 was prorated based on his first day of employment, June 23, 2017.
**Mr. Abernathy’s incentive payout for 2017 was prorated based on his last day of employment, August 31, 2017.
The Committee believes that the 2017 annual incentive payout is consistent with the pay-for-performance objective of our executive officer compensation program.
LONG-TERM EQUITY INCENTIVE COMPENSATION
Our executive officers receive annual long-term equity incentive grants as part of their overall compensation package. These awards are consistent with the objectives of aligning our senior leaders’ interests with the financial interests of our stockholders, focusing on our long-term success, supporting our performance-oriented environment, and offering competitive compensation packages.
Information regarding long-term equity incentive awards granted to our named executive officers can be found under“Summary Compensation,” “Grants of Plan-Based Awards,” and “Discussion of Summary Compensation and Plan-Based Awards Tables.”
2017 Grants
In determining the 2017 long-term equity incentive award amounts for our named executive officers, the following factors were considered by the Committee, among others: the specific responsibilities and performance of the
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Compensation Discussion and Analysis
executive, business performance, retention needs, stock price performance, and other market factors. Because these awards are part of the annual compensation program that compares total direct annual compensation to the median of the peer group comparison, grants from prior years were not considered when setting 2017 targets or granting awards.
To determine target values, each executive officer’s total direct annual compensation was compared to the median of the peer group, and then individual performance and the other factors listed above, as applicable, were considered. Target grant values were then approved by the Committee and were divided into two types:
| • | Performance-based restricted share units (60 percent of the target grant value). |
| • | Stock options (40 percent of the target grant value). |
The Committee believed this allocation between performance-based restricted share units (PRSUs) and stock options supports the pay-for-performance and stockholder alignment objectives of our executive officer compensation program. In 2017, the following annual long-term equity incentive awards were granted to our named executive officers:
| NAME | TARGET GRANT VALUE OF AWARDS ($) | TARGET PRSUS AWARDED (#) | TARGET STOCK OPTIONS AWARDED (#) |
| Joseph F. Woody | 3,540,000 | 53,193 | 149,053 |
| Robert E. Abernathy | 3,000,000 | 46,083 | 134,680 |
| Steven E. Voskuil | 800,000 | 12,289 | 35,915 |
| Rhonda D. Gibby | 350,000 | 5,376 | 15,713 |
| Christopher M. Lowery | 1,025,000 | 15,745 | 46,016 |
| John W. Wesley | 450,000 | 7,680 | 22,447 |
For valuation purposes, each PRSU granted was assigned a value equal to the closing price of one share ofCompany common stock at the end of the day on the date of grant, and each stock option was assigned a value equal to the Black-Scholes valuation for that option at the end of the day on the date of grant.
Performance Goals and Potential Payouts for
2015 – 2017 PRSUs
For the PRSUs granted in 2015, the actual number of shares to be received by our named executive officers can range from zero to 200 percent of the target levels established by the Committee for each executive, depending on the degree to which the performance objectives for these awards are met over a three-year period.
The performance objectives for the 2015 awards are based on compounded annual net sales growth and adjustedEBITDA growth for the period January 1, 2015 through December 31, 2017. The potential payouts at varying levels of performance for the 2015-2017 PRSUs were:
| GOAL | WEIGHT | THRESHOLD | TARGET | MAXIMUM |
| Net Sales (compounded) | 50% | 0% | 2.3% | 4.4% |
| Payout Scale | 0% | 100% | 200% | |
| Adjusted EBITDA Growth | 50% | 1.0% | 4.0% | 7.0% |
| Payout Scale | 0% | 100% | 200% |
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Compensation Discussion and Analysis
Payout of 2015-2017 PRSUs
In February 2017, the Committee evaluated the results of the three-year performance for the 2015 PRSUs. The Committee determined that net sales growth during that period was-1.6%, and Adjusted EBITDA growth during that period was -4.1%. As a result, the Committee determined that the payout percentage for these PRSUs would be zero.
Vesting Levels of Outstanding PRSUs
The performance goals of the PRSUs granted in 2017 and 2016 are based on relative total stockholder return and will vest on February 28, 2020 and March 1, 2019, respectively. As a result of the Company’s performance since those PRSUs were granted, the 2017 and 2016 PRSUs are on pace to vest at 81 percent and 200 percent of target, respectively.
Benefits and Other Compensation
RETIREMENT BENEFITS
Our named executive officers received contributions from the Company under the Halyard Health, Inc. 401(k) Plan (the “401(k) Plan”) and the Halyard Health, Inc. Supplemental Retirement 401(k) Plan (the “Supplemental 401(k) Plan”). The Company does not have a defined benefit pension plan in the United States, and none of our named executive officers participate in any Company defined benefit pension plans.
The 401(k) Plan and Supplemental 401(k) Plan are consistent with those maintained by our peer group companies and are therefore necessary to remain competitive for recruiting and retaining executive talent. The Committee believes that these retirement benefits are important parts of our compensation program. For more information, see “Nonqualified Deferred Compensation – Overview of Qualified and Non-Qualified Plans” and “Pension Benefits.”
OTHER COMPENSATION
We believe the perquisites provided to our executive officers are minimal and well below the median of those provided by our peer group. In addition, the Company does not provide tax reimbursement or gross-ups for perquisites offered to executive officers, except for certain relocation benefits.
POST-TERMINATION BENEFITS
We maintain two severance plans that cover our executive officers: the Severance Pay Plan and the Executive Severance Plan. An executive officer may not receive severance payments under more than one severance plan. Benefits under these plans are payable only if the executive’s employment terminates under the conditions specified in the applicable plan. We believe that our severance plans are consistent with those maintained by our peer group companies and that they are therefore important for attracting and retaining executives who are critical to our long-term success and competitiveness. For more information about these severance plans and their terms, see “Potential Payments on Termination or Change of Control – Severance Benefits.”
Severance Pay Plan
Our Severance Pay Plan provides severance benefits to most of our U.S. hourly and salaried employees, including our named executive officers, who are involuntarily terminated under the circumstances described in the plan. The objective of this plan is to facilitate the employee’s transition to his or her next position, and it is not intended to serve as a reward for the employee’s past service.
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Compensation Discussion and Analysis
Executive Severance Plan
Our Executive Severance Plan provides severance benefits to eligible executives, including our named executive officers, in the event of a qualified termination of employment (as defined in the plan) in connection with a change of control. For an eligible employee to receive a payment under this plan, two things must occur: there must be a change of control of the Company, and the executive must have been involuntarily terminated without cause or have resigned for good reason (as defined in the plan) within two years of the change of control (often referred to as a “double trigger”). The objective of this plan is to encourage the executive to stay with the Company in the event of a change of control transaction to ensure a smooth transition. Each of our named executive officers has entered into an agreement under the plan that expires on October 31, 2020.
Executive Compensation for 2018
On October 31, 2017, the Company entered into a Purchase Agreement (“Purchase Agreement”) with Owens & Minor, Inc. (“OMI”). The Purchase Agreement provides for the sale of substantially all of the Company’s Surgical and Infection Prevention (“S&IP”) business, among other things. The Company expects the transaction to close early in the second quarter of 2018. After the transaction closes, the Company will transform from a one that sells medical supplies and devices with annual net sales of about $1.6 billion into a pure-play medical devices company with annual net sales in excess of $600 million.
The Committee considered this expected transformation when it established executive compensation for 2018. As an initial matter, the Committee determined that the Company’s post-transaction peer group will be different. It will consist of the following 15 medical device equipment companies with a median annual revenue of about $1 billion.
2018 Executive Compensation Peer Group
| Abiomed, Inc. | Hologic, Inc. | Orthofix International Nv |
| Cantel Medical Corp | Integer Holdings Corp. | ResMed Inc. |
| CONMED Corporation | Integra Lifesciences Holding Corp | STERIS Corporation |
| Globus Medical Inc. | Masimo Corp | Teleflex Incorporated |
| Hill-Rom Holdings, Inc. | NuVasive, Inc. | Wright Medical Group Nv |
The Committee asked its compensation consultant, Meridian Compensation Partners LLC, to review the Company’s executive compensation practices in light of the new peer group. As a result of that analysis, the Committee decided not to change the Company’s compensation objectives and policies, its compensation design philosophy and guiding principles, or the components of its executive compensation program. However, in light of the sale of the S&IP business and the new peer group, and taking into account the factors described above in the section on the “Process for Setting Total Direct Annual Compensation Targets,” the Committee made 2018 base salary and short and long term incentive compensation award decisions for the named executive officers are described below:
| 2018 Proxy Statement | 37 |
Compensation Discussion and Analysis
2018 BASE SALARY
In February 2018, the Committee approved the base salaries for our named executive officers, effective April 1, 2018:
| 2018 BASE SALARY ($) | ||
| NAME | JANUARY TO MARCH | APRIL TO DECEMBER |
| Joseph F. Woody | 885,000 | 911,550 |
| Steve E. Voskuil | 449,544 | 463,030 |
| Rhonda D. Gibby | 320,943 | 324,152 |
| John W. Wesley | 393,750 | 393,750 |
2018 ANNUAL CASH INCENTIVE TARGETS
In February 2018, the Committee also established objectives for 2018 annual cash incentives, which will be payable in 2019. The target payment amounts and range of possible payouts for 2018 are as follows:
| TARGET PAYMENT AMOUNT | POSSIBLE PAYOUT | |
| Joseph F. Woody | 115% of base salary | 0% - 200% of target payment amount |
| Steven E. Voskuil | 70% of base salary | 0% - 200% of target payment amount |
| Rhonda D. Gibby | 50% of base salary | 0% - 200% of target payment amount |
| John W. Wesley | 60% of base salary | 0% - 200% of target payment amount |
The Committee sets the appropriate split among the different elements of performance that make up our performance goals. The following are the 2018 performance goals and relative weights for our named executive officers.
ANNUAL CASH INCENTIVE PROGRAM
2018 PERFORMANCE GOALS AND WEIGHTS
| JOSEPH F. WOODY | STEVEN E. VOSKUIL | RHONDA D. GIBBY | JOHN W. WESLEY | |
| Adjusted Net Sales | 70% | 70% | 70% | 70% |
| Adjusted EBITDA | 30% | 30% | 30% | 30% |
The performance goals for 2018 are designed to encourage a continued focus on executing our long-term business plans and objectives.
| 38 | 2018 Proxy Statement | |
Compensation Discussion and Analysis
2018 LONG-TERM EQUITY COMPENSATION INCENTIVE AWARDS
In February 2018, the Committee approved long-term incentive compensation awards for the named executive officers consisting of awards of performance-based restricted share units with a value equal to 60 percent of the target grant value for long-term equity incentive compensation, with the balance of the value to be granted in stock options. The performance objectives for the performance-based restricted share unit awards granted in 2018 are based on relative total stockholder return for the period January 1, 2018 through December 31, 2020. The actual number of shares to be received by our named executive officers will range from zero to 200 percent of the target levels established by the Committee for each executive, depending on the degree to which the performance objectives are met.
PERFORMANCE-BASED RESTRICTED SHARE UNITS GRANTED IN 2018
| NAME | TARGET AMOUNT OF SHARES (#) | MAXIMUM AMOUNT OF SHARES (#) |
| Joseph F. Woody | 43,436 | 86,872 |
| Steven E. Voskuil | 9,509 | 19,018 |
| Rhonda D. Gibby | 4,294 | 8,588 |
| John W. Wesley | 5,521 | 11,042 |
The Committee also approved the dollar amount of stock options to be granted to our named executive officers in May 2018, along with our annual stock option grants to other employees. The number of options they will receive will be based on the fair market value of our stock on the date of grant.
| NAME | VALUE OF STOCK OPTIONS TO BE GRANTED ($) |
| Joseph F. Woody | 1,416,000 |
| Steven E. Voskuil | 310,000 |
| Rhonda D. Gibby | 140,000 |
| John W. Wesley | 140,000 |
Additional Information about Our Compensation Practices
As a matter of sound governance, we follow certain practices with respect to our executive officer compensation program. We regularly review and evaluate our executive officer compensation practices in light of regulatory developments, market standards and other considerations.
USE OF INDEPENDENT COMPENSATION CONSULTANT
The Committee engaged Meridian Compensation Partners LLC (“Meridian”) as its independent consultant to assist it in determining the appropriate executive officer compensation under our compensation policies described above. Consistent with the Committee’s policy in which its independent consultant may provide services only to the Committee, Meridian had no other business relationship with the Company and received no payments from us other than fees and expenses for services to the Committee. See “Corporate Governance—Compensation Committee” for information about the use of compensation consultants.
ROLE OF THE CHIEF EXECUTIVE OFFICER IN COMPENSATION DECISIONS
Our CEO makes a recommendation to the Committee each year on the appropriate target annual compensation for each of the other executive officers. The Committee makes the final determination of the target annual compensation for each executive officer, including our CEO. While our CEO and Chief Human Resources Officer typically attend
| 2018 Proxy Statement | 39 |
Compensation Discussion and Analysis
Committee meetings, none of the other executive officers is present during the portion of the Committee’s meetings when compensation for executive officers is set. In addition, neither our CEO nor our Chief Human Resources Officer is present during the portion of the Committee’s meetings when their compensation is set.
ADJUSTMENT OF FINANCIAL MEASURES FOR ANNUAL AND LONG-TERM EQUITY INCENTIVES
Financial measures for the annual and long-term equity incentive programs are developed based on expectations about our planned activities and reasonable assumptions about the performance of our key business drivers for the applicable period. From time to time, however, discrete items or events may arise that were not contemplated by these plans or assumptions. These could include accounting and tax law changes, tax credits from items not within the ordinary course of our business operations, restructuring and write-off charges, significant acquisitions or dispositions, and significant gains or losses from litigation matters.
Under the Committee’s exception guidelines regarding our annual and long-term equity incentive program measures, the Committee may adjust in the future the calculation of financial measures for these incentive programs to eliminate the effect of the types of items or events described above. In making these adjustments, the Committee’s policy is to seek to neutralize the impact of the unexpected or unplanned items or events, whether positive or negative, in order to provide consistent and equitable incentive payments that the Committee believes are reflective of our performance. In considering whether to make a particular adjustment under its guidelines, the Committee will consider the potential tax impact of the adjustment under Code Section 162(m) and will review whether the item or event was one for which management was responsible and accountable, treatment of similar items in prior periods, the extent of the item’s or event’s impact on the financial measure, and the item’s or event’s characteristics relative to normal and customary business practices. Generally, the Committee will apply an adjustment to all compensation that is subject to that financial measure.
PRICING AND TIMING OF STOCK OPTION GRANTS AND TIMING
OF PERFORMANCE-BASED EQUITY GRANTS
Our policies and our Equity Participation Plan require stock options to be granted at no less than the closing price of our common stock on the date of grant, except for the options granted to replace Kimberly-Clark stock options forfeited as a result of the spin-off (which were priced to preserve the intrinsic value of the forfeited Kimberly-Clark options), and the other options granted following the spin-off which used a five-day variable weighted price. Stock option grants to our executive officers are generally made annually at a meeting of the Committee that is scheduled at least one year in advance, and the grants are effective on the date of this meeting. However, if the meeting occurs during a period when we do not permit insiders to trade Company common stock (a “Blackout Period”), the stock option grants will not be effective until the first business day following the end of the Blackout Period. Our Blackout Periods end at 11:59 p.m. on the day we issue our quarterly earnings press releases. Our executives are not permitted to choose the grant date for their individual stock option grants.
The CEO has been delegated the limited authority to approve equity grants, including stock options, to employees for recruiting and special employee recognition and retention purposes. These grants may not exceed 100,000 shares in calendar year 2018. The CEO is not permitted to make any grants to any of our executive officers.
Annual stock option grants to non-executive officers are effective on the same date as the annual stock option grants to our executive officers. Recruiting, special recognition, and retention stock-based awards are generally made on a pre-determined date following our quarterly earnings release.
The Committee awards performance-based restricted share units to executive officers at its February meetings. We believe this practice is consistent with award practices at other public companies of comparable size. Our executives are not permitted to choose the grant date for their individual restricted share unit awards.
| 40 | 2018 Proxy Statement | |
Compensation Discussion and Analysis
POLICY ON INCENTIVE COMPENSATION CLAWBACK
As described in detail above, a significant percentage of our executive officer compensation is incentive-based. The determination of the extent to which the incentive objectives are achieved is based in part on the Committee’s discretion and in part on our published financial results. The Committee has the right to reassess its determination of the performance awards if the financial statements on which it relied are restated. The Committee has the right to direct management to seek to recover from any executive officer any amounts determined to have been inappropriately received by the individual executive officer. In addition, under the Company’s Equity Participation Plan, the Committee may require awards with performance goals under the Plan to be subject to any policy we may adopt relating to the recovery of that award to the extent it is determined that performance goals relating to the awards were not actually achieved. Further, the Sarbanes-Oxley Act of 2002 mandates that the CEO and the chief financial officer reimburse us for any bonus or other incentive-based or equity-based compensation paid to them in a year following the issuance of financial statements that are later required to be restated as a result of misconduct. The Committee intends to review and revise the incentive compensation clawback policy once the SEC issues final regulations on clawbacks under the Dodd-Frank legislation enacted in 2010.
STOCK OWNERSHIP GUIDELINES
We strongly believe that the financial interests of our executive officers should be aligned with those of our stockholders. Accordingly, the Committee has established the following stock ownership guidelines for our executive officers:
TARGET STOCK OWNERSHIP AMOUNTS
| POSITION | OWNERSHIP LEVEL |
| Chief Executive Officer | Five times annual base salary |
| Other named executive officers | Two times annual base salary |
Failure to attain these targeted stock ownership levels within five years from date of hire for, or appointment to, an eligible position can result in the reduction of part or all of the executive’s annual cash incentive (with a corresponding grant of time-vested restricted share units or restricted stock in that amount), or a reduction in future long-term equity incentive awards, either of which may continue until the ownership guideline is achieved. In determining whether our stock ownership guidelines have been met, any restricted stock and time-vested restricted share units held are counted as owned, but performance-based restricted share units are excluded until they vest. Executive officer stock ownership levels will be reviewed annually for compliance with these guidelines.
OTHER POLICES RELATING TO TRANSACTIONS IN COMPANY SECURITIES
We require all executive officers to pre-clear transactions involving our common stock (and other securities related to our common stock) with our Legal Department.
We do not permit our executive officers to engage in transactions that hedge an executive officer’s economic risk of owning shares of our common stock. Additionally, our executives are not permitted to pledge shares of our common stock owned by them as collateral for loans or other obligations.
COMMITTEE EXERCISE OF DISCRETION TO REDUCE ANNUAL CASH INCENTIVE PAYMENT
In establishing performance goals and target levels under the annual cash incentive program, the Committee is exercising its discretion to limit the amount of the incentive payments, consistent with our pay-for-performance objective. In the absence of this exercise of discretion, our CEO would be entitled to an award equal to four percent of our earnings before unusual items, and each of our other executive officers would be entitled to an award equal to two percent of our earnings before unusual items; however, the Committee has exercised its discretion to limit the amount of the incentive payments each year of the program, and this potential maximum award has never been paid to any of the executive officers.
| 2018 Proxy Statement | 41 |
Compensation Discussion and Analysis
CORPORATE TAX DEDUCTION FOR EXECUTIVE COMPENSATION
The United States income tax laws generally limit the deductibility of compensation paid to any of a company’s named executive officers to $1,000,000 per year. Prior to the enactment of the Tax Cuts and Jobs Act of 2017 (the “New Tax Law”), this limitation did not apply to compensation paid to the chief financial officer or to qualified performance-based forms of compensation if certain requirements were met. Several classes of our executive compensation, including option awards and portions of our long-term equity grants to executive officers, were designed to meet the requirements for deductibility.
Among other things, the New Tax Law included the chief financial officer as one of the covered employees and eliminated exceptions to the limit for qualified performance-based forms of compensation. Compensation paid to our named executive officers in excess of $1,000,000 will no longer be deductible unless it qualifies for the transition relief provisions of the New Tax Law, which are limited to certain arrangements that were in place as of November 2, 2017. Despite the fact that certain of our executive programs that were in place prior such date were intended to qualify as performance-based compensation and have not been materially amended or modified, the Company recognizes that the applicability of the New Tax Law is ambiguous and subject to further interpretation. Accordingly, there can be no assurance that these awards will be fully deductible under the transition relief provisions of the New Tax Law.
Although tax deductibility of compensation is preferred, it is not a primary objective of our compensation programs. In the Committee’s view, meeting the compensation objectives set forth above is more important than the benefit of being able to deduct the compensation for tax purposes. The Committee has always reserved the ability to award compensation that is not exempt from the deduction limits of 162(m).
Compensation Committee Report In accordance with its written charter adopted by the Board, the Compensation Committee of the Company has oversight of compensation policies designed to align executive officers’ compensation with our overall business strategy, values, and management initiatives. In discharging its oversight responsibility, the Committee has retained an independent compensation consultant to advise the Committee regarding market and general compensation trends.
The Committee has reviewed and discussed the Compensation Discussion and Analysis with our management, which has the responsibility for preparing the Compensation Discussion and Analysis. Based upon this review and discussion, the Committee recommended to the Board that the Compensation Discussion and Analysis be included in this proxy statement and incorporated by reference in our Annual Report on Form 10-K filed with the SEC for the fiscal year ended December 31, 2017.
COMPENSATION COMMITTEE OF THE Julie Shimer, Chairperson |
| 42 | 2018 Proxy Statement | |
Compensation Discussion and Analysis
Analysis of Compensation-Related Risks
The Committee has reviewed an assessment of our compensation programs for our employees, including our executive officers, to analyze the risks arising from our compensation systems. The Committee’s independent consultant assisted with the review of our executive compensation programs.
Based on this assessment, the Committee believes that the design of our compensation programs, including our executive compensation program, does not encourage our executives or employees to take excessive risks and that the risks arising from these programs are not reasonably likely to have a material adverse effect on the Company.
Several factors contributed to the Committee’s conclusion, including:
| • | The Committee believes the Company maintains a values-driven, ethics-based culture supported by a strong tone at the top. |
| • | The performance targets for annual cash incentive programs are selected to ensure that they are reasonably attainable in a manner consistent with the Company’s business plans without encouraging executives or employees to take inappropriate risks. |
| • | An analysis by the Committee’s consultant indicated that our compensation programs are consistent with those of our peer group. In addition, the analysis noted that target levels for direct annual compensation are compared to the median of our peer group. |
| • | The Committee believes the allocation among the components of direct annual compensation provides an appropriate balance between annual and long-term incentives, total fixed, and performance-based compensation. |
| • | Annual cash incentives and long-term performance-based restricted share unit awards under our executive compensation program are capped at a reasonable percent of the target award, and all other material non-executive cash incentive programs are capped at reasonable levels, which the Committee believes protects against disproportionately large incentives. |
| • | The Committee believes the performance measures and the multi-year vesting features of the long-term equity incentive compensation component encourage participants to seek sustainable growth and value creation. |
| • | The Committee believes inclusion of share-based compensation through the long-term equity incentive compensation component encourages appropriate decision-making that is aligned with the long-term interests of stockholders. |
| • | Our stock ownership guidelines further align the interests of management and stockholders. |
| 2018 Proxy Statement | 43 |
| Compensation Tables |
The following table contains information concerning compensation awarded to, earned by, or paid to the Company’s named executive officers by the Company for the years 2015 through 2017. Position titles refer to each Company named executive officer’s title at the Company effective December 31, 2017. Additional information regarding the items reflected in each column follows the table.
SUMMARY COMPENSATION TABLE
| CHANGE | ||||||||||||||||||
| IN PENSION | ||||||||||||||||||
| VALUE AND | ||||||||||||||||||
| NON-EQUITY | NONQUALIFIED | |||||||||||||||||
| INCENTIVE | DEFERRED | |||||||||||||||||
| NAME AND | STOCK | OPTION | PLAN | COMPENSATION | ALL OTHER | |||||||||||||
| PRINCIPAL | SALARY | BONUS | AWARDS | AWARDS | COMPENSATION | EARNINGS | COMPENSATION | TOTAL | ||||||||||
| POSITION | YEAR | ($) | ($) | ($) | ($) | ($) | ($) | ($) | ($) | |||||||||
| Joseph F. Woody Chief Executive Officer | 2017 | 442,500 | — | 3,135,706 | 1,416,004 | 884,124 | — | 284,761 | 6,163,095 | |||||||||
| Robert E. Abernathy, Retired Chairman of the Board and Chief Executive Officer | 2017 | 664,566 | — | 2,259,910 | 1,199,999 | 952,032 | — | 127,689 | 5,204,197 | |||||||||
| 2016 | 837,375 | — | 2,465,829 | 1,199,999 | 1,400,091 | — | 55,752 | 5,959,046 | ||||||||||
| 2015 | 837,375 | — | 1,800,021 | 2,699,994 | 161,613 | — | 96,755 | 5,595,758 | ||||||||||
| Steven E. Voskuil Senior Vice President and Chief Financial Officer | 2017 | 449,544 | — | 602,653 | 320,003 | 522,940 | — | 79,422 | 1,974,562 | |||||||||
| 2016 | 436,450 | — | 657,562 | 319,997 | 510,821 | — | 45,916 | 1,970,746 | ||||||||||
| 2015 | 436,450 | — | 465,732 | 697,949 | 58,964 | — | 75,784 | 1,734,880 | ||||||||||
| Rhonda D. Gibby Senior Vice President and Chief Human Resources Officer | 2017 | 320,943 | — | 263,639 | 140,003 | 267,312 | — | 43,008 | 1,034,905 | |||||||||
| 2016 | 314,650 | — | 300,006 | 146,000 | 263,047 | — | 19,128 | 1,042,831 | ||||||||||
| 2015 | 314,650 | — | 209,980 | 315,008 | 30,364 | — | 22,891 | 892,892 |
| 44 | 2018 Proxy Statement | |
Compensation Tables
| CHANGE | ||||||||||||||||||
| IN PENSION | ||||||||||||||||||
| VALUE AND | ||||||||||||||||||
| NON-EQUITY | NONQUALIFIED | |||||||||||||||||
| INCENTIVE | DEFERRED | |||||||||||||||||
| NAME AND | STOCK | OPTION | PLAN | COMPENSATION | ALL OTHER | |||||||||||||
| PRINCIPAL | SALARY | BONUS | AWARDS | AWARDS | COMPENSATION | EARNINGS | COMPENSATION | TOTAL | ||||||||||
| POSITION | YEAR | ($) | ($) | ($) | ($) | ($) | ($) | ($) | ($) | |||||||||
| Christopher M. Lowery Senior Vice President and Chief Operating Officer | 2017 | 496,589 | 250,000 | 772,135 | 410,003 | 701,451 | — | 75,511 | 2,705,689 | |||||||||
| 2016 | 482,125 | — | 863,029 | 419,997 | 685,196 | — | 31,262 | 2,481,609 | ||||||||||
| 2015 | 482,125 | — | 604,232 | 902,739 | 79,093 | — | 42,381 | 2,110,570 | ||||||||||
| John W. Wesley Senior Vice President and General Counsel | 2017 | 393,750 | — | 376,627 | 200,003 | 395,482 | — | 51,263 | 1,417,125 | |||||||||
| 2016 | 393,750 | — | 410,971 | 200,000 | 395,010 | — | 24,392 | 1,424,123 | ||||||||||
| 2015 | 393,750 | — | 239,991 | 360,014 | 45,596 | — | 35,771 | 1,075,122 |
Salary.The amounts in this column represent base salary earned during the year.
Bonus.The amount in this column reflects the value of the cash retention incentive payment paid to Mr. Lowery for his performance under the terms of the July 31, 2017 Retention Incentive Agreement between him and the Company.
Stock Awards and Option Awards.The amounts in these columns reflect the grant date fair value, computed in accordance with ASC Topic 718, of restricted share unit awards and stock options, respectively, granted under the Halyard Health, Inc. Equity Participation Plan in 2017, 2016, and 2015. See Note [10] to our audited consolidated and combined financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2017 for the assumptions used in valuing and expensing these restricted share units and stock option awards in accordance with ASC Topic 718.
For awards that are subject to performance conditions, the value is based on the probable outcome of the conditions at grant date. This value, as well as the value of the awards at the grant date assuming the highest level of performance conditions will be achieved and using the grant date stock price, is set forth below:
| NAME | YEAR | STOCK AWARDS AT GRANT | STOCK AWARDS AT HIGHEST | |||
| DATE VALUE ($) | LEVEL OF PERFORMANCE | |||||
| CONDITIONS ($) | ||||||
| Joseph F. Woody | 2017 | 2,123,996 | 4,247,992 | |||
| Robert E. Abernathy | 2017 | 1,800,001 | 3,600,003 | |||
| 2016 | 1,800,009 | 3,600,018 | ||||
| 2015 | 1,800,021 | 3,600,042 | ||||
| Steven E. Voskuil | 2017 | 480,008 | 960,017 | |||
| 2016 | 480,008 | 960,016 | ||||
| 2015 | 465,732 | 931,464 | ||||
| Rhonda D. Gibby | 2017 | 209,986 | 419,973 | |||
| 2016 | 218,999 | 437,998 | ||||
| 2015 | 209,980 | 419,960 | ||||
| Christopher M. Lowery | 2017 | 614,999 | 1,229,999 | |||
| 2016 | 629,995 | 1,259,990 | ||||
| 2015 | 604,232 | 1,208,464 | ||||
| John W. Wesley | 2017 | 299,980 | 599,961 | |||
| 2016 | 300,002 | 600,004 | ||||
| 2015 | 239,991 | 479,982 |
| 2018 Proxy Statement | 45 |
Compensation Tables
Non-Equity Incentive Plan Compensation.The amounts in this column are the annual cash incentive payments described above in “Compensation Discussion and Analysis.” These amounts were earned during the years indicated and were paid to the Company’s named executive officers in February or March of the following year.
Change In Pension Value and Nonqualified Deferred Compensation Earnings.Each of the Company’s named executive officers participated in the Halyard Health Supplemental 401(k) Plan, a non-qualified defined contribution plan. Earnings on each of these plans are not included in the Summary Compensation Table because the earnings were not above-market or preferential. See “Nonqualified Deferred Compensation” below for a discussion of this plan and each named executive officer’s earnings under the plan in 2017.
All Other Compensation.All other compensation consists of the following:
| NAME | YEAR | PERQUISITES ($)(1) | DEFINED | TAX GROSS-UP | TOTAL ($) | |||||
| CONTRIBUTION PLAN | ($)(3) | |||||||||
| AMOUNTS ($)(2) | ||||||||||
| Joseph F. Woody | 2017 | 194,156 | 20,206 | 70,400 | 284,761 | |||||
| Robert E. Abernathy | 2017 | — | 127,689 | — | 127,689 | |||||
| 2016 | — | 55,752 | — | 55,752 | ||||||
| 2015 | — | 96,755 | — | 96,755 | ||||||
| Steven E. Voskuil | 2017 | 8,446 | 69,788 | 1,189 | 79,422 | |||||
| 2016 | 10,000 | 27,543 | 8,374 | 45,916 | ||||||
| 2015 | 18,585 | 41,637 | 15,562 | 75,784 | ||||||
| Rhonda D. Gibby | 2017 | — | 43,008 | — | 43,008 | |||||
| 2016 | — | 19,128 | — | 19,128 | ||||||
| 2015 | — | 22,891 | — | 22,891 | ||||||
| Christopher M. Lowery | 2017 | — | 75,511 | — | 75,511 | |||||
| 2016 | — | 31,262 | — | 31,262 | ||||||
| 2015 | — | 42,381 | — | 42,381 | ||||||
| John W. Wesley | 2017 | — | 51,263 | — | 51,263 | |||||
| 2016 | — | 24,392 | — | 24,392 | ||||||
| 2015 | — | 35,771 | — | 35,771 |
| (1) | Perquisites. Perquisites for Mr. Woody included reimbursement for moving expenses in connection with his relocation to the Atlanta area to assume his new role as CEO of the Company in 2017. Perquisites for Mr. Voskuil included reimbursement for moving expenses in connection with his relocation to the Atlanta area to continue in his role as CFO. |
| (2) | Defined Contribution Plan Amounts. Matching contributions were made under the Halyard Health 401(k) Plan and Supplemental 401(k) Plan in 2017 for Mr. Woody and in 2017, 2016, and 2015 for each of the Company’s other named executive officers. |
| (3) | Tax Gross-Ups. The amount shown for Mr. Woody reflects tax reimbursement under our executive relocation program in connection with his relocation to the Atlanta area to assume his new role as CEO of the Company in 2017. |
| 46 | 2018 Proxy Statement | |
Compensation Tables
The following table sets forth Company plan-based awards granted to the Company’s named executive officers during 2017 on a grant-by-grant basis.
GRANTS OF PLAN-BASED AWARDS IN 2017
| ESTIMATED FUTURE PAYOUTS | ESTIMATED FUTURE PAYOUTS | |||||||||||||||||||||||||
| UNDER NON-EQUITY | UNDER EQUITY INCENTIVE | |||||||||||||||||||||||||
| INCENTIVE PLAN AWARDS(1) | PLAN AWARDS(2) | |||||||||||||||||||||||||
| ALL OTHER | ALL OTHER | |||||||||||||||||||||||||
| STOCK | OPTION | GRANT | ||||||||||||||||||||||||
| AWARDS: | AWARDS: | EXERCISE | DATE FAIR | |||||||||||||||||||||||
| NUMBER | NUMBER OF | OR BASE | VALUE OF | |||||||||||||||||||||||
| DATE | OF SHARES | SECURITIES | PRICE OF | STOCK AND | ||||||||||||||||||||||
| COMMITTEE | OF STOCK | UNDERLYING | OPTION | OPTION | ||||||||||||||||||||||
| TOOK | GRANT | THRESHOLD | TARGET | MAXIMUM | THRESHOLD | TARGET | MAXIMUM | OR UNITS | OPTIONS | AWARDS | AWARDS | |||||||||||||||
| NAME | GRANT TYPE | ACTION(3) | DATE(3) | ($) | ($) | ($) | (#) | (#) | (#) | (#) | (#)(4) | ($/SH) | ($)(5) | |||||||||||||
| Joseph F. | Performance- | 06/19/2017 | 6/26/2017 | 53,193 | 106,386 | 2,135,699 | ||||||||||||||||||||
| Woody | based RSUs | |||||||||||||||||||||||||
| Time-vested | 06/19/2017 | 6/26/2017 | 149,053 | 39.93 | 1,416,004 | |||||||||||||||||||||
| stock option | ||||||||||||||||||||||||||
| Annual cash | 1,017,750 | 2,289,938 | ||||||||||||||||||||||||
| incentive | ||||||||||||||||||||||||||
| award | ||||||||||||||||||||||||||
| Sign-on | 06/19/2017 | 6/26/2017 | 25,044 | 1,000,007 | ||||||||||||||||||||||
| Grant(6) | ||||||||||||||||||||||||||
| Robert E. | Performance- | 46,083 | 92,166 | 2,259,910 | ||||||||||||||||||||||
| Abernathy | based RSUs | |||||||||||||||||||||||||
| Time-vested | 134,680 | 36.74 | 1,199,999 | |||||||||||||||||||||||
| stock option | ||||||||||||||||||||||||||
| Annual cash | 862,496 | 1,940,616 | ||||||||||||||||||||||||
| incentive | ||||||||||||||||||||||||||
| award | ||||||||||||||||||||||||||
| Steven E. | Performance- | 02/22/2017 | 2/28/2017 | 12,289 | 24,578 | 602,653 | ||||||||||||||||||||
| Voskuil | based RSUs | |||||||||||||||||||||||||
| Time-vested | 02/22/2017 | 5/3/2017 | 35,915 | 36.74 | 320,003 | |||||||||||||||||||||
| stock option | ||||||||||||||||||||||||||
| Annual cash | 314,681 | 708,032 | ||||||||||||||||||||||||
| incentive | ||||||||||||||||||||||||||
| award | ||||||||||||||||||||||||||
| Rhonda D. | Performance- | 02/22/2017 | 2/28/2017 | 5,376 | 10,752 | 263,639 | ||||||||||||||||||||
| Gibby | based RSUs | |||||||||||||||||||||||||
| Time-vested | 02/22/2017 | 5/3/2017 | 15,713 | 36.74 | 140,003 | |||||||||||||||||||||
| stock option | ||||||||||||||||||||||||||
| Annual cash | 160,472 | 361,061 | ||||||||||||||||||||||||
| incentive | ||||||||||||||||||||||||||
| award | ||||||||||||||||||||||||||
| Christopher | Performance- | 02/22/2017 | 2/28/2017 | 15,745 | 31,490 | 772,135 | ||||||||||||||||||||
| M. Lowery | based RSUs | |||||||||||||||||||||||||
| Time-vested | 02/22/2017 | 5/3/2017 | 46,016 | 36.74 | 410,003 | |||||||||||||||||||||
| stock option | ||||||||||||||||||||||||||
| Annual cash | 422,101 | 949,726 | ||||||||||||||||||||||||
| incentive | ||||||||||||||||||||||||||
| award | ||||||||||||||||||||||||||
| John W. | Performance- | 02/22/2017 | 2/28/2017 | 7,680 | 15,360 | 376,627 | ||||||||||||||||||||
| Wesley | based RSUs | |||||||||||||||||||||||||
| Time-vested | 02/22/2017 | 5/3/2017 | 22,447 | 36.74 | 200,003 | |||||||||||||||||||||
| stock option | ||||||||||||||||||||||||||
| Annual cash | 236,250 | 531,563 | ||||||||||||||||||||||||
| incentive | ||||||||||||||||||||||||||
| award | ||||||||||||||||||||||||||
| (1) | Represents the potential annual performance-based incentive cash payments each named executive officer could earn in 2017. These awards were granted under the Executive Officer Achievement Award Program, which is the annual cash incentive program for the Company’s executive officers. Actual amounts earned in 2017 were based on the 2017 objectives established by the Company’s Compensation Committee. See “Compensation Discussion and Analysis.” At the time of the grant, the incentive payment could range from the threshold amount to the maximum amount depending on the extent to which the 2017 objectives were met. The actual amounts paid in 2018 based on the 2017 objectives are set forth in the Summary Compensation Table under the column entitled “Non-Equity Incentive Plan Compensation.” |
| (2) | Performance-based restricted share units granted to the named executive officers under the Equity Participation Plan. |
| (3) | The grant date for each award is the effective date of each grant established by the Company’s Compensation Committee when it took action to grant the awards, unless there is a date for such grant in the column entitled “Date Committee Took Action.” If the date on which the Committee takes action to approve a grant falls during a blackout period during which insiders are not permitted to buy or sell shares of our common stock, then the grant is made effective as of a later date when the blackout period has expired. Our blackout periods typically expire at 11:59 p.m. Eastern time on the day after we publicly release the results of the prior quarter. In addition, as described in “Compensation Discussion and Analysis,” the Committee approved the dollar value of annual time-vested stock options grants to executive officers at its meetings in February but the option award is not effective until May when annual option awards are granted to non-executive officers. |
| (4) | Time-vested stock options granted under the Equity Participation Plan to Mr. Woody on June 26, 2017, and to the other named executive officers on May 3, 2017, with respect to annual long-term incentive grants. See “Compensation Discussion and Analysis” for a discussion of our annual long-term annual grants. |
| (5) | Grant date fair value is determined in accordance with ASC Topic 718. See Note 12 to our audited consolidated and combined financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2017 for the assumptions used in valuing and expensing these restricted share units and stock option awards in accordance with ASC Topic 718. |
| (6) | Time-vested restricted share units granted under the Equity Participation Plan to Mr. Woody on June 26, 2017 as a signing bonuses when he agreed to assume his role as Chief Executive Officer of the Company. |
| 2018 Proxy Statement | 47 |
Compensation Tables
OUTSTANDING EQUITY AWARDS AS OF DECEMBER 31, 2017(1)
| OPTION AWARDS(2) | STOCK AWARDS | |||||||||||||||||
| NUMBER OF | NUMBER OF | |||||||||||||||||
| SECURITIES | SECURITIES | NUMBER OF | MARKET VALUE | EQUITY INCENTIVE PLAN | EQUITY INCENTIVE PLAN | |||||||||||||
| UNDERLYING | UNDERLYING | SHARES OR | OF SHARES OR | AWARDS: NUMBER OF | AWARDS: MARKET OR PAYOUT | |||||||||||||
| UNEXERCISED | UNEXERCISED | OPTION | OPTION | UNITS OF STOCK | UNITS OF STOCK | UNEARNED SHARES, UNITS | VALUE OF UNEARNED SHARES, | |||||||||||
| OPTIONS (#) | OPTIONS (#) | EXERCISE | EXPIRATION | THAT HAVE NOT | THAT HAVE NOT | OR OTHER RIGHTS THAT | UNITS, OR OTHER RIGHTS THAT | |||||||||||
| NAME | GRANT DATE | EXERCISABLE | UNEXERCISABLE | PRICE ($)(3) | DATE | VESTED (#)(4) | VESTED ($)(7) | HAVE NOT VESTED (#) | HAVE NOT VESTED ($)(9) | |||||||||
| Joseph F.Woody | 6/26/2017 | 149,053 | 39.93 | 6/26/2027 | ||||||||||||||
| 6/26/2017 | 25,044 | 1,156,532 | ||||||||||||||||
| 6/26/2017 | 53,193 | 2,456,453 | ||||||||||||||||
| Robert E. Abernathy | 5/3/2017 | 134,680 | 36.74 | 9/1/2022 | ||||||||||||||
| 2/28/2017 | 46,083 | 2,128,113 | ||||||||||||||||
| 5/5/2016 | 155,844 | 29.48 | 9/1/2022 | |||||||||||||||
| 3/1/2016 | 65,598(9) | 3,029,316 | ||||||||||||||||
| 5/5/2015 | 96,154 | 45.53 | 9/1/2022 | |||||||||||||||
| 3/5/2015 | 39,587 | 1,828,128 | ||||||||||||||||
| 11/7/2014 | 21,999 | 37.88 | 9/1/2022 | |||||||||||||||
| Steven E. Voskuil | 5/3/2017 | 35,915 | 36.74 | 5/3/2027 | ||||||||||||||
| 2/28/2017 | 12,289 | 567,506 | ||||||||||||||||
| 5/5/2016 | 12,467 | 29,091 | 29.48 | 5/5/2026 | ||||||||||||||
| 3/1/2016 | 17,493(9) | 807,827 | ||||||||||||||||
| 5/5/2015 | 14,904 | 9,936 | 45.43 | 5/5/2025 | ||||||||||||||
| 3/18/2015 | 713 | 47.62 | 3/5/2025 | |||||||||||||||
| 3/18/2015 | 330(8) | 15,239 | ||||||||||||||||
| 3/5/2015 | 21,404 | 45.47 | 3/5/2025 | |||||||||||||||
| 3/5/2015 | 9,897(8) | 457,043 | ||||||||||||||||
| 11/7/2014 | 14,135 | 26.04 | 5/2/2022 | |||||||||||||||
| 11/7/2014 | 20,443 | 34.24 | 5/1/2023 | |||||||||||||||
| 11/7/2014 | 31,671 | 37.50 | 6/19/2024 | |||||||||||||||
| 11/7/2014 | 6,000 | 37.88 | 11/7/2024 | |||||||||||||||
| Rhonda D. Gibby | 5/3/2017 | 15,713 | 36.74 | 5/3/2027 | ||||||||||||||
| 2/28/2017 | 5,376 | 248,264 | ||||||||||||||||
| 5/5/2016 | 5,688 | 13,273 | 29.48 | 5/5/2026 | ||||||||||||||
| 3/1/2016 | 7,981(9) | 368,563 | ||||||||||||||||
| 5/5/2015 | 6,730 | 4,488 | 45.53 | 5/5/2025 | ||||||||||||||
| 3/5/2015 | 4,618(8) | 213,259 | ||||||||||||||||
| 3/5/2015 | 9,989 | 45.47 | 3/5/2025 | |||||||||||||||
| 11/7/2014 | 5,378 | 26.04 | 5/2/2022 | |||||||||||||||
| 11/7/2014 | 10,223 | 34.24 | 5/1/2023 | |||||||||||||||
| 11/7/2014 | 11,333 | 37.50 | 6/19/2024 | |||||||||||||||
| 11/7/2014 | 3,600 | 37.88 | 11/7/2024 | |||||||||||||||
| 48 | 2018 Proxy Statement | |
Compensation Tables
| OPTION AWARDS(2) | STOCK AWARDS | |||||||||||||||||
| NUMBER OF | NUMBER OF | |||||||||||||||||
| SECURITIES | SECURITIES | NUMBER OF | MARKET VALUE | EQUITY INCENTIVE PLAN | EQUITY INCENTIVE PLAN | |||||||||||||
| UNDERLYING | UNDERLYING | SHARES OR | OF SHARES OR | AWARDS: NUMBER OF | AWARDS: MARKET OR PAYOUT | |||||||||||||
| UNEXERCISED | UNEXERCISED | OPTION | OPTION | UNITS OF STOCK | UNITS OF STOCK | UNEARNED SHARES, | VALUE OF UNEARNED SHARES, | |||||||||||
| GRANT | OPTIONS (#) | OPTIONS (#) | EXERCISE | EXPIRATION | THAT HAVE NOT | THAT HAVE NOT | UNITS OR OTHER RIGHTS | UNITS, OR OTHER RIGHTS | ||||||||||
| NAME | DATE | EXERCISABLE | UNEXERCISABLE | PRICE ($)(3) | DATE | VESTED (#)(4) | VESTED ($)(7) | THAT HAVE NOT VESTED (#) | THAT HAVE NOT VESTED ($)(9) | |||||||||
| Christopher M. Lowery | 5/5/2016 | 16,363 | 29.48 | 5/5/2026 | ||||||||||||||
| 5/5/2015 | 19,230 | 45.53 | 5/5/2025 | |||||||||||||||
| 11/7/2014 | 5,840 | 26.04 | 5/2/2022 | |||||||||||||||
| 11/7/2014 | 9,713 | 34.24 | 5/1/2023 | |||||||||||||||
| 11/7/2014 | 19,336 | 37.50 | 6/19/2024 | |||||||||||||||
| 11/7/2014 | 14,200 | 37.88 | 11/7/2024 | |||||||||||||||
| John W. Wesley | 5/3/2017 | 22,447 | 36.74 | 5/3/2027 | ||||||||||||||
| 2/28/2017 | 7,680 | 354,662 | ||||||||||||||||
| 5/5/016 | 7,792 | 18,182 | 29.48 | 5/5/2026 | ||||||||||||||
| 3/1/2016 | 10,933 | 504,886 | ||||||||||||||||
| 5/5/2015 | 7,692 | 5,129 | 45.53 | 5/5/2025 | ||||||||||||||
| 3/5/2015 | 5,278 | 243,738 | ||||||||||||||||
| 3/5/2015 | 11,416 | 45.57 | 3/5/2025 | |||||||||||||||
| 11/7/2014 | 2,200 | 37.88 | 11/7/2024 | |||||||||||||||
| (1) | The amounts shown reflect outstanding equity awards granted under the Equity Participation Plan. |
| (2) | Stock options granted under the Equity Participation Plan generally become exercisable in three annual installments of 30 percent, 30 percent and 40 percent, beginning on the first anniversary of the grant date. Grow to Greatness awards become exercisable in three annual installments of 33.3% each, beginning on March 5, 2017. |
| All options become exercisable for three years upon death or total and permanent disability and for the earlier of five years or the remaining term of the options, upon retirement of the officer. In addition, options generally become exercisable upon a termination of employment following a change of control, and options granted to the named executive officers are subject to the Executive Severance Plan. See “Potential Payments on Termination or Change of Control” below. The options may be transferred by the officers to family members or certain entities in which family members have interests. | |
| (3) | The option price per share is equal to the closing price per share of the Company’s common stock at grant date, except for replacement options which have a grant price intended to preserve the intrinsic value of the forfeited Kimberly-Clark option being replaced, and options granted immediately following the spin-off which were priced using a weighted average closing price for the first five trading days following the effective date of the spin-off. |
| (4) | Time-vested restricted share units granted under the Equity Participation Plan to Mr. Woody on June 26,2017 as a signing bonus when he agreed to assume his role as Chief of Executive Officer of the Company. |
| (5) | The values in this column are based on the closing price of our common stock on December 29, 2017 of $46.18 per share. |
| (6) | These performance restricted share units vest on March 5, 2018. |
| (7) | These performance restricted share units vest on March 1, 2019. |
| (8) | These performance restricted share units vest on February 28, 2020. |
| (9) | The values in this column are based on the closing price of our common stock on December 29, 2017 of $46.18 per share. The value assumes the performance-based restricted share units will payout at target. As of December 31, 2017, the performance-based share units issued in March 2015 are on pace to pay out at zero percent, the performance-based share units issued in March 2016 are on pace to payout at 200 percent, and the performance-based share units issued in February 2017 and June 2017 are on pace to payout at 81 percent. |
| 2018 Proxy Statement | 49 |
Compensation Tables
Discussion Of Summary Compensation And Plan-Based Awards Tables
The Company’s executive compensation policies and practices, pursuant to which the compensation set forth in the Summary Compensation Table and the Grants of Plan-Based Awards in 2017 table was paid or awarded, are described under “Compensation Discussion and Analysis” above.
The following table sets forth information concerning outstanding Company equity awards for the named executive officers as of December 31, 2017. The 2017 and 2016 awards were part of our annual long-term incentive compensation awards. The 2015 awards were part of our annual long-term incentive compensation awards or our 2015 Grow to Greatness awards. The March 18, 2015 grants to Messrs. Lowery and Voskuil were made to correct errors in the calculation of their annual long-term incentive compensation awards and our 2015 Grow to Greatness awards.
Option Exercises and Stock Vested
The following table sets forth information concerning Company stock options exercised and stock awards vested during 2017 for the Company’s named executive officers.
OPTION EXERCISES AND STOCK VESTED IN 2017
| OPTION AWARDS | STOCK AWARDS(1) | |||||||
| NUMBER | NUMBER | |||||||
| OF SHARES | OF SHARES | |||||||
| ACQUIRED ON | VALUE REALIZED | ACQUIRED | VALUE REALIZED | |||||
| NAME | EXERCISE (#) | ON EXERCISE ($) | ON VESTING (#) | ON VESTING ($)(2) | ||||
| Joseph F. Woody | — | — | — | — | ||||
| Robert E. Abernathy | — | — | 38,302 | 1,512,929 | ||||
| Steven E. Voskuil | — | — | 15,517 | 649,571 | ||||
| Rhonda D. Gibby | — | — | 6,990 | 298,095 | ||||
| Christopher M. Lowery | — | — | 19,904 | 872,946 | ||||
| John W. Wesley | — | — | 8,024 | 330,386 | ||||
| (1) | The amounts in this table reflect Company time-based restricted share units that vested during the year. |
| (2) | The dollar amount reflects the total pre-tax value received by the Company’s named executive officers upon the vesting of the time-vested restricted share units (number of shares vested times the closing price of the Company’s common stock on the vesting date), including cash paid in lieu of fractional shares. It is not the grant date fair value disclosed in other locations in this proxy statement. |
The Company does not offer a pension plan in the United States, and none of the Company’s executive officers participate in a Company pension plan.
Nonqualified Deferred Compensation
The following table sets forth information concerning the Company’s nonqualified defined contribution plan and deferred compensation plans for the Company’s named executive officers during 2017.
| 50 | 2018 Proxy Statement | |
Compensation Tables
2017 NONQUALIFIED DEFERRED COMPENSATION
| NAME | PLAN | COMPANY | AGGREGATE | AGGREGATE BALANCE | ||||
| CONTRIBUTIONS IN | EARNINGS IN 2017 | AT DECEMBER 31, 2017 | ||||||
| 2017 ($)(1) | ($)(2) | ($) | ||||||
| Joseph F. Woody | Supplemental 401(k) Plan | 4,006 | 73 | 4,079 | ||||
| Robert E. Abernathy | Supplemental 401(k) Plan | 111,489 | 148,710 | 966,553 | ||||
| Steven E. Voskuil | Supplemental 401(k) Plan | 53,588 | 38,808 | 280,050 | ||||
| Rhonda D. Gibby | Supplemental 401(k) Plan | 26,808 | 13,455 | 102,236 | ||||
| Christopher M. Lowery | Supplemental 401(k) Plan | 59,311 | 16,438 | 168,307 | ||||
| John W. Wesley | Supplemental 401(k) Plan | 35,063 | 53,398 | 399,590 |
| (1) | Contributions consist of amounts accrued by the Company under the Halyard Supplemental 401(k) Plan. These amounts are included in the Summary Compensation Table and represent a portion of the Defined Contribution Plan Payments included in All Other Compensation. |
| (2) | The amounts in this column show the changes in the aggregate account balance for the Company’s named executive officers during 2017 that are not attributable to company contributions. Aggregate earnings are not included in the Summary Compensation Table because the earnings are not above-market or preferential. |
Overview of Qualified and Non-Qualified Plans.The following is an overview of the Company’s qualified and non-qualified plans offered to our executive officers as of December 31, 2017.
| HALYARD 401(K) PLAN | HALYARD SUPPLEMENTAL 401(K) PLAN | |
| Purpose | To assist employees in saving for retirement | To provide benefits to the extent necessary to fulfillthe intent of the Halyard 401(k) Plan without regardto the limitations imposed by the Code on qualifieddefined contribution plans |
| Eligible participants | Most employees | Salaried employees impacted by limitations imposed by the Code on the Halyard 401(k) Plan |
| Is the plan qualified under the Code? | Yes | No |
| Can employees make contributions? | Yes | No |
| Does the Company make contributions ormatch employee contributions? | The Company matches 100% of employeecontributions, to a yearly maximum of 6% ofeligible compensation. | The Company provides credit to the extent theCompany’s contributions to the Halyard 401(k) Planare limited by the Code |
| When do account balances vest? | Immediately | Immediately |
| How are account balances invested? | Account balances are invested in certain designated investment options selected by the participant | Account balances are credited with earnings and losses as if such account balances were invested in certain designated investment options selected by the participant |
| When are account balances distributed? | Distributions of the participant’s vested account balance are only available after termination of employment. Loans, hardship and certain other withdrawals are allowed prior to termination of employment for certain vested amounts under the Halyard 401(k) Plan | Distributions of the participant’s vested account balance are payable after termination of employment. |
The Halyard Supplemental 401(k) Plan is not funded and represents a general obligation of the Company.
| 2018 Proxy Statement | 51 |
Compensation Tables
Potential Payments on Termination or Change of Control
The Company’s executive officers are eligible to receive certain benefits in the event of termination of employment, including following a change of control of the Company. This section describes various termination scenarios as well as the payments and benefits payable under those scenarios.
Severance Benefits
The Company maintains two severance plans that cover its executive officers, depending on the circumstances that result in their termination. Those plans include the Executive Severance Plan, which is applicable when an executive officer is terminated following a change of control, and the Severance Pay Plan, which is applicable in the event of certain other involuntary terminations. An executive officer may not receive severance payments under more than one of the plans described below.
Executive Severance Plan. The Company’s Board of Directors determines the eligibility criteria for participation in the Executive Severance Plan. The Company has entered into an agreement under this plan with each of its named executive officers. The agreements provide that, in the event of a “Qualified Termination of Employment” (as described below), the executive officers will each receive a cash payment in an amount equal to the sum of:
| • | For the CEO, two times the sum of annual base salary and the average of the annual cash incentive award for the prior three years, or such fewer number of years for which the CEO had been employed by the Company, and for any other executive officer, one and one-half times the sum of annual base salary and the average of the annual cash incentive award for the prior three years, or such fewer number of years for which the executive officer had been employed by the Company, |
| • | If the separation from service occurs after March 31 of a given year, the pro-rated annual cash incentive award for that year, assuming that performance was achieved at the target level of performance, |
| • | The value of any outstanding stock option awards, based on the closing price of the Company’s common stock at the date of the Qualified Termination of Employment, |
| • | The value of the employer match each executive officer would have received if he or she had remained employed an additional two years under the Halyard Health 401(k) Plan and Halyard Health Supplemental 401(k) Plan, and |
| • | For the CEO, two times the value of the amount of COBRA premiums for medical and dental coverage and for any other executive officer, one and one-half times the value of the amount of COBRA premiums for medical and dental coverage. |
A “Qualified Termination of Employment” is a separation from service within two years following a change of control of the Company (as defined in the plan) either involuntarily without cause or by the participant with good reason (as defined in the plan). In addition, any involuntary separation from service without cause within one year before a change of control will also be determined to be a Qualified Termination of Employment if it is in connection with, or in anticipation of, a change of control.
The current agreements with each executive officer expire on October 31, 2020, unless extended by the Company’s Compensation Committee.
The Executive Severance Plan provides that the executive officers are not entitled to a tax gross-up if they incur an excise tax due to the application of Section 280G of the Code. Instead, payments and benefits payable to an executive officer will be reduced to the extent doing so would result in the officer retaining a larger after-tax amount, taking into account the income, excise and other taxes imposed on the payments and benefits.
The agreements with the executive officers provide that they will retain in confidence any confidential information known to them concerning the Company and the Company’s business so long as such information is not publicly disclosed.
| 52 | 2018 Proxy Statement | |
Compensation Tables
Severance Pay Plan. The Company’s Severance Pay Plan generally provides eligible employees (including the Company’s named executive officers) severance payments and benefits in the event of certain involuntary terminations. Benefits under the Severance Pay Plan depend on the participants’ employee classification. Under the Severance Pay Plan, if an executive officer’s employment was involuntarily terminated, he or she would receive:
| • | For the CEO, two times the sum of annual base salary and the average annual incentive award for the three prior fiscal years, or such fewer number of years for which the CEO had been employed by the Company, and for any other executive officer, one and one-half times the sum of annual base salary and the average annual incentive award for the three prior fiscal years, or such fewer number of years for which the executive officer had been employed by the Company, |
| • | If the termination occurs after March 31 of a given year, a pro-rated annual incentive award for that year based on actual performance, |
| • | Six months of COBRA premiums for medical coverage, and |
| • | Six months of outplacement services and three months of participation in Halyard’s employee assistance program. |
Severance pay under the Severance Pay Plan will not be paid to any participant who is terminated for cause (as defined in the plan), is terminated during a period in which the participant is not actively at work for more than 25 weeks (except to the extent otherwise required by law), voluntarily quits or retires, dies or is offered a comparable position (as defined in the plan).
A named executive officer must execute a full and final release of claims against the Company within a specified period of time following termination to receive severance benefits under the Severance Pay Plan. If the release has been timely executed, severance benefits are payable as a lump sum cash payment no later than 60 days following the participant’s termination date. Any current year annual incentive award that is payable under the Severance Pay Plan will be paid at the same time as it was payable under the Executive Officer Achievement Award Program or the Management Achievement Award Program, as applicable, but no later than 60 days following the calendar year of the separation from service.
Retirement, Death and Disability
Retirement. Retirement is defined as separation from service on or after the age of 60 with five years of service, or on or after age 55 with ten years of service. Years of service at Kimberly-Clark prior to the spin-off are considered years of service for the definition of retirement. In the event of retirement, the Company’s named executive officers are entitled to receive:
| • | Accelerated vesting of unvested stock options (excluding the Grow-to-Greatness options granted in 2015), and the options will be exercisable until the earlier of five years or the remaining term of the options, |
| • | For units outstanding more than six months after the date of grant, performance-based restricted share units will be payable based on attainment of the performance goal at the end of the performance period, |
| • | Time-vested restricted share units will be vested pro rata, based on the number of full months of employment during the restricted period prior to the participant’s termination of employment, payable within 70 days following the end of the performance period, |
| • | Annual incentive award payment under the Executive Officer Achievement Award Program or the Management Achievement Award Program, as applicable, as determined by the Halyard Compensation Committee in its discretion. |
Death. In the event of death while an active employee, the following benefits are payable:
| • | Accelerated vesting of unvested stock options, and the options will be exercisable until the earlier of three years or the remaining term of the options, |
| • | Time-vested restricted share units will be vested pro rata, based on the number of full months of employment during the restricted period prior to the participant’s termination of employment, payable within 70 days following the end of the restricted period, |
| • | For units outstanding more than six months after the date of grant, performance-based restricted share units will be vested pro rata, based on attainment of the performance goal at the end of the restricted period, payable within 70 days following the end of the performance period, |
| 2018 Proxy Statement | 53 |
Compensation Tables
| • | Annual incentive award payment under the Executive Officer Achievement Award Program or the Management Achievement Award Program, as applicable, as determined by the Halyard Compensation Committee in its discretion, and |
| • | Payment of benefits under the Company’s group life insurance plan (which is available to all salaried employees in the United States) equal to two times the participant’s annual pay, up to $1 million (plus any additional coverage of three, four, five or six times the participant’s annual pay, in increments of up to $1 million each, purchased by the participant at group rates). The Company-provided and employee-purchased benefits cannot exceed $6 million. |
Disability. In the event of a separation from service due to a total and permanent disability, as defined in the applicable plan, the Company’s named executive officers are entitled to receive:
| • | Accelerated vesting of unvested stock options, and the options will be exercisable until the earlier of three years or the remaining term of the options, |
| • | Time-vested restricted share units will be vested pro rata, based on the number of full months of employment during the restricted period prior to the participant’s termination of employment, payable within 70 days following the end of the performance period, |
| • | For units outstanding more than six months after the date of grant, performance-based restricted share units will be vested pro rata, based on attainment of the performance goal at the end of the restricted period, payable within 70 days following the end of the restricted period, |
| • | Annual incentive award payment under the Executive Officer Achievement Award Program or the Management Achievement Award Program, as applicable, as determined by the Company’s Compensation Committee in its discretion, |
| • | Continuing coverage under the Company’s group life insurance plan (available to all U.S. salaried employees), with no requirement to make monthly contributions toward coverage during disability, and |
| • | Payment of benefits under the Company’s Long-Term Disability Plan (available to all U.S. salaried employees). Long-term disability under the plan would provide income protection of monthly base pay, ranging from a minimum monthly benefit of $50 to a maximum monthly benefit of $20,000. Benefits are reduced by the amount of any other Company or government-provided income benefits received (but will not be lower than the minimum monthly benefit). |
Potential Payments on Termination or Change of Control Table
The following table presents the approximate value of (1) the severance benefits for the named executive officers under the Executive Severance Plan had a Qualified Termination of Employment under that plan occurred on December 31, 2017; (2) the severance benefits for the Halyard named executive officers under the Severance Pay Plan if an involuntary termination had occurred on December 31, 2017; (3) the benefits that would have been payable on the death of the Halyard named executive officers on December 31, 2017; (4) the benefits that would have been payable on the total and permanent disability of the Halyard named executive officers on December 31, 2017; and (5) the potential payments to Mr. Wesley if he had retired on December 31, 2017. If applicable, amounts in the table were calculated using the closing price of Halyard’s common stock on December 31, 2017 of $46.18 per share. Because Mr. Abernathy retired during 2017, the amounts in the table for him reflect only the value of the retirement benefits he received as of the date of retirement.
Because none of the Company’s named executive officers, other than Mr. Wesley, were eligible to retire as of December 31, 2017, potential payments assuming retirement on that date are not included for the other named executive officers. The value of benefits that already were vested as of December 31, 2017, such as vested but unexercised stock options and the balances of the executive officers’ accounts under the Halyard Health 401(k) Plan and the Halyard Supplemental 401(k) Plan, are not included in the table.
| 54 | 2018 Proxy Statement | |
Compensation Tables
The amounts presented in the following table are in addition to amounts each Company named executive officer earned or accrued prior to termination, such as previously vested benefits under Company’s qualified and nonqualified plans, previously vested options, restricted stock and restricted share units and accrued salary and vacation. For information about these previously earned and accrued amounts, see the “Summary Compensation Table,” “Outstanding Equity Awards,” “Option Exercises and Stock Vested,” and “Nonqualified Deferred Compensation.”
| NAME | CASH | EQUITY WITH ACCELERATED | ADDITIONAL RETIREMENT | CONTINUED BENEFITS | TOTAL ($) |
| PAYMENT ($) | VESTING ($) | BENEFITS ($) | AND OTHER AMOUNTS ($) | ||
| Joseph F. Woody | |||||
| Qualified Termination of Employment in connection with a Change in Control(1) | 4,046,793 | 931,581(2) | 197,009(3) | 33,520(4) | 5,208,903 |
| Involuntary termination absent a Change in Control(5) | 4,046,793 | 13,799(6) | 4,060,592 | ||
| Death(7) | 1,884,124(8) | 1,533,745(2) | 3,417,869 | ||
| Disability | 884,124 | 1,533,745(2) | 2,417,869 | ||
| Robert E. Abernathy | |||||
| Retirement | 4,178,962(2) | 4,178,962 | |||
| Steven E. Voskuil | |||||
| Qualified Termination of Employment in connection with a Change in Control(1) | 1,305,760 | 1,917,044(2) | 85,580(3) | 34,777(4) | 3,343,160 |
| Involuntary termination absent a Change in Control(5) | 1,305,760 | 16,768(6) | 1,322,528 | ||
| Death(7) | 1,422,040(8) | 1,930,751(2) | 3,352,791 | ||
| Disability | 522,940 | 3,001,283(2) | 3,524,223 | ||
| Rhonda D. Gibby | |||||
| Qualified Termination of Employment in connection with a Change in Control(1) | 810,345 | 838,061(2) | 55,199(3) | 20,490(4) | 1,724,096 |
| Involuntary termination absent a Change in Control(5) | 810,345 | 12,243(6) | 822,588 | ||
| Death(7) | 909,212(8) | 869,682(2) | 1,778,894 | ||
| Disability | 267,312 | 1,327,744(2) | 1,595,056 | ||
| Christopher M. Lowery | |||||
| Qualified Termination of Employment in connection with a Change in Control(1) | 1,543,696 | 805,159(2) | 98,170(3) | 28,963(4) | 2,475,987 |
| Involuntary termination absent a Change in Control(5) | 1,543,696 | 14,825(6) | 1,558,521 | ||
| Death(7) | 1,694,651(8) | 2,506,055(2) | 4,200,706 | ||
| Disability | 701,451 | 2,213,627(2) | 2,915,078 | ||
| John W. Wesley | |||||
| Qualified Termination of Employment in connection with a Change in Control(1) | 1,075,267 | 680,364(2) | 71,846(3) | 34,777(4) | 1,862,254 |
| Involuntary termination absent a Change in Control(5) | 1,075,267 | 16,768(6) | 1,092,035 | ||
| Death(7) | 1,182,983(8) | 1,157,464(2) | 2,340,447 | ||
| Disability | 395,483 | 1,310,850(2) | 1,706,333 | ||
| Retirement | 395,483 | 1,157,464(2) | 1,552,947 |
| (1) | Represents amounts payable under the Halyard Health Executive Severance Plan. |
| (2) | Assumes that performance-based restricted stock units would vest at target level. |
| (3) | Includes the value of two additional years of employer contributions under the Halyard 401(k) Plan and the Halyard Supplemental 401(k) Plan, pursuant to the terms of the Executive Severance Plan. |
| (4) | Includes an amount equal to 24 months of COBRA medical and dental coverage for Mr. Woody and 18 months of COBRA medical and dental coverage for the other executive officers. |
| (5) | Benefits payable under the Halyard Health Severance Pay Plan. |
| (6) | Equals six months of COBRA medical coverage and outplacement services. |
| (7) | Balances in each executive’s accounts under the Halyard 401(k) Plan and the Halyard Supplemental 401(k) Plan are excluded because the payout of those balances upon death is a benefit available to all U.S. salaried employees. |
| (8) | For death, includes the payment of benefits under the Company’s group life insurance plan (which is available to all U.S. salaried employees). For death and disability, assumes the Company Compensation Committee would approve payment under the Executive Officer Achievement Award Program for 2017 at the actual award level discussed in Compensation Discussion and Analysis. |
The cost of continued coverage under the Company’s group life insurance plans has been excluded from the table because the benefit is available to all U.S. salaried employees and does not discriminate in scope or terms or operation in favor of our named executive officers. Figures also do not include benefits payable under Halyard’s Long-Term Disability Plan (which is available to all U.S. salaried employees), the value of which would be dependent on the life span of the Company’s named executive officer and the value of any Company or government-provided income benefits received. |
| 2018 Proxy Statement | 55 |
Compensation Tables
Ratio of CEO Compensation to Median Employee Compensation
The 2017 compensation disclosure ratio of the median annual total compensation of all Company employees worldwide to the annual total compensation of the Company’s CEO is as follows:
| CATEGORY | 2017 TOTAL COMPENSATION AND RATIO ($) |
| Annual total compensation of Mr. Woody (A) | 6,605,595 |
| Median annual total compensation of all employees worldwide (excluding Mr. Woody) (B) | 5,285 |
| Ratio of A to B | 1,250:1 |
The Company identified the median employee by examining the following compensation elements for all individuals, excluding Mr. Woody: current base salary, 2016 bonus paid in 2017, grant date value of 2017 long-term grants, trailing 12 months of commissions and overtime. The Company determined the median employee based on its workforce as of December 31, 2017, and included all full-time and part-time employees. After identifying the median employee, the Company calculated annual total compensation for such employee using the same methodology used for named executive officers as set forth in the Summary Compensation Table.
| 56 | 2018 Proxy Statement | |
| Other Information |
Security Ownership Information
The following table shows the number of shares of our common stock beneficially owned as of March 3, 2018, by each director and nominee, by each named executive officer, and by all directors, nominees and executive officers as a group.
| NAME | NUMBER OF SHARES (1)(2)(3)(4)(5)(6) | PERCENT OF CLASS |
| Gary D. Blackford | 14,920 | * |
| John P. Byrnes | 14,948 | * |
| Ronald W. Dollens | 14,920 | * |
| Rhonda D. Gibby | 96,538 | * |
| William A. Hawkins, III | 14,296 | * |
| Heidi Kunz | 14,925 | * |
| Patrick J. O’Leary | 14,970 | * |
| Maria Sainz | 14,112 | * |
| Dr. Julie Shimer | 14,920 | * |
| Steven E. Voskuil | 220,175 | * |
| John W. Wesley | 82,337 | * |
| Joseph F. Woody | 121,673 | |
| All directors, nominees and executiveofficers as a group (12 persons) | 677,915 | 1.44 |
* Each director, nominee, and named executive officer owns less than one percent of the outstanding shares of our common stock.
| (1) | Except as otherwise noted, the directors, nominees and named executive officers, and the directors, nominees and executive officers as a group, have sole voting and investment power with respect to the shares listed. | |
| (2) | A portion of the shares owned by certain executive officers and directors may be held in margin accounts at brokerage firms. Under the terms of the margin account agreements, stocks and other assets held in these accounts may be pledged to secure margin obligations. As of the date of this proxy statement, none of the executive officers or directors has any outstanding margin obligations under any of these accounts. | |
| (3) | Share amounts include unvested restricted share units granted to the following named executive officers under the Halyard Health, Inc. Equity Participation Plan as indicated below. Amounts representing performance-based restricted share units (“PRSUs”) in the table below represent target levels for the awards. The PRSUs in the table below were granted on March 1, 2016, February 28, 2017 and February 27, 2018. |
| NAME | TIME-VESTED RESTRICTED SHARE UNITS (#) | PERFORMANCE-BASED RESTRICTED SHARE UNITS (#) |
| Joseph F. Woody | 25,044 | 96,629 |
| Steven E. Voskuil | 0 | 49,518 |
| Rhonda D. Gibby | 0 | 22,269 |
| John W. Wesley | 0 | 29,412 |
| 2018 Proxy Statement | 57 |
Other Information
| (4) | For each director who is not an officer or employee of the Company, share amounts include restricted share units granted under our Outside Directors’ Compensation Plan. These awards are restricted and may not be transferred, pledged or sold until the Outside Director retires from or otherwise terminates service on the Board. | |
| (5) | Includes the following shares which could be acquired within 60 days of the date of this proxy statement: | |
| NAME | NUMBER OF SHARES |
| Joseph F. Woody | 0 |
| Steve E. Voskuil | 50,777 |
| Rhonda D. Gibby | 22,837 |
| John W. Wesley | 28,739 |
| All directors, nominees and executive officers as a group (12 persons) | 114,225 |
| (6) | Mr. Abernathy ceased being an executive officer and director upon his retirement in 2017, and Chris Lowery ceased being an executive officer upon his severance in 2017, and therefore their ownership of Halyard shares is excluded from this table. |
Our Corporate Governance Policies provide that, within five years of joining the Board, all Outside Directors should own an amount of our common stock or restricted share units at least equal in value to five times the annual Board cash compensation. For the purpose of these stock ownership guidelines, a director is deemed to own beneficially-owned shares as well as restricted share units (whether or not any applicable restrictions have lapsed).
The following table sets forth the information, as of December 31, 2017, regarding persons or groups known to us to be beneficial owners of more than five percent of our common stock.
| NAME AND ADDRESS OF BENEFICIAL OWNER | NUMBER OF SHARES OF COMMON STOCK BENEFICIALLY OWNED | PERCENTAGE OF COMMON STOCK OUTSTANDING |
| T. Rowe Price Associates, Inc.(1) 100 E. Pratt Street Baltimore, MD 21202 | 5,242,359 | 11.17 |
| The Vanguard Group(2) 100 Vanguard Boulevard Malvern, PA 19355 | 4,313,428 | 9.19 |
| Dimensional Fund Advisors L.P.(3) Building One 6300 Bee Cave Road Austin, TX 78746 | 3,380,363 | 7.20 |
| (1) | The address, number and percentage of shares of our common stock beneficially owned by T. Rowe Price Associates, Inc. (“Price Associates”) are based on Schedule 13G filed by Price Associates with the SEC on February 14, 2018. According to the filing, Price Associates had sole voting power with respect to 1,282,431, sole dispositive power with respect to 5,242,359 shares, and did not have shared voting or dispositive power as to any shares. | |
| (2) | The address, number and percentage of shares of our common stock beneficially owned by The Vanguard Group are based on the Schedule 13G filed by The Vanguard Group with the SEC on February 7, 2018. According to the filing, The Vanguard Group had sole voting power with respect to 51,594 shares, sole dispositive power with respect to 4,260,304 shares, shared voting power with respect to 5,687 shares, and shared dispositive power with respect to 53,124 shares. | |
| (3) | The address, number and percentage of shares of our common stock beneficially owned by Dimensional Fund Advisors L.P. are based on the Schedule 13G filed by Dimensional Fund Advisors L.P. with the SEC on February 9, 2018. According to the filing, Dimensional Fund Advisors L.P. had sole voting power with respect to 3,266,824 shares, sole dispositive power with respect to 3,380,363 shares, and did not have shared voting or dispositive power as to any shares. |
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our directors, executive officers, chief accounting officer, and any person beneficially owning more than 10 percent of our common stock to file reports with the SEC regarding their ownership of our stock and any changes in ownership. We maintain a compliance program to assist our directors, executive officers and chief accounting officer in making these filings. Based solely on a review of the Section 16 forms filed with the SEC during 2017, and certifications from our executive officers, directors, and chief accounting officer that no other reports were required for them, we believe that our executive officers, directors, and chief accounting officer and persons who beneficially own more than 10 percent of our common stock timely complied with their filing requirements for 2017, except that our chief accounting officer received a grant of time-based restricted share units on December 21, 2017, and the Form 4 reporting that grant was not filed until January 2, 2018.
| 58 | 2018 Proxy Statement | |
Other Information
Transactions with Related Persons
Policies and Procedures for Review, Approval or Ratification of Related Person Transactions.The Board has adopted written procedures for reviewing any transactions between the Company and certain “related persons” that involve amounts above certain thresholds. The SEC requires that our proxy statement disclose these “related person transactions.” A related person is defined under the SEC’s rules and includes our directors, executive officers and five percent stockholders.
The Board’s procedures provide that:
| • | The Governance Committee is best suited to review, approve and ratify related person transactions involving any director, nominee for director, any five percent stockholder, or any of their immediate family members or related firms. | |
| • | The Audit Committee is best suited to review, approve and ratify related person transactions involving executive officers (or their immediate family members or related firms), other than any executive officer that is also a Board member. | |
| • | Either Committee may, in its sole discretion, refer its consideration of related person transactions to the full Board. |
Each director, director nominee and executive officer is required to promptly provide written notification of any material interest that he or she (or an immediate family member) has or will have in a transaction with the Company. Based on a review of the transaction, a determination will be made as to whether the transaction constitutes a related person transaction under the SEC’s rules. As appropriate, the Governance Committee or the Audit Committee will then review the terms and substance of the transaction to determine whether to ratify or approve the related person transaction.
In determining whether the transaction is consistent with the Company’s best interest, the Governance Committee or the Audit Committee may consider any factors deemed relevant or appropriate, including:
| • | Whether the transaction is on terms comparable to those that could be obtained in arm’s-length dealings with an unrelated third party; | |
| • | Whether the transaction constitutes a conflict of interest under our Code of Conduct, the nature, size or degree of any conflict, and whether mitigation of the conflict is feasible; | |
| • | The impact of the transaction on a director’s independence; and | |
| • | Whether steps have been taken to ensure fairness to the Company. |
2017 Related Person Transactions.Based on SEC rules, the Board’s procedures, and the factors listed above there were no related party transactions in 2017.
Stockholders Sharing the Same Household
As permitted by SEC rules, multiple stockholders sharing the same address who hold their stock through a bank, broker, or other holder of record may receive a single copy of our annual report to stockholders and this proxy statement. Upon written or oral request, we will promptly deliver a separate copy of the annual report to stockholders and this proxy statement to any stockholder at a shared address to which a single copy of each document was delivered. Please contact Stockholder Services by mail at 5405 Windward Parkway, Suite 100 South, Alpharetta, GA 30004, by telephone at 678-425-9273, or by e-mail at stockholder.services@hyh.com. In addition, any stockholder who wants to receive separate copies of the proxy statement or the annual report to stockholders in the future, or who is currently receiving multiple copies and would like to receive only one copy for his or her household, should contact his or her bank, broker, or other nominee record holder.
Proposals by stockholders for inclusion in our proxy statement and form of proxy pursuant to SEC Rule 14a-8 for the Annual Meeting of Stockholders to be held in 2019 should be addressed to the Corporate Secretary, Halyard
| 2018 Proxy Statement | 59 |
Other Information
Health, Inc. 5405 Windward Parkway, Suite 100 South, Alpharetta, GA 30004, and must be received at this address no later than November 11, 2018; provided that if the date of the 2018 Annual Meeting of Stockholders is more than 30 days before or after April 26, 2019 (the anniversary date of the 2018 Annual Meeting), the deadline will be a reasonable time before we begin to print and send our proxy materials to stockholders. Upon receipt of a proposal, we will determine whether or not to include the proposal in the proxy statement and form of proxy in accordance with applicable law. It is suggested that proposals be forwarded by certified mail, return receipt requested.
Stockholder Nominations for Board of Directors
Under our By-Laws, a stockholder who wishes to nominate a candidate for election to the Board is required to give written notice to our Corporate Secretary at our principal executive offices. We must receive this notice at least 90 days, but not more than 120 days, before the anniversary of the prior year’s Annual Meeting of stockholders (unless the date of the annual meeting is more than 30 days before or more than 60 days after the anniversary date, in which case the notice must be received at least 90 days, but not more than 120 days, before the annual meeting date; or if we give less than 100 days’ notice of the annual meeting date, in which case the notice must be received within 10 days after the meeting date is announced). For a special meeting, we must receive the written nomination at least 90 days, but not more than 120 days, before the special meeting date (unless we give less than 100 days’ notice of the special meeting date, in which case the notice must be received within 10 days after the meeting date and the nominees proposed by the Board to be elected at the meeting are announced).
Our By-Laws specify information that the notice must contain about both the nominee and the nominating stockholder, including information sufficient to allow the Governance Committee to determine if the candidate meets the director nominee criteria described in this proxy statement.
The notice must contain:
| • | the name and address of the nominating stockholder; | |
| • | information about certain Company stock holdings of the nominating stockholder, including shares of stock, derivative holdings, arrangements under which the nominating stockholder has a right to vote shares, short interests, dividend rights that are separated or separable from the underlying shares, shares held through general or limited partnerships, and certain performance-related fees; | |
| • | information about any interests of the nominating stockholder in contracts with the Company, its affiliates or principal competitors, as well as any significant equity interests, derivative holdings, or short interests in the Company’s principal competitors; | |
| • | as to the nominee and the nominating stockholder, any information that would be required to be disclosed in connection with a proxy solicitation (and whether a proxy solicitation will be conducted); | |
| • | information about certain related-person transactions, contact and related information regarding the nominee; and | |
| • | information about any compensation and other understandings during the past three years, and other material relationships, between the nominating stockholder and the nominee. |
The notice must be accompanied by each nominee’s written consent to being named in the proxy statement and to serving as a director if elected, and a completed and signed questionnaire, representation and agreement as required by our By-Laws.
A nomination that does not comply with the requirements set forth in our By-Laws will not be considered for presentation at the annual meeting, but will be considered by the Governance Committee for any vacancies arising on the Board between annual meetings in accordance with the process described in “Proposal 1. Election of Directors — Process and Criteria for Nominating Directors.”
| 60 | 2018 Proxy Statement | |
Other Information
Annual Meeting Advance Notice Requirements
Our By-Laws require advance notice for any business to be brought by a stockholder before a meeting of stockholders. In general, for business to be properly brought before an annual meeting by a stockholder (other than in connection with the election of directors; see “Other Information — Stockholder Nominations for Board of Directors”, and other than pursuant to SEC Rule 14a-8), written notice of the stockholder proposal must be received by our Corporate Secretary at our principal executive offices not less than 90 days nor more than 120 days prior to the first anniversary of the preceding year’s Annual Meeting of stockholders (unless the date of the annual meeting is more than 30 days before or more than 60 days after the anniversary date, in which case the notice must be received at least 90 days, but not more than 120 days, before the annual meeting date; or if we give less than 100 days’ notice of the annual meeting date, the notice must be received within 10 days after the meeting date is announced). For the 2019 Annual Meeting, our Corporate Secretary must receive the proposal, which must conform to the notice requirements in our By-Laws, between December 27, 2018 and January 26, 2019.
Under our By-Laws, the stockholder’s notice to the Corporate Secretary must contain certain information regarding the stockholder, including name and address, shares held, derivative positions, dividend rights that are separate or separable from the underlying shares and certain performance-related fees. Additional information concerning the advance notice requirements and a copy of our By-Laws may be obtained from the Corporate Secretary of the Company at the address provided below. A copy of our By-Laws is also available in the Investors section of our website at www.halyardhealth.com.
Copies of our Annual Report on Form 10-K may be obtained without charge by: writing to Halyard Health, Inc., Attn: Corporate Secretary, 5405 Windward Parkway, Suite 100 South, Alpharetta, Georgia 30004; accessing the Investors section of our website at www.halyardhealth.com; or accessing the SEC’s EDGAR database at www.sec.gov.
| 2018 Proxy Statement | 61 |
Other Matters to be Presented at the Annual Meeting
Our management does not know of any other matters to be presented at the Annual Meeting. Should any other matter requiring a vote of the stockholders arise at the meeting, the persons named in the proxy will vote the proxies in accordance with their best judgment.
Halyard Health, Inc. 5405 Windward Parkway, Suite 100 South Alpharetta, Georgia 30004
Telephone (678) 425-9273 March 9, 2018
| By Order of the Board of Directors.
Ross Mansbach Vice President — Deputy General Counsel |
| 62 | 2018 Proxy Statement | |
Adjusted net income and adjusted diluted earnings per share are financial measures that have not been calculated in accordance with accounting principles generally accepted in the U.S., or GAAP, and are therefore referred to as non-GAAP financial measures.
Adjusted net income and adjusted diluted earnings per share exclude the following items, as applicable, for the relevant time periods indicated in the following non-GAAP reconciliation to the most directly comparable GAAP financial measures:
| • | Expenses associated with the divestiture of the S&IP business and corporate restructuring costs. |
| • | Transition costs relating to the separation from Kimberly-Clark, which include costs to establish Halyard Health’scapabilities as a stand-alone entity. These costs are related primarily to rebranding and other supply chaintransition costs. Going forward, these costs are not expected to be material; therefore, they will no longer beexcluded from adjusted earnings. |
| • | Certain acquisition and integration charges related to the acquisition of Corpak Medsystems, Inc. Going forward,these costs are not expected to be material. Therefore, they will no longer be excluded from adjusted earnings. |
| • | Expenses associated with certain legal matters. |
| • | Expenses associated with the amortization of intangible assets related to prior business acquisitions. |
| • | Impact of tax reform or tax regulatory changes from prior periods. |
| • | Charges or gains associated with policy changes. |
The reconciliation of adjusted net income and adjusted diluted earnings per share to the most directly comparable GAAP measures, which are net income and diluted earnings per share, is presented in the following table (in millions, except per share amounts):
| YEAR ENDED DECEMBER 31, | ||
| 2017 ($) | 2016 ($) | |
| Net income, as reported | 79.3 | 39.8 |
| Diluted EPS, as reported | 1.69 | 0.85 |
| Restructuring charges | 3.2 | — |
| Divestiture-related charges | 12.4 | — |
| Acquisition-related charges | 4.7 | 10.9 |
| Spin-related transition charges | (0.6) | 14.1 |
| Litigation and legal | 12.8 | 12.6 |
| Policy changes | (5.0) | — |
| Intangibles amortization | 13.4 | 13.9 |
| Regulatory tax changes | (10.1) | 1.4 |
| Net income, as adjusted (non-GAAP) | 110.1 | 92.7 |
| Diluted EPS, as adjusted (non-GAAP) | 2.35 | 1.99 |
| Diluted weighted average shares outstanding | 46.8 | 46.6 |
| 2018 Proxy Statement | 63 |
HALYARD HEALTH, INC. | VOTE BY INTERNET -www.proxyvote.com Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 p.m. Eastern Time on April 25, 2018. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form.
ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receive all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years.
VOTE BY PHONE - 1-800-690-6903 Use any touch-tone telephone to transmit your voting instructions up until 11:59 p.m. Eastern Time on April 25, 2018. Have your proxy card in hand when you call and then follow the instructions.
VOTE BY MAIL Mark, sign and date your below proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. In order for your mailed proxy to be voted at the meeting, it must be received by the company at the address set forth in the proxy statement by close of business on April 25, 2018. |
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
| E35637-P01526 KEEP THIS PORTION FOR YOUR RECORDS | ||||
DETACH AND RETURN THIS PORTION ONLY | ||||
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
HALYARD HEALTH, INC. | |||||||||||||||||||||
The Board of Directors recommends a voteFOR all nominees in Proposal 1 andFOR Proposals 2 and 3. | |||||||||||||||||||||
1. Election of Class I Directors (Serving until the Annual Meeting in 2021). | |||||||||||||||||||||
Nominees: | For | Withhold | |||||||||||||||||||
1a. |
William A. Hawkins |
o |
o | ||||||||||||||||||
1b. |
Gary D. Blackford |
o |
o | ||||||||||||||||||
1c. |
Patrick J. O’Leary |
o |
o | ||||||||||||||||||
| For | Against | Abstain | |||||||||||||||||||
2. Ratification of the selection of Deloitte & Touche LLP as the independent registered public accounting firm to audit the Company’s 2018 financial statements. |
o |
o |
o | ||||||||||||||||||
3. Advisory vote to approve named executive officer compensation. |
o |
o |
o | ||||||||||||||||||
For address changes and/or comments, please check this box and write them on the back where indicated. |
o | ||||||||||||||||||||
Please indicate if you plan to attend this meeting.
HOUSEHOLDING ELECTION - please indicate if you consent to receive certain future investor communications in a single package per household. | Yes o Yes o | No o No o |
Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name by authorized officer. | ||||||||||||||||||
Signature [PLEASE SIGN WITHIN BOX]
| Date
| Signature (Joint Owners)
| Date
|
2018 Annual Meeting Admission Ticket
2018 Annual Meeting of
Halyard Health, Inc. Stockholders
April 26, 2018
9:00 a.m. Eastern Time
5405 Windward Parkway
Alpharetta, GA 30004
Upon arrival, please present this admission ticket
and photo identification at the registration desk.
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting:
The Notice and Proxy Statement and Annual Report on Form 10-K are available at www.proxyvote.com.
E35638-P01526
Proxy — Halyard Health, Inc.
Notice of 2018 Annual Meeting of Stockholders
Proxy Solicited by Board of Directors for Annual Meeting – April 26, 2018
Important Notice Regarding the Availability of Proxy Materials for the Stockholders Meeting to be held on April 26, 2018.
The Halyard Health, Inc. Proxy Statement, Annual Report on Form 10-K for the fiscal year ended December 31, 2017 and this proxy card are available at www.proxyvote.com.
Joe Woody, Steve Voskuil, and John Wesley, or any of them, with full power of substitution to each, hereby are appointed proxies and are authorized to vote, as specified on the reverse side of this card, all shares of common stock that the undersigned is entitled to vote at the Annual Stockholders Meeting of Halyard Health, Inc., to be held at the Company’s headquarters, 5405 Windward Parkway, Alpharetta, GA 30004, on April 26, 2018 at 9:00 a.m. Eastern Time and at any postponement or adjournment thereof. The undersigned hereby revokes any other proxy previously executed by the undersigned for the Annual Stockholders Meeting and acknowledges receipt of notice of the Annual Stockholders Meeting and the proxy statement. In their discretion, the proxies are authorized to vote on such other business as may properly come before the meeting or at any postponement or adjournment thereof.
IF YOU RETURN THIS PROXY AND NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED FOR ALL NOMINEES IN PROPOSAL 1 AND FOR PROPOSALS 2-3.IF YOU PREFER TO VOTE SEPARATELY ON INDIVIDUAL PROPOSALS YOU MAY DO SO BY MARKING THE APPROPRIATE BOXES AND SIGNING AND DATING ON THE REVERSE SIDE. This proxy, when properly executed, will be voted as you direct on the reverse side.
Please date, sign and return this proxy/voting instruction card promptly. If you own shares directly and plan to attend the Annual Stockholders Meeting, please so indicate in the space provided on the reverse side. To attend the Annual Meeting and vote these shares in person, please see “Attending the Annual Meeting” and “How to Vote” in the Halyard Health, Inc. proxy statement.
IF YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, PLEASE RETURN THIS CARD IN THE SELF-ADDRESSED ENVELOPE PROVIDED.
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(If you noted any Address Changes/Comments above, please mark corresponding box on the reverse side.)
(Items to be voted appear on reverse side.)