OUR MISSION

Alleviate pain and improve the quality of life for people around the world.

GUIDING PRINCIPLES

●   Respect the contributions and perspectives of all employees.

●   Commit to the highest standards of patient safety, quality and integrity.

●   Focus our resources in areas where we will make a difference.

●   Ensure the company’s return is equivalent to the value we provide our customers and patients.

●   Give back to our communities and people in need.

 

COMMITMENT TO DIVERSITY, EQUITY AND INCLUSION   Consistent with our Guiding Principles, in 2020 we committed our voices and our resources to community groups, business platforms and other organizations united to driving meaningful change and sustained social justice. In that spirit, we launched several initiatives to drive and accelerate change both within Zimmer Biomet and around the globe, including continuing our support of Movement is Life, a multidisciplinary coalition seeking to eliminate racial, ethnic and gender disparities in muscle and joint health, committing at least $5 million over five years through the Zimmer Biomet Foundation to nonprofit organizations dedicated to combating racism and supporting diversity, equality and justice, and engaging our 20,000 global employees in cultural awareness and inclusion programming.

 

SHAREHOLDER ENGAGEMENT AND ENVIRONMENTAL, SOCIAL AND GOVERNANCE PRIORITIES   We proactively reached out to shareholders representing more than 50% of our outstanding shares over the past year and engaged in discussions on a variety of subjects, including the impact of the COVID-19 global pandemic on our business, operations and employees, which is discussed further in the Compensation Discussion and Analysis section of this proxy statement. We also discussed various environmental, social and governance (“ESG”) topics that were of interest to shareholders. Please look for more information on our ESG priorities in our upcoming Sustainability Report, which we expect to release this summer.

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS   The statements included in this proxy statement, including in the “Letter from Our President and Chief Executive Officer” and in the section entitled “Executive Compensation – Compensation Discussion and Analysis – Executive Summary,” regarding future financial performance, results of operations, expectations, plans, strategies, goals, priorities and other statements that are not historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements are based upon current beliefs, expectations and assumptions and are subject to significant risks, uncertainties and changes in circumstances that could cause actual results to differ materially from the forward-looking statements. A detailed discussion of risks, uncertainties and changes in circumstances that could cause actual results and events to differ materially from such forward-looking statements is included in the section titled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020 (“2020 Form 10-K”). Readers of this proxy statement are cautioned not to rely on these forward-looking statements, since there can be no assurance that these forward-looking statements will prove to be accurate. We expressly disclaim any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

March 31, 2021

 

LETTER FROM OUR PRESIDENT AND CHIEF EXECUTIVE OFFICER:

Dear Fellow Shareholders:

Despite the challenges posed by the global pandemic, Zimmer Biomet delivered steady performance across our entire business in 2020, taking steps to accelerate innovation, execute on strategy for sustained growth and deliver value to all of our stakeholders.

In the letter to shareholders included in our 2020 Annual Report, we discuss our results for the year just completed as well as the long-term strategic choices that will continue to guide us in the months and years ahead.

I would like to thank you for your continued support of Zimmer Biomet and I want you to know that the challenges posed by the pandemic in 2020 demonstrated our ability to face adversity and have prepared us well for navigating the current environment. We are entering 2021 with increased confidence in our team, our core business and our long-term strategic plan to drive sustainable growth and shareholder value.

Annual Meeting Matters

On behalf of the Board of Directors, it is my pleasure to invite you to attend the 2021 annual meeting of shareholders on Friday, May 14, 2021 at 8 a.m. Eastern Time. This year’s annual meeting will be conducted virtually, via webcast.

You will be able to attend the annual meeting online by visiting www.virtualshareholdermeeting.com/ZBH2021. You will be able to vote your shares electronically during the meeting by logging in using the 16-digit control number included on your Notice of Internet Availability of Proxy Materials, on your proxy card or on the voting instruction form accompanying the proxy materials.

We continue to embrace the latest technology to provide expanded access, improved communication and cost savings for our shareholders and the company. As we’ve learned, hosting a virtual meeting enables increased shareholder attendance and participation from locations around the world. In addition, the online format allows us to communicate more effectively via a pre-meeting forum that you can enter by visiting www.proxyvote.com with your control number. We encourage you to log on and ask any questions you may have, which we will try to answer during the meeting. Due to concerns related to the COVID-19 pandemic, and to support the health and well-being of our employees and shareholders, we think a virtual-only meeting is advisable.

We are again providing access to our proxy materials online under the U.S. Securities and Exchange Commission’s (“SEC”) “notice and access” rules. As a result, we are mailing to many of our shareholders a Notice of Internet Availability instead of a paper copy of this proxy statement and our 2020 Annual Report. This electronic process gives shareholders fast, convenient access to the materials, reduces the impact on the environment and reduces our printing and mailing costs. The Notice of Internet Availability contains instructions on how to access documents online. It also contains instructions on how shareholders can receive a paper copy of our materials, including this proxy statement, our 2020 Annual Report and a form of proxy card or voting instruction form. If you received the Notice of Internet Availability by mail and would like to receive a printed copy of our proxy materials, please follow the instructions for requesting such materials included in the Notice of Internet Availability.

Your vote is important. Regardless of whether you attend the annual meeting, we hope you vote as soon as possible. You may vote by proxy online or by phone, or, if you received paper copies of the proxy materials by mail, you may also vote by mail by following the instructions on the proxy card or voting instruction form. Additionally, if you attend the virtual annual meeting, you may vote your shares during the meeting via the Internet even if you previously voted your proxy. Voting online or by phone, by written proxy or by voting instruction form ensures your shares are voted regardless of whether you attend the virtual meeting.

 

		Sincerely,
		Bryan Hanson President, Chief Executive Officer and Director   Zimmer Biomet Holdings, Inc. 345 East Main Street Warsaw, Indiana 46580

		TABLE OF CONTENTS

 

 

		1

 

PROXY STATEMENT SUMMARY

We are providing this proxy statement in connection with the solicitation of proxies by our Board of Directors for use at our 2021 annual meeting of shareholders to be held on Friday, May 14, 2021. The Notice of Annual Meeting of Shareholders and related proxy materials, or a Notice of Internet Availability, were first sent to shareholders on or about March 31, 2021. This summary highlights information contained elsewhere in this proxy statement. It does not contain all of the information you should consider, and we urge you to read the entire proxy statement, as well as our 2020 Annual Report, before voting.

 

 

VOTING MATTERS AND BOARD RECOMMENDATIONS

 

		Voting Matter		Board Vote Recommendation		See Page
Proposal 1		Election of directors		✓ FOR		5
Proposal 2		Ratification of the appointment of PwC as our independent registered public accounting firm for 2021		✓ FOR		23
Proposal 3		Advisory vote to approve named executive officer compensation		✓ FOR		26
Proposal 4		Approval of the amended 2009 Stock Incentive Plan		✓ FOR		61
Proposal 5		Approval of the amended Stock Plan for Non-Employee Directors		✓ FOR		66
Proposal 6		Approval of the amended Deferred Compensation Plan for Non-Employee Directors		✓FOR		68
Proposal 7		Approval of amendments to our Restated Certificate of Incorporation to permit shareholders to call a special meeting		✓ FOR		70

 

Proposal 1 – Election of Directors

Our Board recommends a vote FOR each nominee

Our Director Nominees

The following table provides summary information about each of the 10 director nominees. Each director is elected annually by a majority of votes cast.

 

Name Principal Occupation

Age

Director Since

Independent

Other Public Boards

Committee Memberships

A

C&MD

CG

QR&T

Christopher B. Begley Retired Executive Chairman & CEO, Hospira, Inc.

68

2012

✓

1

✓

Chair

Betsy J. Bernard Retired President, AT&T Corp.

65

2009

✓

—

✓

Chair

Michael J. Farrell CEO, ResMed Inc.

48

2014

✓

1

✓

✓

Robert A. Hagemann Retired Senior VP & CFO, Quest Diagnostics Incorporated

64

2008

✓

2

Chair

✓

Bryan C. Hanson President & CEO, Zimmer Biomet Holdings, Inc.

54

2017

X

—

Arthur J. Higgins Consultant, Blackstone Healthcare Partners

65

2007

✓

2

Chair

✓

Maria Teresa Hilado Retired Executive VP & CFO, Allergan plc

56

2018

✓

3

✓

✓

Syed Jafry SVP & President, Regions, Thermo Fisher Scientific Inc.

57

2018

✓

—

✓

✓

Sreelakshmi Kolli SVP, Chief Digital Officer, Align Technology, Inc.

46

2021

✓

—

Michael W. Michelson Retired Senior Advisory Partner, KKR Management LLC, the general partner of KKR & Co. L.P.

69

2015

✓

1

✓

✓

 

A:  Audit		C&MD:  Compensation & Management Development		CG:  Corporate Governance		QR&T:  Quality, Regulatory & Technology

 

2		Zimmer Biomet

 

PROXY STATEMENT SUMMARY

 

 

Corporate Governance Strengths

 

 

		3

 

PROXY STATEMENT SUMMARY

 

Proposal 2 – Ratification of the Appointment of PwC
Our Board recommends a vote FOR this proposal
●		PwC’s report contained in our 2020 Annual Report is unqualified
●		Audit and audit-related fees represent 81% of total fees paid to PwC for 2020

 

Proposal 3 – Advisory Vote to Approve Named Executive Officer Compensation
Our Board recommends a vote FOR this proposal
Executive Compensation Best Practices

What We Do
✓		Pay for performance
✓		Require robust stock ownership guidelines
✓		Require termination of employment in connection with a change in control for accelerated equity vesting (double trigger)
✓		Require non-competition agreement for equity award eligibility
✓		Require shares received upon equity award vesting to be retained in accordance with stock ownership guidelines
✓		Subject executives’ cash and equity-based incentives to clawback, including in the event of a violation of our Code of Business Conduct and Ethics or other conduct deemed detrimental to the interests of the company (equity-based incentives)
What We Don’t Do
X		Offer employment contracts to our executives
X		Pay dividends or accrue dividend equivalents on unearned performance-based equity awards
X		Provide excise tax gross-ups in new change in control severance agreements (since 2009)
X		Allow hedging or pledging of company securities
X		Reprice or exchange underwater stock options without shareholder approval

 

Proposal 4 – Approval of the Amended 2009 Stock Incentive Plan
Our Board recommends a vote FOR this proposal
●		Amendments would increase the number of shares available for awards by 5.8 million, extend the term of the plan and make certain other changes

 

Proposal 5 – Approval of the Amended Stock Plan for Non-Employee Directors
Our Board recommends a vote FOR this proposal
●		Amendments would impose a total annual compensation limit, extend the term of the plan and make certain other changes

 

Proposal 6 – Approval of the Amended Deferred Compensation Plan for Non-Employee Directors
Our Board recommends a vote FOR this proposal
●		Amendments would extend the term of the plan and make certain other changes

 

Proposal 7 – Approval of Amendments to Our Restated Certificate of Incorporation to Permit Shareholders to Call a Special Meeting
Our Board recommends a vote FOR this proposal
●		Amendments would permit a shareholder or group of shareholders owning an aggregate net long position of at least 15% of our outstanding common stock to call a special meeting of shareholders

 

 

4		Zimmer Biomet

 

CORPORATE GOVERNANCE

 

 

CORPORATE GOVERNANCE

At Zimmer Biomet, it’s not just what we make. It’s what we make possible. Simply put, we are in the business of changing people’s lives. We are humbled by that fact and take our responsibility seriously. Because of this, the way we conduct our business is critically important. We are committed to effective corporate governance, adhere to the highest ethical standards and act as a responsible member of our communities.

Our business is managed under the direction of our Board of Directors. The Board has responsibility for establishing broad corporate policies and for our overall performance.

 

Proposal 1 – Election of Directors

Based upon the recommendation of the Corporate Governance Committee, the Board has nominated 10 directors for election at the annual meeting to hold office until the 2022 annual meeting and the election of their successors. All of the nominees currently are serving as our directors. Each nominee agreed to be named in this proxy statement and to serve if elected. All of the nominees are expected to attend the 2021 annual meeting.   Larry C. Glasscock, a member of the Board since 2001 and our non-executive Chairman since 2013, whose term expires at the annual meeting, has not been nominated for reelection due to our Board of Directors’ retirement policy. Gail K. Boudreaux, a member of the Board since 2012, notified the Board in February 2021 of her intention not to stand for reelection to the Board upon the expiration of her term at the annual meeting.   The Board wishes to express its sincere gratitude to Mr. Glasscock and Ms. Boudreaux for their many significant contributions and years of dedicated service to Zimmer Biomet and our shareholders. The Board has taken action to reduce its size to 10 members effective upon the expiration of Mr. Glasscock’s and Ms. Boudreaux’s terms as directors. Proxies cannot be voted for a greater number of persons than 10, which is the number of nominees named in this proxy statement.   Unless otherwise instructed, the persons named as proxies will vote all proxies received for the election of each of the nominees.   Our Board recommends a vote FOR each nominee for director.

 

		5

 

CORPORATE GOVERNANCE

 

 

DIRECTOR NOMINEES

 

Executive Chairman of the Board of Hospira, Inc. from May 2007 until his retirement in January 2012. Mr. Begley also served as Chief Executive Officer from April 30, 2004, when Hospira was spun off from Abbott Laboratories, to March 2011. Prior to that, Mr. Begley served in various positions with Abbott between 1986 and 2004, most recently as Senior Vice President of Abbott’s Hospital Products division. He earned a bachelor’s degree from Western Illinois University and an MBA from Northern Illinois University.     Other Public Board Memberships ● Hanger, Inc. (Chairman of the Board) ● Past director and Non-Executive Chairman of Adtalem Global Education Inc. (formerly known as DeVry Education Group Inc.) (until November 2017) Other Relevant Experience ● Past director of the Advanced Medical Technology Association (“AdvaMed”), the medical device industry’s trade association     Skills and Qualifications   Christopher B. Begley’s past experience as the Chairman and CEO of Hospira, Inc., a leading provider of injectable drugs and infusion technologies, and previously as the senior vice president of two Abbott divisions, has provided him with extensive management experience at two multinational, publicly traded healthcare companies. In these senior leadership roles, Mr. Begley gained in-depth knowledge of the healthcare industry and strategies for developing and marketing products in this highly regulated area. He also gained significant experience in strategic planning, risk management and financial management. Mr. Begley serves, and has served for more than 15 years, as a director of other public companies, including service as chairman of the board.				President of AT&T Corp. from October 2002 until her retirement in December 2003. From April 2001 to October 2002, Ms. Bernard was Chief Executive Officer of AT&T Consumer. Prior to joining AT&T, Ms. Bernard held senior executive positions with Qwest Communications International Inc., US WEST, Inc., AVIRNEX Communications Group and Pacific Bell. Ms. Bernard received a B.A. degree from St. Lawrence University, an MBA from Fairleigh Dickenson University and an M.S. in management from Stanford University’s Sloan Fellowship Program.     Other Public Board Memberships ● Past director of Principal Financial Group, Inc. (until June 2020) ● Past director of SITO Mobile, Ltd. (until June 2017)     Skills and Qualifications   Betsy J. Bernard’s past experience in senior executive roles with leading global telecommunications companies, including her service as President of AT&T Corp., has provided her with expertise in financial management, brand management, marketing, enterprise sales, customer care, operations, product management, electronic commerce, executive compensation, strategic planning and mergers and acquisitions. Ms. Bernard’s experience has led our Board to determine that she is an “audit committee financial expert” as that term is defined in SEC rules. She has served for more than 20 years as a director of other public companies, including service as chairman of the board and lead independent director, and she has experience chairing the nominating and governance committees of several public company boards, including ours.

 

6		Zimmer Biomet

 

CORPORATE GOVERNANCE

 

Chief Executive Officer of ResMed Inc. since March 2013. Prior to that appointment, Mr. Farrell served as President, Americas for ResMed from 2011 to 2013. He was previously Senior Vice President of the global business unit for sleep apnea therapeutic and diagnostic devices from 2007 to 2011, and before that he held various senior roles in marketing and business development. Before joining ResMed in September 2000, Mr. Farrell worked in management consulting, biotechnology, chemicals and metals manufacturing at Arthur D. Little, Genzyme Corporation, The Dow Chemical Company and BHP Billiton. Mr. Farrell holds a bachelor of engineering, with first-class honors, from the University of New South Wales, a master of science in chemical engineering from the Massachusetts Institute of Technology and an MBA from the MIT Sloan School of Management.     Other Public Board Memberships ● ResMed Inc. Other Relevant Experience ● Director of AdvaMed     Skills and Qualifications   Michael J. Farrell’s service as CEO of ResMed Inc., a global leader in the development, manufacturing, distribution and marketing of medical products for the diagnosis, treatment and management of respiratory disorders, provides him with significant experience leading a highly regulated, global medical device company. Mr. Farrell is spearheading the company’s expansion into emerging markets and its investments in connected health and digital health, major growth initiatives for ResMed that fit well with our own plans for global growth. In his prior roles, Mr. Farrell led ResMed’s M&A and alliance creation activities, as well as the marketing function. In addition, during his tenure with ResMed, Mr. Farrell has gained domestic and international P&L experience, first as head of the company’s major global business unit, and then as President, Americas. Mr. Farrell’s experience has given him a strong understanding of key aspects of leading a highly regulated, global healthcare company such as ours, including financial management, business integration, strategic planning, operations, product innovation, new product launches and international expansion.				Senior Vice President and Chief Financial Officer of Quest Diagnostics Incorporated until his retirement in July 2013. Mr. Hagemann joined Corning Life Sciences, Inc., a subsidiary of Quest Diagnostics’ former parent company, Corning Incorporated, in 1992, and held roles of increasing responsibility before being appointed Chief Financial Officer of Quest Diagnostics in 1998. Prior to joining Corning, Mr. Hagemann held senior financial positions at Prime Hospitality, Inc. and Crompton & Knowles, Inc. He was also previously employed by Arthur Young & Co., a predecessor company to Ernst & Young. Mr. Hagemann holds a B.S. in accounting from Rider University and an MBA from Seton Hall University.     Other Public Board Memberships ● Graphic Packaging Holding Company ● Ryder System, Inc.     Skills and Qualifications   Robert A. Hagemann’s past experience as the CFO of Quest Diagnostics Incorporated, a leading provider of diagnostic testing information services, has given him financial management expertise, as well as significant experience in strategic planning, business development, business integration, operations, talent management and information technology. His experience as an executive in the healthcare industry and his financial acumen enable him to evaluate and understand the impact of business decisions on our financial statements and capital structure. Mr. Hagemann’s experience has led our Board to determine that he is an “audit committee financial expert” as that term is defined in SEC rules. He also serves, and has served for more than five years, as a director of other public companies.

 

		7

 

CORPORATE GOVERNANCE

 

President and Chief Executive Officer and a member of the Board of Directors of the company since December 2017. Previously, Mr. Hanson served as Executive Vice President and President, Minimally Invasive Therapies Group of Medtronic plc from January 2015 until joining Zimmer Biomet. Prior to that, he was Senior Vice President and Group President, Covidien of Covidien plc from October 2014 to January 2015; Senior Vice President and Group President, Medical Devices and United States of Covidien from October 2013 to September 2014; Senior Vice President and Group President of Covidien for the Surgical Solutions business from July 2011 to October 2013; and President of Covidien’s Energy-based Devices business from July 2006 to June 2011. Mr. Hanson held several other positions of increasing responsibility in sales, marketing and general management with Covidien from October 1992 to July 2006. Mr. Hanson holds a Bachelor of Science degree in Finance from Florida State University. He also completed the Kellogg School of Management Finance for Executives program in 2010 and the Harvard Executive Education in Leadership program in 2013.     Other Relevant Experience ● Director of Americares, an emergency response and global health organization committed to saving lives and building healthier futures for people in crisis     Skills and Qualifications   Bryan C. Hanson’s service as our President and CEO and his past service in Group President roles with Medtronic and Covidien have given him extensive experience in the medical device industry leading, growing and transforming large, highly regulated global enterprises. Mr. Hanson has significant experience in financial management, strategic planning, mergers and acquisitions, business integration, risk management and in dealing with the many regulatory aspects of our business. His knowledge and understanding of the medical device industry in general, and our global businesses in particular, enable him to provide crucial insight to our Board into strategic, management and operational matters. Mr. Hanson provides an essential link between management and the Board on management’s business perspectives.				Consultant, Blackstone Healthcare Partners of The Blackstone Group since June 2010. Mr. Higgins served as non-executive chairman of the board of Assertio Holdings, Inc., successor issuer to Assertio Therapeutics, Inc., from May 2020 until December 2020. Prior to that, he served as President, Chief Executive Officer and a member of the board of directors of Assertio Therapeutics, Inc. from March 2017 until its merger with Zyla Life Sciences in May 2020. Previously, Mr. Higgins served as Chairman of the Board of Management of Bayer HealthCare AG from January 2006 to May 2010 and Chairman of the Bayer HealthCare Executive Committee from July 2004 to May 2010. Prior to joining Bayer HealthCare in 2004, Mr. Higgins served as Chairman, President and Chief Executive Officer of Enzon Pharmaceuticals, Inc. from 2001 to 2004. Prior to that, Mr. Higgins spent 14 years with Abbott Laboratories, most recently as President of the Pharmaceutical Products Division from 1998 to 2001. He graduated from Strathclyde University, Scotland and holds a B.S. in biochemistry.     Other Public Board Memberships ● Ecolab Inc. ● Past director of Assertio Holdings, Inc. (until December 2020) ● Past director of Assertio Therapeutics, Inc. (until May 2020) ● Past director of Endo International plc (until March 2017)     Skills and Qualifications   Arthur J. Higgins has extensive senior leadership experience in the global healthcare market. Through leadership positions with large healthcare developers and manufacturers in both the U.S. and Europe, he has gained deep knowledge of the healthcare market and the strategies for developing and marketing products in this highly regulated area. His knowledge and industry background allow him to provide valuable insight to our business. In addition, his perspective gained from years of operating global businesses and his background in working with high growth companies provide him experiences from which to draw to advise us on strategies for sustainable growth. Through his past executive positions, he has also gained significant exposure to enterprise risk management as well as quality and operating risk management necessary in a highly regulated industry such as healthcare.

 

8		Zimmer Biomet

 

CORPORATE GOVERNANCE

 

Executive Vice President and Chief Financial Officer of Allergan plc, a global pharmaceutical company, from December 2014 until her retirement in February 2018. Prior to joining Allergan, Ms. Hilado served as Senior Vice President, Finance and Treasurer of PepsiCo Inc. from 2009 until 2014. She previously served as Vice President and Treasurer for Schering-Plough Corp. from 2008 to 2009 and spent more than 17 years with General Motors Co. in leadership roles of increasing responsibility, including Assistant Treasurer from 2006 to 2008 and Chief Financial Officer, GMAC Commercial Finance LLC from 2001 to 2005. She began her career with Far East Bank and Trust Co. in Manila, Philippines. Ms. Hilado earned a Bachelor’s degree in Management Engineering from Ateneo de Manila University in the Philippines and an MBA from the University of Virginia Darden School of Business.     Other Public Board Memberships ● Campbell Soup Company ● H.B. Fuller Company ● PPD, Inc.     Skills and Qualifications   Maria Teresa (Tessa) Hilado has more than three decades of demonstrated financial expertise in leading roles at several large, global corporations, including her past experience as CFO of Allergan plc, a global pharmaceutical company. She has extensive experience in global finance, treasury, tax, mergers and acquisitions, business development and investor relations, as well as experience in the healthcare, consumer packaged goods and automotive industries. Ms. Hilado’s experience has led our Board to determine that she is an “audit committee financial expert” as that term is defined in SEC rules. She also serves as a director of other public companies.				Senior Vice President and President, Regions of Thermo Fisher Scientific Inc. since September 2017. Mr. Jafry is responsible for all business geographies outside the U.S. He joined Thermo Fisher Scientific in March 2005 and served in numerous roles of increasing responsibility prior to being appointed to his current position. Mr. Jafry started his career at Glaxo Pharmaceuticals in London. Prior to joining Thermo Fisher Scientific, he served for 18 years at General Electric, where he held commercial, product management and general management roles in the U.S., Netherlands, Switzerland and China, most recently serving as President of GE Sensing Asia. Mr. Jafry holds a Bachelor’s degree in Mechanical Engineering from Lahore University in Pakistan, a Master’s degree in Mechanical Engineering from the University of Massachusetts and a Master’s certificate in Marketing and Management from Harvard University Extension School.     Skills and Qualifications   Syed Jafry has more than three decades of global operations and management experience in executive roles at several large, global organizations, including his current role as Senior Vice President and President, Regions of Thermo Fisher Scientific Inc., a world leader in serving science, supporting customers in pharma, biotech, healthcare and other industries. Mr. Jafry’s experience has given him a strong understanding of key aspects of leading a global, highly regulated business such as ours, including expansion into emerging markets, financial management, strategic planning, operations, product innovation, new product launches and business integration. His knowledge and industry background allow him to provide valuable insight to our business.

 

		9

 

CORPORATE GOVERNANCE

 

Senior Vice President, Chief Digital Officer of Align Technology, Inc., a global medical device company (“Align”), since April 2020. Ms. Kolli is responsible for leading software, data, enterprise, cloud and infrastructure engineering teams focused on design and development of digital products and services. This includes defining the technology strategy and development of product software, consumer, customer, manufacturing and enterprise applications enabling the Align Digital Platform. In addition, she led Align’s global business transformation initiative aimed at delivering platforms and technology to support customer experience and simplified business processes across the company. She joined Align in June 2003 and has held positions of increasing responsibility leading business operations and engineering for customer-facing applications during her tenure. She was promoted to Vice President, Information Technology in December 2012 and to Senior Vice President, Global Information Technology in February 2018. Prior to joining Align, Ms. Kolli held technical lead positions with Citadon and Accenture. She is a member of the Executive Advisory Board at Salesforce.com and an external advisor on the Board of Trustees Committee on Information Technology at the University of San Francisco. Ms. Kolli earned an M.S. degree in Computer Applications at the National Institute of Technology in Trichy, India and is a graduate of the Stanford Executive Program offered by the Stanford Graduate School of Business in California.     Skills and Qualifications   Sreelakshmi Kolli’s service as Senior Vice President and Chief Digital Officer of Align Technology, Inc., a publicly traded company that designs, manufactures and offers the Invisalign® clear aligner system, intraoral scanners and services, and exocad CAD/CAM software, has provided her with significant experience in a highly regulated global medical device company. In her senior leadership roles, Ms. Kolli has gained deep knowledge of digital and emerging technologies, operations, strategic planning, marketing, product innovation, financial management and data privacy trends. Her knowledge and industry background allow her to provide valuable insight to our business as we expand our portfolio of integrated digital and robotic technologies that leverage data, machine learning and artificial intelligence.				Senior Advisory Partner, KKR Management LLC, a private equity investment manager and the general partner of KKR & Co. L.P., from January 2018 until his retirement in January 2020. Previously, Member, KKR Management LLC since October 2009. Before that, Mr. Michelson was a member of the limited liability company that served as the general partner of Kohlberg Kravis Roberts & Co. L.P. since 1996. He joined KKR in 1981. Mr. Michelson has played a significant role in the development of KKR’s portfolio companies. He began his professional career with the law firm of Latham & Watkins in Los Angeles, where he was involved in a broad corporate practice while specializing in management buyouts. He earned an A.B. from Harvard College and a J.D. from Harvard Law School.     Other Public Board Memberships ● HCA Healthcare, Inc. Other Relevant Experience ● Served as a director of Biomet prior to the merger of Zimmer and Biomet     Skills and Qualifications   Michael W. Michelson has significant experience in corporate finance, strategic business planning activities, operations, risk management and issues involving stakeholders more generally from his involvement in KKR’s investments in numerous portfolio companies, and he has played an active role in overseeing many healthcare companies. He serves and has served as a director of other public and private healthcare companies, and he served as a director of Biomet prior to the merger of Zimmer and Biomet.

 

10		Zimmer Biomet

 

CORPORATE GOVERNANCE

 

 

OUR BOARD OF DIRECTORS AND CORPORATE

GOVERNANCE FRAMEWORK

 

 

DIRECTOR CRITERIA, QUALIFICATIONS AND

EXPERIENCE

We are a global leader in musculoskeletal healthcare. We design, manufacture and market orthopedic reconstructive products; sports medicine, biologics, extremities and trauma products; office based technologies; spine, craniomaxillofacial and thoracic products; dental implants; and related surgical products. We have operations in more than 25 countries around the world and sell products in more than 100 countries. We operate in markets characterized by rapidly evolving technologies, complex regulatory requirements and significant competition. The Corporate Governance Committee is responsible for reviewing and assessing with the Board, on an annual basis, the experience, qualifications, attributes and skills sought of Board members in the context of our business and the then-current membership of the Board. The committee looks for current and potential directors collectively to have a mix of experience, skills and qualifications, some of which are described below:

 

Director Experience, Skills and Qualifications
●  Experience as a CEO or global business head		●  Government / regulatory affairs /health economics experience
●  Business operations experience		●  Research and development experience
●  Healthcare industry experience		●  Brand / marketing experience
●  Medical device industry experience		●  Mergers and acquisitions experience
●  International experience		●  Financial expertise
●  FDA / regulatory experience		●  Digital technology expertise

In evaluating director candidates and considering incumbent directors for nomination to the Board, the committee considers a variety of factors. These include each candidate’s character and integrity, reputation for working constructively in a collegial environment and availability to devote sufficient time to Board matters. Diversity of background and diversity of gender, race, ethnicity, national origin and age are also relevant factors in the selection process. The committee also considers whether a candidate can meet the independence standards for directors and members of key committees under applicable stock exchange and SEC rules. With respect to incumbent directors, the committee considers the director’s past performance on the Board and contributions to the committees on which he or she serves.

While the Board has not formally adopted a policy regarding director diversity, the committee actively considers diversity in director recruitment and nomination. In conducting its most recent search for new directors, the Board utilized a process that required the final pool of candidates to include potential directors who would increase the Board’s ethnic and/or gender diversity. We anticipate utilizing a similar process in future searches for Board candidates. The Board believes that the diversity of the current Board members, including as to gender, race, ethnicity, national origin, international work experience and age, provides significant benefits to the Board and to the company.

 

 

BOARD LEADERSHIP STRUCTURE

One of the key responsibilities of the Board is to have a leadership structure that allows it to provide effective oversight of management and maximize the contributions of its members. Our Board believes that it is important that it retain flexibility to make the determination as to whether the interests of the company and our shareholders are best served by having the same individual serve as both CEO and Chairman or whether the roles should be separated based on the circumstances at any given time, and our Corporate Governance Guidelines and Restated Bylaws provide this flexibility. At different times in the past, both approaches have been used. Under our Corporate Governance Guidelines, the Board will appoint a Lead Independent Director when the CEO and Chairman roles are combined.

In accordance with the Board’s mandatory retirement policy set forth in our Corporate Governance Guidelines, the Board did not nominate Mr. Glasscock for reelection to the Board. Mr. Glasscock will retire from the Board effective as of the annual meeting after serving as our director since 2001 and as non-executive Chairman of the Board since 2013.

In the second half of 2020, as the third anniversary of the appointment of Mr. Hanson as President and CEO approached, and in light of Mr. Glasscock’s upcoming retirement, our Corporate Governance Committee and Board of Directors reassessed the Board’s leadership

 

		11

 

CORPORATE GOVERNANCE

 

structure. In February 2021, our Board, upon the recommendation of the Corporate Governance Committee, determined that the company and its shareholders will be best served by Mr. Hanson assuming the role of Chairman and Mr. Begley serving as Lead Independent Director effective as of May 13, 2021, the day before the annual meeting. The decision to combine the roles of Chairman and CEO reflected the Board’s strong belief that Mr. Hanson has demonstrated the leadership and vision necessary to lead the Board and the company. The Board believes that this leadership structure will promote efficient Board functioning, foster a constructive and cooperative relationship between the Board and management and reinforce Mr. Hanson’s overall responsibility for the company’s business and strategy, under the oversight and subject to the review of the Board.

The Board recognizes the importance of having a strong independent Board leadership structure to ensure accountability. Accordingly, our Corporate Governance Guidelines provide that if the Chairman is not an independent director, then the Board will appoint a Lead Independent Director. The Board believes that a Lead Independent Director is an integral part of our Board structure and facilitates the effective performance of the Board in its role of providing governance and oversight. In fulfilling his or her responsibilities, the Lead Independent Director will:

 

●

serve as the primary liaison between the CEO and the independent directors;

●

preside at all meetings of the Board when the CEO is not present;

●

convene and preside at meetings of the independent directors, including executive sessions of the independent directors held in conjunction with each regularly scheduled Board meeting;

●

review and provide input on meeting agendas for the Board and its committees;

●

review meeting schedules and collaborate with the CEO to ensure that there is sufficient time for discussion of agenda items;

●

provide feedback to the CEO as needed, including on the flow of information from management to the Board, and communicate regularly with the CEO between Board meetings;

●

recommend to the CEO the retention of outside advisors who report directly to the Board when deemed appropriate;

●

participate, along with the members of the Compensation and Management Development Committee and the full Board, in the evaluation of the CEO and, together with the Chair of the Compensation and Management Development Committee, meet with the CEO to discuss such evaluation;

●

consult with Board committee Chairs as needed;

●

consult with the Corporate Governance Committee concerning the members and Chairs of all Board committees;

●

be available, as appropriate, for communication with the Company’s shareholders; and

●

perform such other duties as may be requested by the Board.

 

BOARD’S ROLE IN RISK OVERSIGHT

Our Board of Directors oversees the risk management processes that have been designed and are implemented by our executives to determine whether those processes are consistent with our strategy and risk appetite, are functioning as intended, and that necessary steps are taken to foster a culture that recognizes and appropriately escalates and addresses risk-taking beyond our determined risk appetite. The Board executes its oversight responsibility for risk management directly and through its committees.

The Audit Committee is specifically tasked with overseeing our compliance with legal and regulatory requirements, including oversight of our Corporate Compliance Program, discussing our risk assessment and risk management processes with management, and receiving information on certain material legal and regulatory matters, including litigation, as well as on information technology, data privacy, business continuity and cyber security-related matters. Our Vice President, Internal Audit Services, who reports directly to the committee, coordinates our global risk assessment process. We use this process to identify, assess and prioritize internal and external risks, to develop processes for responding to, mitigating and monitoring risks and to inform the development of our internal audit plan, our annual operating plan and our long-term strategic plan. We also maintain an internal risk committee made up of members of senior management that has responsibility for overseeing the execution of enterprise risk management activities.

The Audit Committee receives detailed reports regarding our enterprise risk assessment process and its meeting agendas include discussions of individual risk areas throughout the year. Members of our management who have responsibility for designing and implementing our risk management processes regularly meet with the committee. The committee discusses our major financial risk exposures with our CFO and Chief Accounting Officer. The committee receives regular reports from our Chief Compliance Officer on our Corporate Compliance Program, which is designed to address risks related to, among other matters, anti-corruption and anti-kickback laws in the countries where we do business. The committee also receives reports from our General Counsel, Chief Information Officer, Chief Information Security Officer, Global Privacy Officer and other persons who are involved in our risk management processes.

The Board’s other committees oversee risks associated with their respective areas of responsibility. For example, the Compensation and Management Development Committee oversees risks relating to our executive compensation programs and practices. In addition, in conjunction with the full Board, the Compensation and Management Development Committee oversees risks relating to human capital management. The Corporate Governance Committee oversees risks relating to environmental, social and governance matters. The Quality, Regulatory and Technology Committee oversees risks relating to our compliance with laws and regulations enforced by the U.S. Food and Drug Administration (“FDA”) and comparable foreign government regulators, including product quality and safety.

 

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The Board receives detailed regular reports from members of our executive leadership team and other personnel that include discussions of the risks and exposures involved with their respective areas of responsibility. Further, the Board is routinely informed of developments that could affect our risk profile or other aspects of our business. Primary areas of risk oversight for the full Board include, but are not limited to, general commercial risks in the musculoskeletal healthcare industry, such as competition, pricing pressures and the reimbursement landscape; risks associated with our strategic plan and annual operating plan; risks related to our capital structure; and risks pertaining to mergers, acquisitions, divestitures and other complex transactions.

 

POLICIES ON CORPORATE GOVERNANCE

We are committed to maintaining the highest standards of business conduct and corporate governance, which we believe are essential to running our business efficiently, serving shareholders well and maintaining our integrity in the marketplace. Our Board has adopted Corporate Governance Guidelines, which, in conjunction with our Restated Certificate of Incorporation, Restated Bylaws, Board committee charters and key Board policies, form the framework for our governance. Our Board regularly reviews corporate governance developments and modifies its Corporate Governance Guidelines, committee charters and key policies as warranted.

The current versions of the following documents are available in the Investor Relations/Corporate Governance section of our website, www.zimmerbiomet.com:

 

●

Code of Business Conduct and Ethics, which applies to all directors, officers and employees;

●

Code of Ethics for Chief Executive Officer and Senior Financial Officers (the “finance code of ethics”), which applies to our CEO, CFO, Chief Accounting Officer/Corporate Controller and other finance organization employees;

●

Corporate Governance Guidelines;

●

Audit Committee Charter;

●

Compensation and Management Development Committee Charter;

●

Corporate Governance Committee Charter;

●

Quality, Regulatory and Technology Committee Charter;

●

Board Policy on Ratification of Independent Registered Public Accounting Firm;

●

Board Policy on Stockholder Rights Plans; and

●

Statement of Engagement on Public Policy Issues.

If we make any substantive amendments to the finance code of ethics or grant any waiver, including any implicit waiver, from a provision of the code to our CEO, CFO, or Chief Accounting Officer/Corporate Controller, we will disclose the nature of that amendment or waiver in the Investor Relations section of our website.

 

LIMIT ON OTHER DIRECTORSHIPS

Under our Corporate Governance Guidelines, our non-employee directors who are not executive officers of other public companies are limited to serving on a total of four public company boards, including ours, and our non-employee directors who serve as executive officers of other public companies are limited to serving on a total of three public company boards, including their own company’s board and our Board. Further, our Audit Committee members are limited to serving on a total of three public company audit committees, including ours.

Our Board is aware that certain of our investors, in recognition of the increased time required of boards of directors, have policies to limit directors who are CEOs of public companies to a total of two public company boards. While our Board recognizes that directors who are employed full-time, whether as executives of public companies or in other positions, naturally have greater demands placed on their time than directors who have retired from full-time employment, our Board has chosen not to adopt the more restrictive two-board limit for our non-employee directors who serve as public company executives so that our Board has more flexibility to assess the potential impact of directors’ additional commitments as they arise.

 

BOARD SELF-EVALUATION PROCESS

Pursuant to New York Stock Exchange requirements, the Board’s Corporate Governance Guidelines and the charters of each of the Board’s committees, the Board and each of its committees are required to conduct self-evaluations of their performance. The Board recognizes that a robust and constructive evaluation process is an essential component of good corporate governance. These self-evaluations, which are conducted annually, are intended to facilitate a candid assessment and discussion by the Board and each committee of its effectiveness as a group in fulfilling its responsibilities, evaluating its performance and identifying areas for improvement. The Chair of the Corporate Governance Committee oversees the annual self-evaluation process. Each director is expected to participate and provide feedback on a range of topics, including: the Board and committee agendas; meetings; practices

 

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CORPORATE GOVERNANCE

 

and dynamics; Board refreshment; committee structure, membership and leadership; the flow of information to and from the Board and its committees; management succession planning; and shareholder engagement. Director feedback is solicited on an individual basis through written questionnaires/assessments, individual director interviews and/or group discussions.

From time to time, the Board retains a third party experienced in corporate governance matters to act as a facilitator for the self-evaluation process, including preparing and reviewing the written questionnaires/assessments and conducting individual director interviews. The Chair of the Corporate Governance Committee, along with the third-party facilitator (when one is retained) reviews the feedback from the self-evaluation process and makes recommendations for areas with respect to which the Board and its committees should consider improvements. These areas are further discussed at a meeting led by the Chair of the Corporate Governance Committee and the third-party facilitator (when one is retained) at which all Board members are present. At the conclusion of this meeting, the Chair of the Corporate Governance Committee, working with the senior management team, develops action plans for any items that require follow-up.

 

DIRECTOR INDEPENDENCE

The Board’s Corporate Governance Guidelines, which are available on our website at www.zimmerbiomet.com, include criteria adopted by the Board to assist it in making determinations regarding the independence of its members. The criteria are consistent with the New York Stock Exchange listing standards regarding director independence. To be considered independent, the Board must determine that a director has no material relationship, directly or indirectly, with us. In assessing independence, the Corporate Governance Committee and the Board consider a wide range of relevant facts and circumstances. The Board has determined that each of our non-employee directors, Christopher Begley, Betsy Bernard, Gail Boudreaux, Michael Farrell, Larry Glasscock, Robert Hagemann, Arthur Higgins, Maria Teresa Hilado, Syed Jafry, Sreelakshmi Kolli and Michael Michelson, meets these standards and is independent. The remaining director, Bryan Hanson, is our CEO and is not independent.

In making its determination with respect to Ms. Boudreaux, the Board considered her position as President and CEO of Anthem, Inc. Anthem is one of the nation’s leading health benefits companies and serves as the third-party claims processor of our self-funded group health plan for our U.S.-based employees and reinsurer of catastrophic claims under the plan. During 2020, the amount we paid Anthem exceeded $1 million, but represented only one hundredth of one percent (0.01%) of Anthem’s total revenues. After reviewing the terms of these transactions, the Board determined that Ms. Boudreaux does not have a direct or indirect material interest in the transactions, that Ms. Boudreaux does not have a material relationship, directly or indirectly, with us and that our business relationship with Anthem does not diminish the ability of Ms. Boudreaux to exercise her independent judgment on issues affecting our business.

Anthem does not provide any services to us that would be characterized as professional services or advisory in nature (plan design consulting services are provided by Willis Towers Watson). Anthem does not have access to sensitive company information or to our strategic decision-making, and its services are generally provided for a monthly fee based upon the number of employees enrolled in our health plan. Anthem’s services to us are limited to administrative services, including claims processing, utilization of Anthem’s provider network, Employee Assistance Programs, customer service, disease management programs and stop-loss coverage.

In making its determination with respect to Mr. Jafry, the Board considered his position as Senior Vice President and President, Regions of Thermo Fisher Scientific Inc. (“Thermo Fisher”). During 2020, we paid Thermo Fisher for chemicals used in manufacturing processes in an aggregate amount in excess of $1 million, but the amount we paid represented only one hundredth of one percent (0.01%) of Thermo Fisher’s total revenues. After reviewing the terms of these transactions, the Board determined that Mr. Jafry does not have a direct or indirect material interest in the transactions, that Mr. Jafry does not have a material relationship, directly or indirectly, with us and that our business relationship with Thermo Fisher does not diminish the ability of Mr. Jafry to exercise his independent judgment on issues affecting our business.

In making its determination with respect to Ms. Kolli, the Board considered her position as Senior Vice President, Chief Digital Officer of Align Technology, Inc. (“Align”). During 2020, we paid Align for intra-oral scanners and related equipment in an aggregate amount in excess of $1 million, but the amount we paid represented only one tenth of one percent (0.1%) of Align’s total revenues. After reviewing the terms of these transactions, the Board determined that Ms. Kolli does not have a direct or indirect material interest in the transactions, that Ms. Kolli does not have a material relationship, directly or indirectly, with us and that our business relationship with Align does not diminish the ability of Ms. Kolli to exercise her independent judgment on issues affecting our business.

 

MAJORITY VOTE STANDARD FOR ELECTION OF DIRECTORS

Our Restated Bylaws require directors to be elected by the majority of the votes cast with respect to that director in uncontested elections (the number of shares voted “for” a director must exceed the number of votes cast “against” that director). In a contested

 

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election (a situation in which the number of nominees exceeds the number of directors to be elected), the standard for election of directors will be a plurality of the shares represented in person or by proxy at any such meeting and entitled to vote on the election of directors.

If a nominee who is serving as a director is not elected at the annual meeting, under Delaware law the director would continue to serve on the Board as a “holdover director.” However, under our Restated Bylaws, any director who fails to be elected must tender his or her resignation to the Board. The Corporate Governance Committee would then make a recommendation to the Board whether to accept or reject the resignation, or whether other action should be taken. The Board will act on the Corporate Governance Committee’s recommendation and publicly disclose its decision and the rationale behind it within 90 days from the date the election results are certified. The director who tenders his or her resignation will not participate in the Board’s decision.

If a nominee who was not already serving as a director is not elected at the annual meeting, under Delaware law that nominee would not become a director and would not serve on the Board as a “holdover director.” All nominees for election as directors at the 2021 annual meeting are currently serving on the Board.

 

NOMINATIONS FOR DIRECTORS

The Corporate Governance Committee screens candidates and recommends candidates for nomination to the full Board. In seeking and evaluating director candidates, the committee considers individuals in accordance with the criteria described above under “Director Criteria, Qualifications and Experience.” Director candidates may be recommended by Board members, a third-party search firm or shareholders. Ms. Kolli, who was appointed to the Board in February 2021, was recommended as a director candidate by a third-party search firm.

The committee considers candidates proposed by shareholders and evaluates them using the same criteria as for other candidates. A shareholder who wishes to recommend a director candidate for consideration by the committee should send such recommendation to our Corporate Secretary at Zimmer Biomet Holdings, Inc., 345 East Main Street, Warsaw, Indiana 46580, who will then forward it to the committee. Any such recommendation should include a description of the candidate’s qualifications for board service, the candidate’s written consent to be considered for nomination and to serve if nominated and elected, and addresses and telephone numbers for contacting the shareholder and the candidate for more information.

A shareholder who wishes to nominate an individual as a candidate for election, rather than recommend the individual to the committee as a nominee, but does not intend to have the candidate included in our proxy materials, must comply with the advance notice requirements set forth in our Restated Bylaws. (See “What is the deadline to propose actions for consideration or to nominate individuals to serve as directors at the 2022 annual meeting of shareholders? – Notice Requirements for Other Director Nominees or Shareholder Proposals to Be Brought Before the 2022 Annual Meeting of Shareholders” on page 77 for more information.) In addition, in 2019, our Board adopted “proxy access,” which permits eligible shareholders to nominate and include in our proxy materials director nominees if certain requirements are met. (See “What is the deadline to propose actions for consideration or to nominate individuals to serve as directors at the 2022 annual meeting of shareholders? – Requirements for Director Nominees to Be Considered for Inclusion in our Proxy Materials (“Proxy Access”)” on page 76 for more information.)

 

COMMUNICATIONS WITH DIRECTORS

Shareholders or other interested parties may contact our directors by writing to them either individually or as a group or partial group (such as all independent directors), c/o Corporate Secretary, Zimmer Biomet Holdings, Inc., 345 East Main Street, Warsaw, Indiana 46580. If you wish your communication to be treated confidentially, please write the word “CONFIDENTIAL” prominently on the envelope and address it to the director by name so that it can be forwarded without being opened. Communications addressed to multiple recipients, such as to “Board of Directors,” “Audit Committee,” “Independent Directors,” etc. will necessarily have to be opened and copied by the Office of the Corporate Secretary in order to forward them, and hence cannot be treated confidentially.

 

BOARD MEETINGS, ATTENDANCE AND EXECUTIVE SESSIONS

The Board meets on a regularly scheduled basis during the year to review significant developments affecting us and to act on matters requiring Board approval. It also holds special meetings when an important matter requires Board action between scheduled meetings. Members of senior management regularly attend meetings of the Board and its committees to report on and discuss their areas of responsibility. Directors are expected to attend Board meetings, meetings of committees on which they serve and shareholder meetings. Directors are expected to spend the time needed and meet as frequently as necessary to properly discharge their

 

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CORPORATE GOVERNANCE

 

responsibilities. During 2020, the Board held 8 meetings and the standing committees of the Board held a total of 27 meetings. All directors attended 75% or more of the meetings of the Board and committees on which they served. All current directors then standing for election attended the 2020 annual meeting of shareholders.

Each regularly scheduled Board meeting normally begins with a session between the CEO and the independent directors. This provides a platform for discussions outside the presence of the non-Board management attendees, as well as an opportunity for the independent directors to go into executive session (without the CEO) if requested by any director. The independent directors may meet in executive session, without the CEO, at any time, and are scheduled for such independent executive sessions at each regularly scheduled Board meeting. Currently, Mr. Glasscock presides at these executive sessions as non-executive Chairman. Effective as of May 13, 2021, Mr. Begley will begin presiding at these executive sessions as Lead Independent Director.

 

CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS

On an annual basis, each director and executive officer is obligated to complete a director and officer questionnaire which requires disclosure of any transactions with us in which the director or executive officer, or any member of his or her immediate family, has an interest. Under our Audit Committee’s charter, which is available on our website at www.zimmerbiomet.com, our Audit Committee must review and approve all related person transactions in which any executive officer, director, director nominee or more than 5% shareholder of the company, or any of their immediate family members, has a direct or indirect material interest. The Audit Committee may not approve a related person transaction unless (1) it is in or not inconsistent with our best interests and (2) where applicable, the terms of such transaction are at least as favorable to us as could be obtained from an unrelated third party.

Under our Code of Business Conduct and Ethics, which is available on our website at www.zimmerbiomet.com, and related policies and procedures, actual or potential conflicts of interest involving any other employee must be disclosed to and resolved by our Human Resources Department, in consultation with our Compliance Office.

In February 2018, we entered into an aircraft time sharing agreement with Bryan Hanson, our President and CEO. Both the Audit Committee and the Compensation and Management Development Committee of our Board authorized entry into the agreement. Under the agreement, Mr. Hanson is permitted to reimburse us for the incremental costs of his personal use of corporate aircraft consistent with Federal Aviation Administration regulations. Mr. Hanson was permitted personal use of corporate aircraft up to a maximum incremental cost to us of $150,000 in 2020. The agreement is intended to cover any personal use in excess of the annual limit.

 

COMMITTEES OF THE BOARD

Our Restated Bylaws provide that the Board may delegate certain of its responsibilities to committees. During 2020, the Board had four standing committees: an Audit Committee; a Compensation and Management Development Committee; a Corporate Governance Committee; and a Quality, Regulatory and Technology Committee. Each of the standing committees is composed entirely of independent directors. In addition, the members of the Audit Committee and the Compensation and Management Development Committee meet the heightened standards of independence required by SEC rules and New York Stock Exchange listing standards.

 

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CORPORATE GOVERNANCE

 

The table below shows the current membership of each standing Board committee and the number of meetings held during 2020.

STANDING COMMITTEE ASSIGNMENTS

 

Director		Audit Committee		Compensation and Management Development Committee		Corporate Governance Committee		Quality, Regulatory and Technology Committee
Christopher B. Begley				✓				Chair
Betsy J. Bernard		✓				Chair
Gail K. Boudreaux		✓				✓
Michael J. Farrell				✓				✓
Larry C. Glasscock		✓				✓
Robert A. Hagemann		Chair				✓
Bryan C. Hanson
Arthur J. Higgins				Chair				✓
Maria Teresa Hilado		✓				✓
Syed Jafry				✓				✓
Sreelakshmi Kolli
Michael W. Michelson				✓				✓
2020 Meetings		9		7		6		5

 

Audit Committee

Robert A. Hagemann, Chair

Betsy J. Bernard

Gail K. Boudreaux

Larry C. Glasscock

Maria Teresa Hilado

The Audit Committee is directly responsible for the appointment, retention, compensation and oversight of our independent registered public accounting firm, including the review and approval of audit fees. The principal functions of the Audit Committee include:

 

●

pre-approving all auditing services and permissible non-audit services provided to us by our independent registered public accounting firm;

●

reviewing with our independent registered public accounting firm and with management the proposed scope of the annual audit, past audit experience, our program for the internal examination and verification of our accounting records and the results of recently completed internal examinations;

●

reviewing and discussing with management and our independent registered public accounting firm our quarterly and annual financial statements prior to their public release;

●

reviewing major issues as to the adequacy of our internal controls;

●

overseeing our compliance with certain legal and regulatory requirements, including oversight of our Corporate Compliance Program, and aspects of our risk management processes; and

●

reviewing and discussing with management our privacy, data security, business continuity and cyber security-related risk exposures.

The Board of Directors has determined that Mses. Bernard, Boudreaux and Hilado and Messrs. Glasscock and Hagemann qualify as “audit committee financial experts” as defined by SEC rules. Shareholders should understand that this designation is an SEC disclosure requirement related to these directors’ experience and understanding with respect to certain accounting and auditing matters. The designation does not impose upon these directors any duties, obligations or liabilities that are greater than those that are generally imposed on them as members of the Audit Committee and the Board, and their designation as audit committee financial experts pursuant to this SEC requirement does not affect the duties, obligations or liability of any other member of the Audit Committee or the Board.

See also the “Audit Committee Matters” section of this proxy statement for additional information about the Audit Committee’s responsibilities and actions and the Audit Committee Report.

 

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Compensation and Management Development Committee

Arthur J. Higgins, Chair

Christopher B. Begley

Michael J. Farrell

Syed Jafry

Michael W. Michelson

The Compensation and Management Development Committee has overall responsibility for approving and evaluating our executive compensation plans, policies and programs. The duties of the Compensation and Management Development Committee include:

 

●

reviewing and approving corporate goals and objectives relevant to CEO compensation and evaluating the CEO’s performance in light of those goals and objectives;

●

reviewing and discussing with the CEO the performance of our other executive officers;

●

reviewing and approving the base salary, annual and long-term incentive compensation and other compensation, perquisites or special or supplemental benefits to be paid or awarded to our CEO and other executive officers;

●

approving and authorizing the company to enter into any severance arrangements, change in control severance agreements or other compensation-related agreements with our executive officers, in each case as, when and if appropriate;

●

reviewing and making recommendations to the Board with respect to our incentive compensation and equity-based plans;

●

administering our incentive compensation and equity-based plans, including making awards under such plans;

●

monitoring compliance by our executive officers with our stock ownership guidelines;

●

overseeing the process for identifying and addressing any material risks relating to our compensation policies and practices;

●

cooperating with the Corporate Governance Committee in reviewing non-employee director compensation and providing input with respect to any proposed changes in director compensation;

●

as part of periodic organization and talent planning, either as part of the full Board, or at the Board’s direction, reviewing talent and development plans relative to senior management;

●

either as part of the full Board, or at the Board’s direction, reviewing and monitoring our policies and strategies related to human capital management;

●

reviewing and discussing with management the Compensation Discussion and Analysis required by SEC regulations and, if appropriate, recommending its inclusion in our Annual Report on Form 10-K and proxy statement; and

●

reviewing the results of non-binding advisory votes on executive compensation and determining whether changes should be made to our executive compensation policies and programs in light of shareholder feedback.

None of the members of the Compensation and Management Development Committee during 2020 or as of the date of this proxy statement is or has been our officer or employee or had any relationship requiring disclosure under Item 404 of Regulation S-K of the Exchange Act. None of our executive officers served on the compensation committee or board of any company that employed any member of the Compensation and Management Development Committee or the Board or otherwise under circumstances requiring disclosure under Item 404 of Regulation S-K.

The report of the Compensation and Management Development Committee appears on page 44.

 

Compensation Risk Assessment

At the request of the Compensation and Management Development Committee, Willis Towers Watson, the committee’s compensation consultant, conducted an in-depth qualitative review of the potential risks associated with our executive compensation program in 2015, and it has updated its assessment each year thereafter. The components of our executive compensation program are part of our global compensation structure, and the majority of the compensation policies or practices that apply to other levels of our employees or to any of our subsidiaries or divisions are included in our executive compensation program. For 2020, Willis Towers Watson found that our executive compensation program is in alignment with current market practices, contains an appropriate balance of risk versus rewards and incorporates appropriate risk mitigating factors. Consistent with prior years, Willis Towers Watson found no design features in our executive compensation practices that pose a significant concern from the perspective of motivating senior officers to knowingly expose us to excessive enterprise risk. We believe that our compensation policies and practices do not encourage excessive risk-taking and are not reasonably likely to have a material adverse effect on us.

 

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CORPORATE GOVERNANCE

 

Corporate Governance Committee

Betsy J. Bernard, Chair

Gail K. Boudreaux

Larry C. Glasscock

Robert A. Hagemann

Maria Teresa Hilado

The Corporate Governance Committee oversees the Board’s corporate governance policies and practices and assists the Board in its oversight with respect to matters that involve our image, reputation and standing as a responsible corporate citizen. In its oversight of corporate governance policies and practices, the Corporate Governance Committee’s duties include:

 

●

developing and recommending to the Board criteria for selection of non-management directors;

●

recommending to the Board director nominees for election at the next annual or special meeting of shareholders at which directors are to be elected or to fill any vacancies or newly-created directorships that may occur between such meetings;

●

recommending directors for appointment to Board committees;

●

analyzing information relevant to the Board’s determination as to whether a director is independent;

●

overseeing the annual self-evaluation process for the Board and its committees;

●

periodically reviewing the Board’s leadership structure and recommending any proposed changes to the Board for approval;

●

monitoring emerging corporate governance trends and recommending to the Board any proposed changes in our corporate governance policies;

●

periodically reassessing the Board’s Corporate Governance Guidelines and recommending any proposed changes to the Board for approval; and

●

periodically reviewing, in cooperation with the Compensation and Management Development Committee, the form and amount of non-employee director compensation and recommending any proposed changes to the Board for approval.

In assisting the Board in its oversight with respect to matters that involve our image, reputation and standing as a responsible corporate citizen, the Corporate Governance Committee reviews and considers, among other items, the following from time to time as it deems appropriate:

 

●

current and emerging political, social, environmental, corporate citizenship and public policy issues and trends that may affect our business activities, performance, reputation or public image;

●

our public policy, government relations and advocacy activities, including our policies on political contributions and the activities of the Zimmer Biomet Political Action Committee;

●

our sustainability activities, including initiatives related to the environment;

●

our community relations activities and charitable contributions, including the underlying philosophy, goals and purposes of our contribution activities;

●

our initiatives related to promoting access to healthcare and other social responsibility issues; and

●

shareholder proposals submitted for inclusion in our proxy materials that relate to public policy or social responsibility issues.

 

Quality, Regulatory and Technology Committee

Christopher B. Begley, Chair

Michael J. Farrell

Arthur J. Higgins

Syed Jafry

Michael W. Michelson

The Quality, Regulatory and Technology (“QRT”) Committee assists the Board in its oversight of product quality and safety and our research, innovation and technology initiatives in the context of our overall corporate strategy, goals and objectives. In its oversight of risk management, the QRT Committee reviews and considers, among other items, the following:

 

●

our overall quality strategy;

●

processes in place to monitor and control product quality and safety;

●

results of product quality and quality system assessments by the company and external regulators; and

●

any significant product quality issues that may arise.

In overseeing our research, innovation and technology initiatives, the QRT Committee reviews and considers, among other items, the following as it deems appropriate:

 

●

the strategic goals, objectives and direction of our research programs and the alignment of those programs with our portfolio of businesses and our long-term business objectives and strategic goals;

 

		19

 

CORPORATE GOVERNANCE

 

●

the relationship of our strategic research plan to our overall approach to technical and commercial innovation and technology acquisition;

●

our product development pipeline;

●

our major technology positions and strategies relative to emerging technologies, emerging concepts of therapy and healthcare, and changing market requirements;

●

the processes for identifying and prioritizing, and, as applicable, the development of, innovative technologies that arise from within and outside the company;

●

our ability to internally develop technology being, or proposed to be, developed, or to access and maintain such technology from third parties through acquisitions, licensing, collaborations, alliances, investments or otherwise; and

●

the potential impact on us in the event that technology being, or proposed to be, developed is not developed or accessed by us.

 

COMPENSATION OF NON-EMPLOYEE DIRECTORS

The Board believes that providing competitive compensation is necessary to attract and retain qualified non-employee directors. The key components of director compensation include annual retainers, committee chair annual fees and equity-based awards. It is the Board’s practice to provide a mix of cash and equity-based compensation to more closely align the interests of directors with our shareholders.

The following table sets forth information regarding the compensation we paid to our non-employee directors for 2020. Mr. Hanson is not included in this table because he received no additional compensation for his service as a director. Ms. Kolli is not included in this table because she joined the Board in February 2021.

2020 Director Compensation Table

 

Name		Fees Earned or Paid in Cash(1) ($)				Stock Awards(2) ($)				All Other Compensation(3) ($)				Total ($)
(a)			(b)				(c)				(g)				(h)
Christopher B. Begley			125,000				190,340				10,796				326,136
Betsy J. Bernard			125,000				190,340				11,992				327,332
Gail K. Boudreaux			110,000				190,340				10,143				310,483
Michael J. Farrell			110,000				190,340				7,122				307,462
Larry C. Glasscock			260,000				190,340				21,194				471,534
Robert A. Hagemann			135,000				190,340				19,317				344,657
Arthur J. Higgins			130,000				190,340				23,745				344,085
Maria Teresa Hilado			55,000				245,340				2,038				302,378
Syed Jafry			55,000				245,340				1,381				301,721
Michael W. Michelson			110,000				190,340				6,215				306,555

 

(1)

Amounts include fees that were paid in cash plus fees that were voluntarily deferred at each director’s election under our Deferred Compensation Plan for Non-Employee Directors. As explained more fully below, compensation that a director elects to defer is credited to the director’s deferred compensation account as either treasury units, dollar units or deferred share units (“DSUs”), and will be paid in cash following the director’s retirement or other termination of service from the Board.

 

(2)

Represents the grant date fair value of the stock awards determined in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718 (“ASC 718”). For these stock awards, the grant date fair value is the average of the high and low selling prices of our common stock on the New York Stock Exchange on the date of grant. All stock awards to directors are fully vested on the date of grant but are subject to mandatory deferral of settlement until the director’s termination of service from the Board, or later, as explained more fully below.

 

20		Zimmer Biomet

 

CORPORATE GOVERNANCE

 

The following table sets forth the grant date fair value of annual grants of restricted stock units (“RSUs”) and DSUs awarded to each director elected or reelected at the 2020 annual meeting of shareholders, as well as DSUs granted during 2020 pursuant to the mandatory deferral provisions of the Deferred Compensation Plan for Non-Employee Directors.

2020 STOCK AWARDS

 

Name		RSUs (granted 05-08-20) ($)				DSUs (granted 05-08-20) ($)				DSUs (mandatory deferral) ($)				Total ($)
Christopher B. Begley			130,000				60,340				—				190,340
Betsy J. Bernard			130,000				60,340				—				190,340
Gail K. Boudreaux			130,000				60,340				—				190,340
Michael J. Farrell			130,000				60,340				—				190,340
Larry C. Glasscock			130,000				60,340				—				190,340
Robert A. Hagemann			130,000				60,340				—				190,340
Arthur J. Higgins			130,000				60,340				—				190,340
Maria Teresa Hilado			130,000				60,340				55,000				245,340
Syed Jafry			130,000				60,340				55,000				245,340
Michael W. Michelson			130,000				60,340				—				190,340

 

(3)	Amounts in this column represent the dollar value of dividend equivalents credited in the form of additional DSUs under the Deferred Compensation Plan for Non-Employee Directors. Dividend equivalents are credited at the same rate as cash dividends paid on our common stock.

 

Retainers

We pay non-employee directors quarterly, on the last day of March, June, September and December. During 2020, we paid non-employee directors an annual retainer of $110,000 subject to mandatory deferral requirements as described below, and we paid our non-executive Chairman of the Board an additional annual retainer of $150,000. We paid our Audit Committee chair an additional annual retainer of $25,000, we paid our Compensation and Management Development Committee chair an additional annual retainer of $20,000, and we paid each of the chairs of our other standing Board committees additional annual retainers of $15,000. Accordingly, we paid the following amounts during 2020:

 

		March 31 ($)				June 30 ($)				September 30 ($)				December 31 ($)				Total ($)
Non-executive Chairman annual retainer			37,500				37,500				37,500				37,500				150,000
Director annual retainer			27,500				27,500				27,500				27,500				110,000
Audit Committee chair annual retainer			6,250				6,250				6,250				6,250				25,000
Compensation and Management Development Committee chair annual retainer			5,000				5,000				5,000				5,000				20,000
Other standing committee chair annual retainer			3,750				3,750				3,750				3,750				15,000

Directors who commence service on the Board, or who commence service as a standing committee chair or as non-executive Chairman, are paid applicable quarterly fees beginning with the quarter during which they commence such service. Similarly, directors who terminate service on the Board or terminate service as a standing committee chair or as non-executive Chairman are paid applicable quarterly fees through the quarter during which such service terminated.

 

Equity-Based Compensation and Mandatory Deferrals

We awarded each non-employee director who was elected or reelected at the 2020 annual meeting of shareholders 500 DSUs as of the date of the annual meeting with an initial value based on the price of our common stock on that date. We require that these annual DSU awards be credited to a deferred compensation account under the provisions of the Deferred Compensation Plan for Non-Employee Directors. DSUs represent an unfunded, unsecured right to receive shares of our common stock or the equivalent value in cash, and the value of DSUs varies directly with the price of our common stock. We also require that 50% of a director’s annual retainer be deferred and credited to his or her deferred compensation account in the form of DSUs with an initial value equal to the amount of fees deferred until the director holds a total of at least 5,000 DSUs.

 

		21

 

CORPORATE GOVERNANCE

 

Non-employee directors may elect to defer receipt of compensation in excess of their mandatory deferral and annual DSU award. Elective deferrals are credited to the director’s deferred compensation account in the form of either treasury units, dollar units or DSUs with an initial value equal to the amount of fees deferred. The value of treasury units and dollar units does not change after the date of deferral. Amounts deferred as treasury units are credited with interest at a rate based on the six-month U.S. Treasury bill discount rate for the preceding year. Amounts deferred as dollar units are credited with interest at a rate based on the rate of return of our invested cash during the preceding year. When we pay cash dividends on our common stock, amounts deferred as DSUs are credited with additional DSUs equal to the number of shares of our common stock that could have been purchased if we paid cash dividends on the DSUs held in directors’ deferred compensation accounts and such cash was reinvested in our common stock. These additional DSUs are subject to mandatory deferral.

All treasury units, dollar units and DSUs are immediately vested and payable following termination of the non-employee director’s service on the Board. We settle annual DSU awards and mandatory deferral DSUs in shares of our common stock. We pay the value of treasury units, dollar units and elective deferral DSUs in cash. Non-employee directors may elect to receive the cash payment in a lump sum or in not more than ten annual installments.

During 2020, we also awarded each continuing non-employee director RSUs as of the date of the annual meeting of shareholders with an initial value of $130,000 based on the price of our common stock on that date. These awards were made under the Stock Plan for Non-Employee Directors. The RSUs vested immediately and are subject to mandatory deferral until May 8, 2023, or, if later, the director’s retirement or other termination of service from the Board. We will settle the RSUs in shares of our common stock.

 

Insurance, Expense Reimbursement and Director Education

We provide non-employee directors with travel accident insurance and reimburse reasonable expenses they incur for transportation, meals and lodging when on Zimmer Biomet business. We also reimburse non-employee directors for reasonable out-of-pocket expenses, including tuition costs incurred in attending director education programs.

 

22		Zimmer Biomet

 

AUDIT COMMITTEE MATTERS

 

 

AUDIT COMMITTEE MATTERS

 

Proposal 2 – Ratification of the Appointment of the Independent Registered Public Accounting Firm

The Audit Committee is directly responsible for the appointment, retention, compensation and oversight of our independent registered public accounting firm, including the review and approval of audit fees. The Audit Committee has appointed PricewaterhouseCoopers LLP (“PwC”) to serve as our independent registered public accounting firm for 2021. We are asking shareholders to ratify this appointment as a matter of policy.   If shareholders do not ratify the selection of PwC, the Audit Committee will consider any information submitted by shareholders in connection with the selection of the independent registered public accounting firm for the next year. Even if the selection is ratified, the Audit Committee, in its discretion, may direct the appointment of a different independent registered public accounting firm at any time during the year if the Audit Committee believes such a change would be in our best interest and the best interest of our shareholders.   PwC has served as our independent registered public accounting firm continuously since 2000. In accordance with SEC rules, audit partners are subject to rotation requirements to limit the number of consecutive years an individual partner may provide audit services to us. For lead and concurring review audit partners, the maximum number of consecutive years of service in that capacity is five years. The process for selection of our lead audit partner pursuant to this rotation policy involves discussions among PwC, management and the full Audit Committee, as well as interviews by the Chair of the Audit Committee and our CFO of candidates recommended by PwC. In addition, in order to assure continuing auditor independence, the Audit Committee periodically considers whether there should be a regular rotation of our independent registered public accounting firm.   In determining whether to reappoint PwC to serve as our independent registered public accounting firm, the Audit Committee annually considers several factors, including:   ● PwC’s independence and objectivity; ● PwC’s capabilities considering the complexity of our global operations, including the skills and experience of the lead audit partner; ● PwC’s historical and recent performance, including the extent and quality of PwC’s communications with the Audit Committee and management’s views of PwC’s overall performance; ● data related to audit quality and performance, including recent Public Company Accounting Oversight Board (“PCAOB”) inspection reports on PwC; ● PwC’s knowledge of and familiarity with our business and industry and our accounting policies and practices; and ● the appropriateness of PwC’s fees, taking into account the size and level of complexity of our organization and the resources necessary to perform the audit.   The members of the Audit Committee and the Board believe that the continued retention of PwC to serve as our independent registered public accounting firm is in our best interest and in the best interest of our shareholders.   Representatives of PwC attended all meetings of the Audit Committee in 2020. We expect that a representative of PwC will be present at the annual meeting. This representative will have an opportunity to make a statement and will be available to respond to appropriate questions.   Our Board recommends a vote FOR ratification of the appointment of PwC as our independent registered public accounting firm for 2021.

 

 

RESPONSIBILITIES OF THE AUDIT COMMITTEE

The Audit Committee is responsible for overseeing the integrity of our financial statements, the qualifications, performance and independence of the independent registered public accounting firm, the performance of our internal audit function and compliance with certain legal and regulatory requirements, including oversight of our Corporate Compliance Program. The committee is directly responsible for the appointment, retention, compensation and oversight of our independent registered public accounting firm.

Management is responsible for the financial reporting process, including the system of internal control, for the preparation of consolidated financial statements in accordance with accounting principles generally accepted in the United States and for management’s report on internal control over financial reporting.

 

		23

 

AUDIT COMMITTEE MATTERS

 

The independent registered public accounting firm is responsible for auditing the consolidated financial statements and expressing an opinion as to their conformity with accounting principles generally accepted in the United States as well as rendering an opinion on the company’s internal control over financial reporting.

The committee’s responsibility is to oversee and review the financial reporting process and to review and discuss management’s report on internal control over financial reporting. Committee members are not, however, professionally engaged in the practice of accounting or auditing and do not provide any expert or other special assurance as to such financial statements concerning compliance with laws, regulations or accounting principles generally accepted in the United States or as to the independence of the independent registered public accounting firm. The committee relies, without independent verification, on the information provided to it and on the representations made by management and the independent registered public accounting firm.

See also “CORPORATE GOVERNANCE – Committees of the Board – Audit Committee” on page 17 for additional information about the Audit Committee’s functions and composition.

 

ACTIVITIES OF THE AUDIT COMMITTEE IN 2020

The committee held nine meetings during 2020. The meetings were designed, among other things, to facilitate and encourage communication among the committee, management, our internal auditor and PwC. At these meetings, the committee:

 

●

discussed with the internal auditor and with PwC the overall scope and plans for their respective audits;

●

reviewed and discussed with management and PwC the consolidated financial statements;

●

met with the internal auditor and PwC, with and without management present, to discuss the results of their examinations and their evaluations of the company’s internal control over financial reporting;

●

reviewed and discussed with management, the internal auditor and PwC management’s report on internal control over financial reporting and PwC’s report on internal control over financial reporting;

●

reviewed and discussed the company’s compliance with Section 404 of the Sarbanes-Oxley Act of 2002;

●

discussed major financial risk exposures with management and the steps management has taken to monitor and control such exposures, including risk assessment and risk management policies and processes;

●

reviewed and discussed with management the design and operation of our Corporate Compliance Program designed to prevent, detect and remediate non-compliance with applicable laws, regulations, industry codes and Zimmer Biomet policies and procedures;

●

reviewed and discussed with management our privacy, data security, business continuity and cyber security-related risk exposures;

●

received and reviewed a report prepared by an independent public accounting firm in collaboration with our internal auditor regarding the testing of payments we made to healthcare professionals during 2020; the focus of the testing was to confirm that the payments were made on a basis consistent with identified requirements of our Corporate Compliance Program;

●

discussed with management and the internal auditor the process used to support certifications by the CEO and CFO that are required by the SEC and the Sarbanes-Oxley Act of 2002 to accompany periodic filings with the SEC and the processes used to support management’s report on internal control over financial reporting;

●

pre-approved audit and permitted non-audit services in accordance with the policy described below;

●

discussed with PwC the matters required to be communicated to the committee as described below;

●

discussed the auditor’s independence with PwC and made the conclusions regarding independence described below; and

●

evaluated PwC’s performance and considered factors relevant to the reappointment of PwC.

 

AUDIT COMMITTEE PRE-APPROVAL OF SERVICES OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Audit Committee has adopted a policy for pre-approval of audit and permitted non-audit services by our independent registered public accounting firm. The Audit Committee will consider annually and, if appropriate, pre-approve the provision of audit and permitted non-audit services. The Audit Committee will also consider on a case-by-case basis and, if appropriate, pre-approve specific services that are not otherwise pre-approved. Any proposed engagement that does not fit within the definition of a pre-approved service may be presented to the Audit Committee for consideration at its next regular meeting or, if earlier consideration is required, to the Chair of the Audit Committee between regular meetings. The Audit Committee Chair has the delegated authority to pre-approve such services up to a specified fee amount. These pre-approval decisions are reported to the full Audit Committee at its next scheduled meeting.

 

24		Zimmer Biomet

 

AUDIT COMMITTEE MATTERS

 

AUDIT AND NON-AUDIT FEES

The following table shows the fees that we paid or accrued for audit and other services provided by PwC for the years 2020 and 2019. All of the services described in the following fee table were approved in conformity with the Audit Committee’s pre-approval process described above.

 

			(000’s)
			2020				2019
Audit Fees(1)		$	8,058			$	8,905
Audit-Related Fees(2)			421				473
Tax Fees(3)			1,823				2,840
All Other Fees(4)			29				3
Total Fees		$	10,331			$	12,221

 

(1)

This category includes the audit of our annual financial statements, the audit of our internal control over financial reporting, the review of interim financial statements included in our quarterly reports on Form 10-Q and services that are normally provided by the independent registered public accounting firm in connection with statutory and regulatory filings or engagements for those years. This category also includes advice on accounting matters that arose during, or as a result of, the audit or the review of interim financial statements and statutory audits required by non-U.S. jurisdictions.

 

(2)

This category consists of assurance and related services provided by PwC that are reasonably related to the performance of the audit or review of our financial statements and are not reported above under “Audit Fees.” The services for the fees disclosed under this category include attest services related to due diligence services, non-statutory financial reporting outside the U.S., employee benefit plan audits, accounting research and consultation, restructuring-related services and statutory reports for various countries.

 

(3)	This category consists of tax services provided by PwC for tax compliance, tax advice and tax planning.

 

(4)	This category consists primarily of fees for the use of PwC accounting research and other data insight tools as well as foreign immigration documentation services.

 

AUDIT COMMITTEE REPORT

The Audit Committee has reviewed and discussed with management and PwC the audited financial statements for the year ended December 31, 2020, and PwC’s evaluation of the company’s internal control over financial reporting. The committee has discussed with PwC the matters that are required to be discussed by the applicable requirements of the PCAOB and the SEC. PwC has provided the committee the written disclosures and the letter required by applicable requirements of the PCAOB regarding PwC’s communications with the committee concerning independence, and the committee has discussed with PwC that firm’s independence. The committee has concluded that PwC’s provision of audit and non-audit services to the company and its affiliates is compatible with PwC’s independence.

Based on the reviews and discussions described above, and subject to the limitations on the committee’s role and responsibilities as described in this proxy statement and in the Audit Committee’s charter, the Audit Committee recommended to the Board of Directors, and the Board approved, that the audited consolidated financial statements for the year ended December 31, 2020 be included in our Annual Report on Form 10-K for filing with the SEC.

Audit Committee

Robert A. Hagemann, Chair

Betsy J. Bernard

Gail K. Boudreaux

Larry C. Glasscock

Maria Teresa Hilado

 

		25

 

EXECUTIVE COMPENSATION

 

 

EXECUTIVE COMPENSATION

 

Proposal 3 – Advisory Vote to Approve Named Executive Officer Compensation

The Board of Directors is committed to excellence in corporate governance and recognizes the interest our shareholders have expressed with respect to our executive compensation program. As a part of this commitment, and in accordance with Section 14A of the Exchange Act, our shareholders are being asked to approve, on a non-binding, advisory basis, the compensation of our named executive officers (“NEOs”) as reported in this proxy statement. This proposal, commonly known as a “Say on Pay” proposal, gives shareholders the opportunity to endorse or not endorse our executive compensation program for our NEOs for 2020.   A detailed description of our executive compensation program is available in the Compensation Discussion and Analysis section of this proxy statement (“CD&A”). Our Board and Compensation and Management Development Committee believe that our executive compensation program is tied to performance, aligns with shareholder interests and merits shareholder support. Accordingly, the Board recommends that shareholders vote in favor of the following resolution:   “RESOLVED, that the shareholders of Zimmer Biomet Holdings, Inc. approve, on an advisory basis, the compensation of the company’s named executive officers as disclosed in this proxy statement pursuant to the SEC’s executive compensation disclosure rules, including the CD&A, the compensation tables and narrative disclosures.”   Although this vote is non-binding, the Board and the Compensation and Management Development Committee value the views of our shareholders and will review the voting results. If there are significant negative votes, we will take steps to understand those concerns that influenced the vote, and consider them in making future decisions about executive compensation. We currently conduct annual advisory votes on executive compensation, and we expect to conduct the next advisory vote at our 2022 annual meeting of shareholders.   Our Board recommends a vote FOR the advisory resolution approving executive compensation.

 

26		Zimmer Biomet

 

EXECUTIVE COMPENSATION

 

COMPENSATION DISCUSSION AND ANALYSIS

 

EXECUTIVE SUMMARY

 

2020 NEOs

This CD&A describes the compensation of the following NEOs for 2020:

 

NEO		Title
Bryan Hanson		President and CEO
Suketu Upadhyay		Executive Vice President and CFO
Ivan Tornos		Chief Operating Officer
Sang Yi		President, Asia Pacific (“APAC”)
Didier Deltort		President, Europe, Middle East and Africa (“EMEA”)

 

2020 Say on Pay Vote

The Compensation and Management Development Committee of the Board (the “committee” in this CD&A and the executive compensation tables and narrative discussion that follow) has historically taken into consideration the results of our non-binding advisory votes on executive compensation (commonly referred to as “Say on Pay”) when making future decisions regarding the structure and implementation of our executive compensation program.

At our 2020 annual meeting, shareholders showed strong support for our executive compensation program, with approximately 92% of votes cast approving our advisory Say on Pay resolution. The committee considered these results and, based on the strong level of shareholder support, the committee made no material changes in our executive compensation program for 2020 as a result of the 2020 Say on Pay vote. As reported in last year’s proxy statement, in response to shareholder feedback, the committee had eliminated the opportunity for interim payouts under the annual performance-based restricted stock unit grant beginning with the February 2020 grant.

 

Impact of the COVID-19 Global Pandemic on Our Results and Executive Compensation

Impact of COVID-19 on Our Results

Our 2020 financial results were significantly impacted by the COVID-19 global pandemic. The vast majority of our net sales are derived from products used in elective surgical procedures, including joint replacement surgeries. As COVID-19 rapidly started to spread throughout the world and reached a pandemic level in March 2020, our net sales decreased dramatically as countries took precautions to prevent the spread of the virus with lockdowns and stay-at-home measures and as hospitals deferred elective surgical procedures. This resulted in net sales declines of 9.7 percent and 38.3 percent in the first and second quarters of 2020, respectively, when compared to the same prior year periods. In the third quarter of 2020, various levels of recovery in elective surgical procedures occurred, resulting in net sales growth of 2.0 percent when compared to the same prior year period. However, in the fourth quarter of 2020, we saw the pandemic worsen and elective surgical procedures were deferred again, especially late in the quarter. This was particularly prevalent in Europe, Middle East and Africa. As a result, our net sales declined in the fourth quarter of 2020 by 1.9 percent when compared to the same prior year period. For full-year 2020, our net sales declined by 12.0% compared to 2019 due to the deferral of elective surgical procedures as a result of the COVID-19 pandemic.

Actions Designed to Ensure Team Member Safety, Strengthen Our Financial Profile and Support Healthcare Professionals and Communities

We responded to the unprecedented disruption caused by the pandemic by taking decisive actions designed to ensure the safety of our team members, strengthen our financial profile and navigate the new environment, including the following:

 

●

implemented measures designed to protect our 20,000 team members globally, including travel restrictions, work-from-home requirements and preventative measures at our facilities;

 

●

took steps to maintain our financial flexibility, including refinancing $1.5 billion in debt that came due April 1, 2020, renegotiating the terms of our $1.5 billion revolving credit facility and securing an additional $1.0 billion credit facility (there were no outstanding borrowings under these credit facilities as of December 31, 2020 or as of the date of this proxy statement);

 

		27

 

EXECUTIVE COMPENSATION

 

●

contained costs in an effort to further support our liquidity profile, including temporarily reducing discretionary spending that we believed could be delayed with limited long-term detriment to the business and temporarily suspending or limiting production at certain manufacturing facilities (impacted team members received 80% of their pay and full benefits during this time period and were subsequently reimbursed for any lost pay); and

 

●

took steps designed to further reinforce business continuity in our manufacturing facilities and proactively managed our supply chain to enhance our ability to continue to serve patients, providers and customers, including working closely with key suppliers to mitigate any potential supply disruptions and partnering with local governments to seek “essential business” exemptions for key suppliers.

As we were navigating the significant and sudden global decline in elective procedure volumes and demand for our products, we continued to take an active role in supporting healthcare professionals, hospitals and communities during the pandemic, including:

 

●

donating supplies of personal protective equipment to local hospitals and non-profit organizations;

 

●

partnering with an industry coalition and using 3-D printing technology to produce critical components for ventilators and face shields for healthcare professionals; and

 

●

providing monetary donations to non-profit organizations in support of COVID-19 initiatives.

Actions Designed to Transform the Business and Accelerate Long-Term Growth

While the challenges and fluidity around COVID-19 persisted throughout 2020, we continued to take steps aligned with our active portfolio management and business transformation strategies designed to invest for greater value and prioritize innovation to better position the company for accelerated long-term growth, including the following:

 

●

acquired Incisive LLC, an operating room (“OR”) solutions company with technology designed to drive efficiency in the surgical setting through a comprehensive offering of ”smart OR” infrastructure that we believe will be attractive to ambulatory surgery center customers;

 

●

acquired A&E Medical Corporation, a sternal closure company, Relign Corp., an arthroscopy equipment company, and 3DIEMME Srl, a dental imaging company, primarily to expand our product offerings in the craniomaxillofacial and thoracic, sports medicine and dental markets;

 

●

launched a large-scale, multimedia, direct-to-patient campaign, “Don’t Let Pain Gain on You,” in the U.S. focused on education and support for patients around elective procedures like joint replacement surgery, especially during the COVID-19 pandemic;

 

●

formed a partnership with Hospital for Special Surgery (“HSS”) to advance innovation on the mymobility® with Apple Watch® remote care management system designed to enable patients and practices around the world to leverage HSS’ expertise in orthopedic patient care through Zimmer Biomet’s platform; and

 

●

announced, in conjunction with our fourth quarter 2020 earnings announcement, our intention to pursue a plan to spin off our Spine and Dental businesses to form a new and independent publicly traded company (“NewCo”), which we believe will allow Zimmer Biomet and NewCo to enhance their respective focus, meet the needs of patients and customers and achieve faster growth and greater value for all stakeholders.

Executive Compensation Actions Related to COVID-19

As described above, our net sales decreased dramatically in the first and second quarters of 2020 compared to the same prior year periods due to the deferral of elective procedures as a result of COVID-19. Procedure volumes were the lowest in April, with sequential improvement in May and June. Based on indications at that time, we expected that sequential improvement to continue in the third and fourth quarters, but possibly at a more modest pace than occurred from April to June, recognizing that the consequences of COVID-19 continued to be extremely fluid and there were many variables and uncertainties that could impact our performance. Some of these variables and uncertainties included, for example, a resurgence of the virus, governmental policy actions, patient fear, patient job losses and/or insurance coverage losses, and economic downturn. Against this backdrop, the committee took the following compensation-related actions related to COVID-19 during 2020:

Base Salaries. In early April, the committee approved temporary reductions in the base salaries of our NEOs in response to ongoing uncertainty surrounding the scope and duration of the COVID-19 pandemic and its impact on the company. Specifically, our CEO Mr. Hanson’s base salary was reduced by 100% and the base salaries of each of the other NEOs was reduced by 25%, in each case until such time as the committee determined in its discretion. In late June, the committee approved the reinstatement of the NEOs’ base salaries. In addition, the committee approved the payment in cash of an amount to each NEO equal to the amount of base salary that such NEO gave up during the reduction period.

401(k) Matching Contributions. In addition to reducing NEOs’ base salaries, the committee approved the temporary suspension of the company’s matching contributions to NEOs’ 401(k) plan contributions. The company match was subsequently reinstated and NEOs’ 401(k) accounts were credited for any match that was forgone during the suspension period.

Annual Cash Incentive Plan Design and Performance Targets. The committee originally approved performance targets under our annual cash incentive plan in early February based on the 2020 operating plan approved by the Board at that time. In March,

 

28		Zimmer Biomet

 

EXECUTIVE COMPENSATION

 

COVID-19 reached a pandemic level and we were impacted by a significant and sudden decline in elective procedure volumes. In early April, we announced that we expected the decline in elective procedure volumes observed in the first quarter to continue to have a significant negative impact in the second quarter and, given the ongoing uncertainty around the scope and duration of COVID-19, we were unable to quantify the impact on our financial results and were withdrawing the full-year financial guidance we had issued on February 4, 2020.

Throughout the next few months, management continued to navigate the crisis as discussed above and modeled various financial scenarios for full-year 2020 based on assumptions related to numerous variables and uncertainties, including the potential impacts of the following: a resurgence of the virus in markets around the globe, patient fear, patient/family member unemployment and/or loss of benefits or insurance coverage, flu season, governmental policy actions including shelter-in-place orders and the halting of elective surgical procedures, and economic downturn.

In light of the ongoing impact of the COVID-19 pandemic on our business and financial results as discussed above, the committee determined that the performance targets approved in early February were not reasonably achievable and the plan therefore no longer served its purpose as an incentive. Acknowledging that the circumstances associated with COVID-19 were not reasonably foreseeable or within the control of the company and that it was important to provide an incentive to ensure that NEOs and all other bonus-eligible team members remained focused on achieving key performance metrics during the second half of 2020, the committee approved mid-year changes to the plan. Specifically, the committee approved revised performance targets in line with the company’s latest financial models. At the same time, the committee capped the potential payout under the plan at 100% target in light of the revised performance targets and the ongoing uncertainty as to the impact of COVID-19 in the second half of the year.

The committee decided to approve revised performance targets and reduce the potential payout under the plan, rather than shift to a completely discretionary cash incentive award for 2020 performance, because the committee believed that continuing to base team members’ annual cash incentives on established performance measures would best serve the primary objectives of the annual incentive plan, including motivating team members to achieve key financial measures and individual objectives and driving specific behaviors that foster short-term and long-term growth and profitability.

In-Flight Long-Term Incentive Plan Awards. We had three performance-based restricted stock unit (“PRSU”) awards outstanding during 2020: the 2018 grant, the 2019 grant and the 2020 grant. Despite the negative impact of COVID-19 on our net sales in 2020, and, accordingly, achievement of the targets under these awards, the committee determined to make no changes to the targets for NEOs. As a result, there was no payout under the 2018 grant for 2020 and there was a greatly reduced payout under the 2019 grant for 2020 relative to expectations based on the operating plan approved at the beginning of 2020 prior to COVID-19 reaching a pandemic level.

Summary of Cash and Incentive Plan Payouts for 2020: The below table sets forth our NEOs’ 2020 annual incentive plan payouts as well as their payouts, if any, for 2020 under the PRSU component of our long-term incentive (“LTI”) plan, as a percentage of the target opportunity and in terms of dollar amount or share number, as applicable. Additional details are provided later in this CD&A.

 

		2020 Annual Incentive Plan Payout								2018-2020 LTI Plan Final  (Year 3) Payout (2018 PRSU Grant)						2019-2021 LTI Plan Interim (Year 2)  Payout (2019 PRSU Grant)
NEO		(%)				($)				(%)				(# of Shares)		(%)				(# of Shares)
Bryan Hanson			94.8				1,594,981				0.0			0			6.4			1,866
Suketu Upadhyay			94.8				589,200				—			Not applicable			—			Not applicable
Ivan Tornos			94.8				651,987				—			Not applicable			6.4			517
Sang Yi(1)			94.8				446,081				0.0			0			6.4			338
Didier Deltort(2)			94.6				456,846				—			Not applicable			6.4			315

(1)	Mr. Yi’s compensation was paid in Singapore Dollars during the first half of 2020 and in Hong Kong Dollars during the second half of 2020 and has been converted to U.S. Dollars for purposes of this table using the average exchange rates for 2020 of 1 SGD = 0.725159 USD and 1 HKD = 0.128924 USD.

 

(2)	Mr. Deltort’s compensation is paid in Swiss Francs and has been converted to U.S. Dollars for purposes of this table using the average exchange rate for 2020 of 1 CHF = 1.065469 USD.

 

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EXECUTIVE COMPENSATION

 

KEY EXECUTIVE COMPENSATION PROGRAM PRACTICES

The committee has designed our executive compensation program and practices to align executives’ financial interests with those of our shareholders. Following is a description of key program features and practices that illustrate this alignment:

 

 

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EXECUTIVE COMPENSATION

 

COMPENSATION PHILOSOPHY AND ELEMENTS

 

Our Executive Compensation Philosophy

Our executive compensation program is designed to achieve the following fundamental objectives:

 

●

attract, retain and motivate a highly qualified and effective senior leadership team;

●

focus executives’ attention on specific financial, operational and strategic objectives;

●

create a direct relationship between pay and performance;

●

align executives’ interests with the long-term interests of our shareholders;

●

recognize company and individual performance; and

●

reflect the value of each executive’s position in the market and within the company.

To accomplish these objectives, the committee annually reviews and approves our executive compensation program components and target compensation levels, as well as specific performance metrics and targets, payout ranges and actual payouts.

For the NEOs, the committee establishes target compensation consistent, to the extent possible, with comparable positions in our peer group. Our practice is to target total direct compensation (including base salary, target annual cash incentive opportunities and target long-term equity-based incentives) at market competitive levels. Target compensation for individual executives may vary based on a variety of factors, such as experience and time in the position, the nature of the executive’s responsibilities, criticality of the role and difficulty of replacement, internal equity, retention concerns, individual performance and expected future contributions, readiness for promotion to a higher level, and, in the case of externally recruited executives, compensation earned at a prior employer.

Specific consideration is given to the weighting of fixed and at-risk components of pay relative to the peer group. The committee seeks to provide a total pay opportunity that is competitive with our closest peer group and industry competitors, but which also places a greater emphasis on at-risk equity-based compensation.

 

Elements of Executive Compensation

The following table describes the elements of target direct compensation for 2020. Our compensation program uses a mix of fixed and variable compensation elements and provides alignment with both short- and long-term business goals through annual incentive and LTI opportunities. We also offer retirement plans and benefits that are generally available to all employees, and we provide a limited range of perquisites.

 

Element and Key Characteristics		Objectives
Base Salary
● Only fixed compensation component; payable in cash ● Reviewed annually and adjusted when appropriate ● 2020 NEO increases: 3% – 5%		● Provide a base level of competitive cash compensation ● Attract and retain executive talent ● Recognize increased responsibilities through promotional increases
Annual Cash Incentive Opportunity
● Variable compensation component payable in cash based on performance against established goals and assessment of individual performance ● Target awards are based on a percentage of base salary ● Tied to consolidated results to drive total company performance in 2020 ● Payouts for 2020 could range between 0% and 100% of target ● 2020 NEO payouts: 94.6% – 94.8% of target		● Motivate and reward executives for achievement of key financial measures and individual objectives ● Drive specific behaviors that foster short-term and long-term growth and profitability

 

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EXECUTIVE COMPENSATION

 

Element and Key Characteristics		Objectives
Annual LTI Award: Stock Options (50% of annual equity award)
●  Nonqualified stock options ●  Vest ratably over four years ●  Ten-year term ●  Provide value to NEOs only when shareholders realize positive returns on their investment in the company over a corresponding period		●  Motivate NEOs to drive the long-term performance of the company; stock option value is tied directly to stock price performance after the date of grant ●  Align NEOs’ interests with long-term shareholder value; shares received upon exercise are subject to retention requirements under stock ownership guidelines ●  Attract and retain executive talent
Annual LTI Award: PRSUs (50% of annual equity award)
●  Three-year performance period ●  Since 2018, 50% based on constant currency revenue growth and 50% based on relative TSR compared to the companies included in the S&P 500 Health Care Index ●  For 2018 and 2019 grants only, opportunities for interim payouts after year one (0-33.3% of target) and year two (0-66.7% of target, less shares issued after year one) based upon performance to date ●  The cumulative total payout over the three-year performance period may not exceed 200% of target ●  2020 payouts: ●  2020 grant: Not applicable; no opportunity for payouts prior to the end of the three-year performance period ●  2019 grant (year two interim payout): 6.4% of target ●  2018 grant (year three final payout): 0.0% of target		●  Motivate achievement of multi-year performance objectives that enhance shareholder value ●  Align NEOs’ interests with long-term shareholder value; earned PRSUs are settled in shares of common stock that are subject to retention requirements under stock ownership guidelines ●  Attract and retain executive talent ●  Opportunities for interim payouts (2018 and 2019 PRSU grants only) designed to boost employee morale and retention during our turnaround; as disclosed in last year’s proxy statement, in light of shareholder feedback, this interim payout feature was eliminated beginning with the 2020 PRSU grant

 

COMPENSATION MIX

Our NEOs’ total direct compensation is heavily weighted toward variable compensation elements, meaning actual amounts earned will vary as a result of company and individual performance, as well as business unit or geographic results where applicable. We emphasize performance-based compensation that appropriately rewards executives for delivering results that meet or exceed multiple pre-established goals over one-, two-, three- and four-year periods, with metrics and targets selected because they are directly linked to our strategic goals. In addition, our long-term incentive program rewards absolute stock price growth as well as constant currency revenue growth and relative TSR.

As executives assume greater responsibilities, more of their pay is contingent on company performance. With respect to 2020, 91.1% of our CEO’s target total direct compensation was variable and tied to our annual and long-term performance, including stock price performance. The committee assesses each NEO’s target total direct compensation opportunity annually to facilitate alignment with the objectives of our compensation program and market practice.

 

2020 Target Total Direct Compensation
NEO		Base Salary		Annual Incentive(1)		PRSUs(1) (Grant Date Fair Value)		Stock Options(1) (Grant Date Fair Value)
Bryan Hanson		8.9%		13.1%		39.0%		39.0%
Suketu Upadhyay		17.9%		16.1%		33.0%		33.0%
Ivan Tornos		17.9%		16.9%		32.6%		32.6%
Sang Yi		22.1%		17.7%		30.1%		30.1%
Didier Deltort		23.6%		18.9%		28.8%		28.8%

 

(1)	Denotes performance-based compensation. We consider stock options to be performance-based because they require stock price appreciation to deliver any value to an executive.

 

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