Zimmer Biomet executive pay increased after only a slim majority of shareholders approved the packages, but the orthopedics company disclosed compensation changes that might soothe investors at this year’s annual meeting.
In May 2022, Warsaw, Indiana–based Zimmer Biomet (NYSE:ZBH) said around 54% of voting shareholders supported the compensation packages paid out to Chair, President and CEO Bryan Hanson and his four top-paid executives for 2021. That slim margin of support was down from 93% the year before.
The “say-on-pay” votes are non-binding, advisory results, but in its new disclosure of executive pay for 2022, Zimmer Biomet said it took the feedback seriously and implemented changes after talks with shareholders.
“We view our annual Say on Pay votes as an important foundation for hearing our shareholders’ perspectives,” the company said in its latest proxy filing with the Securities and Exchange Commission ahead of the May 12, 2023 annual meeting.
“Based on engagement with our shareholders and feedback from the proxy advisory firms, we believe that the primary concerns … related to the fact that, in connection with our 2022 spinoff of ZimVie, the performance restricted stock units (PRSUs) granted to our executives and other employees in 2020 and 2021 were converted to time-based restricted stock units (RSUs) and, in the case of the 2020 PRSUs, the committee exercised its discretion to increase the payout upon conversion from 0% to the 50% threshold,” the company later continued. “Additionally, a majority of the institutional shareholders with which we engaged indicated general support for our core executive compensation program.”
Executive compensation changes
Zimmer Biomet said it will no longer convert PRSUs into time-based RSUs, will not increase the payout levels above the realized level of PRSUs, and will not pay out one-time, time-based equity grants to executives, except for new hires or performance-based retention grants.
The company also pledged to disclose more information about executive compensation and how payouts are calculated, along with more details about workforce demographics and board director skills and experience.
Finally, Zimmer Biomet said it replaced its longtime independent compensation consultant, Willis Towers Watson, with Semler Brossy Consulting Group for a “fresh perspective on our executive compensation practices.” Willis Towers Watson worked with Zimmer Biomet and its predecessor firms for around two decades.
Zimmer Biomet executive payZimmer Biomet reported $16.4 million in total compensation to Hanson, up nearly 10% from the year before. Hanson’s pay package included a $1.2 million salary, $12.8 million in stock and option awards and $2.3 million in cash bonuses.
Hanson also received $333,330 in other compensation, including $164,728 in deferred compensation contribution matches, $141,860 for personal use of corporate aircraft, $18,300 in 401(k) matches and $5,077 for the company’s executive physical perk.
The second-highest-paid executive is Chief Operating Officer Ivan Tornos at $6.4 million, up 32% from the year before. Following Tornos is EVP and CFO Suketu Upadhyay at $5.5 million (up 20% from 2021), APAC President Sang Yi at $3.6 million (up 6%), and SVP, General Counsel and Secretary Chad Phipps at $3.2 million.
Zimmer Biomet did not disclose 2021 pay for Phipps, who joined the company when it was Zimmer in 2003 and took on his current role in 2007.
Zimmer Biomet (excluding the ZimVie dental and spine spinoff) is the 19th-largest medical device company in the world, according to Medical Design & Outsourcing‘s Medtech Big 100 list. That ranking was based on $6.8 billion in revenue for 2021; the company reported $6.9 billion in sales for 2022.
“Although the COVID-19 pandemic substantially impacted our business performance in recent years, the company’s transformation agenda continued. We achieved many important milestones through the course of the pandemic,” the company said in an overview of executive achievements.
Those included the company’s financial performance, completing the ZimVie spinoff ahead of schedule and creation of the One ZB Mission, Guiding Principles and Culture Promises.
On quality, the company highlighted a reduction in FDA warning letters from three to one in 2018-2022 and a decrease in the number of recalls from more than 60 in 2017 to fewer than 10 in 2022.
Regarding innovation, the company said it doubled its Vitality Index (gross new product sales divided by total sales) from 2018 to 2022.
Related: Zimmer Biomet’s plan to be the ‘boldest’ company in medtech
“We believe an improved Vitality Index is a strong indicator of our innovative R&D and product pipeline, the strength of our innovation programs and our ability to launch differentiated products into the marketplace,” the company said.
Zimmer Biomet said diversity increased in the leadership team (Hanson and his direct reports) from 18% to 67% since 2018, and that the share of women in VP or higher roles increased by 8%. The company also said the number of U.S. employees who are “persons of color” increased by 6%. (More figures on diversity at Zimmer Biomet are available near the bottom of this post.)
Related: Rachel Ellingson is driving Zimmer Biomet toward new tech
Zimmer Biomet employee pay
Zimmer Biomet’s proxy filing also included its CEO pay ratio. The SEC requires publicly traded companies to calculate a pay ratio showing how much the CEO makes compared to the median employee.
Related: Zimmer Biomet’s R&D team grows, manufacturing and total workforce shrinks after ZimVie spinoff
Zimmer Biomet estimated its median employee wage at $64,888, up from $63,981 in 2021. That latest median wage and Hanson’s $16.4 million pay package puts Zimmer Biomet’s CEO compensation at 253 times more than the median employee’s pay. That’s up from last year’s 234:1 ratio.
More on executive pay:
- Boston Scientific discloses executive pay, reports employment and diversity gains
- Ashley McEvoy joins J&J’s top-paid executives
- Stryker discloses $40M in pay for CEO Kevin Lobo and top execs
- GE HealthCare’s CEO earned more than GE’s CEO before spinoff
- Baxter caps cash severance payouts for executives
- Masimo shareholders vote ‘no’ on executive pay
- Henry Schein investors push back on executive pay