What are the key changes to Thermo Fisher's executive compensation for 2019?

The primary changes involve the performance metrics for the annual cash incentive plan. Adjusted EPS has been removed as a metric, replaced by adjusted net income. The weighting remains 70% for financial measures (including revenue growth, adjusted operating margin, net income, and operating cash flow) and 30% for non-financial measures. The target bonus percentages for executives were also established.

Why did Thermo Fisher change its performance metrics?

These changes were made in response to investor feedback. The company aimed to differentiate performance metrics between the annual incentive plan and performance share awards, while still focusing on key drivers of shareholder value. Replacing Adjusted EPS with Adjusted Net Income in the annual plan was intended to align broader employee influence with company goals.

What is the new Clawback Policy and who does it apply to?

Thermo Fisher adopted an enhanced Clawback Policy applicable to all executive officers and other members of senior management. This policy allows the company to recover incentive-based compensation paid within the three years prior to an accounting restatement if that restatement is due to material noncompliance with U.S. federal securities laws.

Does the Clawback Policy affect previously awarded equity?

The enhanced Clawback Policy specifically targets incentive-based compensation tied to financial reporting restatements. However, a pre-existing clawback provision for equity agreements remains in effect, which allows the company to recoup proceeds from equity awards if the holder violates restrictive covenants (like non-compete or confidentiality agreements).

TMO 8-K: Leadership Changes

Summary

Thermo Fisher Scientific Inc. (TMO) filed an 8-K on February 27, 2019, detailing changes to its 2019 executive compensation program. The Compensation Committee established target cash bonus amounts for 2019, which range from 90% to 200% of base salary for executive officers. These bonuses are tied to specific financial and non-financial performance metrics designed to align executive incentives with shareholder value creation and business objectives. The company has refined its performance metrics for the annual cash incentive program based on investor feedback. Notably, adjusted Earnings Per Share (EPS) has been removed as a metric for the annual incentive plan, replaced by adjusted net income. This change aims to reduce overlap with performance share awards and focus on metrics that a broader employee base can influence, while continuing to emphasize revenue growth which is considered critical for shareholder value. Additionally, TMO has adopted an enhanced Clawback Policy applicable to executive officers and senior management, enabling the company to recover incentive compensation in the event of an accounting restatement due to material noncompliance with financial reporting requirements.

Key Highlights

1Establishment of 2019 target cash bonus amounts for executive officers, ranging from 90% to 200% of base salary.
2Revised 2019 annual cash incentive plan performance metrics: 70% financial (revenue growth, adjusted operating margin, net income, operating cash flow) and 30% non-financial.
3Replacement of Adjusted EPS with Adjusted Net Income as a performance metric in the annual incentive plan, based on investor feedback.
4Continued emphasis on Organic Revenue Growth as a key performance metric for both annual incentives and performance share awards.
5Implementation of an enhanced Clawback Policy for executive officers and senior management, allowing recovery of incentive compensation following an accounting restatement.
6The Clawback Policy covers incentive-based compensation received within the 3-year period preceding an accounting restatement, based on erroneous data.
7Pre-existing clawback provision for equity awards related to violations of restrictive covenants remains in effect.

THERMO FISHER SCIENTIFIC INC. 8-K Report, Executive Changes (Feb 28, 2019)

Summary

Key Highlights

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