Equity Compensation Awards
We use a mix of equity compensation vehicles to promote the objectives of our program.
SARs reward executives for the creation of shareholder value over the term of the award.
Performance Units measure BD’s performance over a three-year period and are intended to reward sustained long-term financial performance.
TVUs are the smallest portion of equity compensation and are used to reduce the volatility in amounts realized from equity compensation that can arise when purely performance-based equity compensation is used.
Because they are equity-based and subject to vesting, these awards also serve to align the interests of our executives with those of our shareholders and to promote executive retention.
The Compensation Committee determines the total grant date dollar value of the equity compensation to be paid to a named executive officer. SAR, Performance Unit and TVU awards are then made to the executive based on their estimated grant date values, with SARs and Performance Units each making up approximately 40% of the total award value, and TVUs the remaining 20%, consistent with prior years. The values given to equity compensation awards are only estimates and actual amounts realized from these awards may differ from these estimated values.
Performance Unit payout formula
The performance measures used for the Performance Units are average annual ROIC and relative TSR, each weighted 50%. A payout factor for each measure is calculated to determine a final share payout, which can range anywhere from zero to 200% of target.
ROIC. The payout factor for ROIC performance is determined by a scale, with threshold performance set at 5% below the ROIC target (resulting in a 50% payout factor), and maximum performance set at 5% above target (resulting in a 200% payout factor). Performance below the threshold level results in a zero payout factor for the ROIC measure.
Relative TSR. The payout factor for relative TSR performance is determined by the following table:
BD’s Percentile Rank
Less than 25th
Relative TSR performance is measured by reference to those healthcare equipment and life sciences companies included in the S&P 500 Healthcare Index (approximately 20 companies). For 2018, this represents a change from prior years when a smaller, custom group of companies was used. This change was made to reduce the potential volatility in relative TSR performance that can arise when comparing BD’s performance to a smaller group of companies.
If BD has a negative TSR for the performance period, the relative TSR factor is capped at 100%, regardless of where BD’s TSR ranks within the TSR Group. The Compensation Committee believes that in this instance, BD’s executives should still be rewarded for superior relative TSR performance, but that it is appropriate that the payout be limited.
Similar to the PIP, the Compensation Committee has the discretion to adjust BD’s average ROIC performance for acquisitions, divestitures and other unbudgeted items not considered part of our ordinary operations.