March 13, 2015

Robert Abernathy

Chairman of the Board and

Chief Executive Officer

FELLOW STOCKHOLDERS:

It is my pleasure to invite you to our first Annual Meeting of Stockholders of Halyard Health, Inc. The meeting will be held on Thursday, April 30, 2015, at 9:00 a.m. Eastern time at the Atlanta Marriott Alpharetta, 5750 Windward Parkway, Alpharetta, Georgia 30005.

At the Annual Meeting, stockholders will be asked to elect two directors for a three-year term, ratify the selection of Halyard Health’s independent auditors, approve the compensation for our named executive officers, and approve the frequency of stockholder votes on our named executive officers’ compensation. These matters are fully described in the accompanying Notice of Annual Meeting and proxy statement.

Your vote is important. Regardless of whether you plan to attend the meeting, I urge you to vote your shares as soon as possible. You may vote using the included proxy card by completing, signing, and dating it, then returning it by mail. Also, most of our stockholders can submit their vote by telephone or through the Internet. If telephone or Internet voting is available to you, instructions will be included on your proxy form. Additional information about voting your shares is included in the proxy statement.

Sincerely,

 

Halyard

Health, Inc.

Notice of Annual Meeting of Stockholders

TO BE HELD

April 30, 2015

The Annual Meeting of Stockholders of Halyard Health, Inc. will be held at the Atlanta Marriott Alpharetta, which is located at 5750 Windward Parkway, Alpharetta, Georgia 30005, on Thursday, April 30, 2015, at 9:00 a.m. Eastern time for the following purposes:

 

1.	To elect as directors the two nominees named in the accompanying proxy statement for a three-year term;

 

2.	To ratify the selection of Deloitte & Touche LLP as our independent auditors for 2015;

 

3.	To approve a non-binding resolution to approve the compensation of our named executive officers;

 

4.	To approve a non-binding resolution to approve the frequency of stockholder votes on our named executive officers’ compensation; and

 

5.	To take action upon any other business that may properly come before the meeting or any adjournments of the meeting.

Stockholders of record at the close of business on March 6, 2015 are entitled to notice of and to vote at the meeting or any adjournments.

It is important that your shares be represented at the meeting. I urge you to vote promptly by using the Internet or telephone or by signing, dating and returning the enclosed proxy card.

To attend in person, please register by following the instructions on page 3. If you plan to attend the meeting, we ask that you nevertheless please complete, date, sign and return the enclosed proxy card and mail it as soon as possible in the envelope provided, or vote by telephone or the Internet according to the instructions on your proxy card. If you attend the meeting, you may revoke your proxy and vote your shares in person if you would like to do so.

 

March 13, 2015		By Order of the Board of Directors.
		Ross Mansbach
		Vice President— Deputy General Counsel and Corporate Secretary

 

Important Notice Regarding Availability of Proxy Materials for

the Stockholder Meeting to be held on April 30, 2015

This proxy statement along with our Annual Report on Form 10-K for the fiscal year ended December 31, 2014, are available at http://edocumentview.com/hyh.

On behalf of the Board of Directors of Halyard Health, Inc., we are soliciting your proxy for use at the 2015 Annual Meeting of Stockholders, to be held on April 30, 2015, at 9:00 a.m. Eastern time at the Atlanta Marriott Alpharetta, which is located at 5750 Windward Parkway, Alpharetta, Georgia 30005.

At the annual meeting, stockholders will vote on the following matters:

 

1.	The election of two nominees named in this proxy statement as directors for a three-year term;

 

2.	The ratification of the selection of Deloitte & Touche LLP as our independent auditors for 2015;

 

3.	A non-binding resolution to approve the compensation of our named executive officers;

 

4.	A non-binding resolution to decide the frequency of future stockholder votes on our named executive officers’ compensation; and

 

5.	Any other business that may properly come before the meeting or any adjournments of the meeting.

Our Board of Directors recommends that you vote your shares FOR each of proposals one through four.

 

 

How We Provide Proxy Materials

We began providing our proxy statement and form of proxy to stockholders on or about March 20, 2015. For our first Annual Meeting, we are providing stockholders of record at the close of business on March 6, 2015 with paper copies of our proxy statement and our annual report. In future years, as permitted by Securities and Exchange Commission (“SEC”) rules, we expect to make our proxy statement and our annual report available to many of our stockholders via the Internet rather than by mail.

 

 

Who May Vote

If you were a stockholder of record at the close of business on the record date of March 6, 2015, you are eligible to vote at the meeting. Each share of our common stock that you own entitles you to one vote. Shares may not be voted cumulatively.

As of the record date, 46,535,951 shares of our common stock were outstanding.

If your shares are held by a bank or brokerage firm, you are considered the “beneficial owner” of the shares held in “street name.” If your shares are held in street name, your bank or brokerage firm (the record holder of your shares) forwarded to you these proxy materials, along with a voting instruction card. As the beneficial owner, you have the right to direct your record holder how to vote your shares, and the record holder is required to vote your shares in accordance with your instructions. If you do not give instructions to your bank or brokerage firm, it will nevertheless be entitled to vote your shares with respect to “routine” items, but it will not be permitted to vote your shares with respect to “non-routine” items. In the case of non-routine items, your shares will be considered “broker non-votes” on those proposals.

 

 

How To Vote

If you are the record holder of shares of our common stock as of the record date, you may vote by using the Internet or telephone, by completing and returning the enclosed proxy card by mail, or by voting in person at the meeting. To vote by telephone or Internet, see the instructions on the proxy card and have the proxy card available when you access the Internet website or place your telephone call. To vote your proxy by mail, or by voting in person at the meeting, mark your vote on the proxy card, then follow the instructions on the card to return it by mail.

If your shares are held in street name, please follow the instructions on the voting instruction card to vote your shares.

If you are the record holder of your shares and you attend the meeting, you may deliver your completed proxy card in person. Additionally, we will pass out written ballots to registered stockholders who wish to vote in person at the meeting. Beneficial owners of shares held in street name who wish to vote at the meeting will need to obtain a power of attorney or proxy from their record holder to do so.

If you return a completed and properly signed proxy card prior to the meeting, or if you vote by telephone or the Internet prior to the meeting, the persons named as proxies on the proxy card will vote your shares according to your directions. The voting results will be certified by independent Inspectors of Election.

If you are a stockholder of record and you sign and return your proxy card, or if you vote using the Internet or by telephone, but you do not specify how you want to vote your shares, the persons named as proxies on the proxy card will vote your shares as follows:

 

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FOR the election of directors named in this proxy statement;

 

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FOR ratification of the selection of our independent auditors;

 

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FOR approval of the compensation of our named executive officers; and

 

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FOR approval of a vote on compensation of our named executive officers on an annual basis.

If any other matters are properly presented at the Annual Meeting for consideration, the persons named as proxies on the proxy card will vote as recommended by the Board of Directors or, if no recommendation is given, in their discretion.

 

 

Effect of Not Instructing

Your Broker

Routine Matters. If your shares are held in street name and you do not instruct the broker on how to vote your shares, your broker may choose to leave your shares unvoted or to vote your shares on routine matters. “Proposal 2. Ratification of Auditors” is the only routine matter on the agenda at this year’s Annual Meeting.

Non-Routine Matters. Without instructions from you on how to vote your shares, your broker cannot vote your shares on non-routine matters, including Proposals 1, 3 and 4, resulting in what are known as “broker non-votes.” Broker non-votes will not be considered present or entitled to vote on non-routine matters and will also not be counted for the purpose of determining the number of votes cast on these proposals.

 

 

How Withhold Votes and Abstentions Will be

Counted

Election of Directors. “Withhold” votes for the election of directors will have no impact on the outcome of the vote. They will not be counted for the purpose of determining the number of votes cast or as votes “for” or “against” a nominee.

 

Other Proposals. Abstentions will be counted:

 

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in determining the total number of shares entitled to vote on a proposal

 

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as votes against a proposal

 

 

How To

Revoke or Change

Your Vote

If you are a stockholder of record, there are several ways to revoke or change your vote:

 

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Mail a revised proxy card with a later date or a written notice of revocation with a later date to the Corporate Secretary of Halyard Health (the revised proxy card or notice of revocation must be received by close of business on April 29, 2015). Use the following address: 5405 Windward Parkway, Suite 100 South, Alpharetta, GA 30004.

 

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Use the Internet voting website or telephone voting procedures (the revocation or change must be completed by 1:00 a.m. Eastern time on April 30, 2015).

 

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Attend the meeting and vote in person. Please note that attendance at the meeting will not revoke a proxy if you do not actually vote at the meeting.

If you hold your shares in street name, the above options for changing your vote or revoking your instructions do not apply and you must follow the instructions received from your bank or broker to change your vote or revoke your proxy.

 

 

Votes

Required

There must be a quorum to conduct business at the Annual Meeting, which is established by having a majority of the shares of our common stock present in person or represented by proxy. If you vote, your shares will be included in the number of shares to establish the quorum. Abstentions (or “Withhold” votes for the elections of directors) or proxy cards returned without voting instructions and broker non-votes will be counted as present for the purpose of determining whether the quorum requirement is satisfied.

Election of Directors. A director nominee will be elected if he or she receives a plurality of the votes cast at the meeting in person or by proxy. As a result, the two directors receiving the greatest number of “FOR” votes will be elected. Shares cannot be voted for a greater number of persons than the number of nominees named.

Other Proposals or Matters. Approval requires the affirmative vote of a majority of shares that are present at the Annual Meeting in person or by proxy and entitled to vote on the proposal.

If you are a stockholder of record and you do not sign and return a proxy card or vote by telephone or the Internet, your shares will not count toward the quorum requirement and will not affect the outcome of any proposal at the Annual Meeting.

 

 

Attending

the Annual Meeting

If you are a stockholder of record, you or a duly appointed representative may attend the Annual Meeting in person. Returning your proxy card will not affect your right to attend the Annual Meeting and to vote in person. If you do plan to attend, we ask that you inform us electronically, by telephone, or by checking the appropriate box on your proxy form. This will assist us with meeting preparations and help to expedite your admittance.

If your shares are not registered in your own name and you would like to attend the meeting, please ask the broker, trust, bank or other nominee that holds your shares to provide you with written proof of your share ownership as of the record date. This will enable you to gain admission to the meeting.

 

If you need directions to the meeting, please contact Stockholder Services by telephone at 678-425-9273 or by e-mail at stockholder.services@hyh.com. Please bring a driver’s license or other photo-identification with you to the meeting to facilitate admission to the meeting.

 

 

Costs of Solicitation

Halyard Health will bear all costs of this proxy solicitation, including the cost of preparing, printing and delivering materials, and the out-of-pocket expenses of brokers, fiduciaries and other nominees who forward proxy materials to stockholders. In addition to mail and electronic means, our employees may solicit proxies by telephone or otherwise. Our employees will not receive additional compensation for such solicitations. We have retained D. F. King & Co., Inc. to aid in the solicitation at a cost of approximately $9,000 plus reimbursement of out-of-pocket expenses.

 

Our governance structure and processes are based on a number of important governance documents including our Code of Conduct, Certificate of Incorporation, Corporate Bylaws, Corporate Governance Policies and our Board Committee Charters. These documents, which are available in the investors section of our website at www.halyardhealth.com, guide the Board and our management in the execution of their responsibilities.

Halyard Health believes that there is a direct connection between good corporate governance and long-term, sustained business success, and we believe it is important to uphold sound governance practices. As such, the Board reviews its governance practices and documents on an ongoing basis, considering changing regulatory requirements, governance trends, and issues raised by our stockholders. After careful evaluation, we may periodically make governance changes in view of these matters to maintain current good governance practices and promote shareholder value.

We believe we are in compliance with all applicable corporate governance requirements of the NYSE, the SEC, the Sarbanes-Oxley Act of 2002 and the provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 that have become effective as of the date of this proxy statement.

 

 

 

Board Leadership Structure

The Board has established a leadership structure that allocates responsibilities between our Chairman of the Board and Chief Executive Officer and our Lead Director. The Board believes that this allocation provides for dynamic Board leadership while maintaining strong independence and oversight.

Consistent with this leadership structure, at least once a quarter our Lead Director, who is an independent director, chairs executive sessions of our non-management directors. Members of the company’s senior management team do not attend these sessions.

Chairman and Chief Executive Officer Positions

Under current circumstances, it is the Board’s view that a combined Chairman and CEO, coupled with a predominantly independent board and a proactive, independent Lead Director, promotes candid discourse and responsible corporate governance. Combining these roles also helps maintain clear lines of accountability internally and allows Halyard Health’s leadership to speak with a single voice externally. The Board retains the discretion to separate the Chairman and Chief Executive Officer roles at any time if it deems that to be in our best interest.

Robert Abernathy serves as Chairman of the Board and Chief Executive Officer. After careful consideration, the Board believes that with the benefit of Mr. Abernathy’s thirty plus years of operational and management experience at Kimberly-Clark and Halyard Health, he has demonstrated the leadership and vision necessary to lead the Board and Halyard Health through our process of separating from Kimberly-Clark and establishing and executing our global business strategies. He maintains an investor-focused perspective, and his leadership has delivered strong performance. Mr. Abernathy serves in this combined role at the pleasure of the Board without an employment contract.

 

Lead Director

Ronald Dollens serves as our independent Lead Director. Our Corporate Governance Policies outline the significant role and responsibilities of the Lead Director, which include:

 

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Chairing the Executive Committee

 

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Chairing the Governance Committee

 

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Chairing executive sessions at which non-management directors meet outside management’s presence, and providing feedback from such sessions to the Chief Executive Officer

 

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Coordinating the activities of the independent directors

 

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Providing input on agendas and schedules for Board meetings

 

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Leading the annual Board evaluation

 

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Leading (with the Chairman of the Compensation Committee) the Board’s review and discussion of the Chief Executive Officer’s performance

 

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Providing feedback to individual directors following their periodic evaluations

 

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Speaking on behalf of the Board and chairing Board meetings when the Chairman of the Board is unable to do so

 

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Acting as a direct conduit to the Board for stockholders, employees and others according to the Board’s policies

 

 

Director Independence

We believe our independent board helps ensure good corporate governance and strong internal controls.

Our Corporate Governance Policies, as adopted by the Board, provide independence standards consistent with the rules and regulations of the SEC and the listing standards of the New York Stock Exchange (“NYSE”). Our independence standards can be found in Section 17 of our Corporate Governance Policies.

The Board has determined that all directors and nominees, except for Robert E. Abernathy, are independent directors and meet the independence standards in our Corporate Governance Policies. In making these determinations, the Board considered the following:

 

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We sold $375,000 of healthcare products to Lincare Holdings, Inc. in 2014, where Mr. Byrnes was Chairman of the Board.

The NYSE listing standards and our Corporate Governance Policies establish certain levels at which transactions are considered to have the potential to affect a director’s independence. The transaction listed above falls below those levels.

 

 

Board Meetings

Prior to our spin-off from Kimberly-Clark on October 31, 2014, our Board of Directors participated in orientation meetings designed to provide background on our businesses and management. Following the spin-off, the Board met once in December 2014. All of the directors attended in excess of 75 percent of the total number of meetings of the Board and the committees on which they served.

Although we do not have a formal policy with respect to director attendance at annual meetings, we expect that all directors, including those standing for election, will be in attendance at the Annual Meeting on April 30, 2015.

 

 

Board Committees

The standing committees of the Board include the Audit Committee, Compensation Committee, Governance Committee, and Executive Committee. In compliance with applicable NYSE corporate governance listing standards, the Board has adopted Charters for all Committees except the Executive Committee.

Our Committee Charters are available in the Investors section of our website at www.halyardhealth.com.

As set forth in our Corporate Governance Policies, the Audit, Compensation, and Governance Committees all have the authority to retain independent advisors and consultants, with all costs paid by Halyard Health.

Audit Committee

 

The Board has determined that Ms. Fields is an “audit committee financial expert” under SEC rules and regulations. In addition, all Audit Committee members satisfy the NYSE’s financial literacy requirements and qualify as independent directors under our Corporate Governance Policies. See “Corporate Governance — Director Independence” for additional information on independent directors.

No member of the Audit Committee serves on the audit committees of more than three public companies. Under our Audit Committee Charter and NYSE corporate governance listing standards, if a member were to serve on more than three such committees, the Board would then determine whether this situation impairs the member’s ability to serve effectively on our Audit Committee, and we would post information about this determination on the Investors section of our website at www.halyardhealth.com.

Prior to our spin-off from Kimberly-Clark on October 31, 2014, the members of the Committee participated in an orientation meeting designed to provide background on our businesses and financial controls and related matters. Following the spin-off from Kimberly-Clark, the Committee met twice in 2014.

The Committee’s principal functions, as specified in its Charter, include:

 

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Overseeing:

 

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the quality and integrity of our financial statements

 

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our compliance programs together with our Governance Committee

 

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our hedging strategies and policies

 

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the independence, qualification and performance of our independent auditors

 

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the performance of our internal auditors

 

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Selecting and engaging our independent auditors, subject to stockholder ratification

 

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Pre-approving all audit and non-audit services that our independent auditors provide

 

 

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Reviewing the scope of audits and audit findings, including any comments or recommendations of our independent auditors

 

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Establishing policies for our internal audit programs

 

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Overseeing our risk management program and receiving periodic reports from management on risk assessments, the risk management process, and issues related to the risks of managing our business

For additional information about the Audit Committee’s oversight activities with respect to our in 2014 financial statements, see “Proposal 2. Ratification of Auditors — Audit Committee Report.”

Compensation Committee

 

Each member of this Committee is an independent director. Prior to our spin-off from Kimberly-Clark on October 31, 2014, the members of the Committee participated in an orientation session designed to provide background on our executive compensation programs and related matters. Following our spin-off from Kimberly-Clark, the Committee met twice in 2014.

The Committee’s principal functions, as specified in its Charter, include:

 

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Establishing and administering the policies governing annual compensation and long-term compensation, including stock option awards, restricted stock awards and restricted share unit awards, such that the policies are designed to align compensation with our overall business strategy and performance

 

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Setting, after an evaluation of his overall performance, the compensation level of the Chief Executive Officer

 

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Determining, in consultation with the Chief Executive Officer, compensation levels and performance targets for our executive officers

 

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Setting annual targets and certifying awards for corporate performance under our corporate incentive compensation plans

 

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Overseeing:

 

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leadership development for senior management and future senior management candidates

 

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a periodic review of our long-term and emergency succession planning for the Chief Executive Officer and other key officer positions, in conjunction with our Board

 

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key organizational effectiveness and engagement policies

 

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Annually reviewing our compensation policies and practices for the purpose of mitigating risks arising from these policies and practices that could reasonably have a material adverse effect

 

Roles of the Committee and the CEO in Compensation Decisions

Each year, the Committee reviews and sets the compensation of our executive officers, including our Chief Executive Officer. The Committee’s Charter does not permit the Committee to delegate to anyone the authority to establish any compensation policies or programs for the executive officers. With respect to officers that are not executive officers (our “non-executive officers”), our Chief Executive Officer has the authority to establish compensation programs and, subject to certain limits, to approve equity grants. However, only the Committee may make equity grants to our executive officers.

Our Chief Executive Officer makes a recommendation to the Committee each year on the appropriate target annual compensation for each of the other executive officers. The Committee makes the final determination of the target annual compensation for each executive officer, including our Chief Executive Officer. While our Chief Executive Officer and Chief Human Resources Officer typically each attend Committee meetings, none of the other executive officers is present during the portion of the Committee meetings when compensation for executive officers is set. In addition, our Chief Executive Officer is not present during the portion of the Committee meetings when his compensation is set.

For additional information on the Committee’s processes and procedures for determining executive compensation, and for a detailed discussion of our compensation policies, see “Compensation Discussion and Analysis.”

Use of Compensation Consultants

The Committee’s Charter authorizes the Committee to retain advisors, including compensation consultants, to assist it in its work. The Committee believes that compensation consultants can provide important market information and perspectives that can help it determine compensation programs that best meet the objectives of our compensation policies. In selecting a consultant, the Committee evaluates the independence of the firm as a whole and of the individual advisors who will be working with the Committee.

The Committee retains an independent executive compensation consultant who, according to the Committee’s written policy, provides services solely to the Committee and not to Halyard Health. The Committee’s consultant has no other business relationship with Halyard Health and receives no payments from Halyard Health other than fees for services to the Committee. The consultant reports directly to the Committee and the Committee may replace the consultant or hire additional consultants at any time. The Committee has selected Meridian Compensation Partners, LLC as its independent consultant.

In 2014, the scope of activities for the Committee’s independent compensation consultant included:

 

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Conducting a review of the executive compensation peer group

 

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Reviewing and commenting on Halyard’s executive compensation programs established by Kimberly-Clark prior to the spin-off

 

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Attending Committee meetings

 

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Periodically consulting with the Chairman of the Committee

Committee Assessment of Consultant Conflicts of Interest. The Committee has reviewed whether the work provided by Meridian Compensation Partners raises any conflict of interest. Factors considered by the Committee include: (1) whether other services are provided to Halyard Health by the consultant; (2) what percentage of the consultant’s total revenue is made up of fees from

 

Halyard Health; (3) policies or procedures of the consultant that are designed to prevent a conflict of interest; (4) any business or personal relationships between individual consultants involved in the engagement and Committee members; (5) any shares of Halyard Health stock owned by individual consultants involved in the engagement; and (6) any business or personal relationships between our executive officers and the consulting firm or the individual consultants involved in the engagement. Based on its review, the Committee does not believe that the compensation consultants that performed services to the Committee in 2014 have a conflict of interest with respect to the work performed for the Committee.

Committee Report

The Committee has reviewed the “Compensation Discussion and Analysis” section of this proxy statement and has recommended that it be included in this proxy statement. The Committee’s report is located at “Compensation Discussion and Analysis — Management Development and Compensation Committee Report.”

Compensation Committee Interlocks and Insider Participation

The members of the Compensation Committee during 2014 were Dr. Shimer and Messrs. Byrnes and Dollens. None of the members of the Compensation Committee was, during 2014, a current or former officer or employee of Halyard Health or Kimberly-Clark or has any relationship requiring disclosure under Item 404 of Regulation S-K. During 2014, none of our executive officers served as a member of the board of directors or compensation committee of any entity that had one or more executive officers serving as a member of our Board of Directors or Compensation Committee.

Governance Committee

 

Each member of this Committee is an independent director. Prior to the spin-off from Kimberly-Clark on October 31, 2014, the members of the Committee attended an orientation session designed to provide them with background on our governance policies and practices and related matters. Following the spin-off, the Committee met once in 2014.

The Committee’s principal functions, as specified in its Charter, include the following:

 

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Overseeing the screening and recruitment of prospective Board members and making recommendations to the Board of Directors regarding specific director nominees, as well as overseeing the process for Board nominations

 

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Overseeing corporate governance matters, including developing and recommending to the Board changes to our Corporate Governance Policies

 

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Overseeing, with the Audit Committee, certain of our compliance activities

 

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Advising the Board on:

 

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Board organization, membership, function, performance and compensation

 

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committee structure and membership

 

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policies and positions regarding significant stockholder relations issues

 

 

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Reviewing director independence standards and making recommendations to the Board with respect to the determination of director independence

 

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Monitoring and recommending improvements to the Board’s practices and procedures

 

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Reviewing stockholder proposals and considering how to respond to them

The Committee, in accordance with its Charter and our Certificate of Incorporation, has established criteria and processes for director nominations, including those proposed by stockholders. Those criteria and processes are described in “Proposal 1. Election of Directors — Process and Criteria for Nominating Directors” and “Other Information — Stockholder Nominations for Board of Directors.”

Executive Committee

 

The Committee did not meet in 2014.

The Committee’s principal function is to exercise, when necessary between Board meetings, the Board’s powers to direct our business and affairs. Accordingly, the Committee has no regular scheduled meetings and it is expected that the Committee will meet each year infrequently or not at all.

 

 

Communicating with Directors

The Board has established a process by which stockholders and other interested parties may communicate with the Board, including the Lead Director. That process can be found in the Investors section of our website at www.halyardhealth.com.

 

 

Other Corporate Governance Policies and Practices

Corporate Governance Policies. The Board of Directors adopted Corporate Governance Policies in 2014. These policies guide Halyard Health and the Board on matters of corporate governance, including: director responsibilities, Board committees and their Charters, director independence, director compensation and performance assessments, director orientation and education, director access to management, Board access to outside financial, business and legal advisors, and management development and succession planning. To see these policies, go to the Investors section of our website at www.halyardhealth.com.

Code of Conduct. Halyard Health has a Code of Conduct that applies to all of our directors, executive officers and employees, including our Chief Executive Officer, Chief Financial Officer and Vice President and Controller. It is available in the Investors section of our website at www.halyardhealth.com. Any amendments to or waivers of our Code of Conduct applicable to our Chief Executive Officer, Chief Financial Officer or Vice President and Controller will also be posted at that location.

Board and Management Roles in Risk Oversight. The Board is responsible for providing risk oversight with respect to our operations. In connection with this oversight, the Board particularly focuses on our strategic and operational risks, as well as related risk mitigation. In addition, the Board reviews and oversees management’s response to key risks facing Halyard Health.

The Board’s committees review particular risk areas to assist the Board in its overall risk oversight of Halyard Health:

 

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The Audit Committee oversees our risk management program, with a particular focus on our internal controls, compliance programs, financial statement integrity and fraud risks, and

 

related risk mitigation. In connection with this oversight, the Audit Committee receives regular reports from management on risk assessments, the risk management process, and issues related to the risks of managing our business. The Audit Committee also receives an annual enterprise risk management update, which discusses our key financial, strategic, operational and compliance risks.

 

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The Compensation Committee reviews the risk profile of our compensation policies and practices. This process includes a review of an assessment of our compensation programs, as described in “Compensation Discussion and Analysis — Analysis of Compensation-Related Risks.”

 

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The Governance Committee monitors risks relating to governance matters and certain compliance matters and recommends appropriate actions in response to those risks.

Complementing the Board’s overall risk oversight, our senior executive team identifies and monitors key enterprise-wide and business unit risks, providing the basis for the Board’s risk review and oversight process. Our senior management team is supported by management members from core business units and from our finance, treasury, information technology, global risk management, compliance and legal functions. Management identifies significant risks for review and updates our policies for risk management in areas such as hedging, foreign currency and country risks, product liability, property and casualty risks, and supplier and customer risks. The Board believes the allocation of risk management responsibilities described above supplements the Board’s leadership structure by allocating risk areas to an appropriate committee for oversight, allows for an orderly escalation of issues as necessary, and helps the Board satisfy its risk oversight responsibilities.

Whistleblower Procedures. The Audit Committee has established procedures for receiving, recording and addressing any complaints we receive regarding accounting, internal accounting controls or auditing matters, and for the confidential and anonymous submission, by our employees or others, of any concerns about our accounting or auditing practices. We also maintain a toll-free Code of Conduct telephone line and a website, each allowing our employees and others to voice their concerns anonymously.

Management Succession Planning. In conjunction with the Board, the Compensation Committee is responsible for periodically reviewing the long-term management development plans and succession plans for the Chief Executive Officer and other key officers, as well as the emergency succession plan for the Chief Executive Officer and other key officers if any of these officers unexpectedly becomes unable to perform his or her duties.

Disclosure Committee. We have established a Disclosure Committee to assist in fulfilling our obligations to maintain disclosure controls and procedures and to coordinate and oversee the process of preparing our periodic securities filings with the SEC. This committee is composed of members of management and is chaired by our Vice President and Controller.

No Executive Loans. We do not extend loans to our executive officers or directors and therefore do not have any such loans outstanding.

Charitable Contributions. The Governance Committee has adopted guidelines for the review and approval of charitable contributions by Halyard Health to organizations or entities with which a director or an executive officer may be affiliated. We will disclose in the Investors section of our website at www.halyardhealth.com any contributions made by us to a tax-exempt organization under the following circumstances:

 

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An independent director serves as an executive officer of the tax-exempt organization; and

 

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If within the preceding three years, contributions in any single year from Halyard Health to the organization exceeded the greater of $1 million or 2 percent of the tax-exempt organization’s consolidated gross revenues.

 

Our Board is divided into three classes, as required by our Certificate of Incorporation, with one class of directors elected each year for a three-year term. As of the date of this proxy statement, the Board of Directors consists of eight Directors including Maria Sainz who was elected to the Board by the Board of Directors effective February 1, 2015. Two of the directors have terms that expire at this year’s Annual Meeting (Class of 2015), three have terms that expire at next year’s Annual Meeting (Class of 2016), and three have terms that expire at the 2017 Annual Meeting (Class of 2017).

The two nominees standing for election at the Annual Meeting are being nominated to serve for a term to expire at the 2018 Annual Meeting of Stockholders (Class of 2018), and until their successors have been duly elected and qualified. All nominees have advised us that they will serve if elected; however, should any nominee become unable to serve, the Board may reduce the number of directors to be elected or select a substitute nominee. If the Board selects a substitute nominee, the shares represented by valid proxies will be voted for the substitute nominee, other than shares voted “Withhold” with respect to the original nominee.

Given the independent status of the nominees, if all nominees are elected at the Annual Meeting, seven of the eight directors on our Board will be independent directors.

 

 

 

Process and Criteria for Nominating Directors

The Board of Directors is responsible for approving candidates for Board membership. The Board has delegated the screening and recruitment process to the Governance Committee, in consultation with the Chairman of the Board and Chief Executive Officer and the Lead Director. The Committee therefore recommends to the Board any new appointments and nominees for election as directors at our annual meeting of stockholders. It also recommends nominees to fill any vacancies. As provided in our Certificate of Incorporation, the Board may elect a new director when a vacancy occurs between annual meetings of stockholders.

The Committee may receive recommendations for Board candidates from various sources, including our directors, management and stockholders. Stockholders may submit recommendations for Board candidates to the Chairman of the Governance Committee at Halyard Health, Inc., c/o Corporate Secretary, 5405 Windward Parkway, Suite 100 South, Alpharetta, GA 30004. Board candidates recommended by stockholders are evaluated using the same criteria as candidates recommended by other sources. In addition, the Governance Committee periodically retains a search firm to assist it in identifying and recruiting director candidates meeting the criteria specified by the Committee. The Committee also has a process for considering nominations submitted by stockholders. For details on this process, see “Other Information — Stockholder Nominations for Board of Directors.”

The Committee believes that the criteria for director nominees should foster effective corporate governance, support our strategies and businesses, take diversity into account and ensure that our directors, as a group, have an overall mix of the attributes needed for an effective Board. The criteria should also support the successful recruitment of qualified candidates.

Qualified candidates for director are those who, in the judgment of the Committee, possess all of the personal attributes and a sufficient mix of the experience attributes listed below to ensure effective service on the Board.

 

PERSONAL ATTRIBUTES

 

		Leadership u   Lead in personal and professional lives.		Collaborative u   Actively participate in Board and committee matters.		Ability to communicate u   Possess good interpersonal skills.
		Ethical Character u   Possess high standards for ethical behavior.		Independence u   Independent of management and Halyard Health (for non- management directors only).		Effectiveness u   Bring a proactive and solution-oriented approach.

EXPERIENCE ATTRIBUTES

 

		ATTRIBUTE		FACTORS THAT MAY BE CONSIDERED
		Financial acumen Has good knowledge of business finance and financial statements		u   Satisfies the financial literacy requirements of the NYSE u   Qualifies as an audit committee financial expert under the rules and regulations of the SEC u   Has an accounting, finance or banking background
		General business experience Possesses experience that will aid in judgments concerning business issues		u   Has leadership experience as a chief or senior executive officer u   Has experience setting compensation
		Industry knowledge Possesses knowledge about our industries		u   Has substantial knowledge of the healthcare industry, including with respect to caregiving, cost reimbursement or regulatory environment u   Has governance/public company board experience
		Diversity of background and viewpoint Brings to the Board an appropriate level of diversity		u   Brings a diverse viewpoint that is representative of our customer, consumer, employee and stockholder base u   Provides a different perspective (stemming, for example, from an academic background or experience from outside the healthcare industries)
		Special business experience Possesses global management experience and experience with healthcare supplies and medical devices		u   Has international experience u   Has a track record of successful innovation u   Has supply chain management expertise

 

 

Committee Review of Attributes of Current Directors

The Governance Committee has reviewed the background of each of our current directors and their service on the Board in light of the personal and experience attributes described above. The Committee has determined that each director possesses all of the personal attributes as well as a sufficient mix of the experience attributes.

For details about each director’s specific experience attributes, see “The Nominees” and “Directors Continuing in Office” below.

 

 

Diversity of Directors

As noted above, the Governance Committee believes that diversity of backgrounds and viewpoints is a key attribute for directors. As a result, the Committee seeks to have a diverse Board that is representative of our customer, consumer, employee and stockholder base. While the Committee carefully considers this diversity when considering nominees for director, the Committee has not established a formal policy regarding diversity in identifying director nominees.

 

 

The Nominees

The following two individuals are nominated for election to the Board of Directors for a three-year term expiring at the 2018 Annual Meeting of Stockholders (Class of 2018):

 

The Board of Directors unanimously recommends a vote FOR the election of each of the two nominees for director named above.

 

Directors Continuing in Office

The following members of the Board of Directors are continuing in office and have terms expiring as indicated below:

Term Expiring at the 2016 Annual Meeting (Class of 2016):

 

Term Expiring at the 2017 Annual Meeting (Class of 2017):

 

 

Director Compensation

Directors who are not officers or employees of Halyard Health or any of our subsidiaries, affiliates or equity companies are “Outside Directors” for compensation purposes and are compensated for their services under our Outside Directors’ Compensation Plan. All independent directors currently on our Board are Outside Directors and are compensated under this Plan.

Our objectives for Outside Director compensation are:

 

u

to attract qualified candidates for Board service

 

u

to remain competitive with the median compensation paid to outside directors of comparable companies

 

u

to keep pace with changes in practices in director compensation

 

u

to reinforce our practice of encouraging stock ownership by our directors

In 2014, our Outside Director compensation was established based on the median non-management director compensation for our peers.

The table below shows how we structure Outside Director compensation:

 

Board Members		Cash retainer: $70,000 annually, paid in four quarterly payments at the beginning of each quarter.   Restricted share units: Annual grant with a value of $140,000, awarded and valued on the first business day of the year
Audit and Compensation   Committee Chairs		Additional cash compensation of $15,000, paid in four quarterly payments at the beginning of each quarter
Lead Director		Additional cash compensation of $20,000, paid in four quarterly payments at the beginning of each quarter

New Outside Directors receive a pro-rated annual retainer and grant of restricted share units based on the month when they joined the Board.

We also reimburse Outside Directors for expenses incurred in attending Board or committee meetings.

Restricted share units are not shares of our common stock. Rather, restricted share units represent the right to receive a pre-determined number of shares of our common stock within 90 days following a “restricted period” that begins on the date of grant and expires on the date the Outside Director retires from or otherwise terminates service on the Board. In this way, they align the director’s interests with the interests of our stockholders. Outside Directors may not dispose of the units or use them in a pledge or similar transaction. Outside Directors also receive additional restricted share units equivalent in value to the dividends, if any, that would have been paid to them if the restricted share units granted to them were shares of our common stock.

 

 

2014 Outside Director Compensation

The following table shows the compensation paid to each Outside Director for his or her service in 2014:

 

Name		Fees Earned or Paid in Cash($)				Stock Awards($) (1)(2)				Total($)
Gary D. Blackford			17,500				35,000				52,500
John P. Byrnes			17,500				35,000				52,500
Ronald W. Dollens			22,500				35,000				57,500
Heidi K. Fields			21,250				35,000				56,250
Patrick O’Leary			17,500				35,000				52,500
Dr. Julie Shimer			21,250				35,000				56,250
Maria Sainz (3)			—				—				—

 

(1)

Amounts shown reflect the grant date fair value of those grants, determined in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718 — Stock Compensation (“ASC Topic 718”) for restricted share unit awards granted pursuant to our 2014 Outside Directors’ Compensation Plan. See Note [14] to our audited consolidated and combined financial statements included in our Annual Report on Form 10-K for 2014 for the assumptions used in valuing these restricted share units.

 

(2)	Restricted share unit awards were granted on November 7, 2014. Each director received 924 restricted share units, representing a pro-rated portion of the annual grant target.

 

(3)	Maria Sainz joined the Board on February 1, 2015 and therefore did not participate in our Outside Director Compensation program in 2014.

Other than the cash retainer and grants of restricted share units previously described, no Outside Director received any compensation or perquisites from Kimberly-Clark or Halyard Health for services as a director in 2014.

A director who is not an Outside Director does not receive any compensation for services as a member of the Board or any committee, but is reimbursed for expenses incurred as a result of the services.

 

The Audit Committee of the Board of Directors is directly responsible for the appointment, compensation, retention and oversight of our independent auditors. The Audit Committee is also responsible for overseeing the negotiation of the audit fees associated with retaining our independent auditors. To assure continuing auditor independence, the Audit Committee periodically considers whether a different audit firm should perform our independent audit work. Also, in connection with the mandated rotation of the independent auditor’s lead engagement partner, the Audit Committee and its chairman are directly involved in the selection of the lead engagement partner.

For 2015, the Audit Committee has selected Deloitte & Touche LLP (along with its member firms and affiliates, “Deloitte”) as the independent registered public accounting firm to audit our financial statements. In engaging Deloitte for 2015, the Audit Committee utilized a review and selection process that included the following:

 

u

a review of management’s assessment of the services Deloitte provided in 2014

 

u

discussions, in executive session, with the Chief Financial Officer and the Vice President and Controller regarding their viewpoints on the selection of the 2015 independent auditors and on Deloitte’s performance

 

u

discussions, in executive session, with representatives of Deloitte about their possible engagement

 

u

Audit Committee discussions, in executive session, about the selection of the 2015 independent auditors

 

u

a review and approval of Deloitte’s proposed estimated fees for 2015

 

u

a review and assessment of Deloitte’s independence

The Audit Committee and the Board believe that the continued retention of Deloitte to serve as our independent auditor is in the best interests of Halyard Health and its stockholders, and they recommend that stockholders ratify this selection.

Representatives of Deloitte are expected to be present at the Annual Meeting with the opportunity to make a statement if they desire to do so and will be available to respond to appropriate questions.

Stockholders are not required to ratify the appointment of Deloitte as our independent auditor. However, we are submitting the ratification to our stockholders as a matter of good corporate practice. If our stockholders fail to ratify the appointment of Deloitte, the Audit Committee in its discretion may select a different independent auditor at any time during the year if it determines that such change would be in the best interest of Halyard Health and our stockholders.

 

The Board of Directors unanimously recommends a vote FOR ratification of Deloitte’s selection as Halyard Health’s auditor for 2015.

 

Principal Accounting Firm Fees

Our aggregate fees to Deloitte (excluding value added taxes) with respect to the fiscal years ended December 31, 2014 and 2013, were as follows:

 

		2014($)				2013($)
Audit Fees (1)			1,500,000				n/a
Audit-Related Fees (2)			4,074,750				n/a
Tax Fees (3)			119,000				n/a
All Other Fees			—				n/a

 

(1)

These amounts represent fees billed or expected to be billed for professional services rendered by Deloitte for the audit of Halyard Health’s annual financial statements for the fiscal year ended December 31, 2014, reviews of the financial statements included in Halyard Health’s Form 10-Qs, and other services that are normally provided by the independent registered public accounting firm in connection with statutory or regulatory filings or engagements for each of those fiscal years, including: fees for consolidated financial audits, statutory audits, comfort letters, attest services, consents, assistance with and review of SEC filings and other related matters.

 

(2)

These amounts represent aggregate fees billed or expected to be billed by Deloitte for assurance and related services reasonably related to the performance of the audit or review of our financial statements for the fiscal years ended December 31, 2014, which are not included in the audit fees listed above. Included in these amounts are fees billed to Kimberly-Clark in connection with the audit of our financial statements in connection with our spin-off form Kimberly-Clark and included within our Form 10 filed with the SEC.

 

(3)	These amounts represent Deloitte’s aggregate fees for tax compliance, tax advice and tax planning for 2014.

 

 

Audit Committee Approval of Audit and

Non-Audit Services

Using the following procedures, the Audit Committee pre-approves all audit and non-audit services provided by Deloitte to Halyard Health:

 

u

Before the first face-to-face Audit Committee meeting of the year, our Vice President and Controller prepares a detailed memorandum regarding non-audit services to be provided by Deloitte during the year. This memorandum includes the services to be provided, the estimated cost of these services, reasons why it is appropriate to have Deloitte provide these services, and reasons why the requested service is not inconsistent with applicable auditor independence rules;

 

u

At the first face-to-face Audit Committee meeting each year, our Chief Financial Officer presents a proposal, including fees, to engage Deloitte for audit and non-audit services; and

 

u

Before each subsequent meeting of the Audit Committee, our Vice President and Controller prepares an additional memorandum that includes updated information regarding the approved services and highlights any new audit and non-audit services to be provided by Deloitte. All new non-audit services to be provided are described in individual requests for services.

The Audit Committee reviews the requests presented in these proposals and memoranda and approves all services it finds acceptable.

To ensure prompt handling of unexpected matters, the Audit Committee has delegated to the Chairman of the Audit Committee the authority to amend or modify the list of audit and non-audit services and fees between meetings, as long as the additional or amended services do not affect Deloitte’s independence under applicable rules. Any actions taken under this authority are reported to the Audit Committee at its next meeting.

All Deloitte services and fees in 2014 were pre-approved by the Audit Committee or the Audit Committee Chairman, or by Kimberly-Clark’s Audit Committee or Audit Committee Chairman for periods prior to October 31, 2014.

 

 

In the Compensation Discussion and Analysis that follows, we describe in detail our executive compensation program, including its objectives, policies and components. As discussed in that section, our executive compensation program seeks to align the compensation of our executives with the objectives of our business plans and strategies. To this end, the Compensation Committee (the “Committee”) has adopted executive compensation policies that are designed to achieve the following objectives:

 

u

Pay-for-Performance. Support a performance-oriented environment that rewards achievement of our financial and non-financial goals.

 

u

Focus on Long-Term Success. Reward executives for long-term strategic management and stockholder value enhancement.

 

u

Stockholder Alignment. Align the financial interest of our executives with those of our stockholders.

 

u

Quality of Talent. Attract and retain executives whose abilities are considered essential to our long-term success.

For a more detailed discussion of how our executive compensation program reflects these objectives and policies, including information about the fiscal year 2014 compensation of our named executive officers, see “Compensation Discussion and Analysis,” below.

We are asking our stockholders to support our executive compensation as described in this proxy statement. This proposal, commonly known as a “say-on-pay” proposal, gives our stockholders the opportunity to express their views on our executive compensation. This vote is not intended to address any specific item of compensation, but rather the overall compensation of our executives and the objectives, policies and practices described in this proxy statement. Accordingly, we will ask our stockholders to vote on the following non-binding resolution at the Annual Meeting:

RESOLVED, that the compensation paid to the Corporation’s named executive officers, as disclosed pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, compensation tables and narrative discussion, is hereby approved by the Corporation’s stockholders on an advisory basis.

The say-on-pay vote is advisory and is therefore not binding on Halyard Health, the Committee or our Board. Nonetheless, the Committee and our Board value the opinions of our stockholders. Therefore, to the extent there is any significant vote against the executive compensation as disclosed in this proxy statement, the Committee and our Board will consider our stockholders’ concerns and will evaluate whether any actions are necessary to address those concerns.

 

The Board of Directors unanimously recommends a vote FOR the approval of named executive officer compensation, as disclosed in this proxy statement pursuant to the SEC’s compensation disclosure rules.

Following our spin-off from Kimberly-Clark Corporation (“Kimberly-Clark”), we became an independent, publicly-traded company as of October 31, 2014 and our common stock began trading on the New York Stock Exchange on November 3, 2014. Prior to the spin-off, we were part of Kimberly-Clark and Kimberly-Clark’s management and/or its Management Development and Compensation Committee (the “Kimberly-Clark Committee”) were responsible for all compensation decisions relating to our named executive officers based on their roles at Kimberly-Clark. Our Compensation Committee (the “Halyard Committee”) is responsible for all compensation decisions relating to our named executive officers in 2015 and thereafter. This Compensation Discussion and Analysis (“CD&A”) is intended to provide investors with an understanding of the compensation policies and decisions regarding 2014 compensation for our named executive officers.

For 2014, our named executive officers are:

 

		Named Executive Officer		Title
		Robert E. Abernathy		Chairman of the Board and Chief Executive Officer
		Steven E. Voskuil		Senior Vice President and Chief Financial Officer
		Rhonda D. Gibby		Senior Vice President and Chief Human Resources Officer
		Christopher M. Lowery		Senior Vice President and Chief Operating Officer
		John W. Wesley		Senior Vice President, General Counsel and Chief Ethics and Compliance Officer

To assist stockholders in finding important information, this CD&A is organized as follows:

 

		Compensation Executive Summary			25
		Executive Compensation Objectives and Policies			26
		Components of our Executive Compensation Programs			27
		Setting Annual Compensation			28
		Executive Compensation in 2014			30
		Benefits and Other Compensation			40
		Executive Compensation for 2015			42
		Additional Information About our Compensation Practices			44

 

 

Compensation Executive Summary

This executive summary provides a brief overview of our key accomplishments in 2014 and our key compensation principles and practices.

2014 HIGHLIGHTS

A substantial portion of 2014 was devoted to preparing for the spin-off from Kimberly-Clark and to begin operating as a separate independent publicly-traded company, while continuing to stay focused on our business and delivering results. Some key highlights from the year include:

 

•

Successfully recruiting a new board of directors that is composed of all independent directors other than our chief executive officer

 

•

Establishing the corporate governance structure for Halyard as a New York Stock Exchange listed company

 

•

Establishing the compensation philosophies of Halyard which focus on paying for performance, promoting long-term success, ensuring stockholder alignment, and acquiring quality talent

 

•

Supporting Kimberly-Clark’s key financial and strategic goals prior to the spin

 

•

Achieving our key financial goals following the spin

PERFORMANCE-BASED COMPENSATION

Pay-for-performance is a key objective of our compensation programs and was a key objective of Kimberly-Clark’s compensation program while we were a part of that company. Consistent with that objective, performance-based compensation constituted a significant portion of our named executive officers’ direct annual compensation targets for 2014. Also, to further align the financial interests of our executives with those of our stockholders, a majority of our executives’ target direct annual compensation for 2014 was equity-based.

COMPENSATION DESIGN PRINCIPLES AND GOVERNANCE PRACTICES

The design principles for our executive compensation programs are intended to protect and promote the interests of our stockholders. Below we summarize certain practices we have implemented to drive performance and those we have not implemented because we do not believe they would serve our stockholders’ long-term interests:

 

What We Do				What We Don’t Do

 

 

 

COMMITTEE CONSIDERATION OF STOCKHOLDER ADVISORY VOTES ON COMPENSATION

Because we were not a separate independent public company last year, we have not previously solicited a stockholder advisor vote on executive compensation. Proposal 3 described elsewhere in the Proxy Statement seeks an advisory vote on our executive compensation program. The Halyard Committee will consider the results of that vote and determine whether to make any changes in light of the results.

 

 

Executive Compensation Objectives

and Policies

The Halyard Committee is responsible for establishing and administering our policies governing the compensation of our executive officers. The Halyard Committee will review our compensation philosophy annually, including determining whether this philosophy supports our business objectives and is consistent with the Committee’s charter.

Our executive compensation policies are designed to achieve the following objectives:

 

		Objective		Description		Related Policies
		Pay for Performance		Support a performance-oriented environment that rewards achievement of our financial and non-financial goals.		The majority of pay varies with the levels at which annual and long-term performance goals are achieved. Performance goals are aligned with our strategies for sustained growth and profitability.
		Focus on Long-Term Success		Reward executives for long-term strategic management and stockholder value enhancement.		A significant component of annual target compensation is in the form of performance-based restricted share units. The number of shares actually received on payout of these units depends on our performance over a three-year period.
		Stockholder Alignment		Align the financial interest of our executives with those of our stockholders.		Equity-based awards make up the largest part of annual target compensation. Our executive officers also receive stock options, which vest over time and have value only if our stock value rises after the option grants are made. We also have other policies that link our executives’ interests with those of our stockholders, including target stock ownership guidelines.
		Quality of Talent		Attract and retain highly-skilled executives whose abilities are considered essential to our long-term success as a global company.		The Halyard Committee reviews peer group data to ensure our executive compensation program remains competitive so we can continue to attract and retain this talent.

 

These compensation objectives and policies seek to align the compensation of our executive officers with the objectives of our strategic business plan and goals. Our strategic business plans are designed to make Halyard Health a stronger and more competitive company and to increase our total return to stockholders by:

 

•

investing in innovation and growth initiatives

 

•

managing our businesses to balance growth, margin and cash flow

 

•

delivering sustainable margin improvement

 

•

providing disciplined capital management to improve return on invested capital and return cash to shareholders when and as determined to be appropriate

The compensation policies and objectives adopted by Halyard are substantially the same as those previously adopted by Kimberly-Clark.

 

 

Components of Our Executive Compensation Program

The table below gives an overview of the compensation components used in our executive officer compensation program and matches each with one or more of the objectives described above.

 

		Component		Objectives		Purpose		Target Competitive Position
		Base salary		Quality of talent		Provide annual cash income based on:   • level of responsibility, performance and experience   • comparison to market pay information		• Compared to median of peer group   • Actual base salary will vary based on the individual’s performance and experience in the position
		Annual cash incentive		Pay-for-performance   Quality of talent		Motivate and reward achievement of the following annual performance goals:   • corporate key financial goals   • other corporate financial and strategic performance goals		• Target compared to median of peer group   • Actual payout will vary based on actual corporate and business unit or staff function performance
		Long-term equity incentive		Stockholder alignment   Focus on long-term success   Pay-for-performance   Quality of talent		Provide an incentive to deliver stockholder value and to achieve our long-term objectives, through awards of:   • performance-based restricted share units   • stock option grants   Time-vested restricted share units may be granted from time to time for recruiting, retention or other purposes		• Target compared to median of peer group   • Actual payout of performance-based restricted share units will vary based on actual corporate performance   • Actual payout will also vary based on actual stock price performance
		Retirement benefits		Quality of talent		Provide competitive retirement plan benefits through 401(k) plan and other defined contribution plans		• Benefits comparable to those of peer group
		Perquisites		Quality of talent		Provide minimal market-based additional benefits		• Determined by the Halyard Committee
		Post-termination compensation (severance and change of control)		Quality of talent		Encourage attraction and retention of executives critical to our long-term success and competitiveness:   • Severance Pay Plan, which provides eligible employees, including executives, with payments and benefits in the event of certain involuntary terminations   • Executive Severance Plan, which provides eligible employees, including executives, payments in the event of a qualified separation of service following a change of control		• Determined by the Halyard Committee

 

 

Setting Annual Compensation

This section describes the processes followed in setting 2014 target annual compensation for our named executive officers. Prior to the spin-off, the Kimberly-Clark Committee set the 2014 annual compensation targets for Messrs. Abernathy and Wesley and Kimberly-Clark management established the 2014 annual compensation targets for Messrs. Voskuil and Lowery and Ms. Gibby. Kimberly-Clark also established the annual target compensation for the named executive officers following the spin subject to review and approval by the Halyard Committee.

FOCUS ON DIRECT ANNUAL COMPENSATION

In setting 2014 compensation for our executive officers, including our Chief Executive Officer, the Kimberly-Clark Committee and management focused on direct annual compensation, which consists of annual cash compensation (base salary and annual cash incentive) and long-term equity incentive compensation (performance-based restricted share units and stock options). The Kimberly-Clark Committee and management considered annual cash and long-term equity incentive compensation both separately and as a package to help ensure that the executive compensation objectives are met.

BENCHMARKING – EXECUTIVE COMPENSATION PEER GROUP

To ensure that our executive compensation program is reasonable and competitive in the marketplace, our program is compared to programs at other companies. In setting compensation for our named executive officers prior to the spin-off, the Kimberly-Clark Committee and management used the Kimberly-Clark compensation peer group. In setting the initial compensation for our named executive officers following the spin-off, Kimberly-Clark used the following peer group for Halyard executive compensation:

 

2014 Executive Compensation Peer Group
CONMED Corporation The Cooper Companies, Inc. C.R. Bard, Inc. DENTSPLY International Inc.		Edwards Lifesciences Corporation Haemonetics Corporation Hill-Rom Holdings, Inc. Invacare Corporation		ResMed Inc. STERIS Corporation Teleflex Incorporated West Pharmaceutical Services, Inc.

The peer group is intended to consist of companies with whom we compete for talent. We believe that we generally compete for talent with healthcare and medical device companies with annual revenues ranging from approximately one-half to two times our annual revenues.

For purposes of setting executive compensation for 2015, the Halyard Committee added the following seven companies to the peer group: Varian Medical Systems, Inc.; Hologic, Inc.; Sirona Dental Systems, Inc.; NuVasive, Inc.; Align Technology, Inc.; Integra Lifesciences Holding Corporation; and Greatbatch, Inc. The Halyard Committee, with the advice of the independent compensation consultant, determined that adding these companies to the peer group resulted in a more appropriate sized peer group than what was established by Kimberly-Clark for the initial 2014 compensation decisions.

The Halyard Committee (working with its independent compensation consultant), will review the executive compensation peer group annually to ensure that it continues to serve as an appropriate comparison for our compensation program.

PROCESS FOR SETTING DIRECT ANNUAL COMPENSATION TARGETS

In setting the direct annual compensation of our executive officers, both market data provided by the independent compensation consultant and information on the performance of each executive officer for prior years is evaluated. To remain competitive in the marketplace for executive talent, the target levels for the executive officers’ compensation components, including our Chief Executive Officer, are compared to the median of the peer group.

 

To reinforce a pay-for-performance culture, targets for individual executive officers may be set above or below this median depending on the individual’s performance in prior years and experience in the position, as well as any applicable retention concerns. The Halyard Committee believes that comparing target levels to the median, setting targets as described above, and providing incentive compensation opportunities that will enable executives to earn above-target compensation if they deliver above-target performance on their performance goals, are consistent with the objectives of our compensation policies. In particular, the Halyard Committee believes that this approach enables us to attract and retain skilled and talented executives to guide and lead our businesses and supports a pay-for-performance culture.

When setting annual compensation for our executive officers, the Halyard Committee considers each compensation component (base salary, annual cash incentive and long-term equity incentive), but its decision regarding a particular component does not necessarily impact its decision about other components.

In setting compensation for executive officers that join us from other companies, the Halyard Committee will evaluate both market data for the position to be filled and the candidate’s compensation history. The Halyard Committee recognizes that in order to successfully recruit a candidate to leave his or her current position and to join the Company, the candidate’s compensation package may have to exceed his or her current compensation, which could result in a package above the median of our peer group.

CEO DIRECT ANNUAL COMPENSATION

Mr. Abernathy’s direct annual compensation is determined in the same manner as the direct annual compensation of the other named executive officers. Mr. Abernathy’s and the other named executive officers 2014 direct annual target compensation was below the median of direct annual compensation of chief executive officers and comparable executive officers of companies included in the peer group. Kimberly-Clark established the below median targets because Mr. Abernathy and the other named executive officers were new to their roles at Halyard and each will be paid more than their compensation at Kimberly-Clark prior to the spin-off.

The difference between Mr. Abernathy’s compensation and that of the other named executive officers reflects the fact that Mr. Abernathy’s responsibilities for management and oversight of a global enterprise are significantly greater than those of the other executive officers. As a result, the market pay level for Mr. Abernathy is appropriately higher than the market pay for our other executive officer positions.

DIRECT ANNUAL COMPENSATION TARGETS FOR 2014

Consistent with the focus on direct annual compensation, Kimberly-Clark established pre-spin 2014 direct annual compensation targets for our named executive offices based on their roles and responsibility at Kimberly-Clark prior to the spin-off. Kimberly-Clark also established post-spin 2014 direct annual compensation targets for our named executive officers based on their new roles and responsibilities following the spin-off. The 2014 direct annual compensation targets established by Kimberly-Clark for each of our named executive officers were:

 

Name		Pre-spin 2014 Direct Annual Compensation Target ($)							Post-spin 2014 Direct Annual Compensation Target ($)
Robert E. Abernathy				3,343,000							4,650,000
Steven E. Voskuil				1,029,542							1,481,000
Rhonda D. Gibby				533,216							815,000
Christopher M. Lowery				749,000							1,683,750
John W. Wesley				762,500							1,000,000

 

 

These 2014 direct annual compensation target amounts differ from the amounts set forth in the Summary Compensation Table in the following ways:

 

•

Prior to the spin-off, each of our named executive officers had different roles at Kimberly-Clark and had different and lower annual targets.

 

•

Base salaries are adjusted each year on April 1, and the named executive officer’s base salary was adjusted again on November 1 following the spin-off, while the Summary Compensation Table includes salaries for the entire calendar year. See “Executive Compensation for 2014 – Base Salary.”

 

•

Annual cash incentive compensation is included at the target level, while the Summary Compensation Table reflects the actual amount earned for 2014.

 

•

Stock Awards and Option Awards in the Summary Compensation Table include the grant date fair value of 2014 awards under the Kimberly-Clark Equity Participation Plan which were forfeited at the time of the spin-off, as well as the grant date fair value of awards under the Halyard Equity Participation Plan intended to replace the value of those forfeited 2014 wards, while the direct annual target compensation above includes only one such grant.

 

•

Stock Awards and Option Awards in the Summary Compensation Table include the grant date fair value of awards under the Halyard Equity Participation Plan which were intended to replace the value of unvested equity awards granted under the Kimberly-Clark Equity Participation Plan prior to 2014 that were forfeited at the time of the spin-off, while the direct annual target compensation above does not include the prior year equity awards.

 

•

In setting direct annual compensation targets, increases in pension or deferred compensation earnings or other compensation are not included, while those amounts are required to be included in the Summary Compensation Table.

 

 

Executive Compensation

for 2014

To help achieve the objectives discussed above, our executive compensation program for 2014 consists of fixed and performance-based components, as well as short-term and long-term components.

BASE SALARY

To attract and retain high caliber executives, we pay our executives an annual fixed salary that we believe to be competitive in the marketplace.

Salary ranges and individual salaries for executive officers are reviewed annually, and salary adjustments generally are effective on April 1 of each year. In determining individual salaries, salary levels for similar positions at our peer group companies are considered, as well as the executive’s performance and experience in his or her position. This performance evaluation is based on how the executive performs during the year against results-based objectives established at the beginning of the year. In general, an experienced executive who is performing at a satisfactory level will receive a base salary at or around the median of our peer group companies. However, executives may be paid above or below the median depending on their experience and performance. From time to time, if warranted, executives and other employees may receive additional salary increases because of promotions, changes in duties and responsibilities, retention concerns, or market conditions.

 

 

The base salaries for our named executive officers prior to the spin-off were based on their roles and responsibilities at Kimberly-Clark. Following the spin-off, the base salaries of our named executive officers were increased to reflect their new roles and responsibilities at the Company. The following table shows the 2014 base salaries in effect for each named executive officer both prior to and after the spin-off:

 

Name		2014 Pre-spin Base Salary as of January 1 ($)					2014 Pre-spin Base Salary as of April 1($)					2014 Post-spin Base Salary as of November 1 ($)
Robert E. Abernathy				780,000					780,000					825,000
Steven E. Voskuil				351,858					357,769					430,000
Rhonda D. Gibby				240,860					250,494					310,000
Christopher M. Lowery				300,000					306,000					475,000
John W. Wesley				310,000					315,000					375,000

ANNUAL CASH INCENTIVE PROGRAM

Consistent with our pay-for-performance compensation objective, our executive compensation program includes an annual cash incentive program to motivate and reward executives in achieving annual performance objectives.

2014 Targets

The target payment amount for annual cash incentives is a percentage of the executive’s base salary. The range of possible payouts is expressed as a percentage of the target payment amount. These ranges are set based on competitive factors. Each of the named executive officers participated in Kimberly-Clark’s annual cash incentive program prior to the spin-off (January 1 through October 31, 2014) and in Halyard’s annual cash incentive program following the spin-off (November 1 through December 31, 2014), and the target payment amounts are prorated for the applicable portion of the year. The following table sets forth the target payment amounts and range of possible payouts for both the pre-spin and post-spin periods in 2014:

TARGET PAYMENT AMOUNTS AND RANGE OF POSSIBLE PAYOUTS

FOR 2014 ANNUAL CASH INCENTIVE PROGRAM

 

		Pre-spin Period				Post-spin Period
		Target Payment Amount		Range of Potential Payout		Target Payment Amount		Range of Potential Payout
Robert E. Abernathy		85% of base salary		0% -200% of pro-rated target payment amount		100% of base salary		0% - 100% of pro-rated target payment amount
Steven E. Voskuil		55% of base salary		0% -200% of pro-rated target payment amount		70% of base salary		0% - 100% of pro-rated target payment amount
Rhonda D. Gibby		45% of base salary		0% -200% of pro-rated target payment amount		50% of base salary		0% -100% of pro-rated target payment amount
Christopher M. Lowery		50% of base salary		0% -200% of pro-rated target payment amount		85% of base salary		0% -100% of pro-rated target payment amount
John W. Wesley		50% of base salary		0% -200% of pro-rated target payment amount		60% of base salary		0% -100% of pro-rated target payment amount

 

2014 Performance Goals, Performance Assessments and Payouts

Payment amounts under the annual cash incentive program are dependent on performance measured against goals established at the beginning of the year for the pre-spin program and at the beginning of November 2014, for the post-spin program. These performance goals are derived from Kimberly-Clark’s or our financial and strategic goals, as the case may be.

PRE-SPIN-OFF (KIMBERLY-CLARK PROGRAM).

As shown in the table below, three different performance goals were established for the pre-spin period of 2014. Each performance goal was weighted for each executive. The weightings chosen were intended to strike an appropriate balance between aligning each executive’s individual objectives with Kimberly-Clark’s overall corporate objectives and holding the executive accountable for performance in the executive’s particular area of responsibility.

KIMBERLY-CLARK ANNUAL CASH INCENTIVE PROGRAM

2014 PERFORMANCE GOALS AND WEIGHTS

 

						Robert E. Abernathy					Steven E. Voskuil					Rhonda D. Gibby					Christopher M. Lowery					John W. Wesley
		Element 1:		Corporate key financial and strategic performance goals				50%					30%					30%					30%					30%
		Element 2:		Business unit key financial goals				35%					49%					49%					49%					49%
		Element 3:		Additional business unit financial and strategic performance goals				15%					21%					21%					21%					21%

For the pre-spin period, the Kimberly-Clark Committee determined the extent to which each goal was met in 2014 and the resulting payout. Below we describe the three elements of performance, explain how the Kimberly-Clark Committee assessed the performance of each element, and show the payouts that were determined in each case.

 

ELEMENT 1: CORPORATE KEY FINANCIAL AND STRATEGIC PERFORMANCE GOALS

For 2014, the Kimberly-Clark Committee chose the following as corporate key financial goals for the Kimberly-Clark annual cash incentive program:

 

2014 Goal		Explanation		Reason for Use as a Performance Measure
Adjusted Net Sales		Net sales for 2014(1)		A key indicator of overall growth
Adjusted EPS		Consists of diluted net income per share that was then adjusted to eliminate the effect of items or events that the Kimberly-Clark Committee determined in its discretion should be excluded for compensation purposes(1)(2)		A key indicator of overall performance
Adjusted Operating Profit Return on Sales (“OPROS”)		After adjusted net sales and adjusted EPS are determined as described above, a multiplier based on adjusted OPROS was applied to the calculation result to determine the final payout percentage(1)(3)		A measure of margin efficiency and a helpful method of tracking cost structure performance

 

(1)

For purposes of the annual incentive program, the Kimberly-Clark Committee added the amounts below to the calculation of net sales, earnings per share and OPROS to neutralize the impact of the Halyard Health spin-off on October 31, 2014 on these full-year performance metrics.

 

 

The

adjustments represent the estimated net sales, earnings per share and OPROS that the health care business would have contributed to Kimberly-Clark in November and December had the spin-off not occurred. Each adjustment represents, (a) for January through October, the actual results of the healthcare business (which Kimberly-Clark reported as discontinued operations in its 2014 Annual Report on Form 10-K), and (b) for November and December, the difference between Kimberly-Clark’s actual results and pro-forma results determined by multiplying its actual year-to-date performance for January through October, expressed as a percentage of target, by the target performance level attributable to November and December.

 

 

(2)

In addition to the adjustments for the lost business due to the Halyard Health spin-off, in 2014 the following adjustments were made by the Kimberly-Clark Committee to diluted net income per share to determine adjusted EPS:

 

 

 

(3)

For purposes of determining annual cash incentive amounts, Kimberly-Clark calculated adjusted OPROS using its reported financial results, adjusted for the same items described above in determining adjusted EPS.

 

At the beginning of 2014, the Kimberly-Clark Committee also established additional corporate financial and strategic performance goals that are intended to challenge its executives to exceed long-term objectives. These additional performance goals related to Quality of Earnings, Brand Equity and Market Performance, Innovation and Diversity and Inclusion.

At the end of the year, the Kimberly-Clark Committee determined a payout percentage based on its assessment of the degree to which the key financial and strategic performance goals were achieved. To determine the payout percentage for Element 1, the Kimberly-Clark Committee followed the following process:

First, it determined an initial payout percentage based on how Kimberly-Clark performed against the adjusted net sales and adjusted EPS goals. For 2014, the Kimberly-Clark Committee set these goals and the corresponding initial payout percentages at the following levels:

 

Second, the Kimberly-Clark Committee applied a multiplier to this initial payout percentage. The multiplier is based on how Kimberly-Clark performed against its adjusted OPROS goals. Depending on the level of basis point improvement in adjusted OPROS, the multiplier may either decrease or increase the initial payout percentage (but the amount of the final payout percentage cannot exceed a 200 percent cap).

For 2014, the Kimberly-Clark Committee set the following ranges for this adjusted OPROS multiplier:

 

Third, the Kimberly-Clark Committee assessed the performance of the additional financial and strategic performance goals. The Kimberly-Clark Committee did not use a formula to assess the performance of these goals but instead took a holistic approach and considered performance of all the goals collectively. Although it does review each goal separately, the key consideration for the Kimberly-Clark Committee is how it views Kimberly-Clark’s performance for the year in all of these categories, taken as a whole.

Actual results and actual payout percentages for Element 1. For 2014, the Kimberly-Clark Committee determined that Kimberly-Clark’s adjusted net sales were $21.31 billion and its adjusted EPS were $6.09. Based on these results, the Kimberly-Clark Committee determined the initial payout percentage to be 94 percent. To this percentage, Kimberly-Clark then applied an adjusted OPROS multiplier of 1.12, which was based on the actual 2014 improvement of 80 bps. The Committee also determined that additional Quality of Earnings, Brand Equity and Market Performance, Innovation and Diversity and Inclusion objectives for 2014 were met or exceeded. After taking into account performance on all of these goals under Element 1, the Kimberly-Clark Committee determined that the payout percentage for achieving the corporate key financial goals and the additional financial and strategic performance goals should be 105 percent of target.

 

ELEMENT 2: BUSINESS UNIT KEY FINANCIAL GOALS

For 2014, the following healthcare business unit key financial goals for the Kimberly-Clark annual cash incentive program were chosen:

 

2014 Goal		Explanation		Reason for Use as a Performance Measure
Health Care Net Sales		Net sales for 2014		A key indicator of overall growth
Health Care Operating Profit		Healthcare operating profit for 2014		A key indicator of performance
Health Care Cash Conversion Cycle		Improvement in cash conversion cycle		A measure of operational efficiency

The goals and ranges of potential payouts were established at the beginning of 2014. The table below show those goals and ranges which have been prorated for the pre-spin period (January 1 through October 31, 2014):

 

Measure (each weighted 50%)		Range of Performance Levels
		Threshold				Target				Maximum
Health Care Net Sales (millions)		$	1,218.5			$	1,328.5			$	1,438.5
Health Care Operating Profit		$	197.9			$	222.9			$	247.9
Health Care Cash Conversion Cycle (days)			123.5				118.5				113.5
Initial Payout Percentage			0%				100%				200%

Actual results and payout percentage for Element 2. For 2014, the pre-spin Health Care Net Sales were $1,327.5 million, Operating Profit was $227.2, and the cash conversion cycle was 121.5 days. As a result, Kimberly-Clark determined that the payout percentage for achieving the healthcare business unit key financial goals should be 97 percent of target. In assessing this Element 2, Kimberly-Clark made an allowance for the negative impact on the cash conversion cycle primarily related to building inventory to ensure minimal customer disruptions resulting from the spin-off from Kimberly-Clark and from the outsourcing of certain glove production following the restructuring of a manufacturing facility in Thailand. The allowance increased the payout percentage for Element 2 from 93 percent to 97 percent of target. Because Mr. Abernathy was an executive officer of Kimberly-Clark pre-spin, and because Kimberly-Clark has a policy of not permitting its executive officers to benefit from such allowances, Mr. Abernathy’s business unit payout percentage is the unadjusted 93 percent.

 

ELEMENT 3: ADDITIONAL BUSINESS UNIT FINANCIAL AND STRATEGIC PERFORMANCE GOALS

In addition to the performance goals established by the Kimberly-Clark Committee, the Kimberly-Clark CEO established additional individual business unit financial and strategic performance goals that were intended to challenge the executives to exceed the objectives for that business unit. For 2014, the Health Care unit’s additional financial and strategic performance goals related to targeted growth, innovation, and cost reduction initiatives as well as successfully separating from Kimberly-Clark while delivering 2014 business results.

Actual results and payout percentages for Element 3. The additional business unit financial and strategic performance goals for 2014, and Kimberly-Clark’s assessment of 2014 performance against those goals, are as follows:

 

Additional Business Unit Financial and Strategic Performance Goals for 2014

Final Result

Below Goal

At Goal

Above Goal

Achieve target level sales in Sterilization Wrap in North America from new innovation categories

ü

Improve innovation process

ü

Achieve target levels of organic sales growth for Pain Platforms

ü

Create a stand-alone healthcare company while delivering 2014 business results

ü

Achieve a target level of cost savings

ü

Based on the assessed performance of the additional business unit financial and strategic performance goals Kimberly-Clark determined that the payout percentage for achieving these performance goals should be 120 percent of target.

POST-SPIN-OFF (HALYARD PROGRAM)

Subsequent to the spin-off, our named executive officers became subject to our Executive Officer Achievement Award Plan, which is our annual cash incentive plan. Because of the relatively short period following the spin-off, the Halyard Committee, with the advice and counsel of the independent compensation consultant, established a single performance goal for the last two months of 2014. That goal was based on target net sales for the final two months of 2014. The Halyard Committee also determined that the potential range of payouts for the last two months of 2014 would be zero if the goal was not reached and 100% if the goal was reached or exceeded.

The Halyard Committee determined that the actual net sales for the final two months of 2014 exceed the target and that the payout percentage for each of our named executive officers for that period would be 100%.

 

Annual Cash Incentive Payouts for 2014

The following tables show the payout opportunities and the actual payouts of annual cash incentives for 2014 for each of our named executive officers for both the pre-spin and post-spin periods. The annual incentive payout amounts have been pro-rated for the applicable periods. Payouts were based on the payout percentages for each element, weighted for each executive as shown above.

Pre-spin (Kimberly-Clark program)

 

Name		Annual Incentive Target										Annual Incentive Maximum										2014 Annual Incentive Payout
		% of Base     Salary					Prorated     Amount($)					% of     Target					Amount($)					% of     Target					Amount($)
Robert E. Abernathy				85%					552,500					200%					1,105,000					103%					571,016
Steven E. Voskuil				55%					163,978					200%					327,956					104%					170,911
Rhonda D. Gibby				45%					93,935					200%					187,870					104%					97,909
Christopher M. Lowery				50%					127,500					200%					255,000					104%					132,893
John W. Wesley				50%					131,250					200%					262,500					104%					136,802

Post –spin (Halyard program)

 

Name		Annual Incentive Target										Annual Incentive Maximum										2014 Annual Incentive Payout
		% of Base     Salary					Prorated     Amount($)					% of     Target					Amount($)					% of     Target					Amount($)
Robert E. Abernathy				100	%				137,500					100	%				137,500					100	%				137,500
Steven E. Voskuil				70	%				50,167					100	%				50,167					100	%				50,167
Rhonda D. Gibby				50	%				25,833					100	%				25,833					100	%				25,833
Christopher M. Lowery				85	%				67,292					100	%				67,292					100	%				67,292
John W. Wesley				60	%				37,500					100	%				37,500					100	%				37,500

LONG-TERM EQUITY INCENTIVE COMPENSATION

Our executive officers receive annual long-term equity incentive grants as part of their overall compensation package. These awards are consistent with the objectives of aligning our senior leaders’ interests with the financial interests of our stockholders, focusing on our long-term success, supporting our performance-oriented environment and offering competitive compensation packages.

Information regarding long-term equity incentive awards granted to our named executive officers can be found under “Summary Compensation,” “Grants of Plan-Based Awards,” and “Discussion of Summary Compensation and Plan-Based Awards Tables.”

2014 Grants

Pre-spin grants.

In determining the 2014 long-term equity incentive award amounts for our named executive officers the following factors were considered by Kimberly-Clark, among others: the specific responsibilities and performance of the executive, business performance, retention needs, stock price performance and other market factors. Because these awards are part of the annual compensation program that compares direct annual compensation to the median of the peer group comparison, grants from prior years were not considered when setting 2014 targets or granting awards.

 

To determine target values, each executive’s direct annual compensation was compared to the median of the peer group, and then individual performance and the other factors listed above, as applicable, were considered. Target grant values were approved by the Kimberly-Clark Committee in June 2014 and were divided into two types:

 

•

Performance-based restricted share units (75 percent of the target grant value). For valuation purposes, each unit was assigned the same value as one share of Kimberly-Clark common stock on the date of grant.

 

•

Stock options (25 percent of the target grant value). For valuation purposes, one option had the same value as 10 percent of the price of one share of Kimberly-Clark common stock on the date of grant of the stock option.

The Kimberly-Clark Committee believed this allocation between performance-based restricted share units (PRSUs) and stock options supports the pay-for-performance and stockholder alignment objectives of its executive compensation program. In June 2014, the following long-term equity incentive awards were granted to our named executive officers:

 

Name		Target Grant Value of Awards ($)										Target PRSUs Awarded (#)										Stock Options Awarded     (#)
Robert E. Abernathy		1,900,000										12,598										41,995
Steven E. Voskuil		475,000										3,150										10,499
Rhonda D. Gibby		170,000										1,127										3,757
Christopher M. Lowery		290,000										1,923										6,410
John W. Wesley		290,000										1,923										6,410

Post-spin grants.

The PRSUs awarded by Kimberly-Clark in June 2014 were forfeited on October 31, 2014 when our named executive officers ceased to be employed by Kimberly-Clark. The stock options awarded by Kimberly-Clark in June 2014 and unvested Kimberly-Clark stock options and performance-based restricted share units granted in prior years were also forfeited on October 31, 2014 by Messrs. Voskuil and Lowery and Ms. Gibby. Because Messrs. Abernathy and Wesley were both over the age of 55 on October 31, 2014, under the terms of the Kimberly-Clark equity participation plan all option awards and performance-based restricted share units became vested upon their separation from Kimberly-Clark. Under the terms of the Employee Matters Agreement we entered into with Kimberly-Clark in connection with the spin-off, we were obligated to issue to our employees (including the named executive officers) replacement equity grants in an amount equal to the approximate intrinsic value of the Kimberly-Clark equity grants that were forfeited as a result of the spin-off. Kimberly-Clark stock options that were forfeited as a result of the spin-off were replaced with Halyard stock options with substantially the same terms and conditions as the forfeited options except that the number of options and the exercise prices were adjusted to preserve the intrinsic value of the options as of the spin-off. Kimberly-Clark PRSUs that were forfeited as a result of the spin-off were replaced with Halyard time-based restricted share units (Time-based RSUs) using the target level of the PRSUs for purposes of determining the intrinsic value of those forfeited units as of the spin-off. Time-based RSUs were used to replace the Kimberly-Clark PRSUs because of the difficulty in establishing comparable replacement performance objectives for Halyard immediately following the spin-off.

 

The Halyard Committee approved the following replacement equity awards for our named executive officers in November 2014:

 

Name		Intrinsic Value of Awards ($)										Time-based RSUs Awarded (#)										Stock Options Awarded     (#)
Robert E. Abernathy		1,450,880										38,302										—
Steven E. Voskuil		1,030,280										20,493										66,249
Rhonda D. Gibby		420,011										8,309										26,934
Christopher M. Lowery		518,601										10,735										34,889
John W. Wesley		221,446										5,846										—

In addition, under the terms of agreements entered into pre-spin with certain of our executive officers, we were obligated to make equity awards to those individuals with a value equal to the difference between the target level of long term equity awards for their new positions at Halyard as of the spin-off less the value of the 2014 long term equity awards granted by Kimberly-Clark in June 2014. The Halyard Committee approved the following “top-up” equity awards for our named executive officers in November 2014:

 

Name		Intrinsic Value of Awards ($)										Time-based RSUs Awarded (#)										Stock Options Awarded     (#)
Robert E. Abernathy		1,157,000										21,779										21,999
Steven E. Voskuil		316,000										5,940										6,000
Rhonda D. Gibby		189,000										3,564										3,600
Christopher M. Lowery		746,000										14,058										14,200
John W. Wesley		116,000										2,178										2,200

For valuation purposes, each time-based RSU granted in November 2014 was assigned a value equal to the variable weighted average price of one share of Halyard Health common stock for the first five trading days following the spin-off (November 3 – 7, 2014) (the “5-Day VWAP Stock Price”), and each stock option was assigned a value equal to 33 percent of the 5-Day VWAP Stock Price.

Payout of 2011—2013 Performance-Based Restricted Share Units

In February 2014, the Kimberly-Clark Committee evaluated the results of the three-year performance period for the Kimberly-Clark performance-based restricted share units that were granted in 2011. The performance objectives for these 2011 awards were based on Kimberly-Clark’s average annual adjusted net sales growth and average adjusted ROIC for the period January 1, 2011 through December 31, 2013, each weighted equally.

 

Goals (Each weighted 50%)		Performance Levels
Kimberly-Clark Annual adjusted net sales growth			1.00%				2.25%				3.50%				4.75%				6.00%				2.9%
Kimberly-Clark Adjusted ROIC*			14.80%				15.30%				15.80%				16.30%				16.80%				16.0%
Potential Payout (as a percentage of target)			0%				50%				100%				150%				200%				Actual

 

*

For purposes of calculating Kimberly-Clark average adjusted Return on Invested Capital (“ROIC”), the impacts on Kimberly-Clark of a charge related to the adoption of highly inflationary accounting in Venezuela and charges related to Kimberly-Clark’s European and the pulp and tissue restructurings were excluded from the ROIC calculation.

 

Based on this review, the Kimberly-Clark Committee determined that Kimberly-Clark achieved the performance goal for adjusted ROIC but did not achieve the performance goal for adjusted net sales. As a result, the payout percentage for the share units was 97 percent of target. The following table includes information about the opportunities and payouts (including reinvested dividends) regarding these grants to our named executive officers:

 

		Share Amount								2011—2013 Performance-Based Restricted Share Unit Award (Paid in February 2014)
Name		Target				Maximum				% of Target				Amount of Shares(#)				Value of Shares on Date Received($)
Robert E. Abernathy			23,029				46,058				97	%			22,338				2,462,541
Steven E. Voskuil			7,036				14,072				97	%			6,825				752,388
Rhonda D. Gibby			2,059				4,118				97	%			1,997				218,152
Christopher M. Lowery			2,059				4,118				97	%			1,997				218,152
John W. Wesley			3,518				7,036				97	%			3,413				376,249

The shares underlying these performance-based restricted share unit awards were distributed to our named executive officers in 2014 and are included in the Option Exercises and Stock Vested in 2014 table.

RETENTION AND RELOCATION AWARDS

Following the announcement of its plans to spin-off its healthcare division, Kimberly-Clark entered into retention agreements with our named executive officers other than Mr. Abernathy. These retention awards became payable once the spin-off occurred on October 31, 2014. The following retention awards were paid to the following named executive officers in November 2014:

 

Name		Cash Retention Payment ($)
Steven E. Voskuil			150,000
Rhonda D. Gibby			100,000
Christopher M. Lowery			150,000
John W. Wesley			150,000

Mr. Lowery also received in 2014 a relocation bonus of $100,000 pursuant to an agreement entered into with Kimberly-Clark in 2013. The relocation bonus was payable if Mr. Lowery relocated to the Atlanta, Georgia area by the end of 2014. Mr. Lowery met the conditions for receipt of this bonus and Kimberly-Clark paid it to him prior to the spin-off. The relocation bonus was in lieu of his participation in Kimberly-Clark’s Executive Relocation Program.

 

 

Benefits and Other Compensation

RETIREMENT BENEFITS

Our named executive officers previously received contributions from Kimberly-Clark under the Kimberly-Clark Corporation 401(k) and Profit Sharing Plan (the “K-C 401(k) Profit Sharing Plan”) and the Kimberly-Clark Supplemental Retirement 401(k) and Profit Sharing Plan (the “K-C Supplemental 401(k) Plan”), and Messrs. Abernathy and Voskuil participate in Kimberly-Clark’s frozen defined benefit pension plans. Effective upon the spin-off, our named executive officers began receiving contributions from us under the Halyard Health, Inc. 401(k) Plan (the “Halyard 401(k) Plan”) and the Halyard Health, Inc. Supplemental Retirement 401(k) Plan (the “Halyard Supplemental 401(k) Plan”). Halyard does not have a defined benefit pension plan in the United States, and none of our named executive officers participate in any Halyard defined benefit pension plans.

 

The Halyard 401(k) Plan and Halyard Supplemental 401(k) Plan are consistent with those maintained by our peer group companies and are therefore necessary to remain competitive with them for recruiting and retaining executive talent. The Halyard Committee believes that these retirement benefits are important parts of our compensation program. For more information, see “Nonqualified Deferred Compensation – Overview of Qualified and Non-Qualified Plans” and “Pension Benefits.”

OTHER COMPENSATION

We believe the perquisites provided to our executive officers are below the median of those provided by our peer group. In addition, Halyard does not provide tax reimbursement or gross-ups for perquisites offered to executive officers, except for certain relocation benefits.

Prior to the spin-off from Kimberly-Clark, the following perquisites were available to certain of our executive officers: personal financial planning services under Kimberly-Clark’s Executive Financial Counseling Program; executive health screening services provided by independent health care providers; and personal use of Kimberly-Clark’s corporate aircraft under limited circumstances as permitted by Kimberly-Clark’s policies. None of these perquisites were made available to the Halyard executive officers post-spin.

POST-TERMINATION BENEFITS

We maintain two severance plans that cover our executive officers: the Severance Pay Plan and the Executive Severance Plan. An executive officer may not receive severance payments under more than one severance plan. Benefits under these plans are payable only if the executive’s employment terminates under the conditions specified in the applicable plan. We believe that our severance plans are consistent with those maintained by our peer group companies and that they are therefore important for attracting and retaining executives who are critical to our long-term success and competitiveness. For more information about these severance plans and their terms, see “Potential Payments on Termination or Change of Control – Severance Benefits.”

Severance Pay Plan

Our Severance Pay Plan provides severance benefits to most of our U.S. hourly and salaried employees, including our named executive officers, who are involuntarily terminated under the circumstances described in the plan. The objective of this plan is to facilitate the employee’s transition to his or her next position, and it is not intended to serve as a reward for the employee’s past service.

Executive Severance Plan

Our Executive Severance Plan provides severance benefits to eligible employees, including our named executive officers, in the event of a qualified termination of employment (as defined in the plan) in connection with a change of control. For an eligible employee to receive a payment under this plan, two things must occur: there must be a change of control of Halyard Health, and the employee must have been involuntarily terminated without cause or have resigned for good reason (as defined in the plan) within two years of the change of control (often referred to as a “double trigger”). The objective of this plan is to encourage the executive officers to stay with the company in the event of a change of control transaction to ensure a smooth transition. Each of our named executive officers has entered into an agreement under the plan that expires on October 31, 2017.

 

 

Executive Compensation for 2015

2015 BASE SALARY

In February 2015, the Halyard Committee approved the following base salaries for our named executive officers, effective April 1, 2015:

 

Name		2015 Base Salary($)
Robert E. Abernathy		837,375
Steve E. Voskuil		436,450
Rhonda D. Gibby		314,650
Christopher M. Lowery		482,125
John W. Wesley		393,750

2015 ANNUAL CASH INCENTIVE TARGETS

In February 2015, the Halyard Committee also established objectives for 2015 annual cash incentives, which will be payable in 2016. The target payment amounts and range of possible payouts for 2015 are as follows:

 

		Target Payment Amount		Possible Payout
Robert E. Abernathy		100% of base salary		0% -200% of target payment amount
Steven E. Voskuil		70% of base salary		0% -200% of target payment amount
Rhonda D. Gibby		50% of base salary		0% -200% of target payment amount
Christopher M. Lowery		85% of base salary		0% -200% of target payment amount
John W. Wesley		60% of base salary		0% -200% of target payment amount

The Halyard Committee sets the appropriate split among the different elements of performance that make up our performance goals. The following are the 2015 performance goals and relative weights for our named executive officers:

ANNUAL CASH INCENTIVE PROGRAM

2015 PERFORMANCE GOALS AND WEIGHTS

 

		Robert E. Abernathy				Steven E. Voskuil				Rhonda D. Gibby				Christopher M. Lower				John W. Wesley
Element 1: Corporate key financial goals			80%				80%				80%				80%				80%
Element 2: Other corporate financial and strategic performance goals			20%				20%				20%				20%				20%

The corporate key financial goals for 2015 are designed to encourage a continued focus on executing our long-term business plan objectives and include achieving adjusted net sales, adjusted earnings per share and cash conversion cycle goals.