Compensation Committee panel discussion with Amy Cappellanti-Wolf, Carol Surface and Kelly Malafis.

Yeah, look, I think Amy really described it well. It's a much more holistic conversation rooted in what we are trying to achieve strategically. Someone that I used to work for, who is now a director on a few different boards of publicly traded companies, says he finds it a very rare occasion when a board or a management team is talking about strategy that you don't get into the conversation of what type of talent, what type of capabilities do we need to help us actually achieve that strategy and deliver against our expectations. Number one. Number two: what is the culture that is going to enable us to achieve it? And then: what type of incentives do we need to ensure that management is engaged and appropriately incented to achieve these goals? About a year ago, I was engaged in a study that included the perspectives of CEOs and directors of boards of publicly traded companies. We asked the question: what do you expect from your CHRO, and what are the capabilities that you're looking for? Overall, the answers were we need a CHRO who really can be the board's leader of human capital. They built that out and said: we absolutely need the perspective of the CHRO to build shareholder-approved executive compensation that needs to reflect the full gamut of all stakeholders, including employees, but also the broader remit of executive compensation and the governance aspects. The second aspect identified was a CHRO who is going to help us plan and support CEO and senior executive succession. Of course, it's the board's responsibility, but we need the CHRO to help us lay out that process: what is the future profile of the CEO we are looking for, and to ensure that we execute this process in the timeframe that we are planning to do that. And then finally, this notion of being able to surface and respond to external trends and put plans in place to respond to those trends. I think this past calendar year has really highlighted how that role has materialized: between the response and how we handle a pandemic, what are the implications from a compensation and incentive plan standpoint, how do we help protect the employee base and ensure that we are taking all of the appropriate actions, and then of course racial and social injustices and how the whole diversity, equity, and inclusion agenda gets handled. So that's one frame of reference, and I really do think it has broadened the aperture much beyond what used to be solely executive compensation to a much broader remit.

Great question, Kelly. I do think it depends a bit. I'll speak from Medtronic's perspective. Different industries have faced different challenges. Clearly, if you're in the travel and airline industry, really tough decisions needed to be made around furloughing employees and so forth. For us, we were in a position where we have a healthy company, liquidity, all of those positive aspects. We also just happened to be completing the CEO succession process with a new CEO stepping into the role in the midst of this pandemic. You could really see the three roles of the board's leader of human capital coming together. The context was a new CEO stepping in, and he felt quite strongly that our role needed to be to provide a level of income protection for our employees, number one. Number two: do absolutely everything we can to invest in their health and their well-being, to make sure they had confidence in the future of Medtronic and to be able to support both them and their families to withstand the more challenging phases of the pandemic. So we made a lot of investments in supporting our employees and responding to the pandemic in that way. The directors on our board, many of whom are sitting CEOs or recently retired CEOs from different industries where the context wasn't the same, may have had a different point of view about our new CEO's position, which was: "I'm going all in, investing in the engagement, the support, and protecting the income for our employees, because I believe that's going to hold us in good stead as we exit the pandemic, and that level of loyalty and engagement will really be important." Clearly, we had to make different decisions in responding to incentive compensation because our fiscal year was timed in such a way that we were forced to make difficult decisions. Our fiscal year ended at the end of April, and as a result, our fourth quarter — primarily two months — was quite heavily impacted by the pandemic. As a result, our short-term incentive payouts were zero. Coming back to this point around supporting employees, our incoming CEO had a real strong point of view that we needed to adjust that short-term incentive payout for 63,000 employees to an adjusted payout — not 100%, something less than that, along the lines of ensuring income protection. But at the same time, holding a pay-for-performance culture and saying: "I am not putting myself or the senior executive team into that category. We will not retroactively adjust anything for that senior executive population." So really the point being: balancing the new CEO's incoming perspective, how we responded to those external events, with a framework around the importance of broad-based employees but still holding senior management accountable to the incentive plans as they played out, not doing any sort of adjustment or positive discretion.

Sure. I would say just a consistent set of metrics, whether it's talent and succession and number of folks for pivotal roles. These are types of metrics that full boards, not necessarily just the compensation committee, ought to be looking at. To the point around having the CHRO be the driver of culture and purpose in an organization, that ties back to some of the inclusion and diversity aspects and being able to measure really quantitatively, and not over-aggregating data to hide where there may be challenges. I think that's a really important aspect. Then to be able to say, "In aggregate, such and such company looks like it has an inclusive culture and is driving the type of behaviors, and employees are reporting in a positive way," but if you over-aggregate, I think boards ought to be asking: "But where are there problems? Where do you really need to work?" Because it can't be all sunshine and rainbows. There have to be pockets or areas of the organization that you need to work on. Another question that ought to be asked is: "How are you holding leadership accountable — line leaders — for driving the performance metrics, for driving the type of culture that you are looking for?" Some of these metrics include cultural or engagement surveys, annual succession plans, and the performance metrics of the leadership team. I think these are some of the things that boards and committees ought to be looking at. Then that raises the question: if how are we holding executives accountable, and should some of these aspects be included in incentive compensation, or are they better served in your day-to-day or yearly performance evaluation that may or may not tie to short- or long-term incentives? On the topic of ESG, that's where many of us are questioning how far and how fast do you go with ESG-type metrics formally linked to incentive compensation, whether short or long term. I'm sure there are a variety of perspectives on that topic, and we're seeing that play out certainly across industries across the Fortune 100, 200, 500.

I have an example on that point. On the topic of pay equity, which is clearly directly related to the remit of the compensation committee, last year we went through the exercise of disclosing aggregate pay equity by gender, globally and by country, along with our ethnic diversity pay equity in the United States. Exactly to Amy's point, although the numbers for us were good — 100 percent in some cases, 99 in other cases — the conversation with the compensation committee went to a level of granularity around what type of job families do you have issues with. So let's look at sales, where there is not 100 percent pay equity; it is something less than that. And then what are you doing within that particular cohort of employees to fix that? So I think that is a good example of that level of micro-analysis and not letting an over-aggregation of data be all that you communicate with your compensation committee. They need to understand at a micro level of analysis where the good spots are and where the opportunities are.

Building off the bridge that you just built from the previous conversation, on this notion of transparency. First of all, just getting to know the compensation committee chair and having a personal connection — understanding backgrounds, perspectives, how you think about things — is important, versus just a transactional relationship. The second point truly is transparency: being able to communicate, I call it, "the good, the bad, and the ugly" in a really transparent fashion, so that there is confidence that management isn't trying to hide something or just paint a rosy picture of what is occurring, which would cause any director to wonder what they are hiding or when the shoe is going to drop about something they haven't been told about. So I think it is this level of transparency. And then finally, asking for advice and counsel. I think this is a relationship where it's a very delicate balance. If I were a director, you don't want your CHRO in a position where you are wondering whether they are just advancing the CEO's agenda and pushing hard for a management perspective versus really understanding the broad stakeholder landscape, which includes broad-based employees, the executive team, governance experts, institutional shareholders, and so forth. So building a relationship based on transparency, good judgment, and making sure there isn't a perception that the CHRO is just trying to drive the CEO or management's agenda is an art. Being able to establish that right out front is important.

Yeah, and to add to that, you also have the responsibility of working with a compensation committee's independent compensation consultant and making sure that the relationship there is working effectively. How do you as a CHRO work with the independent advisor to make sure that management's point of view is represented so that the advisor is not making recommendations in a vacuum?

I think that's really well said. The way I come at it is reminding myself that, as Amy said, the compensation committee consultant is hired by and reports to the board, period. That independent perspective and point of view has to be preserved, and the board needs to feel like it is absolutely independent and not simply trying to advance management's agenda. Sometimes they are important but tactical indicators of that: ensuring that the compensation committee consultant's materials are all their own materials, and that it's not management's hand writing them. Having frequent conversations with the compensation committee consultant to ensure alignment: "This is what I'm hearing from employees, from executives, from the CEO. How did your latest conversation with the chair of the compensation committee go? How did that executive session debrief go? Are there some pieces of feedback that we need to take into consideration?" Especially as we were trying to navigate all the impact of the pandemic around incentives, we were doing things really on the fly and ahead of so many other companies by virtue of the timing of our fiscal year. Everybody was trying to figure things out and write the playbook as we were going. So I think it is just being transparent and having the compensation committee consultant feel like they can very transparently share: "This is the committee's perspective, this is management's perspective, and this is our independent perspective on how we might think about balancing the different stakeholder perspectives here to get to the right outcome." In some cases, there is a conversation that says, "Look, we are not going to be able to manage all of the variety of stakeholders here or meet everyone's needs in this particular instance; we are going to prioritize X." So I just come into it reminding myself every day that they have a role to play, and that independence is a really important aspect for the directors to feel like they have confidence in, and to know that they are going to take management's perspective into consideration as well.

I think it comes back to the metrics that we talked about, whether it is under the talent dimension, advancing the culture dimension, or pay equity as an example. If our goal is to achieve pay equity in aggregate for gender globally and for different ethnicities within the US, let's continue to report on that. Success looks like pay equity, and to the previous conversation, at a granular level — not just in aggregate, but in some of these other areas, whether it's sales or operations, where we may not have reached pay equity yet. Similarly, on culture, if we are wanting to build an inclusive culture where truly all diverse talent can thrive, what does that look like? So I think aligning the overall strategic imperatives along with the metrics to be able to inspect what you expect is a success, and making sure that we are aligned on what those outcomes look like both from a qualitative and quantitative fashion, and then being able to report on that on a regular basis, whether that's quarterly or every other board meeting, getting aligned on the timing.

Absolutely. I would say the full board engagement on talent topics, talent culture, diversity, is what I have seen. At every meeting. Coming off a CEO succession event where the full board drove that process, that was in every meeting — four or five times a year — a discussion that included all of the metrics that Amy referenced in terms of other talent, bench, and culture metrics. So I think that pattern for us will continue, and I think that's probably becoming more common: full board discussions versus just particular committees on broader talent, succession, and culture topics.

Thank you, Kelly. Thank you, Amy.