March 6, 2018

10:00 am (Central Time)

Chicago, Illinois

	Tuesday, March 6, 2018, at 10:00 a.m., Central time.
	180 North Stetson Avenue, Two Prudential Plaza, Suite 1630, Chicago, Illinois 60601.

(1)

To elect ten members to the Board of Directors to serve one-year terms expiring at the 2019 annual meeting or until their successors are elected and qualified;

(2)

To consider and vote on a non-binding proposal to approve, on an advisory basis, the compensation of Hill-Rom’s named executive officers;

  

(3)

To ratify the appointment of PricewaterhouseCoopers LLP as the independent registered public accounting firm of Hill-Rom for fiscal year 2018; and

 

(4)

To transact any other items of business that may properly be brought before the meeting and any postponement or adjournment thereof.

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Additional important information about the meeting and voting can be found in the section entitled “General Information About the Annual Meeting and Voting” beginning on page 5.

 

 

Governance Highlights

 

Our Board believes that good corporate governance enhances shareholder value.  Our governance practices include:

 

Executive Compensation Highlights

 

Hill-Rom’s compensation program is designed to align the compensation of each named executive officer (“NEOs” or “Named Executive Officers”) with Hill-Rom’s performance and the interests of our shareholders, and to provide the proper incentives to attract, retain and motivate key personnel in a clear, transparent manner.  In order to do this, we:

 

·

consider, as an initial market check, the 50th percentile of compensation opportunity provided by companies with which we compete for executive talent;

 

·

provide an annual cash incentive award based on meaningful company performance metrics such as revenue, free cash flow and adjusted earnings per share (as defined under the Company’s short term incentive compensation plan, as later defined in this proxy statement), where applicable, and which is modified for individual performance; and

 

·

align long-term equity compensation with our shareholders’ interests by linking realizable pay with stock performance through a combination of performance stock units (50% of the award), restricted stock units (25% of the award), and stock options (25% of the award).

 

Last year’s Non-Binding Vote on Executive Compensation received support of approximately 97% of our shareholders (excluding abstentions and broker non-votes).  Based on the results of the shareholder vote, and the changes to the compensation program that were implemented for fiscal year 2016, which addressed shareholder and proxy advisory firm feedback, no significant changes to our compensation program took place in fiscal year 2017.

 

 

In summary, we compensate our NEOs as follows:

 

  

We also adhere to several additional principles regarding executive compensation for our NEOs, which we believe highlight the strength of both our governance practices and our overall executive compensation program:

 

 

 

General Information About the Meeting and Voting

  

1.	Who may vote?

 

Shareholders holding shares of Hill-Rom common stock as of the close of business on January 2, 2018 (the “record date”) are entitled to vote at the meeting.  At the close of business on the record date, there were 66,139,823 shares of common stock outstanding and entitled to vote at the meeting.  Common stock is the only class of stock outstanding and entitled to vote. You have one vote for each share of common stock held as of the record date, which may be voted on each proposal presented at the meeting.

 

2.	How can I elect to receive my proxy materials electronically?

 

If you would like to reduce the costs incurred by us in mailing proxy materials, you can elect to receive all future proxy statements, proxy cards and annual reports electronically.  To sign up for electronic delivery, follow the instructions provided with your proxy materials and on your proxy card or voting instruction card, or go to https://enroll.icsdelivery.com/hrc. When prompted, indicate that you agree to receive or access shareholder communications electronically in the future.

 

3.	Can I vote my shares by filling out and returning the Notice Regarding the Availability of Proxy Materials?

 

No. See Question 6 “How do I vote?” for more information on how to vote.

 

4.	How can I access the proxy materials over the internet?

 

  

5.	How does the Board recommend that I vote?

 

The Board recommends that you vote:

 

·

FOR each of the nominees for director;

 

·

FOR the non-binding approval of the compensation of Hill-Rom’s NEOs; and

 

·

FOR the ratification of the appointment of PricewaterhouseCoopers LLP as Hill-Rom’s independent registered public accounting firm.

 

6.	How do I vote?

 

You may vote by any of the following methods: 

 

·

By Telephone or Internet — You may submit your proxy vote by following the instructions provided in the Notice Regarding the Availability of Proxy Materials, or by following the instructions provided with your proxy materials and on your proxy card or voting instruction form.

 

·

By Mail — You may submit your proxy vote by mail by signing a proxy card and mailing it in the enclosed envelope if your shares are registered directly in your name or, for shares held beneficially in street name, by following the voting instructions provided by your broker, trustee or nominee.

 

·

In Person at the Meeting — You may vote in person at the meeting or may be represented by another person at the meeting by executing a proxy designating that person.

 

7.	If I voted by telephone or internet and received a proxy card in the mail, do I need to return my proxy card?

 

No.

 

 

8.	Can I change my vote?

 

If you are a shareholder of record, you may revoke your proxy at any time before the voting polls are closed at the meeting by the following methods:

 

·	voting at a later time by telephone or internet (up to 11:59 p.m. Eastern time on the day before the meeting),

 

·	writing our Corporate Secretary at: Hill-Rom Holdings, Inc., 130 East Randolph, Suite 1000, Chicago, Illinois 60601, or

 

·	giving notice of revocation to the Inspector of Election at the meeting.

 

If you are a street name shareholder and you voted by proxy, you may later revoke your proxy by informing the holder of record in accordance with that entity’s procedures.

 

9.	What happens if I do not specify a choice for a proposal when returning a proxy?

 

If you are a shareholder of record and your proxy card is signed and returned without voting instructions, it will be voted according to the recommendation of the Board.

 

If you are a street name shareholder and fail to provide voting instructions, your broker, bank or other holder of record is permitted to vote your shares on the proposal to ratify the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm.  However, they may not vote on the election of directors or the other proposals listed herein absent instructions from you.  Without your voting instructions, a “broker non-vote” will occur with respect to those other proposals.

 

10.	How are votes, including broker non-votes and abstentions, counted?

 

Votes are counted in accordance with both our Amended and Restated Code of By-laws (our “By-laws”) and Indiana law.  A broker non-vote or abstention will be counted towards a quorum, but will not be counted in the election of directors or the votes on any of the other proposals (except for the proposal to ratify the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm, as described in Question 9).  

 

11.	What constitutes a quorum?

 

A majority of the outstanding shares of common stock entitled to vote, represented at the meeting in person or by proxy, constitutes a quorum.  Broker non-votes and abstentions will be counted as represented at the meeting for purposes of determining whether a quorum is present.

 

12.	What happens if other matters come up at the meeting?

 

The matters described in the Notice of Annual Meeting of the Shareholders are the only matters we know of that will be voted on at the meeting. If other matters are properly presented at the meeting, the persons named on the proxy card or voting instruction form will vote your shares according to their best judgment.

 

13.	Who will count the votes?

 

A representative of Broadridge Financial Solutions, Inc., an independent tabulator appointed by the Board, will count the votes and act as the Inspector of Election.  The Inspector of Election will have the authority to receive, inspect, electronically tally and determine the validity of the proxies received.

 

14.	Who can attend the meeting?

 

Admission to the meeting is limited to shareholders of Hill-Rom as of the record date, persons holding validly executed proxies from shareholders who held Hill-Rom common stock as of the record date, and invited guests of Hill-Rom.

 

In order to be admitted to the meeting in person, you should pre-register by contacting Hill-Rom’s Investor Relations department at investors@hill-rom.com, or in writing at Investor Relations, Hill-Rom Holdings, Inc., 130 East Randolph, Suite 1000, Chicago, Illinois 60601, no later than February 26, 2018.  Additionally, proof of ownership of Hill-Rom stock must be shown at the door.  Failure to pre-register or to provide adequate proof that you were a shareholder as of the record date may prevent you from being admitted to the meeting.  Please read the following rules carefully because they specify the documents that you must bring with you to the meeting in order to be admitted.  

 

 

If you were a record holder of Hill-Rom common stock as of the record date, then you must bring a valid government-issued personal identification (such as a driver’s license or passport).

 

If a broker, bank, trustee or other nominee was the record holder of your shares of Hill-Rom common stock as of the record date, then you must bring:

 

·

Valid government-issued personal identification (such as a driver’s license or passport), and

 

·

Proof that you owned shares of Hill-Rom common stock as of the record date.

 

If you are a proxy holder for a shareholder of Hill-Rom, then you must bring:

 

·	The validly executed proxy naming you as the proxy holder, signed by a shareholder of Hill-Rom who owned shares of Hill-Rom common stock as of the record date,

 

·	Valid government-issued personal identification (such as a driver’s license or passport), and

 

·	Proof of the shareholder’s ownership of shares of Hill-Rom common stock as of the record date.

 

15.	How many votes must each proposal receive to be adopted?

 

Directors are elected by a plurality of the votes cast by shareholders entitled to vote, which means that nominees who receive the greatest number of votes will be elected even if such amount is less than a majority of the votes cast.  However, our Corporate Governance Standards provide that, prior to the meeting, director nominees shall submit a letter of resignation that is effective in the event such director receives a greater number of votes “withheld” from his or her election than votes “for” such election.  The Board is required to accept the resignation unless the Board determines that accepting such resignation would not be in the best interests of Hill-Rom and its shareholders.

 

The non-binding proposal to approve the compensation of our NEOs and the proposal to ratify the appointment of the independent registered public accounting firm will be approved if the votes cast favoring the action exceed the votes cast opposing the action.  

 

16.	Who pays for the proxy solicitation related to the meeting?

 

We do.  In addition to sending you or making available to you these materials, some of our directors and officers, as well as management and non-management employees, may contact you by telephone, mail, e-mail or in person.  You may also be solicited by means of press releases issued by Hill-Rom, postings on our website, and advertisements in periodicals.  None of our officers or employees will receive any extra compensation for soliciting you.  We have retained Innisfree M&A Incorporated to assist us in soliciting your proxy for an estimated fee of $10,000 plus reasonable out-of-pocket expenses. We will also reimburse banks, nominees, fiduciaries, brokers and other custodians for their costs of sending the Notice Regarding the Availability of Proxy Materials or proxy materials to the beneficial owners of Hill-Rom common stock.

 

17.	If I want to submit a shareholder proposal for the 2019 annual meeting, when is it due and how do I submit it?

 

In order for shareholder proposals submitted pursuant to Rule 14a-8 under the Securities Exchange Act of 1934 to be presented at our 2019 annual meeting of shareholders and included in our proxy statement and form of proxy relating to that meeting, such proposals must be submitted to the Corporate Secretary of Hill-Rom at our registered offices in Chicago, Illinois no later than September 21, 2018, which is 120 days prior to the calendar anniversary of the mailing date of this proxy statement.

 

In addition, our By-laws provide that for business to be brought before a shareholders’ meeting by a shareholder or for nominations to the Board of Directors to be made by a shareholder for consideration at a shareholders’ meeting, notice thereof must be received by the Corporate Secretary of Hill-Rom at our registered offices not later than 100 days prior to the anniversary of the immediately preceding annual meeting, or not later than November 26, 2018 for the 2019 annual meeting of shareholders.  The notice must also provide certain information set forth in our By-laws.

 

 

18.	How can I obtain a copy of the Annual Report on Form 10-K?

 

You may receive a hard copy of proxy materials, including the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2017, by following the directions set forth on the Notice Regarding the Availability of Proxy Materials.  The Annual Report on Form 10-K is also available on our website at http://ir.hill-rom.com.

 

19.	Where can I find the voting results of the meeting?

 

We will announce preliminary voting results at the conclusion of the meeting and publish the final voting results in a Form 8-K to be filed with the U.S. Securities and Exchange Commission (“SEC”) within four business days after the conclusion of the meeting.

 

 

The Board currently consists of eleven members, and the terms of all the directors expire at the meeting.  Rolf Classon informed the Board of his decision not to stand for re-election to the Board and thus he is not nominated for re-election. The shareholders will therefore elect ten members of the Board to serve one-year terms expiring at the 2019 annual meeting of shareholders.  Unless authority is withheld, all shares represented by proxies submitted pursuant to this solicitation (other than broker non-votes) will be voted in favor of electing as directors the nominees listed below for the terms indicated.  If any of these nominees should be unable to serve, shares represented by proxies may be voted for a substitute nominee selected by the Board, or the position may become vacant.

 

Name	Age	Principal Occupation	Director Since
William G. Dempsey	66	Member of the Board Hill-Rom*	2014
John J. Greisch	62	President and Chief Executive Officer Hill-Rom	2010
Gary L. Ellis	61	Retired Chief Financial Officer Medtronic plc	2017
Stacy Enxing Seng	53	Retired President Vascular Therapies Covidien	2015
Mary Garrett	59	Retired Vice President of Global Marketing IBM	2017
James R. Giertz	60	Retired Senior Vice President and Chief Financial Officer H.B. Fuller Company	2009
Charles E. Golden	71	Retired Executive Vice President and Chief Financial Officer Eli Lilly and Company	2002
William H.  Kucheman	68	Retired Interim Chief Executive Officer Boston Scientific Corp.	2013
Ronald A. Malone	63	Retired Chairman Gentiva Health Services, Inc.	2007
Nancy M. Schlichting	63	Retired Chief Executive Officer Henry Ford Health System	2017

WILLIAM G. DEMPSEY

 

Mr. Dempsey has served as a director of Hill-Rom since 2014.  Mr. Dempsey previously held various executive positions with Abbott Laboratories from 1982 until 2007, including Executive Vice President of Global Pharmaceuticals from 2006, Senior Vice President of Pharmaceutical Operations from 2003 and Senior Vice President of International Operations from 1999.  He currently serves as a director of Ashland, Inc. (where he serves on the audit, governance and nominating, environmental, health and safety, and quality committees), and was previously on the boards of MDS, Inc. through 2011, Nordion, Inc. through 2014, Hospira, Inc., through 2015 and Landauer Inc., through 2017. He has previously served as a member of the Salvation Army Advisory Board in Chicago, as Chairman of the International Section of the Pharmaceutical Research and Manufacturers of America (PhRMA) and as Chairman of the Accelerating Access Initiative (a cooperative public-private partnership of UNAIDS, the World Bank, and six research-based pharmaceutical companies).  He is a member of the Board of Trustees for the Guadalupe Center in Immokalee, Florida.

 

Mr. Dempsey has extensive experience in the health care industry, including positions in management and on the boards of several companies.  In addition, his international operations experience and his service as a senior officer at a large company makes him highly qualified to serve on the Board.

 

JOHN J. GREISCH

As the CEO of Hill-Rom, Mr. Greisch brings valuable multinational experience with multiple roles in a major public healthcare company, including as Chief Financial Officer, as well as operational insights and business knowledge to the Board.

 

GARY L. ELLIS

 

Mr. Ellis has served as director of Hill-Rom since 2017.  He was previously Chief Financial Officer and Senior Vice President of Medtronic plc.  Mr. Ellis also serves as an independent director of The Toro Company.  He is a Certified Public Accountant.

 

 

STACY ENXING SENG

 

Ms. Enxing Seng has served as director of Hill-Rom since 2015.  She is the former President, Vascular Therapies of Covidien from 2011 to 2014 and prior to that was President of Peripheral Vascular of Covidien from 2010 to 2011.  Ms. Enxing Seng joined Covidien in 2010 through the $2.6B acquisition of ev3 Incorporated, where she was a founding member and executive officer responsible for leading their Peripheral Vascular division from 2001 to 2010.  Prior to that, she held positions of increasing responsibility with SCIMED, Boston Scientific, American Hospital Supply and Baxter.  Ms. Enxing Seng currently is a Venture Partner with Lightstone Venture Capital and serves on the boards of Sonova Holding AG and Solace Therapeutics, and was formerly on the boards of Spirox, Inc., FIRE 1 Medical Incubator and CV Ingenuity.

 

 

Ms. Enxing Seng has broad experience as a former senior executive responsible for a world-wide business unit of a major medical device company.  In addition, she has significant experience as a co-founder of a successful medical device start-up.  Her operational experience at a large medical device company, combined with her broad scope experience gained from her role as a co-founder of a medical device company, provide the Board with valuable insights across marketing, sales, innovation and a variety of other medical device related areas.

 

MARY GARRETT

 

Ms. Garrett has served as director of Hill-Rom since 2017. Ms. Garrett most recently led Global Marketing for IBM Corporation, a leading global provider of technology products and services, from 2008 until her retirement in December 2015.  She joined IBM in 1981 as an electrical engineer and went on to serve in a number of senior roles including: Partnership Executive for Memorial Sloan Kettering, Vice President, Small and Medium Business for Global Technology Services, Vice President of Marketing for Global Technology Services, and Vice President of Marketing for eBusiness Hosting.  Ms. Garrett currently serves as a board member and on the audit committee for Ethan Allen Interiors, Inc. She is an active mentor in W.O.M.E.N. in America, a professional development group aimed at advancing promising professional women, and is also on the board of the American Marketing Association, serving as Chair.  Ms. Garrett serves on the technology and strategy committees of the Western Connecticut Health Network.

 

Ms. Garrett has extensive experience in the technology industry, including digital transformation, big data and cognitive analytics, cybersecurity, and cloud computing.  In addition, her broad international background, marketing expertise, and business leadership experience, as well as experience as a public company director make her highly qualified to serve on the Board.

 

JAMES R. GIERTZ

 

Mr. Giertz has served as a director of Hill-Rom since 2009.  He served as the Senior Vice President and Chief Financial Officer of H.B. Fuller Company, St. Paul, Minnesota, until his retirement. Prior to joining H.B. Fuller, he served as Senior Managing Director, Chief Financial Officer and, for several months in 2007 a director, of Residential Capital, LLC, one of the largest originators, servicers and securitizers of home loans in the United States.  Prior to that, he was Senior Vice President of the Industrial Products division, and Chief Financial Officer of Donaldson Company, Inc., a worldwide provider of filtration systems and replacement parts.  In addition, Mr. Giertz served as assistant treasurer of the parent company at General Motors, and also held several international treasury positions in Canada and Europe. Mr. Giertz currently serves as a director of Schneider National, Inc. and Junior Achievement of the Upper Midwest and is also a member of the Board of Regents of Concordia University of St. Paul.

 

Mr. Giertz has extensive experience in financial statement preparation and accounting, and operations, and his service as a senior officer in large corporations brings knowledge and valuable insight to the Board.  In addition, his international experience is a valuable asset to the Board.

 

CHARLES E. GOLDEN

Mr. Golden has a comprehensive knowledge of both U.S. GAAP and IFRS, has extensive experience in financial statement preparation, accounting, corporate finance, risk management and investor relations both in the U.S. and Europe. His significant financial healthcare experience brings valuable financial and operations rigor and insight to the Board.

 

 

WILLIAM H. KUCHEMAN

 

Mr. Kucheman has served as a director of Hill-Rom since 2013.  He previously served as interim Chief Executive Officer for Boston Scientific Corp.  Before being named interim CEO in October 2011, he was Executive Vice President and President of the Cardiology, Rhythm and Vascular (CRV) Group of Boston Scientific.  He joined the company in 1995 as a result of Boston Scientific’s acquisition of SCIMED Life Systems, Inc., becoming Senior Vice President of Marketing.  In this role, Mr. Kucheman was responsible for global marketing. He has served on several industry boards, including the board of directors of the Global Health Exchange and on the boards of several non-public companies.

 

Mr. Kucheman’s executive experience with invasive medical devices, including FDA regulation, commercialization process, government reimbursement, and clinical marketing, makes him highly qualified to serve on the Board.

 

RONALD A. MALONE

 

Mr. Malone has served as a director of Hill-Rom since 2007. He served as Chairman of the Board of Gentiva Health Services from 2002 to 2011, as Chief Executive Officer from 2002 through 2008, and as a director through 2012.  He joined Gentiva in 2000 as Executive Vice President and President of Gentiva’s Home Health Division.  Prior to joining Gentiva, he served in various positions with Olsten Corporation including Executive Vice President of Olsten Corporation and President, Olsten Staffing Services, United States and Canada.  He is a director of Capital Senior Living, Inc., a former director of the National Association for Home Care & Hospice and a former director and chairman of the Alliance for Home Health Quality and Innovation.

 

Mr. Malone has an intimate knowledge of the home health industry and expertise in the legislative and regulatory landscape affecting healthcare companies.  In addition, his experience as an officer of other health care companies provides the Board with valuable operational experience.

 

NANCY M. SCHLICHTING

 

Ms. Schlichting has served as director of Hill-Rom since 2017.  Ms. Schlichting is the retired President and Chief Executive officer of Henry Ford Health System (“HFHS”) in Detroit, Michigan, serving in this role from June, 2003 to January, 2017.  She joined HFHS in 1998 as Senior Vice President and Chief Administrative Officer, and was promoted to Executive Vice President and Chief Operating Officer from 1999 to 2003, and President and Chief Executive Officer of Henry Ford Hospital from 2001 to 2003. She currently serves as a director of Walgreens Boots Alliance (12 years of Board service, chair of Compensation Committee and member of Audit Committee), a director on the board of directors of HealthSouth Corporation (member of Compliance and Quality of Care Committee), a member of the Board of Managers of Ardent Health Services, and a trustee of Kresge Foundation (chair of Compensation Committee and member of Audit Committee), Duke University Health System, and the Detroit Symphony Orchestra.

 

Ms. Schlichting's career in healthcare administration spans more than 35 years in senior-level executive roles.  She is credited with leading HFHS through a dramatic financial turnaround, and for award-winning customer service, quality and diversity initiatives, including HFHS being the recipient of the 2011 Malcolm Baldrige National Quality Award.  Her significant healthcare leadership background, and her comprehensive knowledge of finance and accounting gained by education, experience and service on audit committees for more than a decade provide the Board with additional depth and invaluable insights.

 

 

We hold an annual non-binding vote on Executive Compensation each year.  Accordingly, we are presenting to our shareholders the following resolution for their annual vote (on a non-binding basis):

 

“RESOLVED, that the shareholders of Hill-Rom Holdings, Inc. approve, on an advisory basis, the compensation of the Company’s NEOs and the overall compensation policies and procedures employed by Hill-Rom, disclosed pursuant to Item 402 of the SEC’s Regulation S-K, and described in the Compensation Discussion and Analysis and the tabular disclosure regarding NEO compensation (together with the accompanying narrative disclosure) in this proxy statement.”

 

As described under “Compensation Discussion and Analysis” beginning on page 24, our philosophy in setting executive compensation is to provide a total compensation package that allows us to continue to attract, retain and motivate talented executives who drive our Company’s success, while aligning compensation with the interests of our shareholders and ensuring accountability and transparency.  Consistent with the philosophy, a significant majority of the total compensation opportunity for each of our NEOs is based on measurable corporate, business area and individual performance, both financial and non-financial, and on the performance of our shares on a long-term basis.

 

Because your vote is advisory, it will not be binding on the Board. However, the Compensation and Management Development Committee will take into account the outcome of the vote when considering future executive compensation arrangements.
   

Subject to shareholder ratification, the Audit Committee of our Board has appointed PricewaterhouseCoopers LLP (“PwC”) as our independent registered public accounting firm for the fiscal year ending September 30, 2018.  Representatives from PwC will be present at the meeting with an opportunity to make a statement, if they so desire, and will be available to respond to appropriate questions.

 

The Audit Committee has adopted a policy requiring that all services from the outside independent registered public accounting firm must be pre-approved by the Audit Committee or its delegate and has adopted guidelines that non-audit related services should not exceed the total of audit and audit related fees.  During fiscal year 2017, PwC’s fees for non-audit related services fell within these guidelines.

 

The following table presents fees for professional services rendered by PwC for the audit of our annual consolidated financial statements for the fiscal years ended September 30, 2016 and 2017, and fees billed for other services rendered by PwC during those periods.

		2016		2017
Audit Fees (1)		$4,138,800		$3,814,000
Audit-Related Fees		$ 0		$ 0
Tax Fees (2)		$639,000		$111,700
All Other Fees (3)		$32,000		$2,000
Total		$4,809,800		$3,927,700

Corporate Governance

Board Leadership

 

Assuming Mr. Dempsey is re-elected to the Board at the meeting, the Board plans to elect Mr. Dempsey as the Chairman of the Board at the recommendation of the Nominating/Corporate Governance Committee.  Mr. Dempsey is a non-executive and independent member of the Board.

 

The Board has determined that the leadership of the Board is best conducted by an independent Chair which allows (i) the Chair to provide overall leadership to the Board in its oversight function and (ii) the Chief Executive Officer, Mr. Greisch, to provide leadership with respect to the day-to-day management and operation of our business.  We believe the separation of these offices will enable Mr. Dempsey to focus on managing Board matters while letting Mr. Greisch focus on managing our business.  In addition, we believe the separation of these offices enhances the objectivity of the Board in its management oversight role.

 

Executive sessions (meetings of independent directors without management present) are held regularly at the beginning and end of Board meetings, and, depending on directors’ desire, from time to time during Board and committee meetings.  The Chair generally presides at executive sessions of non-management directors.

 

Board’s Role in Strategic Planning and Oversight of Risk Management

 

The Board is responsible for directing and overseeing the management of Hill-Rom’s business in the best interests of the shareholders and consistent with good corporate citizenship. The Board sets strategic direction and priorities for the Company, approves the selection of the senior management team and oversees and monitors risks and performance. At Board meetings during the year, members of senior management review their organizations and present their long-range strategic plans to the Board, and at the start of each fiscal year, the Board reviews and approves the Company’s operating plan and budget for the next fiscal year.

 

A fundamental part of setting Hill-Rom’s business strategy is the assessment of the risks Hill-Rom faces and how they are managed. The Board oversees risk management with a focus on the most significant risks facing the Company, including strategic, operational, financial, legal and compliance risks. In addition, each of the Board, the Nominating/Corporate Governance Committee, and Audit Committee, as necessary, meet regularly throughout the year with our financial and treasury management teams and with our Chief Compliance Officer, Vice President, Internal Audit and Chief Legal Officer to assess the strategic, operational, financial, legal and compliance risks throughout our businesses and to review our insurance and other risk management programs and policies.  These regular meetings enable the Board to exercise its ultimate oversight responsibility for Hill-Rom’s risk management processes.

 

Communications with Directors

 

Shareholders of Hill-Rom and other interested persons may communicate with the Chair of the Board, the chairs of the committees of the Board, or the non-management directors of Hill-Rom as a group by sending an email to investors@hill-rom.com.  The email should specify the intended recipient.

 

Director Attendance at Annual Meetings

 

Hill-Rom does not have a formal policy regarding director attendance at its annual meetings of shareholders, but Hill-Rom’s directors generally do attend the annual meetings.  The Chair of the Board presides at the annual meeting of shareholders, and the Board holds one of its regular meetings in conjunction with the annual meeting of shareholders.  All continuing members of the Board at the time of our 2017 annual meeting of shareholders attended that meeting in person. 

 

 

Corporate Governance Standards and Code of Ethics

 

The Board has adopted Corporate Governance Standards that provide the framework for the effective functioning of the Board.  In addition, the Board has adopted a Global Code of Conduct that applies to everyone who conducts business for and with Hill-Rom including all directors, officers, other employees of Hill-Rom, suppliers and other business partners, and which constitutes a “code of ethics” within the meaning of Item 406 of the SEC’s Regulation S-K. The Board reviewed the Global Code of Conduct during fiscal year 2017 and did not recommend any changes.  Both the Corporate Governance Standards and the Global Code of Conduct are available via the Investor Relations section of the Company’s website at http://ir.hill-rom.com.

 

Determinations with Respect to Independence of Directors

 

The Board determines the independence for each member of the Board based on an annual evaluation performed and recommendations made by the Nominating/Corporate Governance Committee, consistent with the applicable rules of the New York Stock Exchange (“NYSE”).  

 

Based on these standards and all relevant facts and circumstances, the Board has determined that each current member of the Board and each nominee for the Board is independent, with the exception of John J. Greisch, who is not independent.

 

Transactions with Related Persons

 

The Company has written procedures regarding the review and preapproval of related party transactions involving executive officers or directors.  Under these procedures, our Nominating/Corporate Governance Committee is responsible for reviewing and preapproving all related person transactions.  When reviewing and/or approving proposed related party transactions, the Nominating/Corporate Governance Committee will consider all of the relevant facts and circumstances, including: the benefits to us; the impact on a director’s independence in the event the related person is a director, an immediate family member of a director or an entity in which a director is a partner, shareholder or executive officer; the availability of other sources for comparable products or services; the terms of the transaction; and the terms available for similar transactions with unrelated third parties.

 

Meetings, Committees and Board Skills Assessment of the Board of Directors

 

During the fiscal year ended September 30, 2017, the Board held seven meetings.  During this period, no incumbent member of the Board attended fewer than 75% of the aggregate number of meetings of the full Board and the meetings of the committees on which he or she served, and our directors attended an average of 96% of the meetings of the Board and committees on which they served.

Per our Corporate Governance Standards, the Nominating/Corporate Governance Committee assessed the Board's effectiveness as a whole as well as the effectiveness of the individual directors and the Board's various Committees, including a review of the mix of skills, core competencies and qualifications (including independence under applicable standards) of members of the Board and its various committees, which reflect expertise in one or more of the following areas: accounting and finance, product and technology development, healthcare, manufacturing, services businesses, sales and market development, international operations, international governance, mergers and acquisitions related business development, strategic oversight, government relations, investor relations, executive leadership development, public company governance, and executive compensation design and processes. In order to make these assessments, the Nominating/Corporate Governance Committee solicited the opinions of each director regarding the foregoing matters and then presented its findings and recommendations to the Board.  In addition to the above, the particular skills and talents of any director nominee should positively contribute to the diversity of the various skills and talents of the Board as a whole. 

 

 

Director	Audit Committee	Nominating/ Corporate Governance Committee	Compensation and Management Development Committee	Mergers and Acquisitions Committee
Rolf A. Classon (Board Chair)* (I)		C		C
John J. Greisch
William G. Dempsey** (I)	✓
Gary L. Ellis (I)	✓
Stacy Enxing Seng (I)			✓
Mary Garrett (I)	✓
James R. Giertz (I)	✓
Charles E. Golden (I)	C	✓		✓
William H. Kucheman (I)			✓	✓
Ronald A. Malone (I)		✓	C	✓
Nancy M. Schlichting (I)			✓
Number of Meetings in fiscal year 2017	9	6	6	3

The Audit Committee has general oversight responsibilities with respect to Hill-Rom’s financial reporting and controls, and legal, regulatory and ethical compliance.  It regularly reviews Hill-Rom’s financial reporting process, its system of internal control over financial reporting, legal and regulatory compliance and ethics, and internal and external audit processes.   Each member of the Audit Committee is independent under Rule 10A-3 of the SEC and NYSE listing standards and meets the financial literacy guidelines established by the Board in the Audit Committee Charter.  The Board of Directors has determined that each of Messrs. Golden, Ellis and Giertz is an “audit committee financial expert” as that term is defined in Item 407(d) of the SEC’s Regulation S-K.

 

The Compensation and Management Development Committee assists the Board in ensuring that the officers and key management of Hill-Rom are effectively compensated in a way that is internally equitable and externally competitive.  The Compensation and Management Development Committee is also responsible for reviewing and assessing the talent development and succession management actions concerning the officers and key employees of Hill-Rom.  

 

 

The Nominating/Corporate Governance Committee assists the Board in ensuring that Hill-Rom is operated in accordance with prudent and practical corporate governance standards, ensuring that the Board achieves its objective of having a majority of its members be independent in accordance with NYSE listing standards, and identifying and evaluating candidates for the Board.  In identifying and evaluating candidates for the Board, the Nominating/Corporate Governance Committee considers each candidate’s experience, integrity, background and skills as well as other qualities that the candidate may possess and factors that the candidate may be able to bring to the Board. Although we do not have a formal policy with regard to the consideration of diversity in identifying director candidates, the Board believes that it is essential that its members represent diverse viewpoints, with a broad array of experiences, professions, skills, geographic representation and backgrounds that, when considered as a group, provide a sufficient mix of perspectives to allow the Board to best fulfill its responsibilities to the long-term interests of our shareholders.  The Nominating/Corporate Governance Committee also assists the Audit Committee with Hill-Rom’s non-financial compliance oversight.

 

The Mergers and Acquisitions Committee assists the Board in reviewing and assessing potential mergers, acquisitions, divestitures and other similar strategic transactions and meets on an ad hoc basis.

 

Nomination of Directors for Election by Shareholders

 

The Nominating/Corporate Governance Committee considers director candidates recommended by shareholders, and any such recommendations should be communicated to the Chair of the Nominating/Corporate Governance Committee in the manner described above in “Communications with Directors” and should be accompanied by the same types of information as are required under our By-laws for shareholder nominees.

 

Our By-Laws provide that nominations of persons for election to the Board of Directors of Hill-Rom may be made at any meeting of shareholders by or at the direction of the Board or by any shareholder entitled to vote for the election of members of the Board at the meeting.  For nominations to be made by a shareholder, the shareholder must have given timely notice thereof in writing to the Corporate Secretary of Hill-Rom and any nominee must satisfy the qualifications established by the Board.   To be timely, a shareholder’s nomination must be delivered to or mailed and received by the Corporate Secretary not later than (i) in the case of the annual meeting, 100 days prior to the anniversary of the date of the immediately preceding annual meeting which was specified in the initial formal notice of such meeting (but if the date of the forthcoming annual meeting is more than 30 days after such anniversary date, such written notice will also be timely if received by the Corporate Secretary by the later of 100 days prior to the forthcoming meeting date and the close of business 10 days following the date on which Hill-Rom first makes public disclosure of the meeting date) and (ii) in the case of a special meeting, the close of business on the tenth day following the date on which Hill-Rom first makes public disclosure of the meeting date.  The notice given by a shareholder must set forth: (i) the name and address of the shareholder who intends to make the nomination and of the person or persons to be nominated; (ii) a representation that the shareholder is a holder of record, setting forth the shares so held, and intends to appear in person or by proxy as a holder of record at the meeting to nominate the person or persons specified in the notice; (iii) a description of all arrangements or understandings between such shareholder and each nominee proposed by the shareholder and any other person or persons (identifying such person or persons) pursuant to which the nomination or nominations are to be made by the shareholders; (iv) such other information regarding each nominee proposed by such shareholder as would be required to be included in a proxy statement filed pursuant to the proxy rules of the SEC; (v) the consent in writing of each nominee to serve as a director of Hill-Rom if so elected; and (vi) a description of the qualifications of such nominee to serve as a director of Hill-Rom.

 

Compensation and Management Development Committee Interlocks and Insider Participation

 

As of the fiscal year ended September 30, 2017, the following directors served on the Compensation and Management Development Committee:  Ronald A. Malone, William H. Kucheman, Stacy Enxing Seng and Nancy M. Schlichting.  The Compensation and Management Development Committee had no interlocks or insider participation.

 

 

Availability of Governance Documents

 

Copies of Hill-Rom’s Corporate Governance Standards, Global Code of Conduct and Board committee charters are available at http://ir.hill-rom.com or in print to any shareholder who requests copies through Hill-Rom’s Investor Relations department.  Also available on Hill-Rom’s website are position specifications adopted by the Board for the positions of Chief Executive Officer and Chair of the Board and its committees, and other members of the Board.

 

 

  

Hill-Rom maintains an independent Audit Committee that operates pursuant to a written charter adopted by the Board. The charter is available on Hill-Rom’s website at www.hill-rom.com under “Our Company–Company Overview–Board of Directors–Corporate Governance–Documents & Charters.”  Each member of the Audit Committee is independent as defined in the NYSE listing standards and SEC rules, and the Board has determined that each of Messrs. Golden, Ellis and Giertz is an "audit committee financial expert" as that term is defined in Item 407(d) of the SEC’s Regulation S-K.

 

Management is responsible for Hill-Rom’s internal controls, financial reporting process (including quarterly earnings press releases), risk assessment policies, compliance with laws and regulations and ethical business standards.  The independent registered public accounting firm is responsible for performing an integrated audit of Hill-Rom’s consolidated financial statements and its internal control over financial reporting in accordance with standards of the Public Company Accounting Oversight Board (“PCAOB”) and the issuance of a report thereon.  The Audit Committee has the responsibility to monitor and oversee these processes.

 

As part of its oversight responsibilities, the Audit Committee meets separately at least twice each quarter (once to review the quarterly external financial reporting, and at least once in connection with regularly scheduled Board meetings).  At these meetings, the Audit Committee meets with management, the Vice President of Internal Audit (solely with respect to regularly scheduled Board meetings) and Hill-Rom’s outside independent registered public accounting firm, as necessary (in each case, with and without management present, at the Audit Committee’s discretion) to discuss the adequacy and effectiveness of Hill-Rom’s internal controls and the quality of the financial reporting process. The Audit Committee also pre-approves all audit and non-audit services to be performed by the outside independent registered public accounting firm.   The Audit Committee evaluates the performance of the independent registered public accounting firm, including senior audit engagement team members, on an annual basis and determines whether to reengage the current firm or consider other audit firms.  In doing so, the Audit Committee considers the quality and efficiency of the services provided, global capabilities and technical expertise, knowledge of the Company’s global operations and industry and the effectiveness of their communications in providing value-added advice, insights and candid feedback on risks, controls and compliance matters.  The Audit Committee also considers how effectively the outside independent registered public accounting firm maintains its independence and employs its independent judgment, objectivity and professional skepticism.    Based on our evaluation, the Audit Committee believes that it is in the best interests of the shareholders to approve the appointment of PricewaterhouseCoopers LLP (“PwC”) as Hill-Rom’s outside independent registered public accounting firm for fiscal year 2018. PwC has been the independent registered public accounting firm used by Hill-Rom since 1985.

 

In accordance with SEC rules, audit partners are subject to rotation requirements that limit the number of years an individual partner may provide service to any company.  For lead and concurring audit partners, the maximum number of consecutive years of service in that capacity is five years.  The process for selection of Hill-Rom’s lead audit partner pursuant to this policy involves meetings between members of the Audit Committee and the candidates, as well as discussion and evaluation by the full Audit Committee and with Hill-Rom management.

 

The Audit Committee has reviewed and discussed the audited consolidated financial statements with management and PwC.  Management represented to the Audit Committee that Hill-Rom’s audited consolidated financial statements were prepared in accordance with generally accepted accounting principles.  PwC discussed with the Audit Committee matters required to be discussed by Auditing Standards No. 16.  Management and PwC also made presentations to the Audit Committee throughout the year on specific topics of interest, current developments and best practices for audit committees.

 

 

PwC also provided to the Audit Committee the written disclosures and the letter required by applicable requirements of the PCAOB regarding the independent accountant’s communications with the Audit Committee regarding independence.  PwC informed the Audit Committee that it was independent with respect to Hill-Rom within the meaning of the securities acts administered by the SEC and the requirements of the PCAOB.  The Audit Committee discussed this finding, and also considered whether non-audit consulting services provided by PwC could impair the auditors’ independence and concluded that such services have not done so.

 

Based upon the foregoing, the Audit Committee recommended to the Board that the audited consolidated financial statements be included in Hill-Rom’s Annual Report on Form 10-K for the fiscal year ended September 30, 2017.

 

Submitted by the Audit Committee Charles E. Golden (Chair) William G. Dempsey Gary L. Ellis Mary Garrett James R. Giertz

 

 

Security Ownership of Certain Beneficial Owners and Management

  

The following table sets forth information with respect to the beneficial ownership of our outstanding common stock as of the record date by:

 

·	each of our directors and our NEOs;

 

·	all of our directors and executive officers as a group; and

 

·	each person or entity that is known by us to be the beneficial owner of more than five percent of our common stock.

 

Our common stock is our only class of equity securities outstanding.  Except as otherwise noted in the footnotes below, the individual director or executive officer or their family members had sole voting and investment power with respect to such securities.  None of the shares beneficially owned by our directors and executive officers are pledged as security.  The number of shares beneficially owned includes, as applicable, directly and/or indirectly owned shares of common stock, common stock shares underlying stock options that are currently exercisable or will become exercisable within 60 days from the record date, and deferred stock share awards (otherwise known as restricted stock units or RSUs) that are vested or will vest within 60 days from the record date.  Except as specified below, the business address of the persons listed is our headquarters, 130 East Randolph, Suite 1000, Chicago, Illinois 60601.

    

Name of Beneficial Owner	Shares Owned Directly	Shares Owned Indirectly	Shares Under Options/RSUs Exercisable/ Vesting Within 60 Days	Total Number of Shares Beneficially Owned		Percent of Class
Directors and NEOs:
Rolf A. Classon	-	15,806	79,075	94,881		*
William G. Dempsey	-	-	13,490	13,490		*
John J. Greisch	230,851	-	479,187	710,038		1.1%
Gary L. Ellis	-	-	993	993		*
Stacy Enxing Seng	-	-	9,361	9,361		*
Mary Garrett	300	-	2,676	2,976		*
James R. Giertz	2,000	-	28,874	30,874		*
Charles E. Golden	6,466	-	57,141	63,607		*
William Kucheman	-	-	17,914	17,914		*
Ronald A. Malone	-	-	37,514	37,514		*
Nancy M. Schlichting	-	-	2,676	2,676		*
Carlos Alonso Marum	3,411	-	12,865	16,276		*
Deborah M. Rasin	-	-	27,025	27,025		*
Alton E. Shader	50,910	-	58,393	109,303		*
Steven J. Strobel	13,891	-	29,521	43,412		*
All directors and executive officers as a group (20)	341,292	15,806	909,755	1,266,853		1.9%

 

 

Name of Beneficial Owner	Total Number of Shares Beneficially Owned	Percent of Class
Other 5% Beneficial Owners:
BlackRock, Inc. 55 East 52nd Street New York, NY 10055	5,260,217(1)	7.9%
The Vanguard Group 100 Vanguard Blvd. Malvern, PA 19355	4,884,096(2)	7.4%
FMR LLC 245 Summer Street Boston, MA 02210	4,506,940(3)	6.8%

NEOs	25
Goals of Our Compensation Program	25
Role of the Compensation and Management Development Committee	25
Compensation Consultant	26
Peer Group and Survey Data	26
Links Between Executive Compensation and Company Performance	27
2017 Advisory Vote	27
CEO Compensation	27
3 Year TSR Graph	28
Components of CEO Compensation	28
Performance-Based Pay	29
Target CEO Compensation Summary	29
Key Governance Features Relating to Executive Compensation	30
Elements of Executive Compensation	30
Base Salary	31
Annual Cash Incentives	32
Long-Term Equity Awards	34
Retirement and Change in Control Agreements	37
Other Personal Benefits	38
Employment Agreements	38
Risk Assessment	38

John J. Greisch	President and Chief Executive Officer
Steven J. Strobel	Senior Vice President and Chief Financial Officer
Alton E. Shader	Senior Vice President and President Front Line Care
Carlos Alonso Marum	Senior Vice President and President International
Deborah M. Rasin	Senior Vice President, Chief Legal Officer and Corporate Secretary

Hill-Rom’s compensation program is designed to:

 

·	align management’s interests with those of shareholders over the short- and long-term;

 

·	motivate and incent employees to achieve superior results;

 

·	provide clear accountability and reward for producing results;

 

·	attract and retain superior talent; and

 

·	ensure simplicity and transparency in compensation policies and programs.

 

In aggregate, the compensation of Hill-Rom’s executive officers is assessed against the compensation paid to comparable officers of companies with which Hill-Rom competes for executives, with an initial market check and focus on the 50^th percentile of compensation opportunity provided to such executives.  However, actual individual pay decisions are subjective and based on multiple factors.  Hill-Rom is guided by the belief that the compensation of executive officers should be competitive with the market, be aligned with the performance of the Company on both a short-term and long-term basis, take into consideration individual performance of the executive, be internally equitable among peers, and assist in retaining key executives critical to the Company’s long-term success.  Hill-Rom’s use of performance-based compensation means that, in any given year, total compensation can vary when pre-established business and/or personal targets and objectives are exceeded or are not achieved.  Accordingly, a significant portion of our executives’ compensation is at risk.

  

The Board’s Compensation and Management Development Committee (for purposes of this Compensation Discussion and Analysis, the “Committee”) is charged with ensuring that Hill-Rom’s compensation program meets the objectives outlined above.  In that role, the Committee assists the Board in fulfilling its responsibility for assuring that the officers and key management personnel of the Company are effectively compensated in terms of salaries, supplemental compensation and other benefits which are internally equitable, externally competitive, and advance the long-term interests of the Company’s shareholders. The Committee also reviews and assesses the talent development and succession management actions concerning the officers and key employees of the Company, administers Hill-Rom’s compensation plans and keeps the Board informed regarding executive compensation matters.  

The Committee, in consultation with Hill-Rom’s independent compensation consultant and the full Board, determines the compensation of the Chief Executive Officer.  Additionally, the Chief Executive Officer makes recommendations to the Committee regarding the compensation of the senior executive team, including Hill-Rom’s other NEOs.  From time to time, Hill-Rom’s management also provides recommendations to the Committee regarding changes to the elements and structure of Hill-Rom’s compensation program.  In addition to the aforementioned recommendations, the Committee considers peer group data, survey data and other factors when determining the elements and amounts of compensation.

 

 

Compensation Consultant

  

The Committee engages nationally recognized outside compensation and benefits consulting firms to evaluate independently and objectively the effectiveness of and assist with implementation of Hill-Rom’s compensation and benefit programs and to provide the Committee with additional expertise in the evaluation of Hill-Rom’s compensation practices.  During fiscal year 2017, the Committee engaged Exequity LLP as its executive compensation consultant.  Exequity LLP has been asked by the Committee to provide guidance on compensation proposals, including changes to compensation levels, the design of incentive plans, as well as relevant information about market practices and trends.

 

Exequity LLP is an independent compensation consultant that provided no other services to Hill-Rom other than those services provided to the Committee. After considering the six independence factors discussed in Section 303A.05(c)(iv)(A)—(F) of the NYSE Listed Company Manual, the Committee determined that Exequity LLP had no conflict of interest pursuant to Item 407(e)(3)(iv) of the SEC’s Regulation S-K.

As one of several factors in considering approval of elements of Hill-Rom’s compensation program, the Committee compares Hill-Rom’s compensation program and performance against an approved peer group of companies.  The compensation peer group (the “Compensation Peer Group”), which is annually reviewed and updated by the Committee, consists of companies that are similar in revenue (typically 0.5x to 2.5x Hill-Rom’s revenue) and in similar industries as Hill-Rom and with whom Hill-Rom may compete for executive talent.  For fiscal year 2017, the Committee reviewed the Compensation Peer Group for appropriateness and made certain changes due to the result of merger and acquisition activity involving certain companies. The companies that made up the Compensation Peer Group are as follows:

  

Compensation Peer Group (1)
Agilent Technologies, Inc.	Intuitive Surgical, Inc.
Bio-Rad Laboratories, Inc.	MEDNAX, Inc.
Bruker Corporation	Patterson Companies, Inc.
C.R. Bard, Inc.	PerkinElmer, Inc.
The Cooper Companies, Inc.	Quest Diagnostics Incorporated
DENTSPLY SIRONA Inc.	STERIS plc
Edwards Life Sciences Corporation	Teleflex Incorporated
Halyard Health, Inc.	Varian Medical Systems, Inc.
Hologic, Inc.	Waters Corporation

Overall, the Committee believes the Company’s compensation policies and programs are effective, market-appropriate, and in line with shareholder expectations.

 

The key components of our compensation program that link compensation and performance are as follows:

 

·	Executive compensation is comprised of (1) base salary, (2) variable cash incentive awards and (3) long-term, equity-based incentive awards.

 

·	As an initial starting point and market check, the Committee assesses executive compensation at the 50th percentile of compensation opportunity provided by our Compensation Peer Group but makes individual pay decisions based on multiple factors, including Company and individual performance.

 

·

Our variable incentive awards are based on a wide array of short-term and long-term performance metrics (e.g. revenue, adjusted EPS, free cash flow, relative TSR) which helps create a “portfolio” of incentive opportunities.  This design structure motivates behaviors that balance incentive earnings for both short-term and long-term performance.

 

·	As shown in the section below, the significant majority of our CEO’s compensation is performance-based and therefore at-risk.

     

2017 Advisory Vote

Last year’s Non-Binding Vote on Executive Compensation received support of approximately 97% of our shareholders (excluding abstentions and broker non-votes).  Based on the results of the shareholder vote, and the changes to the compensation program that were implemented for fiscal year 2016, which addressed shareholder and proxy advisory firm feedback, no significant changes to our compensation program took place in fiscal year 2017.

While the Committee works to align the pay of all of our executives with the interests of our shareholders, the Committee believes that such alignment is especially important in the case of our Chief Executive Officer, John Greisch.  Accordingly, the Committee has selected a mix of compensation opportunities for Mr. Greisch which is weighted towards annual bonus[es] and long-term equity based compensation.

 

Consequently, approximately 86% of Mr. Greisch’s annual target total pay opportunity is performance-based, including almost 70% derived from long-term equity based awards.  The Committee believes that it is critical that Mr. Greisch’s compensation be substantially related to shareholder return, thereby aligning his interests with those of the shareholders to enhance stockholder value.

The Committee believes that it has successfully aligned Mr. Greisch’s compensation with stockholder returns. Hill-Rom’s TSR of 79.7% over the last three fiscal years was at the 66^th percentile of our peer group used by the Committee to assess and compare the Company’s TSR with the TSR of certain of our peers (the “TSR Peer Group”).  The TSR Peer Group utilized for comparing TSR under our long-term, equity-based incentive awards program includes the companies in the Compensation Peer Group as well as the companies that comprised the former Morgan Stanley Healthcare Products Index at the time it was delisted in 2015 and is described in the “Long-term Equity Based Incentive (LTI) Awards” section. Because of this strong performance, the performance share units (“PSUs”) awarded to Mr. Greisch for the fiscal year 2015 – fiscal year 2017 performance period vested on September 30, 2017 at a level of 132.9% of target achievement, again demonstrating strong pay for performance alignment in our compensation program.

The components of Mr. Greisch’s pay are as follows:

 

·	Base salary in 2017 of $1,050,000.

 

·

Fiscal year 2017 cash annual incentive target of 110% of base salary.  An actual award of $981,750, as further explained on page 33, was paid out at a level of 85% of his target award.  As discussed later, the Committee may modify an NEO’s annual cash incentive award based on individual performance.  For Mr. Greisch, the Committee chose not to modify his annual cash incentive award.

 

·

A fiscal year 2017 long-term, equity-based incentive award with target value of $5,250,000, comprised of 50% PSUs, 25% stock options, and 25% restricted stock units (“RSUs”). This total long-term, equity-based award was determined by multiplying Mr. Greisch’s base compensation in fiscal year 2017 by his target award of 500% of base salary.

 

·	An increase to Mr. Greisch’s 2017 base salary and long-term, equity-based incentive award target was made by the Committee to ensure continued alignment of Mr. Greisch’s compensation with the external market and shareholder interests.

 

·	In fiscal year 2018, the Committee increased Mr. Greisch’s base salary to $1,085,000 based on strong individual and Company performance in fiscal year 2017.

 

·	As shown in the section below, the significant majority of our CEO’s compensation is performance-based and therefore at-risk.

 

The Committee believes it is important to ensure that a meaningful portion of Mr. Greisch’s compensation is performance-based.  In fiscal year 2017, the majority of Mr. Greisch’s target total compensation was in the form of an annual cash incentive and long-term, equity-based incentives. In fiscal year 2017 Mr. Greisch’s annual cash incentive comprised 15% of his target total compensation.  Along with 71% long-term, equity-based compensation at target, 86% of Mr. Greisch’s fiscal year 2017 total compensation target was at risk.

 

The chart below details Mr. Greisch’s target performance-based total compensation for fiscal year 2017.

What We Do		What We Don’t Do
We require significant stock ownership, including 6X base salary for our CEO, ensuring that executives are invested in Hill-Rom’s long-term success		We don’t re-price stock options or buy-back equity grants
We engage a fully independent compensation consultant		We don’t provide for single-trigger change in control in executive employment agreements
We have a 24-month clawback policy in place in the event of executive misconduct resulting in a material restatement in our financial statements		We don’t provide gross-ups for 280G excise taxes related to change in control agreements
Our executives have at-will employment agreements		We don’t allow executives to hedge or pledge their Hill-Rom stock under any circumstances
Our incentive plans include a cap on payout opportunities.  This mitigates against the possibility of excessively high earning potential that could motivate inappropriate behavior.
We annually make awards of incentives that are tied to stock price performance.  The overlay of these awards helps mitigate the possibility of behaviors that would enhance incentive earnings in one year at the expense of future performance results.
We grant half of our LTI awards in the form of PSUs which have specific performance goals over a 3-year performance period

    

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Element		Purpose		Key Characteristics
Long-term, Equity-based Incentive – PSU Award		Motivates our executives by directly linking their compensation to the value of our stock relative to our peer group		For fiscal year 2017, the ultimate number of units earned at the end of the three-year performance period is based on free-cash flow, as adjusted by our TSR performance relative to the TSR Peer Group
Long-term, Equity-based Incentive – RSU Award		Motivates our executives by tying compensation to long-term stock appreciation; additionally, the time-vesting nature of the awards helps enable executive retention		Long-term restricted stock units vest on a three-year cliff basis (other than certain sign-on awards for newly-hired or newly-promoted executives)
Long-term, Equity-based Incentive - Stock Options		Motivates our executives by linking their compensation to appreciation in our stock price		Stock options vest 25% per year over a four-year period