RESMED INC RMD

Removed from 2024

• 2024 Performance Highlights
• We entered fiscal year 2024 operating in an ongoing challenging environment shaped by a competitor's continuing flow generator recall, significantly increasing demand for our flow generators.
• The demand for our products occurred while we were continuing to work through the impacts of global supply chain constraints that increased our costs.
• In addition, financial analyst and investor reaction to the heightened awareness of weight loss medications provided a new challenge for our company.
• Despite these challenges, in fiscal year 2024 we exceeded fiscal year 2023 performance, advanced our strategic objectives, and increased global revenues 11% year over year to $4.7 billion.
• We did this by increasing supply of our AirSense 10 connected devices, expanding the launch of our AirSense 11 sleep and respiratory care flow generator, and expanding adoption of our masks and accessories with customers and patients around the world as well as continued growth from our Software as a Service business.
• We also presented data during each of our quarterly earnings calls demonstrating that patients with a prescription for a GLP-1 class of weight loss drug and diagnosed with obstructive sleep apnea led to higher initiation of PAP therapy and had higher PAP resupply rates one- and two- years post set up than patients who did not have a prescription for a CLP-1class weight loss drug.
• Implemented a New Global Operating Model to Meet the Challenges Presented by Competitive Dynamics
• In November 2023, we announced a new global operating model to accelerate our long- term growth.
• The model introduced dedicated global leadership in product, revenue, and marketing as the core focus of the executive leadership team, including Justin Leong, our chief product officer and a NEO.
• The changes were adopted to increase the velocity of product development and sharpen the company’s customer and brand focus.
• By adopting a global operating model that is product-led, customer-centric, and brand-enhanced, we seek to accelerate profitable growth, while driving greater value and improved care outside the hospital care continuum.
• We believe these traits enabled us in fiscal 2024 to respond quickly to provide solutions to help patients and healthcare providers respond to a spike in demand caused by a competitor’s recall of flow generators, and to address the competitive impact of weight loss drugs that may eventually be used by patients with obstructive sleep apnea.
• Financial MeasurePercentage ChangeFiscal Year 2024 PerformanceFiscal Year 2023 PerformanceNet revenue11 %$4.7 billion$4.2 billion(11% on a constant currency basis)Operating income17 %$1,319.9 million$1,131.9 million(21% non-GAAP)($1,478.4 million non-GAAP)($1,224.4 million non-GAAP)Net income14 %$1,021.0 million$897.6 million(20% non-GAAP)($1,139.3 million non-GAAP)($949.8 million non-GAAP)Diluted earnings per share14 %$6.92 $6.09 (20% non-GAAP)($7.72 non-GAAP)($6.44 non-GAAP)
• Recovery of Long-Term Stockholder Value
• Our stock price suffered a set-back in early fiscal 2024.
• Our stock price, which was at $218.50 at June 30, 2023, was $148.90 on the November 23rd annual equity award grant date, recovered to $191.42 at fiscal year end of June 30, 2024 and has improved to $247.15 as of the record date.
• CEO FY24 Compensation SummaryOther NEOs FY24 Compensation Summary
• 48 | 2024 Proxy Statement
• GoalTargetPerformanceActualPerformance*% of GoalAchieved% of PayoutEarned (BeforeWeighting)Corporate adjusted net sales$4,768 $4,720 99.00 %96.65 %Corporate adjusted net operating profit$1,493 $1,563 104.69 %115.63 %Corporate weighted earnout - 106.14%SaaS adjusted net sales$593 $587 99.04 %96.78 %SaaS adjusted net operating profit$145 $159 109.95 %133.18 %SaaS and Corporate combined weighted earnout - 110.56%
• All fiscal year 2024 cash incentive plan target goals were substantially higher than fiscal year 2023 actual performance and fiscal year 2023 target goals, despite the challenging operating environment including the surge in global demand for our products, supply chain constraints, and an increase in manufacturing, warehouse and component costs.
• The grant date for our awards and the commencement of the performance period for our PSUs historically has been on the date of our annual stockholder meeting in November during that fiscal year.
• Our stock price suffered a set-back in early fiscal 2024.
• Our stock price, which was at $218.50 at June 30, 2023, was $148.90 on the November 23rd annual equity award grant date for our PSUs, recovered to $191.42 at fiscal year end of June 30, 2024 and has improved to $247.15 as of the record date.
• Historically, our Absolute TSR PSUs have been earned after the three-year accelerated payout performance period.
• As a result of stock price decline in the second quarter of fiscal 2024, the unbanked PSUs granted in November 2020 (fiscal year 2021) did not payout after the three-year accelerated performance period that ended in November 2023, when the stock price was $148.90.
• In November 2023, 25% of the fiscal year 2021 target PSUs that had previously been earned and banked based on interim stock performance vested and were paid at the end of the three-year performance period for banking, as shown in the table below.
• NamedExecutive OfficerTarget Number ofShares at GrantBanked Number ofShares DistributedMichael Farrell17,875 4,469 Bobby Ghoshal2,786 697 Justin Leong2,554 638 Michael Rider(a)0 0 Brett Sandercock4,643 1,161
• Based on our stock price of $191.42 as of June 28, 2024, the last trading day of our 2024 fiscal year, the remaining fiscal 2021 Absolute TSR PSUs, and the Absolute TSR PSUs granted in fiscal years 2022 and 2023 would result in no payout, as illustrated in the table below.
• The portion of the PSUs that were granted in fiscal 2024 based on absolute TSR performance would result in a payout as shown below, with 25% of such fiscal 2024 Absolute TSR PSUs earned and banked, based on
• 50 | 2024 Proxy Statement
• stock price at June 30, 2024.
• The earned and banked PSUs are subject to vesting until the end of the three-year performance period for banking in November 2027.
• While the information presented is based on fiscal year-end stock price value, the performance periods end, and thus the applicable stock price for determining PSUs earned, is three to four years, if applicable, following the November grant date of the PSUs.
• The table below illustrates the grant dates and stock price at the time of PSU grant, and whether the PSUs would payout based on our stock price at the end of fiscal year 2024 of $191.42.
• The closing stock price on the record date of $247.15 would similarly result in no payout under the fiscal year 2021, 2022 and 2023 PSUs.
• FiscalYearPSU Grant DateStarting PriceTSR25% of Absolute TSR PSUs Earnedand BankedPercent of Target Payout Based on (June 28, 2024)Stock Price of $191.422021November 19, 2020$211.76 AbsoluteDistributed November 20230 %2022November 18, 2021$263.16 AbsoluteNo0 %2023November 16, 2022$224.58 AbsoluteNo0 %2024November 16, 2023$148.90 AbsoluteEarned June 2024 subject to vesting87 %2024November 16, 2023$148.90 RelativeNot applicable189 %
• Our updated compensation recovery policy replaced our 2017 compensation recovery policy, effective as of October 2, 2023.
• See “Pledging and hedging company stock prohibited,” above.
• Historical strong say on pay results.
• The 82% support was a decrease from the 90% approval in November 2022, and our historical 90% approval rate.
• Based on feedback from our stockholders, we believe the reduced level of support at our 2023 annual meeting was also a reflection of the disappointment of our stockholders with ResMed's performance and stock price in the periods leading up to the November 2023 annual meeting.
• We believe we have addressed these concerns through the implementation of our new operating model, along with improved revenue growth, cost discipline, and accelerated profitability as reflected in our fiscal 2024 fiscal year-end results.
• We also believe that our fiscal year 2024 financial and operational successes in a challenging environment, at risk compensation, such as our PSUs, that are not paid when we do not perform, and five-year TSR strength support the view that the current compensation structure is incentivizing the right behavior, aligns pay with performance, and results in long-term value creation for our stockholders in both the United States and in Australia.
• Compensation Committee Role
• Timing of decisions
• Any changes to cash compensation are generally made effective on December 1, to align with our annual equity grant, which historically occurred on our annual stockholder meeting in November.
• In fiscal year 2024 we delayed compensation decisions regarding equity values and cash compensation until November 2023 in light of the finalization and adoption of our new global operating model.
• The goals of our annual cash incentive program are a function of our budget, which was not delayed and was approved by the board in August 2023.
• For fiscal year 2025, our compensation committee returned to its ordinary practice and made fiscal year 2025 compensation decisions at its August 2024 meeting.
• 52 | 2024 Proxy Statement
• In fiscal 2024, the annual equity awards were granted on the date of the 2023 annual meeting, which was two business days before the filing of the Form 8-K announcing the voting results of that same meeting.
• The following information regarding this option grant is provided in accordance with Item 402(x)(2):
• NameGrant DateNumber ofSecuritiesUnderlyingAwardExercisePriceGrant DateFair ValuePercentage Change in the Closing MarketPrice of the Securities Underlying theAward Between the Trading Day EndingImmediately Prior to the Disclosure ofMaterial Nonpublic Information and theTrading Day Beginning ImmediatelyFollowing the Disclosure of MaterialNonpublic InformationMichael Farrell11/16/202355,468 $148.90 $2,800,025.00 2.4 %
• Regardless of grant date, the exercise price for options must equal the closing price of our common stock on the actual grant date, and the price on that date is an important input for determining the number of equity awards granted based on previously awarded grant date values.
• In February 2023, before making fiscal year 2024 compensation decisions, the committee reviewed the US peer group used for fiscal year 2024 and removed one company, Abiomed, due to its acquisition, and maintained the other 19 peer companies from 2023.
• 54 | 2024 Proxy Statement
• The committee maintains a reference group of SaaS companies (set forth below) to be used as a secondary source of information that is reviewed from time to time.
• For fiscal 2024 compensation decisions, the committee did not perform a detailed review against SaaS companies, nor did it review the potential reference group of SaaS companies.
• SaaS Reference GroupAkami Technologies, Inc.NetApp, Inc.Arista NetworksServiceNow, Inc.Atlassian Corporation PlcVeeva Systems, Inc.DocuSign, Inc.
• For fiscal 2024, after consideration of market data, the committee determined in November 2023, in connection with the adoption of the new global operating model, to increase Mr. Leong's base salary by 40% to reflect his new key role, to increase Mr. Rider's base salary by 5% to reflect his promotion on July 1, 2023 and to increase other employee base salaries by approximately 3-4%.
• NamedExecutive OfficerFiscal Year 2024Base SalaryFiscal Year 2023Base SalaryConstant CurrencyPercentageIncreaseFrom 2023 to 2024Michael Farrell$1,185,000 $1,146,600 3.3 %Chief executive officerBobby Ghoshal$640,000 $619,800 3.3 %Chief commercial officer - SaaSJustin Leong$686,289 (a)$487,930 (a)40.7 %Chief product officer AUD 1,016,800 AUD 722,913 Michael Rider$500,000 $475,000 5.3 %Global general counsel and secretaryBrett Sandercock$491,836 (a)$475,232 (a)3.5 %Chief financial officer AUD 728,700 AUD 704,100
• For fiscal year 2024, the committee made no change to the target short-term incentive opportunity for our named executive officers, which range from 60% to 130%.
• The committee believes it best to tie each executive’s incentive pay to the areas over which the executive can assert the most influence and to vary the weighting to reflect the relative focus desired by the executive for each metric.
• For fiscal year 2024, the key features of the short-term incentive program continued from fiscal year 2023, with a small shift in weighting for the business unit leader from 60% business unit/40% corporate performance to a 50% split.
• Named Executive OfficerAdjustedNet SalesAdjustedOperatingProfitSpecific BusinessAdjusted NetSalesSpecific BusinessAdjustedOperating ProfitMichael Farrell50 %50 %0 0 Bobby Ghoshal25 %25 %25% (SaaS)25% (SaaS)Justin Leong50 %50 %0 0 Mike Rider50 %50 %0 0 Brett Sandercock50 %50 %0 0
• Short-TermIncentiveComponentThresholdPerformance-50% Payout($ inThousands)TargetedPerformance-100% Payout($ inThousands)MaximumPerformance-200% Payout($ inThousands)ActualPerformance($ inThousands)Percentage ofTargetedPerformanceAchievedShort-TermIncentivePercentageEarnedBased onPercentageAchievedAdjusted net sales$4,053 $4,768 $6,198 $4,720 99.00 %96.65 %Adjusted operating profit$1,269 $1,493 $1,941 $1,563 104.69 %115.64 %Total achieved after weighting106.14 %(50% each)Farrell, Leong, Rider, and SandercockSaaS business adjusted net sales$504 $593 $770 $587 99.04 %96.78 %SaaS business adjusted operating profit$123 $145 $188 $159 109.95 %133.18 %Total achieved after weighting110.56 %(25%-25%-25%-25%)Ghoshal
• Each of our target goals for 2024 required growth over the prior year performance, but also reflected expectations for higher costs associated with continuing supply chain constraints and related cost increases as a consequence of the global pandemic.
• The increase in demand caused by our competitor's recall drove more sales of flow generators in 2024, but at a lower operating profit based on geographic and product mix.
• Nonetheless, the targeted goals established for fiscal 2024 were greater than the prior year’s targeted goals and were greater than fiscal year 2023 actual performance.
• The below target payout reflects the rigor of this goal.
• There were no adjustments to net sales and operating profit under the short-term incentive program.
• STI Metric and Adjustment(s)Amount (000's)Net sales (GAAP)$4,685,298 use budgeted exchange rates$34,869 exclude sales from unbudgeted acquisitions$— Adjusted net sales$4,720,167 Operating profit (GAAP)$1,319,895 exclude stock-based compensation$80,184 exclude amortization of acquired intangibles$79,484 exclude acquisition-related costs$483 exclude restructuring expenses$64,228 exclude masks with magnets field safety notification expenses$6,351 exclude Astral field safety notification expenses$7,911 use budgeted exchange rates$4,647 Adjusted operating profit$1,563,183 Net sales - SaaS business (non-GAAP from internal reporting)$584,082 use budgeted exchange rates$2,802 Adjusted net sales - SaaS business$586,884 Operating profit - SaaS business (non-GAAP from internal reporting)$154,450 exclude profits and losses from unbudgeted acquisitions$— exclude lease impairments$4,132 use budgeted exchange rates$626 Adjusted operating profit - SaaS business$159,209
• All actual short-term incentive payments were funded in accordance with the pre-established formulas; there was no discretionary or individual adjustment by the compensation committee.
• NamedExecutiveOfficerAnnualShort-TermIncentive TargetPercentageAnnualShort-TermIncentiveTargetAnnualShort-TermIncentiveEarnedActualShort-TermIncentive asa Percentageof TargetMichael Farrell130 %$1,519,684 $1,613,032 106.14 %Bobby Ghoshal80 %$505,262 $558,618 110.56 %Justin Leong80 %$469,044 (a) $497,856 (a) 106.14 %Michael Rider60 %$293,745 $311,789 106.14 %Brett Sandercock80 %$376,832 (a) $399,979 (a) 106.14 %
• •our chief product officer received a 60% increase to reflect his new global responsibility for driving product innovation, and to better align with the chief commercial officer - SaaS; and
• •our global general counsel who was promoted to this position effective July 1, 2023, received a 65.8% increase to recognize his increased responsibilities and to move him closer to market for his new position.
• NamedExecutiveOfficerPrior Year Approved Grant ValueApproved Grant ValuePercentageof GrantValue inPerformance-Based StockUnits(a)Percentageof GrantValue in StockOptionsPercentageof GrantValue inRestrictedStock UnitsMichael Farrell$11,000,000 $11,200,000 50 %25 %25 %Bobby Ghoshal$2,200,000 $2,300,000 50 %0 %50 %Justin Leong$1,500,000 $2,400,000 50 %0 %50 %Michael Rider$785,000 $1,300,000 50 %0 %50 %Brett Sandercock$2,200,000 $2,300,000 50 %0 %50 %
• TSR RequirementsAnnual Base TSRCumulative4-year TSRAcceleratedCumulative3-year TSRPayout Percentageof Target SharesGrantedBelow thresholdBelow 5%Less than 21.6%Less than 15.8%0 %Threshold5 %21.6 %15.8 %50 %Target10 %46.4 %33.1 %100 %Maximum(a)15 %74.9 %52.1 %200 %
• In August 2023, after consideration of input from our independent compensation consultant and review of market practices, the compensation committee determined to revise our PSU program effective with the fiscal 2024 grants made in November 2023, to include, as 50% of the PSUs to be granted, PSUs that are earned based on our relative TSR performance compared to the TSR performance of the S&P 500 Index over a three-year performance period.