Zimmer Biomet (ZBH) PRE 14APreliminary proxy

March [•], 2021

LETTER FROM OUR PRESIDENT AND CHIEF EXECUTIVE OFFICER:

Dear Fellow Shareholders:

Despite the challenges posed by the global pandemic, Zimmer Biomet delivered steady performance across our entire business in 2020, taking steps to accelerate innovation, execute on strategy for sustained growth and deliver value to all of our stakeholders.

In the letter to shareholders included in our 2020 Annual Report, we discuss our results for the year just completed as well as the long-term strategic choices that will continue to guide us in the months and years ahead.

I would like to thank you for your continued support of Zimmer Biomet and I want you to know that the challenges posed by the pandemic in 2020 demonstrated our ability to face adversity and have prepared us well for navigating the current environment. We are entering 2021 with increased confidence in our team, our core business and our long-term strategic plan to drive sustainable growth and shareholder value.

Annual Meeting Matters

On behalf of the Board of Directors, it is my pleasure to invite you to attend the 2021 annual meeting of shareholders on Friday, May 14, 2021 at 8 a.m. Eastern Time. This year’s annual meeting will be conducted virtually, via webcast.

You will be able to attend the annual meeting online by visiting www.virtualshareholdermeeting.com/ZBH2021. You will be able to vote your shares electronically during the meeting by logging in using the 16-digit control number included on your Notice of Internet Availability of Proxy Materials, on your proxy card or on the voting instruction form accompanying the proxy materials.

We continue to embrace the latest technology to provide expanded access, improved communication and cost savings for our shareholders and the company. As we’ve learned, hosting a virtual meeting enables increased shareholder attendance and participation from locations around the world. In addition, the online format allows us to communicate more effectively via a pre-meeting forum that you can enter by visiting www.proxyvote.com with your control number. We encourage you to log on and ask any questions you may have, which we will try to answer during the meeting. Due to concerns related to the COVID-19 pandemic, and to support the health and well-being of our employees and shareholders, we think a virtual-only meeting is advisable.

We are again providing access to our proxy materials online under the U.S. Securities and Exchange Commission’s (“SEC”) “notice and access” rules. As a result, we are mailing to many of our shareholders a Notice of Internet Availability instead of a paper copy of this proxy statement and our 2020 Annual Report. This electronic process gives shareholders fast, convenient access to the materials, reduces the impact on the environment and reduces our printing and mailing costs. The Notice of Internet Availability contains instructions on how to access documents online. It also contains instructions on how shareholders can receive a paper copy of our materials, including this proxy statement, our 2020 Annual Report and a form of proxy card or voting instruction form. If you received the Notice of Internet Availability by mail and would like to receive a printed copy of our proxy materials, please follow the instructions for requesting such materials included in the Notice of Internet Availability.

Your vote is important. Regardless of whether you attend the annual meeting, we hope you vote as soon as possible. You may vote by proxy online or by phone, or, if you received paper copies of the proxy materials by mail, you may also vote by mail by following the instructions on the proxy card or voting instruction form. Additionally, if you attend the virtual annual meeting, you may vote your shares during the meeting via the Internet even if you previously voted your proxy. Voting online or by phone, by written proxy or by voting instruction form ensures your shares are voted regardless of whether you attend the virtual meeting.

		Sincerely,
		Bryan Hanson President, Chief Executive Officer and Director   Zimmer Biomet Holdings, Inc. 345 East Main Street Warsaw, Indiana 46580

PROXY STATEMENT SUMMARY

We are providing this proxy statement in connection with the solicitation of proxies by our Board of Directors for use at our 2021 annual meeting of shareholders to be held on Friday, May 14, 2021. The Notice of Annual Meeting of Shareholders and related proxy materials, or a Notice of Internet Availability, were first sent to shareholders on or about March     , 2021. This summary highlights information contained elsewhere in this proxy statement. It does not contain all of the information you should consider, and we urge you to read the entire proxy statement, as well as our 2020 Annual Report, before voting.

VOTING MATTERS AND BOARD RECOMMENDATIONS

Our Director Nominees

The following table provides summary information about each of the 10 director nominees. Each director is elected annually by a majority of votes cast.

PROXY STATEMENT SUMMARY

Corporate Governance Strengths

PROXY STATEMENT SUMMARY

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At Zimmer Biomet, it’s not just what we make. It’s what we make possible. Simply put, we are in the business of changing people’s lives. We are humbled by that fact and take our responsibility seriously. Because of this, the way we conduct our business is critically important. We are committed to effective corporate governance, adhere to the highest ethical standards and act as a responsible member of our communities.

Our business is managed under the direction of our Board of Directors. The Board has responsibility for establishing broad corporate policies and for our overall performance.

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DIRECTOR NOMINEES

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CORPORATE GOVERNANCE

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OUR BOARD OF DIRECTORS AND CORPORATE

GOVERNANCE FRAMEWORK

DIRECTOR CRITERIA, QUALIFICATIONS AND

EXPERIENCE

We are a global leader in musculoskeletal healthcare. We design, manufacture and market orthopedic reconstructive products; sports medicine, biologics, extremities and trauma products; office based technologies; spine, craniomaxillofacial and thoracic products; dental implants; and related surgical products. We have operations in more than 25 countries around the world and sell products in more than 100 countries. We operate in markets characterized by rapidly evolving technologies, complex regulatory requirements and significant competition. The Corporate Governance Committee is responsible for reviewing and assessing with the Board, on an annual basis, the experience, qualifications, attributes and skills sought of Board members in the context of our business and the then-current membership of the Board. The committee looks for current and potential directors collectively to have a mix of experience, skills and qualifications, some of which are described below:

In evaluating director candidates and considering incumbent directors for nomination to the Board, the committee considers a variety of factors. These include each candidate’s character and integrity, reputation for working constructively in a collegial environment and availability to devote sufficient time to Board matters. Diversity of background and diversity of gender, race, ethnicity, national origin and age are also relevant factors in the selection process. The committee also considers whether a candidate can meet the independence standards for directors and members of key committees under applicable stock exchange and SEC rules. With respect to incumbent directors, the committee considers the director’s past performance on the Board and contributions to the committees on which he or she serves.

While the Board has not formally adopted a policy regarding director diversity, the committee actively considers diversity in director recruitment and nomination. In conducting its most recent search for new directors, the Board utilized a process that required the final pool of candidates to include potential directors who would increase the Board’s ethnic and/or gender diversity. We anticipate utilizing a similar process in future searches for Board candidates. The Board believes that the diversity of the current Board members, including as to gender, race, ethnicity, national origin, international work experience and age, provides significant benefits to the Board and to the company.

BOARD LEADERSHIP STRUCTURE

One of the key responsibilities of the Board is to have a leadership structure that allows it to provide effective oversight of management and maximize the contributions of its members. Our Board believes that it is important that it retain flexibility to make the determination as to whether the interests of the company and our shareholders are best served by having the same individual serve as both CEO and Chairman or whether the roles should be separated based on the circumstances at any given time, and our Corporate Governance Guidelines and Restated Bylaws provide this flexibility. At different times in the past, both approaches have been used. Under our Corporate Governance Guidelines, the Board will appoint a Lead Independent Director when the CEO and Chairman roles are combined.

In accordance with the Board’s mandatory retirement policy set forth in our Corporate Governance Guidelines, the Board did not nominate Mr. Glasscock for reelection to the Board. Mr. Glasscock will retire from the Board effective as of the annual meeting after serving as our director since 2001 and as non-executive Chairman of the Board since 2013.

In the second half of 2020, as the third anniversary of the appointment of Mr. Hanson as President and CEO approached, and in light of Mr. Glasscock’s upcoming retirement, our Corporate Governance Committee and Board of Directors reassessed the Board’s leadership

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structure. In February 2021, our Board, upon the recommendation of the Corporate Governance Committee, determined that the company and its shareholders will be best served by Mr. Hanson assuming the role of Chairman and Mr. Begley serving as Lead Independent Director effective as of May 13, 2021, the day before the annual meeting. The decision to combine the roles of Chairman and CEO reflected the Board’s strong belief that Mr. Hanson has demonstrated the leadership and vision necessary to lead the Board and the company. The Board believes that this leadership structure will promote efficient Board functioning, foster a constructive and cooperative relationship between the Board and management and reinforce Mr. Hanson’s overall responsibility for the company’s business and strategy, under the oversight and subject to the review of the Board.

The Board recognizes the importance of having a strong independent Board leadership structure to ensure accountability. Accordingly, our Corporate Governance Guidelines provide that if the Chairman is not an independent director, then the Board will appoint a Lead Independent Director. The Board believes that a Lead Independent Director is an integral part of our Board structure and facilitates the effective performance of the Board in its role of providing governance and oversight. In fulfilling his or her responsibilities, the Lead Independent Director will:

Our Board of Directors oversees the risk management processes that have been designed and are implemented by our executives to determine whether those processes are consistent with our strategy and risk appetite, are functioning as intended, and that necessary steps are taken to foster a culture that recognizes and appropriately escalates and addresses risk-taking beyond our determined risk appetite. The Board executes its oversight responsibility for risk management directly and through its committees.

The Audit Committee is specifically tasked with overseeing our compliance with legal and regulatory requirements, including oversight of our Corporate Compliance Program, discussing our risk assessment and risk management processes with management, and receiving information on certain material legal and regulatory matters, including litigation, as well as on information technology, data privacy, business continuity and cyber security-related matters. Our Vice President, Internal Audit Services, who reports directly to the committee, coordinates our global risk assessment process. We use this process to identify, assess and prioritize internal and external risks, to develop processes for responding to, mitigating and monitoring risks and to inform the development of our internal audit plan, our annual operating plan and our long-term strategic plan. We also maintain an internal risk committee made up of members of senior management that has responsibility for overseeing the execution of enterprise risk management activities.

The Audit Committee receives detailed reports regarding our enterprise risk assessment process and its meeting agendas include discussions of individual risk areas throughout the year. Members of our management who have responsibility for designing and implementing our risk management processes regularly meet with the committee. The committee discusses our major financial risk exposures with our CFO and Chief Accounting Officer. The committee receives regular reports from our Chief Compliance Officer on our Corporate Compliance Program, which is designed to address risks related to, among other matters, anti-corruption and anti-kickback laws in the countries where we do business. The committee also receives reports from our General Counsel, Chief Information Officer, Chief Information Security Officer, Global Privacy Officer and other persons who are involved in our risk management processes.

The Board’s other committees oversee risks associated with their respective areas of responsibility. For example, the Compensation and Management Development Committee oversees risks relating to our executive compensation programs and practices. In addition, in conjunction with the full Board, the Compensation and Management Development Committee oversees risks relating to human capital management. The Corporate Governance Committee oversees risks relating to environmental, social and governance matters. The Quality, Regulatory and Technology Committee oversees risks relating to our compliance with laws and regulations enforced by the U.S. Food and Drug Administration (“FDA”) and comparable foreign government regulators, including product quality and safety.

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The Board receives detailed regular reports from members of our executive leadership team and other personnel that include discussions of the risks and exposures involved with their respective areas of responsibility. Further, the Board is routinely informed of developments that could affect our risk profile or other aspects of our business. Primary areas of risk oversight for the full Board include, but are not limited to, general commercial risks in the musculoskeletal healthcare industry, such as competition, pricing pressures and the reimbursement landscape; risks associated with our strategic plan and annual operating plan; risks related to our capital structure; and risks pertaining to mergers, acquisitions, divestitures and other complex transactions.

We are committed to maintaining the highest standards of business conduct and corporate governance, which we believe are essential to running our business efficiently, serving shareholders well and maintaining our integrity in the marketplace. Our Board has adopted Corporate Governance Guidelines, which, in conjunction with our Restated Certificate of Incorporation, Restated Bylaws, Board committee charters and key Board policies, form the framework for our governance. Our Board regularly reviews corporate governance developments and modifies its Corporate Governance Guidelines, committee charters and key policies as warranted.

The current versions of the following documents are available in the Investor Relations/Corporate Governance section of our website, www.zimmerbiomet.com:

If we make any substantive amendments to the finance code of ethics or grant any waiver, including any implicit waiver, from a provision of the code to our CEO, CFO, or Chief Accounting Officer/Corporate Controller, we will disclose the nature of that amendment or waiver in the Investor Relations section of our website.

Under our Corporate Governance Guidelines, our non-employee directors who are not executive officers of other public companies are limited to serving on a total of four public company boards, including ours, and our non-employee directors who serve as executive officers of other public companies are limited to serving on a total of three public company boards, including their own company’s board and our Board. Further, our Audit Committee members are limited to serving on a total of three public company audit committees, including ours.

Our Board is aware that certain of our investors, in recognition of the increased time required of boards of directors, have policies to limit directors who are CEOs of public companies to a total of two public company boards. While our Board recognizes that directors who are employed full-time, whether as executives of public companies or in other positions, naturally have greater demands placed on their time than directors who have retired from full-time employment, our Board has chosen not to adopt the more restrictive two-board limit for our non-employee directors who serve as public company executives so that our Board has more flexibility to assess the potential impact of directors’ additional commitments as they arise.

Pursuant to New York Stock Exchange requirements, the Board’s Corporate Governance Guidelines and the charters of each of the Board’s committees, the Board and each of its committees are required to conduct self-evaluations of their performance. The Board recognizes that a robust and constructive evaluation process is an essential component of good corporate governance. These self-evaluations, which are conducted annually, are intended to facilitate a candid assessment and discussion by the Board and each committee of its effectiveness as a group in fulfilling its responsibilities, evaluating its performance and identifying areas for improvement. The Chair of the Corporate Governance Committee oversees the annual self-evaluation process. Each director is expected to participate and provide feedback on a range of topics, including: the Board and committee agendas; meetings; practices

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and dynamics; Board refreshment; committee structure, membership and leadership; the flow of information to and from the Board and its committees; management succession planning; and shareholder engagement. Director feedback is solicited on an individual basis through written questionnaires/assessments, individual director interviews and/or group discussions.

From time to time, the Board retains a third party experienced in corporate governance matters to act as a facilitator for the self-evaluation process, including preparing and reviewing the written questionnaires/assessments and conducting individual director interviews. The Chair of the Corporate Governance Committee, along with the third-party facilitator (when one is retained) reviews the feedback from the self-evaluation process and makes recommendations for areas with respect to which the Board and its committees should consider improvements. These areas are further discussed at a meeting led by the Chair of the Corporate Governance Committee and the third-party facilitator (when one is retained) at which all Board members are present. At the conclusion of this meeting, the Chair of the Corporate Governance Committee, working with the senior management team, develops action plans for any items that require follow-up.

The Board’s Corporate Governance Guidelines, which are available on our website at www.zimmerbiomet.com, include criteria adopted by the Board to assist it in making determinations regarding the independence of its members. The criteria are consistent with the New York Stock Exchange listing standards regarding director independence. To be considered independent, the Board must determine that a director has no material relationship, directly or indirectly, with us. In assessing independence, the Corporate Governance Committee and the Board consider a wide range of relevant facts and circumstances. The Board has determined that each of our non-employee directors, Christopher Begley, Betsy Bernard, Gail Boudreaux, Michael Farrell, Larry Glasscock, Robert Hagemann, Arthur Higgins, Maria Teresa Hilado, Syed Jafry, Sreelakshmi Kolli and Michael Michelson, meets these standards and is independent. The remaining director, Bryan Hanson, is our CEO and is not independent.

In making its determination with respect to Ms. Boudreaux, the Board considered her position as President and CEO of Anthem, Inc. Anthem is one of the nation’s leading health benefits companies and serves as the third-party claims processor of our self-funded group health plan for our U.S.-based employees and reinsurer of catastrophic claims under the plan. During 2020, the amount we paid Anthem exceeded $1 million, but represented only one hundredth of one percent (0.01%) of Anthem’s total revenues. After reviewing the terms of these transactions, the Board determined that Ms. Boudreaux does not have a direct or indirect material interest in the transactions, that Ms. Boudreaux does not have a material relationship, directly or indirectly, with us and that our business relationship with Anthem does not diminish the ability of Ms. Boudreaux to exercise her independent judgment on issues affecting our business.

Anthem does not provide any services to us that would be characterized as professional services or advisory in nature (plan design consulting services are provided by Willis Towers Watson). Anthem does not have access to sensitive company information or to our strategic decision-making, and its services are generally provided for a monthly fee based upon the number of employees enrolled in our health plan. Anthem’s services to us are limited to administrative services, including claims processing, utilization of Anthem’s provider network, Employee Assistance Programs, customer service, disease management programs and stop-loss coverage.

In making its determination with respect to Mr. Jafry, the Board considered his position as Senior Vice President and President, Regions of Thermo Fisher Scientific Inc. (“Thermo Fisher”). During 2020, we paid Thermo Fisher for chemicals used in manufacturing processes in an aggregate amount in excess of $1 million, but the amount we paid represented only one hundredth of one percent (0.01%) of Thermo Fisher’s total revenues. After reviewing the terms of these transactions, the Board determined that Mr. Jafry does not have a direct or indirect material interest in the transactions, that Mr. Jafry does not have a material relationship, directly or indirectly, with us and that our business relationship with Thermo Fisher does not diminish the ability of Mr. Jafry to exercise his independent judgment on issues affecting our business.

In making its determination with respect to Ms. Kolli, the Board considered her position as Senior Vice President, Chief Digital Officer of Align Technology, Inc. (“Align”). During 2020, we paid Align for intra-oral scanners and related equipment in an aggregate amount in excess of $1 million, but the amount we paid represented only one tenth of one percent (0.1%) of Align’s total revenues. After reviewing the terms of these transactions, the Board determined that Ms. Kolli does not have a direct or indirect material interest in the transactions, that Ms. Kolli does not have a material relationship, directly or indirectly, with us and that our business relationship with Align does not diminish the ability of Ms. Kolli to exercise her independent judgment on issues affecting our business.

Our Restated Bylaws require directors to be elected by the majority of the votes cast with respect to that director in uncontested elections (the number of shares voted “for” a director must exceed the number of votes cast “against” that director). In a contested

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election (a situation in which the number of nominees exceeds the number of directors to be elected), the standard for election of directors will be a plurality of the shares represented in person or by proxy at any such meeting and entitled to vote on the election of directors.

If a nominee who is serving as a director is not elected at the annual meeting, under Delaware law the director would continue to serve on the Board as a “holdover director.” However, under our Restated Bylaws, any director who fails to be elected must tender his or her resignation to the Board. The Corporate Governance Committee would then make a recommendation to the Board whether to accept or reject the resignation, or whether other action should be taken. The Board will act on the Corporate Governance Committee’s recommendation and publicly disclose its decision and the rationale behind it within 90 days from the date the election results are certified. The director who tenders his or her resignation will not participate in the Board’s decision.

If a nominee who was not already serving as a director is not elected at the annual meeting, under Delaware law that nominee would not become a director and would not serve on the Board as a “holdover director.” All nominees for election as directors at the 2021 annual meeting are currently serving on the Board.

The Corporate Governance Committee screens candidates and recommends candidates for nomination to the full Board. In seeking and evaluating director candidates, the committee considers individuals in accordance with the criteria described above under “Director Criteria, Qualifications and Experience.” Director candidates may be recommended by Board members, a third-party search firm or shareholders. Ms. Kolli, who was appointed to the Board in February 2021, was recommended as a director candidate by a third-party search firm.

The committee considers candidates proposed by shareholders and evaluates them using the same criteria as for other candidates. A shareholder who wishes to recommend a director candidate for consideration by the committee should send such recommendation to our Corporate Secretary at Zimmer Biomet Holdings, Inc., 345 East Main Street, Warsaw, Indiana 46580, who will then forward it to the committee. Any such recommendation should include a description of the candidate’s qualifications for board service, the candidate’s written consent to be considered for nomination and to serve if nominated and elected, and addresses and telephone numbers for contacting the shareholder and the candidate for more information.

A shareholder who wishes to nominate an individual as a candidate for election, rather than recommend the individual to the committee as a nominee, but does not intend to have the candidate included in our proxy materials, must comply with the advance notice requirements set forth in our Restated Bylaws. (See “What is the deadline to propose actions for consideration or to nominate individuals to serve as directors at the 2022 annual meeting of shareholders? – Notice Requirements for Other Director Nominees or Shareholder Proposals to Be Brought Before the 2022 Annual Meeting of Shareholders” on page 77 for more information.) In addition, in 2019, our Board adopted “proxy access,” which permits eligible shareholders to nominate and include in our proxy materials director nominees if certain requirements are met. (See “What is the deadline to propose actions for consideration or to nominate individuals to serve as directors at the 2022 annual meeting of shareholders? – Requirements for Director Nominees to Be Considered for Inclusion in our Proxy Materials (“Proxy Access”)” on page 76 for more information.)

Shareholders or other interested parties may contact our directors by writing to them either individually or as a group or partial group (such as all independent directors), c/o Corporate Secretary, Zimmer Biomet Holdings, Inc., 345 East Main Street, Warsaw, Indiana 46580. If you wish your communication to be treated confidentially, please write the word “CONFIDENTIAL” prominently on the envelope and address it to the director by name so that it can be forwarded without being opened. Communications addressed to multiple recipients, such as to “Board of Directors,” “Audit Committee,” “Independent Directors,” etc. will necessarily have to be opened and copied by the Office of the Corporate Secretary in order to forward them, and hence cannot be treated confidentially.

The Board meets on a regularly scheduled basis during the year to review significant developments affecting us and to act on matters requiring Board approval. It also holds special meetings when an important matter requires Board action between scheduled meetings. Members of senior management regularly attend meetings of the Board and its committees to report on and discuss their areas of responsibility. Directors are expected to attend Board meetings, meetings of committees on which they serve and shareholder meetings. Directors are expected to spend the time needed and meet as frequently as necessary to properly discharge their

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responsibilities. During 2020, the Board held 8 meetings and the standing committees of the Board held a total of 27 meetings. All directors attended 75% or more of the meetings of the Board and committees on which they served. All current directors then standing for election attended the 2020 annual meeting of shareholders.

Each regularly scheduled Board meeting normally begins with a session between the CEO and the independent directors. This provides a platform for discussions outside the presence of the non-Board management attendees, as well as an opportunity for the independent directors to go into executive session (without the CEO) if requested by any director. The independent directors may meet in executive session, without the CEO, at any time, and are scheduled for such independent executive sessions at each regularly scheduled Board meeting. Currently, Mr. Glasscock presides at these executive sessions as non-executive Chairman. Effective as of May 13, 2021, Mr. Begley will begin presiding at these executive sessions as Lead Independent Director.

On an annual basis, each director and executive officer is obligated to complete a director and officer questionnaire which requires disclosure of any transactions with us in which the director or executive officer, or any member of his or her immediate family, has an interest. Under our Audit Committee’s charter, which is available on our website at www.zimmerbiomet.com, our Audit Committee must review and approve all related person transactions in which any executive officer, director, director nominee or more than 5% shareholder of the company, or any of their immediate family members, has a direct or indirect material interest. The Audit Committee may not approve a related person transaction unless (1) it is in or not inconsistent with our best interests and (2) where applicable, the terms of such transaction are at least as favorable to us as could be obtained from an unrelated third party.

Under our Code of Business Conduct and Ethics, which is available on our website at www.zimmerbiomet.com, and related policies and procedures, actual or potential conflicts of interest involving any other employee must be disclosed to and resolved by our Human Resources Department, in consultation with our Compliance Office.

In February 2018, we entered into an aircraft time sharing agreement with Bryan Hanson, our President and CEO. Both the Audit Committee and the Compensation and Management Development Committee of our Board authorized entry into the agreement. Under the agreement, Mr. Hanson is permitted to reimburse us for the incremental costs of his personal use of corporate aircraft consistent with Federal Aviation Administration regulations. Mr. Hanson was permitted personal use of corporate aircraft up to a maximum incremental cost to us of $150,000 in 2020. The agreement is intended to cover any personal use in excess of the annual limit.

Our Restated Bylaws provide that the Board may delegate certain of its responsibilities to committees. During 2020, the Board had four standing committees: an Audit Committee; a Compensation and Management Development Committee; a Corporate Governance Committee; and a Quality, Regulatory and Technology Committee. Each of the standing committees is composed entirely of independent directors. In addition, the members of the Audit Committee and the Compensation and Management Development Committee meet the heightened standards of independence required by SEC rules and New York Stock Exchange listing standards.

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The table below shows the current membership of each standing Board committee and the number of meetings held during 2020.

STANDING COMMITTEE ASSIGNMENTS

Robert A. Hagemann, Chair

Betsy J. Bernard

Gail K. Boudreaux

Larry C. Glasscock

Maria Teresa Hilado

The Audit Committee is directly responsible for the appointment, retention, compensation and oversight of our independent registered public accounting firm, including the review and approval of audit fees. The principal functions of the Audit Committee include:

The Board of Directors has determined that Mses. Bernard, Boudreaux and Hilado and Messrs. Glasscock and Hagemann qualify as “audit committee financial experts” as defined by SEC rules. Shareholders should understand that this designation is an SEC disclosure requirement related to these directors’ experience and understanding with respect to certain accounting and auditing matters. The designation does not impose upon these directors any duties, obligations or liabilities that are greater than those that are generally imposed on them as members of the Audit Committee and the Board, and their designation as audit committee financial experts pursuant to this SEC requirement does not affect the duties, obligations or liability of any other member of the Audit Committee or the Board.

See also the “Audit Committee Matters” section of this proxy statement for additional information about the Audit Committee’s responsibilities and actions and the Audit Committee Report.

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Arthur J. Higgins, Chair

Christopher B. Begley

Michael J. Farrell

Syed Jafry

Michael W. Michelson

The Compensation and Management Development Committee has overall responsibility for approving and evaluating our executive compensation plans, policies and programs. The duties of the Compensation and Management Development Committee include:

None of the members of the Compensation and Management Development Committee during 2020 or as of the date of this proxy statement is or has been our officer or employee or had any relationship requiring disclosure under Item 404 of Regulation S-K of the Exchange Act. None of our executive officers served on the compensation committee or board of any company that employed any member of the Compensation and Management Development Committee or the Board or otherwise under circumstances requiring disclosure under Item 404 of Regulation S-K.

The report of the Compensation and Management Development Committee appears on page 44.

At the request of the Compensation and Management Development Committee, Willis Towers Watson, the committee’s compensation consultant, conducted an in-depth qualitative review of the potential risks associated with our executive compensation program in 2015, and it has updated its assessment each year thereafter. The components of our executive compensation program are part of our global compensation structure, and the majority of the compensation policies or practices that apply to other levels of our employees or to any of our subsidiaries or divisions are included in our executive compensation program. For 2020, Willis Towers Watson found that our executive compensation program is in alignment with current market practices, contains an appropriate balance of risk versus rewards and incorporates appropriate risk mitigating factors. Consistent with prior years, Willis Towers Watson found no design features in our executive compensation practices that pose a significant concern from the perspective of motivating senior officers to knowingly expose us to excessive enterprise risk. We believe that our compensation policies and practices do not encourage excessive risk-taking and are not reasonably likely to have a material adverse effect on us.

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Betsy J. Bernard, Chair

Gail K. Boudreaux

Larry C. Glasscock

Robert A. Hagemann

Maria Teresa Hilado

The Corporate Governance Committee oversees the Board’s corporate governance policies and practices and assists the Board in its oversight with respect to matters that involve our image, reputation and standing as a responsible corporate citizen. In its oversight of corporate governance policies and practices, the Corporate Governance Committee’s duties include:

In assisting the Board in its oversight with respect to matters that involve our image, reputation and standing as a responsible corporate citizen, the Corporate Governance Committee reviews and considers, among other items, the following from time to time as it deems appropriate:

Christopher B. Begley, Chair

Michael J. Farrell

Arthur J. Higgins

Syed Jafry

Michael W. Michelson

The Quality, Regulatory and Technology (“QRT”) Committee assists the Board in its oversight of product quality and safety and our research, innovation and technology initiatives in the context of our overall corporate strategy, goals and objectives. In its oversight of risk management, the QRT Committee reviews and considers, among other items, the following:

In overseeing our research, innovation and technology initiatives, the QRT Committee reviews and considers, among other items, the following as it deems appropriate:

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The Board believes that providing competitive compensation is necessary to attract and retain qualified non-employee directors. The key components of director compensation include annual retainers, committee chair annual fees and equity-based awards. It is the Board’s practice to provide a mix of cash and equity-based compensation to more closely align the interests of directors with our shareholders.

The following table sets forth information regarding the compensation we paid to our non-employee directors for 2020. Mr. Hanson is not included in this table because he received no additional compensation for his service as a director. Ms. Kolli is not included in this table because she joined the Board in February 2021.

2020 Director Compensation Table

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The following table sets forth the grant date fair value of annual grants of restricted stock units (“RSUs”) and DSUs awarded to each director elected or reelected at the 2020 annual meeting of shareholders, as well as DSUs granted during 2020 pursuant to the mandatory deferral provisions of the Deferred Compensation Plan for Non-Employee Directors.

2020 STOCK AWARDS

We pay non-employee directors quarterly, on the last day of March, June, September and December. During 2020, we paid non-employee directors an annual retainer of $110,000 subject to mandatory deferral requirements as described below, and we paid our non-executive Chairman of the Board an additional annual retainer of $150,000. We paid our Audit Committee chair an additional annual retainer of $25,000, we paid our Compensation and Management Development Committee chair an additional annual retainer of $20,000, and we paid each of the chairs of our other standing Board committees additional annual retainers of $15,000. Accordingly, we paid the following amounts during 2020:

Directors who commence service on the Board, or who commence service as a standing committee chair or as non-executive Chairman, are paid applicable quarterly fees beginning with the quarter during which they commence such service. Similarly, directors who terminate service on the Board or terminate service as a standing committee chair or as non-executive Chairman are paid applicable quarterly fees through the quarter during which such service terminated.

We awarded each non-employee director who was elected or reelected at the 2020 annual meeting of shareholders 500 DSUs as of the date of the annual meeting with an initial value based on the price of our common stock on that date. We require that these annual DSU awards be credited to a deferred compensation account under the provisions of the Deferred Compensation Plan for Non-Employee Directors. DSUs represent an unfunded, unsecured right to receive shares of our common stock or the equivalent value in cash, and the value of DSUs varies directly with the price of our common stock. We also require that 50% of a director’s annual retainer be deferred and credited to his or her deferred compensation account in the form of DSUs with an initial value equal to the amount of fees deferred until the director holds a total of at least 5,000 DSUs.

CORPORATE GOVERNANCE

Non-employee directors may elect to defer receipt of compensation in excess of their mandatory deferral and annual DSU award. Elective deferrals are credited to the director’s deferred compensation account in the form of either treasury units, dollar units or DSUs with an initial value equal to the amount of fees deferred. The value of treasury units and dollar units does not change after the date of deferral. Amounts deferred as treasury units are credited with interest at a rate based on the six-month U.S. Treasury bill discount rate for the preceding year. Amounts deferred as dollar units are credited with interest at a rate based on the rate of return of our invested cash during the preceding year. When we pay cash dividends on our common stock, amounts deferred as DSUs are credited with additional DSUs equal to the number of shares of our common stock that could have been purchased if we paid cash dividends on the DSUs held in directors’ deferred compensation accounts and such cash was reinvested in our common stock. These additional DSUs are subject to mandatory deferral.

All treasury units, dollar units and DSUs are immediately vested and payable following termination of the non-employee director’s service on the Board. We settle annual DSU awards and mandatory deferral DSUs in shares of our common stock. We pay the value of treasury units, dollar units and elective deferral DSUs in cash. Non-employee directors may elect to receive the cash payment in a lump sum or in not more than ten annual installments.

During 2020, we also awarded each continuing non-employee director RSUs as of the date of the annual meeting of shareholders with an initial value of $130,000 based on the price of our common stock on that date. These awards were made under the Stock Plan for Non-Employee Directors. The RSUs vested immediately and are subject to mandatory deferral until May 8, 2023, or, if later, the director’s retirement or other termination of service from the Board. We will settle the RSUs in shares of our common stock.

We provide non-employee directors with travel accident insurance and reimburse reasonable expenses they incur for transportation, meals and lodging when on Zimmer Biomet business. We also reimburse non-employee directors for reasonable out-of-pocket expenses, including tuition costs incurred in attending director education programs.

AUDIT COMMITTEE MATTERS

AUDIT COMMITTEE MATTERS

RESPONSIBILITIES OF THE AUDIT COMMITTEE

The Audit Committee is responsible for overseeing the integrity of our financial statements, the qualifications, performance and independence of the independent registered public accounting firm, the performance of our internal audit function and compliance with certain legal and regulatory requirements, including oversight of our Corporate Compliance Program. The committee is directly responsible for the appointment, retention, compensation and oversight of our independent registered public accounting firm.

Management is responsible for the financial reporting process, including the system of internal control, for the preparation of consolidated financial statements in accordance with accounting principles generally accepted in the United States and for management’s report on internal control over financial reporting.

AUDIT COMMITTEE MATTERS

The independent registered public accounting firm is responsible for auditing the consolidated financial statements and expressing an opinion as to their conformity with accounting principles generally accepted in the United States as well as rendering an opinion on the company’s internal control over financial reporting.

The committee’s responsibility is to oversee and review the financial reporting process and to review and discuss management’s report on internal control over financial reporting. Committee members are not, however, professionally engaged in the practice of accounting or auditing and do not provide any expert or other special assurance as to such financial statements concerning compliance with laws, regulations or accounting principles generally accepted in the United States or as to the independence of the independent registered public accounting firm. The committee relies, without independent verification, on the information provided to it and on the representations made by management and the independent registered public accounting firm.

See also “CORPORATE GOVERNANCE – Committees of the Board – Audit Committee” on page 17 for additional information about the Audit Committee’s functions and composition.

The committee held nine meetings during 2020. The meetings were designed, among other things, to facilitate and encourage communication among the committee, management, our internal auditor and PwC. At these meetings, the committee:

The Audit Committee has adopted a policy for pre-approval of audit and permitted non-audit services by our independent registered public accounting firm. The Audit Committee will consider annually and, if appropriate, pre-approve the provision of audit and permitted non-audit services. The Audit Committee will also consider on a case-by-case basis and, if appropriate, pre-approve specific services that are not otherwise pre-approved. Any proposed engagement that does not fit within the definition of a pre-approved service may be presented to the Audit Committee for consideration at its next regular meeting or, if earlier consideration is required, to the Chair of the Audit Committee between regular meetings. The Audit Committee Chair has the delegated authority to pre-approve such services up to a specified fee amount. These pre-approval decisions are reported to the full Audit Committee at its next scheduled meeting.

AUDIT COMMITTEE MATTERS

The following table shows the fees that we paid or accrued for audit and other services provided by PwC for the years 2020 and 2019. All of the services described in the following fee table were approved in conformity with the Audit Committee’s pre-approval process described above.

The Audit Committee has reviewed and discussed with management and PwC the audited financial statements for the year ended December 31, 2020, and PwC’s evaluation of the company’s internal control over financial reporting. The committee has discussed with PwC the matters that are required to be discussed by the applicable requirements of the PCAOB and the SEC. PwC has provided the committee the written disclosures and the letter required by applicable requirements of the PCAOB regarding PwC’s communications with the committee concerning independence, and the committee has discussed with PwC that firm’s independence. The committee has concluded that PwC’s provision of audit and non-audit services to the company and its affiliates is compatible with PwC’s independence.

Based on the reviews and discussions described above, and subject to the limitations on the committee’s role and responsibilities as described in this proxy statement and in the Audit Committee’s charter, the Audit Committee recommended to the Board of Directors, and the Board approved, that the audited consolidated financial statements for the year ended December 31, 2020 be included in our Annual Report on Form 10-K for filing with the SEC.

Audit Committee

Robert A. Hagemann, Chair

Betsy J. Bernard

Gail K. Boudreaux

Larry C. Glasscock

Maria Teresa Hilado

EXECUTIVE COMPENSATION

EXECUTIVE COMPENSATION

EXECUTIVE COMPENSATION

This CD&A describes the compensation of the following NEOs for 2020:

The Compensation and Management Development Committee of the Board (the “committee” in this CD&A and the executive compensation tables and narrative discussion that follow) has historically taken into consideration the results of our non-binding advisory votes on executive compensation (commonly referred to as “Say on Pay”) when making future decisions regarding the structure and implementation of our executive compensation program.

At our 2020 annual meeting, shareholders showed strong support for our executive compensation program, with approximately 92% of votes cast approving our advisory Say on Pay resolution. The committee considered these results and, based on the strong level of shareholder support, the committee made no material changes in our executive compensation program for 2020 as a result of the 2020 Say on Pay vote. As reported in last year’s proxy statement, in response to shareholder feedback, the committee had eliminated the opportunity for interim payouts under the annual performance-based restricted stock unit grant beginning with the February 2020 grant.

Impact of COVID-19 on Our Results

Our 2020 financial results were significantly impacted by the COVID-19 global pandemic. The vast majority of our net sales are derived from products used in elective surgical procedures, including joint replacement surgeries. As COVID-19 rapidly started to spread throughout the world and reached a pandemic level in March 2020, our net sales decreased dramatically as countries took precautions to prevent the spread of the virus with lockdowns and stay-at-home measures and as hospitals deferred elective surgical procedures. This resulted in net sales declines of 9.7 percent and 38.3 percent in the first and second quarters of 2020, respectively, when compared to the same prior year periods. In the third quarter of 2020, various levels of recovery in elective surgical procedures occurred, resulting in net sales growth of 2.0 percent when compared to the same prior year period. However, in the fourth quarter of 2020, we saw the pandemic worsen and elective surgical procedures were deferred again, especially late in the quarter. This was particularly prevalent in Europe, Middle East and Africa. As a result, our net sales declined in the fourth quarter of 2020 by 1.9 percent when compared to the same prior year period. For full-year 2020, our net sales declined by 12.0% compared to 2019 due to the deferral of elective surgical procedures as a result of the COVID-19 pandemic.

Actions Designed to Ensure Team Member Safety, Strengthen Our Financial Profile and Support Healthcare Professionals and Communities

We responded to the unprecedented disruption caused by the pandemic by taking decisive actions designed to ensure the safety of our team members, strengthen our financial profile and navigate the new environment, including the following:

EXECUTIVE COMPENSATION

As we were navigating the significant and sudden global decline in elective procedure volumes and demand for our products, we continued to take an active role in supporting healthcare professionals, hospitals and communities during the pandemic, including:

Actions Designed to Transform the Business and Accelerate Long-Term Growth

While the challenges and fluidity around COVID-19 persisted throughout 2020, we continued to take steps aligned with our active portfolio management and business transformation strategies designed to invest for greater value and prioritize innovation to better position the company for accelerated long-term growth, including the following:

Executive Compensation Actions Related to COVID-19

As described above, our net sales decreased dramatically in the first and second quarters of 2020 compared to the same prior year periods due to the deferral of elective procedures as a result of COVID-19. Procedure volumes were the lowest in April, with sequential improvement in May and June. Based on indications at that time, we expected that sequential improvement to continue in the third and fourth quarters, but possibly at a more modest pace than occurred from April to June, recognizing that the consequences of COVID-19 continued to be extremely fluid and there were many variables and uncertainties that could impact our performance. Some of these variables and uncertainties included, for example, a resurgence of the virus, governmental policy actions, patient fear, patient job losses and/or insurance coverage losses, and economic downturn. Against this backdrop, the committee took the following compensation-related actions related to COVID-19 during 2020:

Base Salaries. In early April, the committee approved temporary reductions in the base salaries of our NEOs in response to ongoing uncertainty surrounding the scope and duration of the COVID-19 pandemic and its impact on the company. Specifically, our CEO Mr. Hanson’s base salary was reduced by 100% and the base salaries of each of the other NEOs was reduced by 25%, in each case until such time as the committee determined in its discretion. In late June, the committee approved the reinstatement of the NEOs’ base salaries. In addition, the committee approved the payment in cash of an amount to each NEO equal to the amount of base salary that such NEO gave up during the reduction period.

401(k) Matching Contributions. In addition to reducing NEOs’ base salaries, the committee approved the temporary suspension of the company’s matching contributions to NEOs’ 401(k) plan contributions. The company match was subsequently reinstated and NEOs’ 401(k) accounts were credited for any match that was forgone during the suspension period.

Annual Cash Incentive Plan Design and Performance Targets. The committee originally approved performance targets under our annual cash incentive plan in early February based on the 2020 operating plan approved by the Board at that time. In March,

EXECUTIVE COMPENSATION

COVID-19 reached a pandemic level and we were impacted by a significant and sudden decline in elective procedure volumes. In early April, we announced that we expected the decline in elective procedure volumes observed in the first quarter to continue to have a significant negative impact in the second quarter and, given the ongoing uncertainty around the scope and duration of COVID-19, we were unable to quantify the impact on our financial results and were withdrawing the full-year financial guidance we had issued on February 4, 2020.

Throughout the next few months, management continued to navigate the crisis as discussed above and modeled various financial scenarios for full-year 2020 based on assumptions related to numerous variables and uncertainties, including the potential impacts of the following: a resurgence of the virus in markets around the globe, patient fear, patient/family member unemployment and/or loss of benefits or insurance coverage, flu season, governmental policy actions including shelter-in-place orders and the halting of elective surgical procedures, and economic downturn.

In light of the ongoing impact of the COVID-19 pandemic on our business and financial results as discussed above, the committee determined that the performance targets approved in early February were not reasonably achievable and the plan therefore no longer served its purpose as an incentive. Acknowledging that the circumstances associated with COVID-19 were not reasonably foreseeable or within the control of the company and that it was important to provide an incentive to ensure that NEOs and all other bonus-eligible team members remained focused on achieving key performance metrics during the second half of 2020, the committee approved mid-year changes to the plan. Specifically, the committee approved revised performance targets in line with the company’s latest financial models. At the same time, the committee capped the potential payout under the plan at 100% target in light of the revised performance targets and the ongoing uncertainty as to the impact of COVID-19 in the second half of the year.

The committee decided to approve revised performance targets and reduce the potential payout under the plan, rather than shift to a completely discretionary cash incentive award for 2020 performance, because the committee believed that continuing to base team members’ annual cash incentives on established performance measures would best serve the primary objectives of the annual incentive plan, including motivating team members to achieve key financial measures and individual objectives and driving specific behaviors that foster short-term and long-term growth and profitability.

In-Flight Long-Term Incentive Plan Awards. We had three performance-based restricted stock unit (“PRSU”) awards outstanding during 2020: the 2018 grant, the 2019 grant and the 2020 grant. Despite the negative impact of COVID-19 on our net sales in 2020, and, accordingly, achievement of the targets under these awards, the committee determined to make no changes to the targets for NEOs. As a result, there was no payout under the 2018 grant for 2020 and there was a greatly reduced payout under the 2019 grant for 2020 relative to expectations based on the operating plan approved at the beginning of 2020 prior to COVID-19 reaching a pandemic level.

Summary of Cash and Incentive Plan Payouts for 2020: The below table sets forth our NEOs’ 2020 annual incentive plan payouts as well as their payouts, if any, for 2020 under the PRSU component of our long-term incentive (“LTI”) plan, as a percentage of the target opportunity and in terms of dollar amount or share number, as applicable. Additional details are provided later in this CD&A.

EXECUTIVE COMPENSATION

The committee has designed our executive compensation program and practices to align executives’ financial interests with those of our shareholders. Following is a description of key program features and practices that illustrate this alignment:

EXECUTIVE COMPENSATION

Our executive compensation program is designed to achieve the following fundamental objectives:

To accomplish these objectives, the committee annually reviews and approves our executive compensation program components and target compensation levels, as well as specific performance metrics and targets, payout ranges and actual payouts.

For the NEOs, the committee establishes target compensation consistent, to the extent possible, with comparable positions in our peer group. Our practice is to target total direct compensation (including base salary, target annual cash incentive opportunities and target long-term equity-based incentives) at market competitive levels. Target compensation for individual executives may vary based on a variety of factors, such as experience and time in the position, the nature of the executive’s responsibilities, criticality of the role and difficulty of replacement, internal equity, retention concerns, individual performance and expected future contributions, readiness for promotion to a higher level, and, in the case of externally recruited executives, compensation earned at a prior employer.

Specific consideration is given to the weighting of fixed and at-risk components of pay relative to the peer group. The committee seeks to provide a total pay opportunity that is competitive with our closest peer group and industry competitors, but which also places a greater emphasis on at-risk equity-based compensation.

The following table describes the elements of target direct compensation for 2020. Our compensation program uses a mix of fixed and variable compensation elements and provides alignment with both short- and long-term business goals through annual incentive and LTI opportunities. We also offer retirement plans and benefits that are generally available to all employees, and we provide a limited range of perquisites.

EXECUTIVE COMPENSATION

Our NEOs’ total direct compensation is heavily weighted toward variable compensation elements, meaning actual amounts earned will vary as a result of company and individual performance, as well as business unit or geographic results where applicable. We emphasize performance-based compensation that appropriately rewards executives for delivering results that meet or exceed multiple pre-established goals over one-, two-, three- and four-year periods, with metrics and targets selected because they are directly linked to our strategic goals. In addition, our long-term incentive program rewards absolute stock price growth as well as constant currency revenue growth and relative TSR.

As executives assume greater responsibilities, more of their pay is contingent on company performance. With respect to 2020, 91.1% of our CEO’s target total direct compensation was variable and tied to our annual and long-term performance, including stock price performance. The committee assesses each NEO’s target total direct compensation opportunity annually to facilitate alignment with the objectives of our compensation program and market practice.

EXECUTIVE COMPENSATION

Base salary increases for our global employee population, including NEOs, are generally effective in April of each year. In February 2020, the committee approved NEOs’ base salaries for 2020, taking into consideration each NEO’s 2019 performance, our 2020 employee merit increase guidelines, market data based on peer group benchmarking, internal equity and certain other factors. After considering these factors, the committee approved base salaries for 2020 that represent year-over-year increases as follows:

Although base salary increases are generally effective in April, the forgoing base salary increases were deferred and all NEOs were subject to reductions in their respective base salaries that took effect in early April and continued until late June, including a 100% reduction applicable to Mr. Hanson and 25% reductions for other NEOs. When the NEOs’ base salaries were reinstated in late June, they reflected the forgoing base salary increases. Further, the committee approved the payment in cash of an amount to each NEO equal to the amount of base salary that such NEO gave up during the reduction period, including the deferred base salary increases. See “EXECUTIVE SUMMARY – Impact of the COVID-19 Global Pandemic on Our Results and Executive Compensation – Executive Compensation Actions Related to COVID-19.”

In determining the target awards for our NEOs under our annual cash incentive plan for 2020, the committee reviewed the NEOs’ job responsibilities, market data based on peer group benchmarking and internal equity. After considering these factors, the committee increased Mr. Hanson’s target award from 140% to 150% of his annual base salary and increased Mr. Tornos’ target award from 90% to 95% of his annual base salary. The committee made no changes to other NEOs’ target awards, maintaining Mr. Upadhyay’s target award at 90% of his base salary and maintaining Messrs. Yi’s and Deltort’s target awards at 80% of their respective base salaries.

The committee selected three financial measures by which to assess our 2020 performance for purposes of the awards under the annual cash incentive plan. The below table shows the selected financial performance measures, their respective weightings and the rationale for their selection.

EXECUTIVE COMPENSATION

The committee believes that together, these measures provide a balanced set of performance targets that focus on growth, profitability and operating efficiency.

As described more fully above under “EXECUTIVE SUMMARY – Impact of the COVID-19 Global Pandemic on Our Results and Executive Compensation,” in light of the ongoing impact of the COVID-19 pandemic on our business and financial results, the committee determined that the annual incentive plan performance targets approved in early February were not reasonably achievable and the plan therefore no longer served its purpose as an incentive. Acknowledging that the circumstances associated with COVID-19 were not reasonably foreseeable or within the control of the company and that it was important to provide an incentive to ensure that NEOs and all other bonus-eligible team members remained focused on achieving key performance metrics during the second half of 2020, the committee approved mid-year changes to the plan. Specifically, the committee approved revised performance targets in line with the company’s latest financial models. At the same time, the committee capped the potential payout under the plan at 100% of target in light of the revised performance targets and the ongoing uncertainty as to the impact of COVID-19 in the second half of the year.

The committee set performance metrics based on our consolidated results for all NEOs. The committee believed this was appropriate for 2020 in order to focus executives’ attention on driving total company results, rather than specific geographic or business line results, due to the negative impact of the COVID-19 pandemic on elective surgical procedure volumes globally and the corresponding adverse impact on our business.

The payout curves applied to these performance measures are shown below:

The annual performance measures, targets (as revised by the committee as discussed above), our actual performance against the targets and the resulting achievement and payout percentages for 2020 are shown in the below table. If the committee had not approved revised performance targets that it believed were reasonably achievable in light of the ongoing impact of the COVID-19 pandemic on elective surgical procedure volumes globally, our business and financial results, our actual performance in 2020 would have resulted in no payout under the original targets.

EXECUTIVE COMPENSATION

The committee believes adjusted metrics allow us to connect pay and operational performance more effectively and are more aligned with how shareholders expect the company and our peers to measure performance. The goal of adjusting metrics from GAAP requirements is to provide meaningful incremental information that allows investors to make period-to-period comparisons that are not impacted by certain items that can cause dramatic changes in reported income but that do not impact the fundamentals of our operations. The committee believes that adjusted metrics are therefore often the most appropriate metrics to use when incentivizing executives to make decisions that are aligned with the long-term interests of shareholders. While GAAP provides accounting uniformity across companies, GAAP requires the inclusion of items that may not be reflective of our core operations. In the case of EPS, we adjust for certain items in the following categories: inventory and manufacturing-related charges; intangible asset amortization; goodwill and intangible asset impairment; restructuring and other cost reduction initiative expenses; quality remediation expenses; acquisition, integration and related gains and expenses; litigation gains and charges; expenses to establish initial compliance with the European Union Medical Device Regulation; other charges; any related effects on our income tax provision associated with the foregoing items; the effect of Switzerland tax reform; and other certain tax adjustments.

The committee believes using adjusted metrics is important when setting performance targets. Using only GAAP metrics could result in performance targets that incorporate certain items outside of a management team’s control and reduce comparability and could also result in performance targets that are misaligned with the long-term interests of the company and shareholders. We believe our shareholders recognize that adjusted metrics are indicators of core operational performance. We also understand that our shareholders commonly make adjustments to inform their own views of historical and future expectations for underlying operational performance. Our disclosures showing our adjustments to GAAP earnings help guide shareholders’ own evaluation of the company’s performance. The majority of S&P 500 companies disclose non-GAAP metrics when reporting financial results, which we believe is reflective of shareholders’ interest in, and understanding of, both GAAP and non-GAAP results.

We provide thorough disclosure of the adjustments made to our GAAP financials. We provide reconciliations between EPS and adjusted EPS on a quarterly and annual basis. In addition, if the committee, in its discretion, determines any additional adjustments are appropriate, those additional discretionary adjustments are disclosed in our proxy statement, as well as a narrative explaining any discretionary adjustments. Shareholders are therefore able to see the exact adjustments we make for the purposes of their analysis. However, the committee does not believe that GAAP metrics are as appropriate for purposes of our compensation program, as it believes adjusted results better reflect core operating results.

See Appendix A for additional details on each adjustment as well as a reconciliation of EPS to adjusted EPS.

Global Quality Bonus Modifier

As noted on the inside front cover of this proxy statement, our second Guiding Principle is commitment to the highest standards of patient safety and quality in our products and services and to world-class integrity and ethical business practices. In support of this Guiding Principle, and to drive accountability for compliance with, and sustained improvements in, our global quality system, the committee included a global quality bonus modifier component to the annual cash incentive plan for 2020. As depicted in the below payout matrix, as applied to NEOs, the modifier was designed such that, based on the achievement of specified global quality metrics related to our U.S. Food and Drug Administration (“FDA”) inspection results, it could result in a decrease to the NEOs’ 2020 bonus payouts by up to five percent (5%). The payout matrix was developed based on historical information.

In 2020, across our global network, we resolved one FDA Warning Letter, we received no new FDA Warning Letters and our average number of Form 483 observations per inspection was less than 3.0. As a result, the global quality bonus modifier had no impact on 2020 bonus payouts.

EXECUTIVE COMPENSATION

Individual Performance

Once the potential payout amounts under the annual cash incentive plan were computed based on our financial performance and the global quality bonus modifier as described above, the committee considered each NEO’s individual performance during 2020 to determine the actual cash incentive payment amounts. Based on its assessment of an NEO’s individual performance, the committee could increase or decrease the NEO’s payout by up to ten percent (10%) of the NEO’s target opportunity.

The committee considered each NEO’s achievement of established goals and objectives, his contributions to our performance and other leadership attributes and accomplishments. The goals set for each NEO for 2020 reflected the wide range of responsibilities that are attributed to each and included goals pertaining to corporate strategy, growth drivers, corporate compliance and regulatory compliance, including product quality and safety, among other areas. Based on its assessment of individual performance in relation to those goals, the committee determined it was appropriate to decrease Mr. Deltort’s payout very slightly (by $859), resulting in a total payout of 94.6% of target opportunity. With respect to the other NEOs, the committee approved actual payments equal to the weighted payout percentage under the annual cash incentive plan set forth above (i.e., 94.8% of target opportunity).

2020 Annual Cash Incentive Payouts

Set forth below are the payouts to our NEOs under our annual cash incentive plan for 2020 based on company and individual performance as described above.

EQUITY INCENTIVES

Equity incentives are the most significant component of each NEO’s compensation package. The committee believes the emphasis on equity awards is appropriate as these officers have the greatest role in establishing the company’s direction and should have the greatest proportion of their compensation aligned with the long-term interests of shareholders.

In February 2020, the committee awarded an annual grant of stock options and PRSUs to each of our NEOs. These awards are discussed more fully below.

Equity Grant Value Determination

In determining target grant values for the 2020 annual grant of long-term equity-based awards, the committee reviewed market data based on peer group benchmarking in order to determine grant levels that would be competitive with the market. The committee also took into consideration other factors, including the target annual grant value awarded to each NEO in 2019, each NEO’s 2019 performance, including his contribution to our 2019 performance, the committee’s expectations of each NEO’s future contributions to the company, internal equity, shares available to be granted, potential shareholder dilution and the expense associated with stock-based compensation. The committee noted that the benchmarking review revealed that the target value of awards granted to our NEOs in 2019 significantly lagged the target value of awards granted by comparable companies to

EXECUTIVE COMPENSATION

executives in similar roles, particularly with respect to Messrs. Hanson and Tornos, and, therefore, that such awards were not adequately aligned with our compensation philosophy. After considering these factors, the committee approved the following awards in February 2020:

The committee considered these target grant values in connection with its determination of each NEO’s total compensation for 2020.

Equity Award Types

The 2020 annual equity awards granted to the NEOs included an equal mix (based on grant date fair value) of stock options and PRSUs. The stock options will have value only to the extent the price of our stock rises after the grant date and the vesting of the PRSUs is contingent on achievement of financial performance measures over a three-year period.

PRSU Design

In 2018, after considering feedback from investors and in consultation with its consultant, Willis Towers Watson, the committee approved a new plan design applicable to employees at or above the Vice President level. Feedback provided by investors was that the computation of the previous performance metric, internal total shareholder return (iTSR), driven by operating profit growth and free cash flow yield, was overly complicated and that performance metrics more directly tied to shareholder value creation would be preferable.

The new plan design measures performance based on our constant currency revenue growth and relative TSR versus the companies included in the S&P 500 Health Care Index (with each measure weighted equally). The committee selected these metrics because they directly relate to shareholder value creation.

2018 and 2019: To create greater focus and incentive around the execution of our two-year turnaround plan, for the 2018 and 2019 grants only, the design provided an opportunity for interim payouts after year one (0-33.3% of target) and year two (0-66.7% of target, less shares issued after year one) of the three-year performance period based upon performance to date. Any shares issued after the first and second years will reduce the number of shares issued after completion of the three-year performance period (but not below zero). The cumulative payout over the three-year performance period may not exceed 200% of target.

2020: For the 2020 PRSU grant, consistent with our expectations and in light of shareholder feedback as discussed in last year’s proxy statement, we returned to a three-year performance period with no opportunity for interim payouts prior to the end of the performance period.

EXECUTIVE COMPENSATION

PRSU Payouts

As discussed above under “EXECUTIVE SUMMARY – Impact of the COVID-19 Global Pandemic on Our Results and Executive Compensation,” the pandemic had a significant negative impact on our 2020 net sales due to the deferral of elective procedures, including joint replacement surgeries. This negative impact on our net sales resulted in no payout for our NEOs for 2020 under our 2018 PRSU grant and a significantly reduced payout for 2020 under our 2019 PRSU grant relative to what was projected before COVID-19 reached a pandemic level.

The performance measures, targets, actual performance against target and the resulting payouts and PRSUs earned, if any, in 2020 were as follows: