Medical Device Link.

Originally Published MX July/August 2005

FINANCE

A survey of changes in corporate governance procedures regarding executive compensation in the medical device industry was conducted by Top Five Data Services Inc. (Fremont, CA) in May 2005. That survey followed up on a survey just like it that had been conducted in December 2003 and reported in this magazine (March/April 2004, page 36).

In the initial survey, a group of 20 publicly traded companies with product offerings primarily in the medical device field and headquarters in the United States were selected. The companies must have had their initial public offering no later than December 31, 2000. Three of the companies in the initial survey, Guidant Corp., Inamed Corp., and Ocular Sciences Inc. have been or are being acquired by other companies, so they were not included in the follow-up survey. Their information has been replaced with that of three other medical device companies of similar size: Zimmer Holdings, Cytyc, and Viasys Healthcare.

The companies were categorized both times into two equal groups by revenue size. For the recent survey, those companies having 2004 revenues of at least $1 billion were designated as Tier One companies and those having 2004 revenues of less than $1 billion were designated as Tier Two companies (see Table I).

For the 17 companies that were in the initial survey, the most recent proxy statement filed with the Securities and Exchange Commission during their fiscal year that ended in 2004 was reviewed. Those proxy statements, therefore, discussed corporate governance during at least part of that calendar year. The proxy statements for the three companies that were added to the second study covered corporate governance for fiscal years that ended in 2003 and 2004.

The survey focused on certain aspects of corporate governance of executive compensation, both as existing factors for the company and in terms of whether those factors had changed since the previous survey. The issues examined included the following:

• Number of members of the compensation committee.
• Number of formal meetings of the compensation committee during the year (telephonic meetings and actions conducted by written consent were not counted).
• The existence of a formalized compensation committee charter.
• The existence of a formalized executive compensation philosophy.
• The source(s) of the compensation committee's information when making pay program determinations.
• The compensation committee's use of an independent compensation consultant.

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