DEF 14A of Inspire Medical Systems, Inc.
Filed Mar 19, 2024 · FY20230001140361-24-014155
Election of Directors
Election of Directors Board Size, Structure, and Election Process Our certificate of incorporation as currently in effect (“Certificate of Incorporation”) provides that the number of directors shall be established from time to time by our Board of Directors. Our Board of Directors has fixed the number of directors at nine, effective immediately following the Annual Meeting on May 2, 2024, and after the Annual Meeting we will have nine directors serving on the Board (see “Current Directors and Terms” below). Our Certificate of Incorporation provides that the Board be divided into three classes, designated as Class I, Class II, and Class III, serving staggered three-year terms, provided that the term of each director will continue until the election and qualification of his or her successor and is subject to his or her earlier death, resignation, or removal. At each annual meeting of stockholders, the Board proposes a slate of nominees to the stockholders for election of directors in the class whose term is expiring. Between annual meetings, the Board may elect directors to fill vacancies with new directors allocated among classes and each class should consist, as nearly as may be possible, of one-third of the total number of directors. As described further below, the Board believes that the current classified structure is appropriate for the Company at this stage and time. Effective February 1, 2024, the Board updated the Corporate Governance Guidelines to provide that in an uncontested election of directors, any nominee for director who does not receive a majority of the votes cast for his or her election shall offer to resign from the Board. The Nominating and Corporate Governance Committee shall promptly consider the resignation offer and recommend to the full Board whether to accept it. The Board will act on the Nominating and Corporate Governance Committee’s recommendation within 90 days following the certification of the stockholder vote by the inspector of elections, and will disclose its decision and the reasons for rejecting the offer, if applicable, in a current report on Form 8-K. Any director who tenders his or her offer to resign from the Board pursuant to the Corporate Governance Guidelines may not participate in the Nominating and Corporate Governance Committee or Board deliberations regarding whether to accept the offer of resignation. The Board believes that this process enhances accountability to stockholders and responsiveness to stockholders’ votes, while allowing the Board appropriate discretion in considering whether a particular director’s resignation would be in the best interests of the Company and its stockholders. Current Directors and Terms As of the date of this Proxy Statement, the Class I directors with a term ending at the 2025 annual meeting of stockholders are Shelley G. Broader, Timothy P. Herbert and Shawn T McCormick; the Class II directors with a term ending at the 2026 annual meeting of stockholders are Cynthia B. Burks, Gary L. Ellis, Georgia Garinois-Melenikiotou, and Dana G. Mead, Jr.; and the Class III directors with a term ending at the Annual Meeting are Myriam J. Curet, M.D., Jerry C. Griffin, M.D., Marilyn Carlson Nelson and Casey M. Tansey. Dr. Jerry C. Griffin and Ms. Marilyn Carlson Nelson, both Class III directors, are not seeking re-election, and their Board service will end at the Annual Meeting. Additionally, Charisse Y. Sparks, M.D., was appointed as the Company’s Chief Medical Officer, effective July 27, 2023. In connection with this appointment, Dr. Sparks resigned from the Board of Directors effective upon the commencement of her employment with the Company. On December 28, 2023, the Board of Directors appointed Dr. Myriam J. Curet as a new independent director to the Board, and to serve on the Board’s Nominating and Corporate Governance Committee. Dr. Curet is serving as a Class III director and is standing for election at this Annual Meeting. Dr. Curet was initially identified as a potential candidate for our Board by an independent search firm that assisted the Nominating and Corporate Governance Committee in identifying and evaluating potential candidates. Dr. Curet brings extensive business and executive leadership experience in the medical device industry to our Board, including significant experience in developing and commercializing scalable solutions for minimally invasive surgery.
Election of Directors
| Inspire Medical Systems, Inc. | 5 | 2024 Proxy Statement |
Election of Directors
| | PROPOSAL NO. 1 |
Election of Directors
As a result of Dr. Griffin’s and Ms. Carlson’s retirement:
Election of Directors
| • | On March 14, 2024, Ms. Shelley G. Broader resigned as a Class I director and was elected by the Board as a Class III director, in each case effective immediately prior to the Annual Meeting. The Board has nominated Ms. Broader for re-election as a Class III director at the Annual Meeting. If re-elected, Ms. Broader will serve as a Class III director with a term to expire at the 2027 annual meeting. |
Election of Directors
| • | On March 14, 2024, Ms. Cynthia B. Burks resigned as a Class II director and was elected by the Board as a Class I director, in each case effective immediately prior to the Annual Meeting, to serve with a term to expire at the 2025 annual meeting. |
Election of Directors
The foregoing changes were effected solely to rebalance the Board’s classes and, for all other purposes, including committee service and compensation, Ms. Broader’s and Ms. Burks’s service on the Board is deemed to have continued uninterrupted. If elected, our directors and their respective classes following the Annual Meeting will be as follows:
Election of Directors
| Class III Directors | Class I Directors | Class II Directors | | Shelley G. Broader | Cynthia B. Burks | Gary L. Ellis | | Myriam J. Curet, M.D. | Timothy P. Herbert | Georgia Garinois-Melenikiotou | | Casey M. Tansey | Shawn T McCormick | Dana G. Mead, Jr. |
Election of Directors
Nominees for Director Ms. Broader, Dr. Curet, and Mr. Tansey have been nominated by the Board to stand for election at the Annual Meeting. If elected by the stockholders at the Annual Meeting, Ms. Broader, Dr. Curet, and Mr. Tansey will each serve for a term expiring at the annual meeting to be held in 2027 (the “2027 Annual Meeting”) and until the election and qualification of her or his successor, or until her or his earlier death, resignation or removal. Each person nominated for election has agreed to serve if elected, and management and the Board have no reason to believe that any nominee will be unable to serve. If, however, prior to the Annual Meeting, the Board of Directors should learn that any nominee will be unable to serve for any reason, the proxies that otherwise would have been voted for this nominee will be voted for a substitute nominee selected by the Board. Alternatively, the proxies, at the Board’s discretion, may be voted for that fewer number of nominees as results from the inability of any nominee to serve.
Election of Directors
| | OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE “FOR” THE ELECTION OF Shelley G. Broader, Myriam J. Curet, and Casey M. Tansey AS CLASS III DIRECTORS to hold office until the 2027 Annual Meeting and until their respective successors have been duly elected and qualified. |
Election of Directors
| Inspire Medical Systems, Inc. | 6 | 2024 Proxy Statement |
Election of Directors
| | PROPOSAL NO. 1 |
Election of Directors
Information About Board Nominees and Continuing Directors The following pages contain certain biographical information as of March 19, 2024 for each nominee for director and each director whose term as a director will continue after the Annual Meeting, including all positions she or he holds, her or his principal occupation and business experience for the past five years, and the names of other publicly held companies of which the director or nominee currently serves as a director or has served as a director during the past five years. We believe that all of our directors and nominees have or display: personal and professional integrity; satisfactory levels of education and/or business experience; broad-based business acumen; an appropriate level of understanding of our business and its industry and other industries relevant to our business; the ability and willingness to devote adequate time to the work of our Board and its committees; skills and personality that complement those of our other directors and that helps build a board of directors that is effective, collegial and responsive to the needs of our company; strategic thinking and a willingness to share ideas; a diversity of experiences, expertise and background; and the ability to represent the interests of all of our stockholders. The information presented below in the matrix and included in detail provided for each nominee and continuing director also sets forth specific experience, qualifications, attributes and skills that led our Board to the conclusion that such individual should serve as a director in light of our business and structure.
Election of Directors
| | Broader | Burks | Curet | Ellis | Garinois- Melenikiotou | Herbert | McCormick | Mead | Tansey | | Consumer Marketing / Brand Mgmt. | • | | | | • | | | | | | Financial / Capital Markets | | | | • | • | • | • | | • | | Industry and Technology | | | • | • | | • | • | • | • | | International / Global | • | • | | • | • | | | • | | | Legal / Compliance | | • | • | | | | | | | | Mfg. / Operations / Supply Chain | | | | | | | • | | | | Medical Professional | | | • | | | | | | | | Talent / Human Capital Mgmt. | | • | | | | | | | | | Public Company CEO | • | | | | | • | | • | • |
Election of Directors
| Consumer Marketing / Brand Mgmt. includes direct-to-consumer, brand management, and segment marketing | Financial / Capital Markets includes expertise relating to finance and capital formation strategies, familiarity with complex financial and accounting concepts, and deep understanding of financial statements | Industry and Technology includes development of medical devices, digital, and other emerging technologies, particularly those impactful to medical device development | | International / Global includes knowledge of local markets outside the U.S. and insights regarding global business and cultural perspectives | Legal / Compliance includes knowledge of quality and other regulatory requirements relevant to medical device companies | Mfg. / Operations / Supply Chain includes responsibility for oversight of the manufacturing process and management of suppliers | | Medical Professional includes time as a practicing physician and experience as an active member of a medical community | Talent / Human Capital Mgmt. includes expertise with talent strategies, organization health and culture, compensation programs, and organizational design | Public Company CEO includes an understanding of the complexities inherent in running a public company that helps the Board independently oversee management |
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| Inspire Medical Systems, Inc. | 7 | 2024 Proxy Statement |
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| | PROPOSAL NO. 1 |
Election of Directors
CLASS III DIRECTOR NOMINEES FOR ELECTION TO THREE-YEAR TERMS EXPIRING AT THE 2027 ANNUAL MEETING OF STOCKHOLDERS
Election of Directors
| Shelley G. Broader Age: 59 Independent director since: 2020 Committee(s): • Organization and Compensation, Chair | Experience: • Chief Executive Officer and President, Chico’s FAS, Inc., a fashion retailer (2015 – 2019) • Walmart Inc., a multinational retail company (2009 – 2015): ▪ President and Chief Executive Officer, Walmart Europe, Middle East and Sub-Saharan Africa region (2014 – 2015); ▪ President and Chief Executive Officer, Walmart Canada Corp. (2011 – 2014); ▪ Chief Merchandising Officer, Walmart Canada Corp. (2010 – 2011); ▪ Senior Vice President, Sam’s Club, a division of Walmart (2009 – 2010) | | | Qualifications: • International / Global experience gained through leadership of multinational brands helps Ms. Broader bring value to our Board in guiding our global strategy. • Consumer Marketing / Brand Management expertise acquired through her career in retail enables her to contribute extensive insights regarding consumer perspectives. • Public Company CEO experience gained through her service as CEO and President of Chico’s enables her to share strategies and perspectives that are relevant to the Board’s oversight responsibilities. | | | Other Public Boards: • Loblaw Companies Limited (since 2022) • Dutch Bros Inc. (since 2021) • Chico’s FAS, Inc. (2015 – 2019) • Raymond James Financial, Inc. (2008 – 2020) | | | Other Organizations: • Director, IFCO Systems (since 2021) | | | Education: • B.A., Washington State University |
Election of Directors
| Inspire Medical Systems, Inc. | 8 | 2024 Proxy Statement |
Election of Directors
| | PROPOSAL NO. 1 |
Election of Directors
| Myriam J. Curet, M.D. Age: 67 Independent director since: 2023 Committee(s): • Nominating and Corporate Governance | Experience: • Intuitive Surgical, a global technology leader in minimally invasive care and the pioneer of robotic-assisted surgery: ▪ Executive Vice President and Chief Medical Officer (since 2017); ▪ Senior Vice President and Chief Medical Officer (2014 – 2017); ▪ Chief Medical Advisor (2005 – 2014) • Stanford University: Clinical Professor of Surgery (since 2015); ▪ Professor (2000 – 2015) • Associate Professor of Surgery, University of New Mexico (1994 – 2000) • Held various positions, Indian Health Service, an agency within the Department of Health and Human Services • Medical Deputy Director, Gallup Indian Medical Center in New Mexico | | | Qualifications: • Medical Professional experience developed through three decades working in healthcare and academia allows Dr. Curet to provide valuable insights into how to educate and work with medical professionals. • Industry and Technology experience gained through her service on the boards of medical device and biopharma companies and her various senior-level roles at Intuitive Surgical has resulted in a deep knowledge of our industry and technology. • Legal / Compliance expertise acquired through her leadership at Intuitive Surgical, including overseeing the development of clinical evidence, physician education, and reimbursement and regulatory activities, is a core competency for Board oversight of the Company. | | | Other Public Boards: • Stereotaxis (since 2021) • Nektar Therapeutics (since 2019) | | | Education: • B.A., Bryn Mawr College • M.D., Harvard Medical School • Residency, University of Chicago • Fellowship, surgical endoscopy, University of New Mexico |
Election of Directors
| Inspire Medical Systems, Inc. | 9 | 2024 Proxy Statement |
Election of Directors
| | PROPOSAL NO. 1 |
Election of Directors
| Casey M. Tansey Age: 66 Independent Director since: 2008 Committee(s): • Organization and Compensation | Experience: • U.S. Venture Partners, a venture capital investment firm: ▪ Managing Partner (since 2014); ▪ Managing Member (2005 – 2014) | | | Qualifications: • Industry and Technology expertise gained through more than three decades in the medical device industry holding roles at companies such as Epicor Medical, Heartport, Inc., a public company that helped pioneer minimally-invasive cardiac surgery, and Baxter Edward enables Mr. Tansey to bring valuable industry knowledge to our Board. Additionally, his years of experience supporting early-stage medical device companies, including at Epicor Medical, Baxter Edward, and now at U.S. Venture Partners, where his focuses include the development of minimally invasive technologies, helps him contribute deep knowledge of technologies critical to our business. • Public Company CEO experience gained through his service as CEO of Heartport enables him to share perspectives that are relevant to the Board’s oversight responsibilities. • Financial / Capital Markets expertise acquired through extensive experience at his current firm investing in the medical device, biotechnology and healthcare information technology sectors enable him to offer invaluable insights and perspectives regarding financial and capital markets. | | | Other Public Boards: • Intersect ENT, Inc. (2006 – 2017) | | | Education: • B.S. and M.B.A., College of Notre Dame |
Election of Directors
| Inspire Medical Systems, Inc. | 10 | 2024 Proxy Statement |
Election of Directors
| | PROPOSAL NO. 1 |
Election of Directors
CLASS I DIRECTORS WHOSE TERM EXPIRE AT THE 2025 ANNUAL MEETING OF STOCKHOLDERS
Election of Directors
| Cynthia B. Burks Age: 58 Independent Director since: 2022 Committee(s): • Organization and Compensation | Experience: • Genentech, Inc., a biotechnology company that is a member of the Roche: ▪ Group Senior Vice President and Chief People and Culture Officer (2019 – 2021); ▪ Vice President, Head of Human Resources, Genentech Research and Early Development (2015 – 2019); ▪ held various human resource management roles (2011 – 2015) • Held human resource and organizational development positions in industries including media, consumer goods and technology (1999 – 2011) | | | Qualifications: • Talent Management / Human Capital Strategy expertise gained through her significant career in human resources, enable Ms. Burks to help advise the Company on its human capital strategy in areas critical to our business, including talent management, succession planning, compensation strategy, designing culture to increase competitive advantage, diversity, equity and inclusion, and organizational design. • International / Global experience gained in service in various senior-level leadership roles with global responsibility at Genentech enables Ms. Burks bring value to our Board in guiding our global strategy. • Legal / Compliance expertise acquired through her education as an attorney and service in various senior-level human resources roles at Genentech where she was responsible for successfully executing strategies and other initiatives subject to complex rules and regulatory requirements, enables her to share perspectives that are relevant to the Board’s oversight responsibilities. | | | Education: • B.S., Finance, Marquette University • M.B.A., Thunderbird School of Global Management at Arizona State University • J.D., University of San Francisco School of Law | | | Other Public Boards: • WD-40 Company (since 2022) | | | Private Boards and Other Organizations • Director, Sellars Absorbent Materials Company, a privately owned manufacturer of recycled paper products (since 2022) • Director, Torch, a start-up company offering integrated coaching, mentoring, and learning software (since 2022) • Board member, Juma Ventures, a non-profit social enterprise that operates businesses with the purpose of employing young people (since 2021) |
Election of Directors
| Inspire Medical Systems, Inc. | 11 | 2024 Proxy Statement |
Election of Directors
| | PROPOSAL NO. 1 |
Election of Directors
| Timothy P. Herbert President & Chief Executive Officer Chair of the Board following Annual Meeting Age: 61 Director since: 2007 | Experience: • President and Chief Executive Officer, Inspire Medical Systems, Inc. (since 2007 when he founded the Company) • Held management positions in product development, clinical research, sales, marketing, and healthcare reimbursement at Medtronic plc, a medical equipment development company (1996 – 2007) | | | Qualifications: • Industry and Technology experience gained through an extensive career in the healthcare and medical device industry, including founding Inspire, enable Mr. Herbert to bring deep knowledge of our business, products and industry to the Board. Additionally, his experience obtained through his time at Medtronic and Inspire, where he was instrumental to successfully developing the technology at the Company’s foundation, strengthen his ongoing Board contributions. • Financial / Capital Markets experience and expertise gained leading capital formation strategies and initiatives, including equity financing and stock offerings, enable Mr. Herbert to offer invaluable insights and perspectives regarding financial and capital markets. • Public Company CEO experience gained through his long tenure leading Inspire make him well suited to help our Board with governance and set strategy. | | | Education: • B.S., Electrical Engineering, North Dakota State University • M.B.A., University of St. Thomas |
Election of Directors
| Inspire Medical Systems, Inc. | 12 | 2024 Proxy Statement |
Election of Directors
| | PROPOSAL NO. 1 |
Election of Directors
| Shawn T McCormick Age: 59 Independent Director since: 2017 Committee(s): • Audit, Chair | Experience: • Chief Financial Officer, Aldevron, LLC, a technology company specializing in the manufacture of plasmid DNA, mRNA and proteins (2020 – 2022, several months after Aldevron was acquired by Danaher Corporation) • Chief Financial Officer, Tornier N.V., a global orthopedic company (2012 - 2015 when Tornier merged with Wright Medical Group, Inc.) • Chief Operating Officer, Lutonix, Inc., a medical device company (2011 – 2012) • Chief Financial Officer and Senior Vice President, ev3 Inc., a global endovascular company (2009 - 2010 when ev3 was acquired by Covidien plc) • Held various positions at Medtronic plc, including as its Vice President, Corporate Development, where he was responsible for leading Medtronic's worldwide business development activities, and Vice President of Finance for the Spinal, Biologics and Navigation business (1992 - 2009) | | | Qualifications: • Financial / Capital Markets expertise developed through his experience in finance leadership roles, including service as CFO for several public companies, helps Mr. McCormick bring valuable knowledge of financial oversight and reporting to our Board. • Ιndustry and Technology experience gained through more than three decades working in the healthcare and medical device industries adds valuable industry perspective to our Board. Additionally, gained through his significant career in the medical sector and with medical device companies have given him a deep understanding of technologies in our industry that are core to the Company’s business and strategy. • Mfg. / Operations / Supply Chain experience gained as COO of Lutonix, enable Mr. McCormick to offer invaluable insights and perspectives regarding the Company’s manufacturing, operations and supply chain strategies and related initiatives. | | | Education: • B.S., Accounting, Arizona State University • M.B.A., University of Minnesota's Carlson School of Management • Certified Public Accountant (inactive) | | | Other Public Boards: • Nevro Corp. (since 2014) • Entellus Medical, Inc. (2014 – 2018) • Surmodics, Inc. (2015 – 2020) |
Election of Directors
| Inspire Medical Systems, Inc. | 13 | 2024 Proxy Statement |
Election of Directors
| | PROPOSAL NO. 1 |
Election of Directors
CLASS II DIRECTORS WHOSE TERMS EXPIRE AT THE 2026 ANNUAL MEETING OF STOCKHOLDERS
Election of Directors
| Gary L. Ellis Age: 67 Lead Independent Director following Annual Meeting Independent Director since: 2019 Committee(s): • Nominating and Corporate Governance, Chair | Experience: • Medtronic plc and its subsidiary, Medtronic, Inc., a global medical technology company: ▪ Executive Vice President, Global Operations, Information Technology and Facilities & Real Estate (June 2016 - December 2016); ▪ Executive Vice President and Chief Financial Officer, Medtronic, Inc. (2014 – 2016); ▪ Senior Vice President and Chief Financial Officer, Medtronic, Inc. (2005 – 2014); ▪ Vice President, Corporate Controller and Treasurer, Medtronic, Inc. (1999 – 2005) | | | Qualifications: • Financial / Capital Markets expertise acquired through an extensive career in accounting and finance, including as CFO of Medtronic for more than 10 years and before that as a Senior Audit Manager for PwC, helps Mr. Ellis bring valuable knowledge of financial oversight and reporting to our Board. • Industry and Technology experience gained during his almost two decades at Medtronic helps him bring deep knowledge of our Industry to the Board. • International / Global experience developed during his tenure at Medtronic, including his service as EVP, Global Operations, allow him to bring a global operations perspective to our Board. | | | Other Public Boards: • The Toro Company (since 2006) • Hill-Rom Holdings, Inc. (2017 – 2021) • Itamar Medical Ltd. (2007 – 2017) | | | Education: • B.S., Accounting, University of South Dakota • Certified Public Accountant (inactive) |
Election of Directors
| Inspire Medical Systems, Inc. | 14 | 2024 Proxy Statement |
Election of Directors
| | PROPOSAL NO. 1 |
Election of Directors
| Georgia Garinois- Melenikiotou Age: 64 Independent Director since: 2020 Committee(s): • Audit | Experience: • The Estée Lauder Companies (“ELC”), a global beauty products company: ▪ Executive Vice President, Corporate Marketing (2015 – 2020); ▪ Senior Vice President, Corporate Marketing (2010 – 2014) • Had a 27-year career including several senior leadership positions at Johnson & Johnson, a global manufacturer of medical devices, pharmaceutical products, and consumer packaged goods (1983 – 2010), including serving as President, J&J Consumer France, President, Global Business Unit Strategy and New Growth, and Global President, Beauty | | | Qualifications: • International / Global experience gained through Ms. Garinois-Melenikiotou’s leadership roles at multinational companies, including roles in Belgium, France, Greece, Italy, Switzerland, and the United Kingdom, allow her to add a global business perspective to our Board. • Consumer Marketing expertise developed while serving in senior roles overseeing marketing initiatives at Estée Lauder, help her bring to the Board extensive knowledge of consumer perspectives and trends. • Financial / Capital Markets experience gained establishing and executing corporate finance strategies in senior-level roles enable her to offer invaluable insights and perspectives regarding the Company’s capital and finance strategies. | | | Other Public Boards • Almirall, S.A. (2015 - 2022) • Douglas Group (director nominee; appointment to become effective upon the completion of company’s initial public offering) • Natura & Co (since 2021) • Pulmonx Corporation (since 2020) | | | Education • B.S. and M.S., Engineering, National Technical University of Athens • M.B.A., Sloan School of Management at M.I.T. |
Election of Directors
| Inspire Medical Systems, Inc. | 15 | 2024 Proxy Statement |
Election of Directors
| | PROPOSAL NO. 1 |
Election of Directors
| Dana G. Mead, Jr. Age: 64 Independent Director since: 2008 Committee(s): • Audit • Nominating and Corporate Governance (after Annual Meeting) | Experience: • Chief Executive Officer and President, HeartFlow, Inc., a digital health company transforming how heart disease is diagnosed and treated (2019 - 2021) • Chief Executive Officer and President, Beaver-Visitec International, Inc., a surgical device developer and manufacturer (2016 - 2019) • Partner, Kleiner Perkins Caufield & Byers, a venture capital investment firm (2005 - 2016) | | | Qualifications: • Industry and Technology experience developed through Mr. Mead’s roles as CEO of a surgical device developer and manufacturer and at a digital health company, help him add valuable experience in our industry to the Board. He also brings technology expertise gained as CEO and President of HeartFlow, a company focused on the transformation of the diagnosis and treatment of heart disease, enable him to bring to the Board valuable insights in the emerging field of digitization, which is an important aspect of the Company’s strategy. • International / Global experience gained in various senior-level leadership roles with global responsibilities, including President, Asia Pacific Operations for Guidant Corporation, enables Mr. Mead to bring value to our Board in guiding our global strategy. • Public Company CEO experience acquired through his CEO roles with HeartFlow and Beaver-Visitec allows him to provide the Board with valuable senior leadership and governance perspective. | | | Other Public Boards • Inari Medical Inc., a commercial-stage medical device company (since 2021) • Pulmonx Corporation, (since 2010), Chairman since 2019 • Intersect ENT, Inc., (2007 – 2022) • HeartFlow (2019 – 2021) | | | Education • B.A., Lafayette College • M.B.A., University of Southern California. |
Election of Directors
| Inspire Medical Systems, Inc. | 16 | 2024 Proxy Statement |
Corporate Governance
| • | Board size, independence, and qualifications | • | Director compensation | | • | Classes of directors and election process | • | Stock ownership | | • | Executive sessions of independent directors | • | Board access to senior management | | • | Board leadership structure | • | Board access to independent advisors | | • | Selection of new directors | • | Board self-evaluations | | • | Director orientation and continuing education | • | Board meetings | | • | Limits on board service | • | Meeting attendance by directors and non-directors | | • | Change of principal occupation of directors | • | Meeting materials | | • | Term limits | • | Board committees, responsibilities, and independence | | • | Director responsibilities | • | Succession planning |
Corporate Governance
| • | reviewing and making recommendations to our Board of Directors regarding director compensation; |
Director Compensation
Director Compensation Non-Employee Director Compensation Policy We maintain a compensation policy that provides cash and equity compensation to our non-employee directors for their service on the Board and its committees as discussed below. On a periodic basis, the Organization and Compensation Committee reviews the policy to ensure that the level of compensation is appropriate to attract and retain a diverse group of directors with the breadth of experience necessary to perform our Board’s duties and to compensate our directors fairly for their services, and to determine whether any recommendations for adjustment should be made to the Board. The review includes the consideration of qualitative and comparative factors. To ensure directors are compensated relative to the scope of their responsibilities, the Organization and Compensation Committee considers: (1) the time and effort involved in preparing for Board and committee meetings and the additional duties assumed by committee chairs and our chair; (2) the risks associated with fulfilling fiduciary duties; and (3) the compensation paid to directors at the same peer group of companies used to assess the competitiveness of our executive compensation programs. All cash and equity awards granted under the non-employee director compensation policy will be granted under, and subject to the limits of, the Inspire Medical Systems, Inc. 2018 Incentive Award Plan (“2018 Plan”). On April 27, 2023, the Board approved changes to the 2023 compensation for our non-employee directors upon the recommendation of the Organization and Compensation Committee and our independent compensation consultant in order to maintain the competitiveness of our director compensation program with our peers. As a result, the general annual Board retainer was increased to $50,000 and the equity retainer was changed from a combination of stock options and restricted stock units (“RSUs”) to be comprised of solely RSUs. Cash Compensation. Under the policy last amended April 27, 2023, each of our non-employee directors is eligible to receive an annual retainer of $50,000. Our non-employee directors are also eligible to receive additional annual retainers as follows:
Director Compensation
| • | the chair of the Board receives an additional annual cash retainer of $50,000; |
Director Compensation
| • | the chair of the Audit Committee receives an additional annual cash retainer of $20,000, and the non-chair members of that committee receive an additional annual cash retainer of $10,000; |
Director Compensation
| • | the chair of the Organization and Compensation Committee receives an additional annual cash retainer of $15,000, and the non-chair members of that committee receive an additional annual cash retainer of $7,500; and |
Director Compensation
| • | the chair of the Nominating and Corporate Governance Committee receives an additional annual cash retainer of $15,000, and the non-chair members of that committee receive an additional annual cash retainer of $7,500. |
Director Compensation
The cash retainers are paid quarterly following the completion of each calendar quarter. The Board may, in its discretion, permit a non-employee director to elect to receive any portion of the annual cash retainer in the form of fully vested and unrestricted shares of common stock in lieu of cash. Equity Compensation. In addition to the cash compensation described above, each of our non-employee directors is eligible to receive an award of stock options as compensation for his or her service on the Board. Upon a director’s initial election or appointment to the Board, such director will receive an award of RSUs having a grant date fair value of $270,000, which award will vest in three equal installments following the grant date. On an annual basis thereafter, each non-employee director is eligible to receive an award of RSUs having a grant date fair value of $180,000, which award will vest on the first anniversary of the grant date. The initial and annual awards will be subject to the director’s continuing service through the applicable vesting dates. All initial and annual awards will vest in full immediately prior to the occurrence of a Change in Control (as defined in the 2018 Plan).
Director Compensation
| Inspire Medical Systems, Inc. | 28 | 2024 Proxy Statement |
Director Compensation
| | DIRECTOR COMPENSATION |
Director Compensation
Director Compensation Table for Fiscal 2023 The following table sets forth information concerning the compensation of our non-employee directors for the fiscal year ended December 31, 2023:
Director Compensation
| Name | Fees Earned or Paid in Cash ($) | Stock Awards ($)(2)(5) | Total ($) | | Shelley G. Broader | 63,379(1) | 180,000 | 243,379 | | Cynthia B. Burks | 55,879 | 180,000 | 235,879 | | Myriam J. Curet, M.D.(3) | 1,563 | 270,000 | 271,563 | | Gary L. Ellis | 63,379(1) | 180,000 | 243,379 | | Georgia Garinois-Melenikiotou | 58,379(1) | 180,000 | 238,379 | | Jerry C. Griffin, M.D. | 55,879 | 180,000 | 235,879 | | Dana G. Mead, Jr. | 58,379 | 180,000 | 238,379 | | Shawn T McCormick | 68,379 | 180,000 | 248,379 | | Marilyn Carlson Nelson | 95,137(1) | 180,000 | 275,137 | | Charisse Y. Sparks, M.D.(4) | 31,348(1) | 180,000 | 211,348 | | Casey M. Tansey | 55,879(1) | 180,000 | 235,879 |
Director Compensation
| (1) Each of Ms. Broader, Mr. Ellis, Ms. Garinois-Melenikioutou, Ms. Nelson, Dr. Sparks, and Mr. Tansey elected to receive such amounts, or a portion of such amounts, in the form of fully vested shares of our common stock in lieu of cash payment, which resulted in the issuance of 306 shares of our common stock to Ms. Broader, 306 shares of our common stock to Mr. Ellis, 282 shares of our common stock to Ms. Garinois-Melenikioutou, 464 shares of our common stock to Ms. Nelson, 126 shares of our common stock to Dr. Sparks, and 270 shares of our common stock to Mr. Tansey. Due to a clerical error in which the April 2023 increase to the annual cash retainer to $50,000 was not taken into account for purposes of determining the number of such shares to be issued to electing directors, such electing directors were not issued the full number of shares to which they were entitled with respect to the second and third quarters in 2023. As a result, on January 16, 2024, each of Ms. Broader, Mr. Ellis, Ms. Garinois-Melenikioutou, Ms. Nelson, Dr. Sparks, and Mr. Tansey were issued an additional number of true-up shares equal to the remaining number of shares to which they were respectively entitled with respect to the second and third quarters of 2023. |
Director Compensation
| (2) Amounts reflect the full grant date fair value of restricted stock units granted during fiscal 2023 computed in accordance with ASC 718, rather than the amounts paid to or realized by the named director. We provide information regarding the assumptions used to calculate the value of all restricted stock units in Note 6 to our audited consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023. The table below shows the aggregate numbers of unvested restricted stock units held as of December 31, 2023 by each director who was serving as of December 31, 2023. |
Director Compensation
| Name | Unvested Restricted Stock Units | | Shelley G. Broader | 669 | | Cynthia B. Burks | 669 | | Myriam J. Curet, M.D. | 1,384 | | Gary L. Ellis | 669 | | Georgia Garinois-Melenikiotou | 669 | | Jerry C. Griffin, M.D. | 669 | | Dana G. Mead, Jr. | 669 | | Shawn T McCormick | 669 | | Marilyn Carlson Nelson | 669 | | Casey M. Tansey | 669 |
Director Compensation
| (3) Dr. Curet commenced service as a member of the board on December 21, 2023. |
Director Compensation
| (4) Dr. Sparks resigned from the Board effective July 27, 2023 in connection with her appointment as the Company’s Chief Medical Officer. |
Director Compensation
| Inspire Medical Systems, Inc. | 29 | 2024 Proxy Statement |
Director Compensation
| | DIRECTOR COMPENSATION |
Director Compensation
| (5) No stock options were granted to our non-employee directors during 2023. The table below shows the aggregate numbers of stock option awards (exercisable and unexercisable) held as of December 31, 2023 by each director who was serving as of December 31, 2023. |
Director Compensation
| Name | Number of Shares of Common Stock Underlying Options Outstanding at Fiscal Year End | | Shelley G. Broader | 5,531 | | Cynthia B. Burks | 1,823 | | Myriam J. Curet, M.D. | — | | Gary L. Ellis | 11,180 | | Georgia Garinois-Melenikiotou | 4,974 | | Jerry C. Griffin, M.D. | 14,784 | | Dana G. Mead, Jr. | 27,784 | | Shawn T McCormick | 38,821 | | Marilyn Carlson Nelson | 23,060 | | Casey M. Tansey | 27,784 |
Director Compensation
| Inspire Medical Systems, Inc. | 30 | 2024 Proxy Statement |
Executive Compensation
Substantial Majority of Compensation, is Variable and At-Risk; Continued to Utilize Performance Stock Units Compensation Philosophy Based on Pay for Performance. Our compensation philosophy is performance-based and focuses on aligning the financial interests of our executive officers with those of our stockholders. Generally, this is accomplished by placing a substantial portion of our executive officers’ total compensation “at risk.” We consider compensation to be “at-risk” if it is subject to achievement of meaningful pre-set, objective financial or operating goals, such as in our cash-based management incentive program, or if it depends on stock price appreciation or value, as in our long-term incentive program. Consistent with the market practice of similar, newly public companies in our industry, and in order to focus executives on growth and increasing stockholder value at our early stage of development, our long-term incentive (“LTI”) program historically consisted solely of stock options. In our view, stock options are simple and inherently performance-based, requiring stock price appreciation before there is any value earned. Performance Stock Units. As the Company has continued to evolve and mature following its IPO in 2018, the Organization and Compensation Committee has correspondingly sought to evolve the executive compensation program as appropriate for a company of our stage of development and size. In particular, the Organization and Compensation Committee is in the midst of a multi-year plan to transition the amounts and forms of compensation to those aligned with public companies, including those in our peer group, by having a more typical, regular program of equity grants.
Executive Compensation
In this regard, beginning in 2022, the Organization and Compensation Committee introduced performance stock units (“PSUs”) as a component of our LTI program. The performance-based metrics associated with these awards, in conjunction with the proportion of total compensation that was variable and at-risk, further enhanced the link between pay and performance for our executive officers, as well as strengthened the alignment of their interests with those of our stockholders. As shown in the graphic below, in fiscal 2023, approximately 91% of our CEO’s target total direct compensation was variable and at-risk compensation, and on average, approximately 81% of the target total direct compensation of our other NEOs was variable and at-risk.
Executive Compensation
| (1) The total direct compensation of our NEOs as reflected in the above graphic differs from the total in the “Summary Compensation Table” because it (a) reflects base salaries approved by the Organization and Compensation Committee, including promotion adjustments, with respect to Mr. Weatherby, (b) only includes cash incentive opportunity at “target”, rather than actual payout, and (c) includes the aggregate grant date fair value of stock options and PSUs granted during fiscal 2023, as discussed in the section entitled “Long-term Incentives” below, and excludes all other amounts. The Organization and Compensation Committee views target total direct compensation as a useful measure of pay because it reflects the intended aggregate value of key elements of pay at the time the pay decision is made. |
Executive Compensation
The performance-based metrics and the proportion of total compensation that was variable and at-risk further enhanced the link between pay and performance for the CEO and other NEOs and strengthened the alignment of the interests of our NEOs with those of our stockholders. See the following pages for more details on the elements of our compensation program. Short-Term Annual Cash Incentive: Rigorous, Pre-Set Financial, Operating, and Regulatory/Product Development Goals, Strong Performance Achievement, and Annual Incentive Plan Payouts Reflecting Pay for Performance Alignment At the outset of 2023, we established goals for the revenue, operating income or loss, global insurance reimbursement approvals, and regulatory and product development objectives metrics under our annual cash Management Incentive Program (“MIP”). These objectives were rigorous, aggressive, and challenging, attainable only with strong performance, and took into account the relevant opportunities and risks. The revenue target represented a 52% increase over the prior year’s actual results, reflecting our ambitious business and operational plans for the year. In order to earn any payout with respect to this most heavily weighted goal, a minimum of 90% of target performance had to be achieved. The Organization and Compensation Committee also set similarly challenging targets and threshold levels for the other performance metrics and evaluated performance achievement relative to the goals. I. COMPENSATION PHILOSOPHY AND OBJECTIVES Inspire Medical Systems, Inc. is a medical technology company focused on the development and commercialization of innovative, minimally invasive solutions for patients with obstructive sleep apnea. We believe that for us to be successful, we must hire and retain highly-skilled and experienced people who can continue to develop and execute our strategy, innovate our products and services and lead our team.
Executive Compensation
| • | attract, motivate, reward, and retain employees at the executive level who contribute to our long-term success; |
Executive Compensation
| • | effectively align our executives’ interests with those of our stockholders, in part by focusing on long-term equity incentives that correlate with the growth of sustainable long-term value for our stockholders; |
Executive Compensation
| • | align our performance metrics with our corporate strategy and the achievement of our business objectives; and |
Executive Compensation
Committee and the fees paid for those services in relation to the firm’s total revenues. On the basis of its consideration of the foregoing and other relevant factors, the Organization and Compensation Committee concluded that Aon was independent and that there were no conflicts of interest. Compensation Peer Group and Peer Selection Process The Organization and Compensation Committee believes that obtaining relevant market and benchmark data is of paramount importance in its executive compensation determinations. Such information provides helpful context and a solid reference point when making compensation decisions, though unique aspects of the Company and our business may ultimately drive compensation decisions that differ from our peers. The Organization and Compensation Committee takes into consideration the structure and components of, and the amounts paid under, the executive compensation programs of other comparable peer companies. This information is derived from public filings and other sources when making decisions about the structure and component mix of our executive compensation program. The Organization and Compensation Committee, with the assistance of Aon, developed a peer group using criteria designed to identify companies that reflect our size (measured by revenue, market capitalization, number of employees, and other size measures) and business profile (generally medical device companies). Based on these criteria, the Organization and Compensation Committee approved the following peer group for 2023:
Executive Compensation
| (1) AxoGen, Inc., Inogen, Inc., Surmodics, Inc. and Tactile Systems Technology, Inc. were removed from peer group and Abiomed, Inc., Insulet Corporation, Masimo Corporation, and Natera, Inc. were added to peer group for 2023 as compared to 2022. |
Executive Compensation
| | Peer Group Comparison | | | | | Revenue | Market Cap | Employees | | 25th Percentile | $244.3 | $1,515.3 | 675 | | Median | $307.4 | $3,372.7 | 838 | | 75th Percentile | $748.8 | $5,170.3 | 2,052 | | Inspire Medical Systems | $262.4 | $5,019.0 | 725 |
Executive Compensation
Consistent with best practices for corporate governance, the Organization and Compensation Committee reviews our peer group at least annually. In addition to the selected peer group, as discussed above, the Organization and Compensation Committee references general and specific industry surveys from other sources. With the assistance of Aon, the Organization and Compensation Committee uses data from the peer group to establish a market reference for each executive position. For fiscal 2023, the Organization and Compensation Committee determined that the appropriate market reference continues to be the market 50th percentile, and that an NEO’s target and actual total direct compensation may be above or below this reference depending on individual factors and performance. We do not formally set total compensation, or any specific element of compensation, at a specific percentile of the peer group for that position. Instead, the market data is used as a reference point to provide information on the range of competitive pay levels and current compensation practices in our industry.
Executive Compensation
In May 2018, we completed our IPO. As the Company has continued to evolve and mature following its IPO, the Organization and Compensation Committee has correspondingly sought to evolve the executive compensation program as appropriate for a company of Inspire’s stage of development and size. In particular, the Organization and Compensation Committee is in the midst of a multi-year plan to transition the amounts and forms of compensation from those more typical of a private company to those aligned with public companies, including the Company’s peer group. In the first quarter of 2022, the Organization and Compensation Committee, with the assistance of its independent compensation consultant, took the first step toward growing the performance nature of long-term incentive equity grants by introducing grants of performance stock units, or PSUs. The performance-based metrics, in conjunction with the proportion of total compensation that was variable and at-risk, further enhanced the link between pay and performance for the CEO and other NEOs, as well as strengthened the alignment of the interests of the NEOs with those of our stockholders. Stockholder Input on Executive Compensation At last year’s annual meeting, 89% of the votes cast on the 2023 “say-on-pay vote” were voted in favor of the proposal. We have considered the 2023 say-on-pay vote and we believe that the overwhelming support of our stockholders for the 2023 say-on-pay vote indicates that our stockholders are generally supportive of our approach to executive compensation. We are committed to ongoing engagement with our investors on all appropriate matters, including executive compensation and governance. Following the advisory votes at the Annual Meeting, the Organization and Compensation Committee has considered stockholder input in evaluating the design of our executive compensation and the compensation decisions for each of the NEOs. III. ELEMENTS OF OUR EXECUTIVE COMPENSATION PROGRAM In order to achieve our objectives, the Organization and Compensation Committee utilizes the components of compensation set forth below. The Organization and Compensation Committee regularly reviews all components of the program in order to verify that each component is aligned with our strategy and ensure that each NEO’s total compensation is consistent with our compensation philosophy. The primary elements of our NEOs’ compensation and the main objectives of each are:
Executive Compensation
| • | Annual Performance-Based Incentive Compensation. Performance-based cash bonuses and commissions promote short-term performance objectives and reward executives for their contributions toward achieving those objectives; and |
Executive Compensation
| • | Equity-Based Long-Term Incentive Compensation. Equity compensation, provided in the form of stock options and PSUs, aligns executives’ interests with our stockholders’ interests and emphasizes long-term financial performance. |
Executive Compensation
Annual Incentive Cash Compensation All of our employees, including our NEOs, are eligible to receive performance-based cash incentive compensation. We believe that performance-based cash incentives motivate our employees, including our NEOs, to achieve both short and long-term goals. This approach is critical to the execution of our overall business strategy which, if achieved, has the potential to significantly enhance stockholder value. In fiscal 2023, with the exception of Mr. Ban, the performance-based cash incentive opportunity available to each of our NEOs was provided pursuant to the terms of our MIP. Given the specific nature of his role as our Chief Commercial Officer, Mr. Ban’s performance-based cash incentive opportunity was commission-based and tied to certain sales-related performance metrics. Management Incentive Program Target Opportunities. Consistent with our compensation philosophy and objectives, the Organization and Compensation Committee generally sets the target incentive opportunity under the MIP within the median range of annual cash incentive target pay for comparable executives at our peer group. For fiscal 2023, based on a review of the market data and the individual role and duties for each executive, the Organization and Compensation Committee increased the target incentive opportunity for (a) Mr. Herbert from 90% to 110%, and (b) for each of our other named executive officers, from 50% to 55% (other than for Mr. Weatherby, whose target incentive opportunity was established in connection with his commencement of employment in July 2023). The following table summarizes the target incentive opportunity for each of our NEOs under the MIP:
Executive Compensation
Payout Opportunities. At the beginning of the fiscal year, the Organization and Compensation Committee approved the target and performance range for each performance metric. The targets for each performance metric are based on the Board-approved annual operating plan. The targets represented substantial increases from the prior year actual performance. For example, the revenue target represented a 52% increase from prior year actual revenue, and the Global Insurance Reimbursement Approvals represented a 21% increase from the prior year level. The performance range for each metric defines threshold and above-target levels of performance. The threshold payout for each of the performance metrics is 75% of the target incentive opportunity. The maximum payout for the revenue metric, operating income metric, and reimbursement approval metric is 200% of the target incentive opportunity for each of those metrics. The maximum payout for the product development, regulatory, quality and operations metrics is 135% of the target incentive opportunity for each of those metrics. Where applicable, and for performance that exceeds the above-target performance level, the resulting payout percentage is determined on a linear interpolation basis up to a maximum payout for the applicable metric. The table below sets forth the weight, threshold, target, above-target, and actual performance for each performance metric:
Executive Compensation
| (2) For purposes of the 2023 MIP, adjusted operating income was defined as income (loss) from operations, calculated in accordance with generally accepted accounting principles, excluding expenses associated with non-cash stock-based compensation. |
Executive Compensation
| Name | Eligible Earnings ($) | Target Opportunity (%) | MIP Achievement Percentage (%) | MIP Payout ($)(1) | Additional MIP Achievement Percentage (%) | Additional MIP Payout ($)(2) | Total MIP Payout ($) | | Timothy P. Herbert | 690,000 | 110% | 83.6% | 634,524 | 4.4% | 33,396 | 667,920 | | Richard J. Buchholz | 446,677 | 55% | 83.6% | 205,382 | 4.4% | 10,810 | 216,192 | | Philip J. Ebeling | 455,128 | 55% | 83.6% | 209,268 | 4.4% | 11,014 | 220,282 | | Carlton W. Weatherby(3) | 198,145 | 55% | 83.6% | 91,107 | 4.4% | 4,795 | 95,902 |
Executive Compensation
| (1) Amounts shown are calculated by multiplying each executive’s eligible earnings in 2023 by their target incentive opportunity and the MIP achievement percentage without taking into account any adjustments. |
Executive Compensation
| (2) Amounts shown are calculated by multiplying each executive’s eligible earnings in 2023 by their target incentive opportunity and the additional MIP achievement percentage taking into account the adjustments (discussed above) approved by the Organization and Compensation Committee. |
Executive Compensation
| Component | Quarterly Target Opportunity ($) | Annual Target Opportunity ($) | | Quarterly Global Sales Bonus | 30,000 | 120,000 | | Quarterly Global Sales Plan Achievement | 15,000 | 60,000 | | Quarterly U.S. New Accounts Bonus | 5,000 | 20,000 | | Quarterly U.S. Implant Productivity Bonus | 10,000 | 40,000 |
Executive Compensation
LONG-TERM INCENTIVES As described above, the third and largest primary component of our executive compensation program is long-term equity incentives. The Organization and Compensation Committee designed this long-term incentive opportunity to motivate our executive officers to achieve multi-year strategic goals and to deliver sustained, long-term value to stockholders. Our long-term incentives create a strong link between payouts and performance and align our executive officers’ interests with the interests of our stockholders. Long-term equity incentives promote retention, as executive officers will only receive value if they remain employed by us over the required term, and they foster an ownership culture among our executive officers by making executive officers stockholders with a personal stake in the value they intend to create. The Organization and Compensation Committee intends to make grants of long-term incentive awards annually. Special, one-time awards are used in limited circumstances, including, as may be necessary to attract, retain, and motivate experienced and well-qualified executive officers, and as recognition of an increase in the scope of an executive’s responsibilities or major accomplishments. In July 2023, the committee approved special sign-on equity awards to Mr. Weatherby in connection with his hiring as our Chief Strategy Officer, with the awards comprised of stock options and performance stock units each having a grant date fair value equal to $800,000, a portion of which was intended to make him whole in light of compensation he was due to receive from his prior employer. Equity Vehicles and Mix. Historically, and consistent with the market practice of similar, newly-public companies in our industry, our long-term incentive compensation has consisted solely of stock options. Beginning with fiscal 2022, the Organization and Compensation Committee approved a change in the mix of long-term incentive compensation to be granted to executives. More specifically, the committee determined that long-term incentive compensation would be granted as a mix of stock options and PSUs (each constituting 50% of the target LTI value, respectively). The committee determined that this mix was appropriate given the current stage of our business taking into consideration the relative growth of the Company as we continue to execute our business strategy.
Executive Compensation
| Equity Vehicle | 2023 Allocation | Vesting Period | How Value is Delivered | Rationale for Use | | PSUs | 50% | 3-year cliff | 2023-2025 Cumulative Revenue (75% weight) and Operating Income (25% weight) | Cumulative Revenue aligns with critical strategic priority of top line growth Operating income was included as a metric to reflect the importance of profitable growth as a measure of increasing stockholder value Promotes retention | | Stock Options | 50% | 4 years: 25% after one year, then 36 equal monthly installments | Share price appreciation | Prioritizes increasing stockholder value, thus aligning with stockholders Promotes long-term focus |
Executive Compensation
PSUs. The Organization and Compensation Committee believes that the addition of PSUs reinforces the pay-for-performance nature of the long-term incentive grants and the executive compensation program overall, encourages focus on long-term stockholder value creation through growth and increase in stock price over time, aligns compensation with key indicators of the success of our strategy, and promotes retention through long-term performance achievement and vesting requirements. Our PSUs have a three-year performance period and will be settled in stock. The actual number of PSUs that will vest will be based on the Company’s achievement of certain performance objectives over the applicable three-year performance period, with the number of PSUs eligible to vest between 0 - 200% of the target number of PSUs
Executive Compensation
awarded. In the case of the PSUs granted in 2023, the performance objectives are cumulative revenue (weighted at 75%) and operating income (weighted at 25%). The Organization and Compensation Committee selected these metrics because they are the best indicator of our ability to continue to grow and reflect the increasing importance of operating income as a measure of stockholder value creation. Stock Options. In order to focus executives on growth and increasing stockholder value, the Organization and Compensation Committee has used stock options to motivate stock price appreciation over the long term, which deliver value only if the stock price increases. They are also simple. Stock options reward our NEOs for increasing stockholder value over the lengthier term of the option, which we believe is consistent with the longer medical technology development cycle. Furthermore, awards of stock options align with our growth strategy and provide significant leverage if our growth objectives are achieved. They also place a significant portion of compensation at risk if our objectives are not achieved and provide no guaranteed value. In future years, the Organization and Compensation Committee will continue to evaluate and select the form and mix of long-term incentive compensation (which may include stock options, restricted shares, restricted share units, performance stock units, or other long-term incentives) provided to our executive officers that it believes best accomplishes the goals discussed above. Grant Timing. Since 2021, the Organization and Compensation Committee has generally approved our annual equity grants in the first quarter of a new fiscal year, instead of our previous practice of granting equity to executive officers in December, which is the last month of our fiscal year. This grant timing allows for consideration of full-year financial results for the most recently completed fiscal year prior to making the grants. With the exception of Mr. Weatherby, the fiscal 2023 equity awards were granted in February 2023. Mr. Weatherby’s equity awards were granted in July 2023 in connection with his hiring our as our Chief Strategy Officer. Target Opportunities. The Organization and Compensation Committee established target long-term incentive opportunities for each of the NEOs in February 2023. The grant date value of the long-term incentive compensation granted to our NEOs in February 2023 (and July 2023 for Mr. Weatherby) was as follows:
Executive Compensation
| Name | Stock Options (#) | Stock Options ($) | Performance Stock Units (#) | Performance Stock Units ($) | Target Total LTI Compensation ($) | | Timothy P. Herbert | 20,439 | 3,133,094 | 11,399 | 2,999,761 | 6,132,855 | | Randall A. Ban | 5,450 | 835,431 | 3,039 | 799,743 | 1,635,174 | | Richard J. Buchholz | 5,450 | 835,431 | 3,039 | 799,743 | 1,635,174 | | Philip J. Ebeling | 5,450 | 835,431 | 3,039 | 799,743 | 1,635,174 | | Carlton W. Weatherby | 4,452 | 742,683 | 2,780 | 800,112 | 1,542,795 |
Executive Compensation
Benefits All of our full-time employees, including our NEOs, are eligible to participate in our health and welfare plans, including (a) medical, dental, and vision benefits; (b) medical and dependent care flexible spending accounts; (c) long-term disability insurance; and (d) life insurance. We believe the general benefits described above are necessary to provide a competitive compensation package to our NEOs. We do not currently provide perquisites or other special benefit arrangements to our NEOs. In the future, we may provide perquisites or other personal benefits in limited circumstances where our Organization and Compensation Committee deems appropriate to assist an individual executive officer in the performance of his duties or for motivation or retention purposes, though we do not expect these perquisites to be a significant component of our compensation program. Severance and Other Benefits Payable Upon Termination of Employment or Change in Control Pursuant to their respective employment agreements and/or option agreements, each of our NEOs is entitled to certain payments and benefits in certain termination situations or upon a change in control. See “— Potential Payments Upon Termination or Change-In-Control” for information regarding benefits under Company Executive Severance.
Executive Compensation
Tax and Accounting Considerations COMPENSATION DEDUCTIBILITY / SECTION 162(M) OF THE INTERNAL REVENUE CODE Section 162(m) of the Code, as amended by the Tax Cuts and Jobs Act of 2017, generally prohibits executive compensation in excess of $1 million per year to be deducted by us as a compensation expense. The Organization and Compensation Committee has approved, and may continue to approve, compensation exceeding the $1 million limitation, including with respect to a portion of base salary, annual bonus, and long-term incentives. While compensation tax deductions are relevant issues to consider, the Organization and Compensation Committee believes that stockholder interests are best served by not restricting flexibility in designing compensation programs, even though such programs may result in nondeductible compensation expenses for tax purposes. Accounting Standards. Accounting Standards Codification Topic 718 (“ASC 718”) requires us to calculate the grant date “fair value” of our stock-based awards using a variety of assumptions. ASC 718 also requires us to recognize an expense for the fair value of equity-based compensation awards. Grants of stock options, restricted stock, RSUs and PSUs under our equity incentive award plans are accounted for under ASC 718. The Organization and Compensation Committee will regularly consider the accounting implications of significant compensation decisions, especially in connection with decisions that relate to our equity incentive award plans and programs. As accounting standards change, we may revise certain programs to appropriately align the accounting expense of our equity awards with our overall executive compensation philosophy and objectives. Recovery of Erroneously Awarded Compensation Policy On November 27, 2023, the Company adopted a Recovery of Erroneously Awarded Compensation Policy to comply with final SEC and NYSE rules that require the clawback of certain erroneously awarded compensation. In conformance with these rules, our policy requires the clawback by the Company of certain incentive-based compensation paid to current and former executive officers in the event that the Company is required to prepare an accounting restatement. A copy of our Recovery of Erroneously Awarded Compensation Policy is included as Exhibit 97.1 to our Annual Report on Form 10-K for the fiscal year ended December 31, 2023. Organization and Compensation Committee Report This Organization and Compensation Committee Report shall not be deemed to be incorporated by reference into any filing made by the Company under the Securities Act of 1933 or the Exchange Act, notwithstanding any general statement contained in any such filing incorporating this proxy statement by reference, except to the extent the Company incorporates this report by specific reference. The Organization and Compensation Committee reviewed and discussed the Compensation Discussion and Analysis with the management of the Company. Based on this review and these discussions, we have recommended to the Board of Directors that the Compensation Discussion and Analysis be included in the Company’s Annual Report on Form 10-K and the Company’s proxy statement. The preceding report has been furnished by the following members of the Organization and Compensation Committee: Shelley G. Broader, Chair Cynthia B. Burks Casey M. Tansey
Executive Compensation
| Name and Principal Position | Year | Salary ($)(1) | Bonus ($)(2) | Stock Awards ($)(3) | Option Awards ($)(3) | Non-Equity Incentive Plan Compensation ($)(4) | Other ($)(5) | Total ($) | | Timothy P. Herbert President and Chief Executive Officer | 2023 | 690,000 | 33,396 | 2,999,761 | 3,133,094 | 634,524 | — | 7,490,775 | | | 2022 | 644,829 | 145,086 | 2,099,874 | 2,227,312 | 558,293 | — | 5,675,394 | | | 2021 | 620,028 | — | — | — | 652,889 | — | 1,272,917 | | Randall A. Ban Chief Commercial Officer | 2023 | 370,466 | — | 799,743 | 835,431 | 253,980 | 9,900 | 2,269,520 | | | 2022 | 352,825 | — | 699,882 | 742,396 | 406,400 | 9,150 | 2,210,653 | | | 2021 | 339,254 | — | — | — | 270,470 | | 609,724 | | Richard J. Buchholz Chief Financial Officer | 2023 | 447,243 | 10,810 | 799,743 | 835,431 | 205,382 | 9,900 | 2,308,509 | | | 2022 | 425,406 | 53,176 | 699,882 | 742,396 | 204,620 | 9,150 | 2,134,630 | | | 2021 | 411,020 | — | — | — | 240,447 | | 651,467 | | Philip J. Ebeling Chief Operating Officer | 2023 | 455,128 | 11,014 | 799,743 | 835,431 | 209,268 | 9,900 | 2,320,484 | | | 2022 | 433,455 | 54,182 | 699,882 | 742,396 | 208,492 | 9,150 | 2,147,557 | | | 2021 | 407,000 | — | — | — | 238,095 | | 645,095 | | Carlton W. Weatherby(6) Chief Strategy Officer | 2023 | 200,083 | 4,795 | 800,112 | 742,683 | 91,107 | 436,167 | 2,274,947 |
Pay Versus Performance
Pay Versus Performance The following table sets forth information concerning the compensation of our NEOs for each of the fiscal years ended December 31, 2020, 2021, 2022, and 2023, and our financial performance for each such fiscal year:
Pay Versus Performance
| (a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | (i) | | | | | | | Value of Initial Fixed $100 Investment Based on: | | | | | Year | Summary Compensation Table Total for PEO ($) | Compensation Actually Paid to PEO ($)(1) | Average Summary Compensation Table Total for Non-PEO NEOs ($) | Average Compensation Actually Paid to Non-PEO NEOs ($)(1) | Total Shareholder Return ($) | Peer Group Total Shareholder Return ($)(2) | Net Income ($) | Revenue ($) | | 2023 | 7,490,775 | 876,350 | 2,184,323 | (488,837) | 274.13 | 98.68 | (21,153,000) | 624,799,000 | | 2022 | 5,675,394 | 8,351,516 | 2,140,038 | 3,119,563 | 339.42 | 104.93 | (44,881,000) | 407,856,000 | | 2021 | 1,272,916 | 10,637,336 | 1,132,482 | 3,925,220 | 310.25 | 137.24 | (42,042,000) | 233,394,000 | | 2020 | 4,865,607 | 21,661,173 | 2,459,027 | 6,851,303 | 253.46 | 132.83 | (57,203,000) | 115,381,000 |
Pay Versus Performance
| (1) Amounts represent compensation “actually paid” to our principal executive officer, or PEO, and the average compensation actually paid to our remaining NEOs for the relevant fiscal year, as determined under SEC rules (and described below), which includes the individuals indicated in the table below for each fiscal year: |
Pay Versus Performance
| Year | PEO | Non-PEO NEOs | | 2023 | Timothy P. Herbert | Randall A. Ban, Richard J. Buchholz, Philip J. Ebling and Carlton W. Weatherby | | 2022 | Timothy P. Herbert | Randall A. Ban, Richard J. Buchholz, Philip J. Ebeling and John C. Rondoni | | 2021 | Timothy P. Herbert | Randall A. Ban, Richard J. Buchholz, Philip J. Ebeling and Bryan K. Phillips | | 2020 | Timothy P. Herbert | Randall A. Ban, Richard J. Buchholz, Philip J. Ebeling and Steven L. Jandrich |
Pay Versus Performance
Compensation actually paid (CAP) to our NEOs represents the “Total” compensation reported in the Summary Compensation Table for the applicable fiscal year, as adjusted as reflected below. The fair values of PSUs, and stock options included in the CAP to our PEO and the Average CAP to our non-PEO NEOs are calculated at the required measurement dates, consistent with the approach used to value the awards at the grant date as described in our Annual Report on Form 10-K for the year ended December 31, 2023. Any changes to the PSU fair values from the grant date are based on our updated stock price at the respective measurement dates and updated performance metric projections, which were as revenue for PSUs granted in 2022 and revenue and operating income for PSUs granted in 2023. Changes to the stock option fair values are based on the updated stock price at the respective measurement dates, in addition to updated expected option term, implied volatility of our stock over the updated expected option term, risk-free rate assumptions, and changes to our non-PEO NEOs.
Pay Versus Performance
| | 2023 | | | Adjustments | PEO | Average non-PEO NEOs | | Deduction for Amounts Reported under the “Stock Awards” and “Option Awards” Columns in the Summary Compensation Table for Applicable FY | (6,132,855) | (1,612,079) | | Increase based on ASC 718 Fair Value of Awards Granted during Applicable FY that Remain Unvested as of Applicable FY End, determined as of Applicable FY End | (1,793,970) | (492,661) | | Increase based on ASC 718 Fair Value of Awards Granted during Applicable FY that Vested during Applicable FY, determined as of Vesting Date | — | — | | Increase/deduction for Awards Granted during Prior FY that were Outstanding and Unvested as of Applicable FY End, determined based on change in ASC 718 Fair Value from Prior FY End to Applicable FY End | (1,419,624) | (1,428,442) |
Pay Versus Performance
| Inspire Medical Systems, Inc. | 58 | 2024 Proxy Statement |
Pay Versus Performance
| | PAY VERSUS PERFORMANCE |
Pay Versus Performance
| | 2023 | | | Adjustments | PEO | Average non-PEO NEOs | | Increase/deduction for Awards Granted during Prior FY that Vested During Applicable FY, determined based on change in ASC 718 Fair Value from Prior FY End to Vesting Date | 2,732,024 | 860,022 | | Deduction of ASC 718 Fair Value of Awards Granted during Prior FY that were Forfeited during Applicable FY, determined as of Prior FY End | — | — | | Increase based on Dividends or Other Earnings Paid during Applicable FY prior to Vesting Date | — | — | | Increase based on Incremental Fair Value of Options/SARs Modified during Applicable FY | — | — | | Deduction for Change in the Actuarial Present Values reported under the “Change in Pension Value and Nonqualified Deferred Compensation Earnings” Column of the Summary Compensation Table for Applicable FY | — | — | | Increase for Service Cost and, if applicable, Prior Service Cost for Pension Plans | — | — | | TOTAL ADJUSTMENTS | (6,614,425) | (2,673,160) |
Pay Versus Performance
| (2) For the relevant fiscal year, represents the cumulative TSR (the “Peer Group TSR”) of the S&P Healthcare Equipment Select Industry Index (the “Peer Group”). |
Pay Versus Performance
| (3) We have selected Revenue as our company-selected measure, which is a GAAP measure. |
Pay Versus Performance
Narrative Disclosure to Pay Versus Performance Table
Relationship Between Financial Performance Measures
| | PAY VERSUS PERFORMANCE |
Pay Versus Performance Tabular List
Pay Versus Performance Tabular List We believe that revenue, adjusted operating income (loss), and insurance reimbursement approvals, given the Company’s stage of development and market opportunity, represents the most important financial performance measure used by us to link compensation actually paid to our NEOs for the fiscal year ended December 31, 2023.
Pay Versus Performance Tabular List
| Inspire Medical Systems, Inc. | 60 | 2024 Proxy Statement |
CEO Pay Ratio
CEO Pay Ratio As required by Item 402(u) of Regulation S-K, we are providing pay ratio information about the relationship of the annual total compensation of our employees and the annual total compensation of Mr. Herbert, our CEO. For 2023, our last completed fiscal year:
CEO Pay Ratio
| • | the median of the annual total compensation of all employees of our Company (other than our CEO), was $274,967; and |
CEO Pay Ratio
| • | the annual total compensation of our CEO, as reported in the Summary Compensation Table presented elsewhere in this Proxy Statement was $7,490,775. |
CEO Pay Ratio
Based on this information, the ratio of the CEO’s fiscal 2023 annual total compensation to that of the median employee 27 to 1. Methodology, Assumptions and Estimates Used in Determining our Pay Ratio Disclosure In determining the pay ratio calculation, we used the methodology, assumptions, and estimates set forth below in determining the median employee.
CEO Pay Ratio
| 1. | We selected October 1, 2023, which is within the last three months of fiscal 2023, as the date upon which we would identify the median employee. |
CEO Pay Ratio
| 2. | We determined that, as of October 1, 2023, our employee population consisted of 971 individuals working at the Company. |
CEO Pay Ratio
| 3. | For purposes of measuring the compensation of our employee population, we selected a “consistently applied compensation measure” (“CACM”). We chose a CACM that closely approximates the annual target total direct compensation of our employees. Specifically, we identified the median employee by aggregating, for each employee as of October 1, 2023: (1) annual base pay, (2) the actual cash incentive opportunity using the payout under the 2023 MIP, and (3) the grant date fair value for equity awards granted through December 31, 2023. In identifying the median employee, we annualized the compensation values of permanent employees that joined our Company during fiscal 2023. Amounts paid in foreign currencies were converted to U.S. Dollars based on the average annual exchange rate as of October 1, 2023. |
CEO Pay Ratio
| 4. | After applying our CACM methodology, we identified the median employee. Once the median employee was identified, we calculated the median employee's annual target total direct compensation in accordance with the requirements of the Summary Compensation Table. |
CEO Pay Ratio
| 5. | Once we identified the median employee, we identified and calculated the elements of such employee’s compensation for fiscal 2023 in accordance with the requirements of Item 402(c)(2)(x) of Regulation S-K, resulting in annual total compensation of $274,967. With respect to the annual total compensation of our CEO, we used the amount reported in the “Total” column of our Summary Compensation Table included elsewhere in this document. |
CEO Pay Ratio
We believe the pay ratio included in this information is a reasonable estimate calculated in a manner consistent with Item 402(u) of Regulation S-K.
CEO Pay Ratio
| Inspire Medical Systems, Inc. | 61 | 2024 Proxy Statement |