TEVA PHARMACEUTICAL INDUSTRIES LTD
For the period ended Jun 5, 2025. Filed Apr 9, 2025.
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Jun 5, 2025 · Filed Apr 9, 2025
Contents
4. Components of Our Compensation Program
- Components of Our Compensation Program
2024 Components in General
The HR and Compensation Committee, Board and shareholders each participated in the selection of the components of compensation set forth in the chart below to achieve our stated executive compensation program objectives. The majority of the compensation of each executive officer is variable andat-risk and a significant portion is subject to the achievement of performance goals in order to be earned. The HR and Compensation Committee and the Board review all components of the compensation of executive officers in order to verify that each executive officer’s total compensation is consistent with our compensation philosophy and objectives and within the parameters set by our shareholder-approved Compensation Policy.
| Element | Description | Additional Detail |
|---|---|---|
| Base Salary | Fixed cash compensation Determined based on each executive officer’s role, individual skills, experience, performance, external market value and internal equity | Base salaries are intended to provide stable compensation to executive officers, allow Teva to attract and retain qualified global executive talent and maintain a stable leadership team |
| Short-Term Incentives: Annual Cash Incentive Opportunities | Variable cash compensation Determined based on the level of achievement relative to Company and individual performance objectives that are pre-determined annually The weighted average of the results for the three Company-wide metrics must be at least 85% of target in order for any payout to occur Cash incentives are capped at a maximum of 200% of the target cash award (133% for the CEO) if achievement level is at least 120% of performance goal Per the Compensation Policy, a target cash award as a percentage of annual base salary is capped at 100% (150% for the CEO) | Annual cash incentive opportunities are designed to ensure that our executive officers are incentivized to reach Teva’s annual goals; payout levels are determined based on actual financial and operational results, as well as individual performance |
| Long-Term Incentives: Annual Equity-Based Compensation | Variable equity-based compensation Per the Compensation Policy, the maximum monetary grant value of the annual equity award is $11.0 million at target for the CEO and $4.5 million at target for other executive officers Performance Share Units (“PSUs”): Restricted share units that are earned only upon the attainment of performance goals generally over a 3-year period Awards are capped at 250% of the target number of shares Restricted Share Units (“RSUs”): Restricted share units that are time-based, with a 4-year vesting period | Equity-based compensation is used to foster a long-term link between executive officers’ interests and the interests of Teva and its shareholders, as well as to attract, motivate and retain executive officers for the long term In 2024, the CEO received 70% of the long-term incentive value granted in the form of PSUs and 30% in the form of RSUs; all other executive officers received 67% of the value granted in the form of PSUs and 33% in the form of RSUs |
59 |Teva Pharmaceutical Industries Ltd. 2025 Proxy Statement
2024 Target Pay Mix
The target pay mix supports the core principles of our executive officer compensation philosophy of compensating for performance and aligning executive officers’ interests with those of Teva and its shareholders, by emphasizing short- and long-term incentives.
The following charts outline the HR and Compensation Committee and the Board’s allocation of annual target total direct compensation payable to the CEO and to other NEOs. The HR and Compensation Committee and the Board allocated compensation among (i) base salary, (ii) short-term annual cash incentive opportunity and (iii) long-term annual equity.
A sizeable majority of target total direct compensation is variable, at-risk pay, consistent with ourpay-for-performance philosophy. Specifically, in 2024, 88% of our CEO’s target total direct compensation wasat-risk compensation, and 84%, on average, of the target total direct compensation of our other NEOs wasat-risk compensation. We consider compensation to be “at risk” if it is subject to performance-based payment or vesting conditions or if its value depends on stock price appreciation.
Target Pay Mix
The percentages of target total direct compensation as calculated above are based on the annualized 2024 base salary, the 2024 annual cash incentive compensation opportunity (assuming achievement at the target level), and the grant date fair value of the annual equity grant. Each compensation element is outlined in more detail in the 2024 Summary Compensation Table and 2024 Grants of Plan-Based Awards table.
Base Salary
Base salaries provide stable compensation to executive officers, allow Teva to attract and retain qualified global executive talent and maintain a stable management team. Base salaries vary among executive officers and are individually determined according to each executive officer’s areas of responsibility, role and experience based on a variety of considerations, which may include, among other things, professional background (education, skills, expertise, professional experience and achievements and previous compensation arrangements, as relevant), external competitiveness, job criticality and internal fairness.
In 2024, the HR and Compensation Committee adjusted the base salaries of certain NEOs to maintain market competitive pay, as determined by reference to comparable positions at the Peer Group companies.
60 |Teva Pharmaceutical Industries Ltd. 2025 Proxy Statement
| Executive | Annualized 2023Base Salary ($) | Annualized 2024Base Salary ($)(1) | 2023-2024 % Change |
|---|---|---|---|
| Richard Francis | $1,600,000 | $1,600,000 | 0% |
| Eli Kalif | $800,869 | $876,631 | 9%(2) |
| Dr. Eric A. Hughes | NA | $770,000 | NA |
| Richard Daniell | $790,298 | $844,806 | 7%(3) |
| Christine Fox | NA | $800,000 | NA |
| (1) | Annualized base salary as of December 31, 2024 converted from local currency, where relevant, using a 2024 annual average exchange rate. |
| (2) | Mr. Kalif is paid in Israeli shekels. The change in salary shown for Mr. Kalif is due to a 10% salary increase and fluctuations in exchange rates. |
| (3) | Mr. Daniell is paid in British pounds. The change in salary shown for Mr. Daniell is due to a 4% salary increase and fluctuations in exchange rates. |
Annual Cash Incentives
The annual cash incentive component aims to incentivize our executives to reach our annual goals. Annual cash incentives are designed to provide a significantpay-for-performance element of our executive compensation package, as payout eligibility and levels are determined based on actual financial and operational performance, as well as individual performance.
Pursuant to our Compensation Policy, which serves as a shareholder-approved framework, executive officer target annual cash incentive opportunity is capped at 100% of annual base salary, and for the CEO, target annual cash incentive opportunity is capped at 150% of annual base salary. In addition, the maximum annual cash incentive payout cannot exceed 200% of target annual cash incentive. The 2024 annual cash incentive plan offers incentives to the executive officers to accomplish certain short-term financial results that the HR and Compensation Committee and Board view as key steps in the execution of our overall business strategy, with the intent ultimately of increasing shareholder value.
The amount of the payout, if any, under the annual cash incentive plan is determined as follows:
Target Opportunities
The HR and Compensation Committee and the Board determine the target annual cash incentive opportunity available to each NEO by taking the individual’s base salary and multiplying it by the individual’s target incentive percentage. The HR and Compensation Committee and the Board did not change the target incentive percentages for our recurring NEOs from 2023 levels.
| Executive | 2024 Target Annual Cash Incentive(% of Base Salary) |
|---|---|
| Richard Francis | 150% |
| Eli Kalif | 100% |
| Dr. Eric A. Hughes | 100% |
| Richard Daniell | 100% |
| Christine Fox | 100% |
61 |Teva Pharmaceutical Industries Ltd. 2025 Proxy Statement
Performance Measures
The HR and Compensation Committee and the Board used the same performance measure categories in 2024 as used in 2023: Company Financial and Individual. However, to deepen the alignment of the annual cash incentive plan with the Pivot to Growth strategy, to underscore the substantial emphasis on top line growth, and to be consistent with the practice of the vast majority of peers, the HR and Compensation Committee and the Board made an adjustment to the 2024 annual cash incentive plan by adding Net Revenue as a metric and adjusting the weighting of the three Company Financial metrics accordingly.
| Category | Weighting | Metric Weighting |
|---|---|---|
| Company Financial | 75% | 25% Net Revenues |
| 25% Non-GAAP EPS | ||
| 25% Free Cash Flow | ||
| Individual | 25% | See Below |
Company Financial Measures
The HR and Compensation Committee and the Board believe that certain financial measures are key performance indicators of the present and future prospects of our business and key drivers of shareholder value, and as such, selected the following financial measures for use in the annual cash incentive plan:
| • | Net Revenues: This measure is determined using Net Revenues as reported in our audited financial statements, subject to adjustment for currency fluctuations. It represents top line growth, in alignment with the Pivot to Growth strategy, and is a leading indicator of corporate performance and value creation. |
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| • | Non-GAAP Earnings Per Share: This measure of income is calculated as net income attributable to ordinary shareholders divided by the weighted average number of shares outstanding (fully diluted), and represents profitability. It focuses managers on expense control in addition to revenue generation and is viewed as a strong indicator of sustained performance over the short- and long-term. |
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| • | Free Cash Flow: This measure, for purposes of the annual cash incentive, is calculated as the cash flow generated from operating activities, cash received for beneficial interest collected in exchange for securitized trade receivables (under our EU securitization program) and proceeds from divestitures of businesses and other assets, net of capital investments. It serves to focus employees on generating cash in the short- and long-term, to make investments (including in innovative products), fund operations and pay debt. It focuses managers on expense control in addition to revenue generation and on improvement in working capital. |
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These performance measures were selected because they focus management on metrics that align with our most critical strategic priorities of generating revenue, controlling expenses and improving profitability, and generating cash to make investments and service debt, and give a clear line of sight into how achieving operating goals drives Teva performance and generates rewards.
We usenon-GAAP measures as our compensation performance metrics, as do many other companies, because they are used by management and our Board (in conjunction with other performance metrics) to evaluate our operational performance, and to prepare and evaluate our work plans and annual budgets. While other qualitative factors and judgment also affect the establishment of performance metrics and goals and compensation levels, the principal quantitative elements are tied to the work plan/annual budget, which are based on thesenon-GAAP measures. Thenon-GAAP measures exclude items that management believes arenon-recurring and not reflective of the Company’s underlying business performance. As such, performance achievement and compensation outcomes are not disproportionately affected by factors unrelated to the ongoing operation of our business by management. Using thenon-GAAP measures aligns with the intent of the HR and Compensation Committee and the Board in setting business performance-related goals for our executive officers that are not affected by items that are not indicative of performance. For more information on thenon-GAAP measures we use for our compensation performance metrics and the adjustments made to derive suchnon-GAAP measures, please see the earnings press release furnished with our Current Report on Form 8-K filed with the SEC on January 29, 2025.
For a reconciliation of thesenon-GAAP measures to their most directly comparable financial measures calculated and presented in accordance with GAAP, please see Appendix A hereto.
62 |Teva Pharmaceutical Industries Ltd. 2025 Proxy Statement
Threshold, Target, and Maximum Company Performance Levels
The HR and Compensation Committee and the Board set the 2024 threshold, target and maximum performance levels at levels that were considered rigorous, aggressive and challenging, attainable only with strong performance, and that took into account the relevant risks and opportunities.
The HR and Compensation Committee developed performance metric targets based on the business plan that were aligned to the middle of the range of our outlook as communicated to investors in January 2024. In setting these goals, the HR and Compensation Committee and the Board took into account various factors, including forecasted growth levels for the global economy, for the geographic areas where the Company operates and for the market for generic products, and with recognition that goals were established in conjunction with the execution of our Pivot to Growth strategy. In addition, the goals were based on key assumptions communicated to investors in January 2024, including:
| • | Anticipated continued decline in COPAXONE revenue from $500 million in 2023 to approximately $400 million in 2024, due to an expected increase in generic competition; |
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| • | Anticipated continued increase of AUSTEDO revenue from $1.2 billion in 2023 to approximately $1.5 billion in 2024; and |
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| • | Anticipated continued increase of global AJOVY revenue from $400 million in 2023 to approximately $500 million in 2024. |
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In light of all of these factors, these goals were considered rigorous, aggressive and challenging, attainable only with strong performance, and took into account the relevant opportunities and risks we were facing.
After setting the targets, the HR and Compensation Committee and the Board also set the threshold and maximum performance levels. To achieve threshold performance, the weighted average of the achievement percentages for the three Company-wide metrics must be at least 85%, which is a rigorous and challenging level of achievement that must be met. A weighted average achievement percentage of less than 85% would result in no annual cash incentive payment for executive officers. The HR and Compensation Committee and the Board set the maximum level of performance at 120% of target for each Company performance metric, a level that presented a significant challenge requiring exceptionally strong performance.
| Weighting · PerformanceMetric · Threshold (85%) · Target (100%) · Maximum (120%) · ActualResults · %Achievement | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| 25% | Net Revenues | $13.6B | $ | 16B | $19.2B | $ | 16.8B | (*) | 105% |
| 25% | Non-GAAP EPS | $ 2.02 | $2.38 | $ 2.86 | $2.49 | 105% | |||
| 25% | Free Cash Flow | $ 1.6B | $ | 1.9B | $ 2.3B | $ | 2.1B | 109% | |
| (*) | We applied foreign exchange rates used for setting our business plan for 2024 when determining performance achievement. |
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Individual Measures
The remaining 25% of the measures under the 2024 annual cash incentive plan were individual performance measures established by the HR and Compensation Committee and the Board early in the year. These measures included components specific to the nature of each executive officer’s position and area of responsibility. The HR and Compensation Committee and the Board established measures that it viewed as rigorous and challenging, requiring significant effort to achieve. The HR and Compensation Committee and the Board evaluated performance with respect to the individual measures by determining an individual performance rating and individual performance achievement percentage, which was then used as a component for determining the overall performance factor.
63 |Teva Pharmaceutical Industries Ltd. 2025 Proxy Statement
| Richard Francis President and Chief Executive Officer | ACHIEVEMENT |
| Individual Goals • Leading the Pivot to Growth strategy implementation • Achieving global sales targets • Meeting key innovative milestones • Building a high-performance organization by focusing on leadership development and succession • Driving the implementation of Teva’s Healthy Future strategy and overseeing the delivery of SLB, RCF and external commitments, including achieving 2% reduction in absolute Scope 1 and 2 Greenhouse Gas emissions (vs. 2023); providing 1 million doses of medicine in access programs; completing 18 new SLB-eligible regulatory submissions; and meeting compliance training targets | Key Performance Accomplishments • Continued to execute with precision the roadmap for our Pivot to Growth strategy • Increased global revenues by 4% in U.S. dollars, or 6% in local currency terms, compared to 2023 • Grew AUSTEDO by 36% and AJOVY by 18%, compared to 2023, generated revenues of $117 million in UZEDY’s first full year of launch, and each attained market leadership positions in many markets • Duvakitug (anti-TL1A) Phase 2b study met its primary endpoints in patients with ulcerative colitis and Crohn’s disease • Continued generics growth across all geographies driven by strong generics launch performance in 2024 • Continued to build out management team with appointment of three new executive officers in 2024 • In 2024, made 28 new SLB-eligible regulatory submissions; distributed ~3.6 million SLB-eligible doses of medicine in access programs; achieved approximately 2% scope 1 and 2 greenhouse gas emissions reduction; and achieved compliance training targets |
| Eli Kalif Executive Vice President, Chief Financial Officer | ACHIEVEMENT |
| Individual Goals • Supporting the Pivot to Growth strategy implementation • Achieving financial and operational excellence targets • Building a high-performance organization by focusing on leadership development and succession • Achieving Sustainability targets, including data collection and reporting, and compliance training targets • Achieving other strategic initiatives | Key Performance Accomplishments • Credit rating upgrades by Fitch; outlook upgrade by S&P and Moody’s • Raised the guidance twice during the year for Revenue, non-GAAP EPS, operating income, and EBITDA • Exceeded most recent guidance range for Free Cash Flow and achieved high end of guidance range for Revenue and non-GAAP EPS • Led profitability expansion to support growth • Reduced net debt by an additional $2.1 billion to $14.5 billion at the end of 2024 • Met leadership, succession and sustainability targets |
64 |Teva Pharmaceutical Industries Ltd. 2025 Proxy Statement
| Dr. Eric A. Hughes Executive Vice President, Global R&D and Chief Medical Officer | ACHIEVEMENT |
| Individual Goals • Supporting the Pivot to Growth strategy implementation • Meeting key innovative milestones • Building a high-performance organization by focusing on leadership development and succession • Achieving Sustainability targets, including completing 18 new SLB-eligible regulatory submissions and compliance training targets | Key Performance Accomplishments • Duvakitug (anti-TL1A) Phase 2b study met its primary endpoints in patients with ulcerative colitis and Crohn’s disease • Olanzapine LAI completed >100% of targeted injections with no PDSS • DARI (ICS/SABA): >91% of phase III clinical trial sites activated • Met leadership and succession targets • Met sustainability targets. In 2024, made 28 new SLB-eligible regulatory submissions, and achieved compliance training targets |
| Richard Daniell Executive Vice President, European Commercial | ACHIEVEMENT |
| Individual Goals • Supporting the Pivot to Growth strategy implementation • Achieving regional sales targets • Achieving operational excellence targets • Building a high-performance organization by focusing on leadership development and succession • Achieving Sustainability targets, including providing 1 million doses of medicine in access programs, and compliance training targets | Key Performance Accomplishments • Increased Europe revenues by 5% in U.S. dollars, or 4% in local currency terms compared to 2023 • Increased Europe profit by 7% compared to 2023 • Grew AJOVY in Europe by 34% in both U.S. dollars and local currency terms compared to 2023 • Increased generic products revenues in Europe by 7% in U.S. dollars, or 6% in local currency terms compared to 2023 • Met leadership and succession targets • Met sustainability targets. In 2024 alone, distributed ~3.6 million SLB-eligible doses of medicine in access programs, and achieved compliance training targets |
| Christine Fox Executive Vice President, U.S. Commercial | ACHIEVEMENT |
| Individual Goals • Supporting the Pivot to Growth strategy implementation • Achieving regional sales targets • Achieving operational excellence targets • Building a high-performance organization by focusing on leadership development and succession • Achieving Sustainability targets, including compliance training targets | Key Performance Accomplishments • Increased U.S. revenues by 4% compared to 2023 • Increased U.S. gross profit by 2% compared to 2023 • Grew AUSTEDO in the U.S. by 34% compared to 2023 • Achieved sales of $117M for UZEDY in the U.S. vs. outlook of ~$100M • Increased generic products revenues in the U.S. by 15% compared to 2023 • Met leadership, succession, and sustainability targets |
65 |Teva Pharmaceutical Industries Ltd. 2025 Proxy Statement
Compliance Modifier
Strong individual goal performance by the CEO and NEOs, as measured by the various components, is fully rewarded only if there are no substantial compliance events. Individual goals performance achievement may be decreased by up to 100% if there is a substantial compliance event.
Embedding Sustainability in Individual Measures
The HR and Compensation Committee and the Board set the individual goals for executive officers to ensure greater alignment with key strategic priorities. In addition to continuing to include items that align with other strategic objectives, a continuing area of focus was sustainability. The CEO and all other executive officers were given objective and measurable goals directly related to our sustainability strategy, including reduction in absolute Scope 1 and 2 Greenhouse Gas emissions; developing, launching, and expanding access to medicine programs; completing new regulatory submissions inlow- and middle-income countries of Teva products on the World Health Organization Essential Medicines List across several therapeutic areas; compliance and ethics, Pharmaceuticals in the Environment, and other objectives.
Overall Performance Factor and Payout Calculation
Overall Performance Factor
The HR and Compensation Committee and the Board calculated an overall performance factor for each executive officer by taking the weighted average of the achievement percentages for Net Revenue, non-GAAP EPS, Free Cash Flow and individual performance for each NEO. As a last step, that overall weighted average achievement percentage is then converted to an overall payout performance factor based on the payout curve set forth in the table below.
| Weighted Average Level of Achievement of Objectives | Overall Performance Achievement %(1) | Overall Payout Performance Factor: Potential Annual Cash Incentive as a % of Target |
|---|---|---|
| Below Threshold | Below 85% weighted averageCompany Financial measuresperformance | 0% (no annual cash incentive payment) |
| Threshold | 85% weighted average CompanyFinancial measures performance, with90% for minimum individualperformance | 66% |
| Target | 100% weighted average CompanyFinancial measures performance, with100% individual performance | 100% |
| Maximum Cash Incentive | 120% weighted average CompanyFinancial measures performance, withup to 130% for maximum individualperformance | 200% (133% for CEO) |
| (1) | Payouts are determined linearly based on a straight-line interpolation of the applicable payout range (i.e., for the CEO 2.5% for each percentile change in weighted average performance between threshold and target and 1.7% for each percentile change in performance between target and maximum, and for other executive officers, 2.5% for each percentile change in weighted average performance between threshold and target and 5% for each percentile change in performance between target and maximum). No additional payout is made for weighted average performance achievement in excess of 120% (or 130% in the case of maximum individual performance). |
66 |Teva Pharmaceutical Industries Ltd. 2025 Proxy Statement
The HR and Compensation Committee and the Board reviewed Company financial and individual performance against objectives in order to make determinations regarding whether any payouts were due under our annual incentive plan. The table below sets forth the calculation of the overall performance achievement percentage and payout performance factor for our CEO and other NEOs:
| Executive | Non-GAAP EPS % Achievement (25% weighting) | Free Cash Flow% Achievement (25% weighting) | Free Cash Flow% Achievement (25% weighting) | IndividualPerformance % Achievement (25% weighting) | Overall Weighted AvgPerformanceAchievement % | OverallPayoutPerformance Factor % |
|---|---|---|---|---|---|---|
| Richard Francis | 105% | 105% | 109% | 130% | 112% | 120% |
| Eli Kalif | 105% | 105% | 109% | 120% | 110% | 148% |
| Dr. Eric A. Hughes | 105% | 105% | 109% | 120% | 110% | 148% |
| Richard Daniell | 105% | 105% | 109% | 110% | 107% | 136% |
| Christine Fox | 105% | 105% | 109% | 110% | 107% | 136% |
The HR and Compensation Committee and the Board then took the target award opportunity and applied the overall payout performance factor to determine the total 2024 annual incentive plan payout for the CEO and each other NEO.
This amount is reflected in the“Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table presented below under the “Additional Compensation Information” section.
| Executive | Eligible BaseSalary ($)(1) | Target Annual CashIncentive (% ofBase Salary) | TargetAward ($) | Overall PayoutPerformanceFactor(2) | Payout ($)(3) |
|---|---|---|---|---|---|
| Richard Francis | $1,600,000 | 150% | $2,400,000 | 120% | $2,885,100 |
| Eli Kalif | $856,486 | 100% | $856,486 | 148% | $1,269,123 |
| Dr. Eric A. Hughes | $753,846 | 100% | $753,846 | 148% | $1,116,748 |
| Richard Daniell | $836,753 | 100% | $836,753 | 136% | $1,134,888 |
| Christine Fox | $800,000 | 100% | $800,000 | 136% | $1,085,120 |
| (1) | Eligible base salary is generally defined as actual base salary earned during the year. |
| (2) | Percentages have been rounded to the nearest whole percentage. |
| (3) | Annual cash incentive payout amount is calculated in the currency in which the amount is paid and converted to U.S. dollars. |
Long-Term Incentive Equity-Based Compensation
The third and largest main component of the executive compensation program is long-term equity incentives.
Equity-based compensation is intended to incentivize and reward for future long-term performance, as reflected by the market price of our shares and/or other performance criteria, and is used to foster a long-term link between executive officers’ interests and the interests of Teva and its shareholders. Equity-based compensation is also intended to attract, motivate and retain executive officers for the long term by (i) providing them with a meaningful interest in Teva’s share performance; (ii) linking equity-based compensation to potential and sustained performance; and (iii) spreading benefits over a longer performance cycle through the vesting period mechanism.
Pursuant to our current Compensation Policy, which serves as a shareholder-approved framework, the minimum full vesting period of all equity-based awards is three years from the date of grant (partial vesting can occur before), the maximum monetary grant date fair value of annual equity-based awards granted to the CEO cannot exceed $11 million at target and to any other executive officer $4.5 million at target, and the maximum number of shares settled for a performance-based equity award shall not exceed 250% of the target number of shares granted.
67 |Teva Pharmaceutical Industries Ltd. 2025 Proxy Statement
Equity Vehicles and Mix
The HR and Compensation Committee and the Board used the equity vehicles and mix set forth in the following table:
| Type of Long-Term Incentive Vehicle | Proportionof Long-TermIncentive Grant | Vesting Schedule | PerformanceMetrics(Weighting) | Rationale for Use |
|---|---|---|---|---|
| Performance Share Units (PSUs) | 70% for CEO; 67% for other executive officers | Three-year cliff vesting | 2024-2026 Cumulative Free Cash Flow (60%) | Focuses employees on generating cash in the short- and long-term to deploy capital and repay debt, and reflects cash management practices, including working capital and capital expenditures, enabling the Company to pursue opportunities that contribute to long-term shareholder value |
| 2024-2026 Net Revenue Growth (annual and cumulative) (40%) | Demonstrates top line expansion, in alignment with the Pivot to Growth strategy, and is a leading indicator of corporate performance and value creation | |||
| 2024-2026 Absolute Stock Price (Modifier) | Strong performance, as measured by the other two metrics, is fully rewarded only if it also results in meaningful stock price growth. Absolute stock price performance ties executive officer compensation to shareholder value creation and aligns the interests and experience of executive officers with those of Teva and its shareholders. The absolute stock price modifier for the 2024 grants caps payouts at target if stock price performance measured at the end of the performance period has decreased, and can increase payouts up to 150% for increases in the third year of the performance period of up to nearly a 100%, subject to a maximum cap. | |||
| Restricted Share Units (RSUs) | 30% for CEO; 33% for other executive officers | Four equal tranches vesting on the first, second, third and fourth anniversaries of the date of grant | N/A | N/A |
The HR and Compensation Committee and the Board have structured the mix of equity vehicles and the relative weight assigned to each type to motivate performance against long-term targets and stock price appreciation over the long term and to encourage ownership and retention while aligning executive officers’ interests with those of our shareholders. The PSUs granted to the NEOs represent the opportunity to have shares vest at the end of the three-year performance cycle based on the achievement of designated performance metrics and the change in absolute stock price, in each case, during the performance period of 2024-2026. The RSUs are complementary to the PSUs because they have upside potential but deliver some value even during periods of market or stock price underperformance, providing a retention incentive and reinforcing an ownership culture and commitment to Teva.
68 |Teva Pharmaceutical Industries Ltd. 2025 Proxy Statement
PSU Performance Metrics
All metrics give recipients a clear line of sight into how achieving operating goals drives Teva performance and generates rewards.
For purposes of the PSU performance measures:
| 1) | Net Revenue Growth is defined as the percentage increase or decrease in GAAP Net Revenue as reported in the financial statements included in the Company’s Annual Report on Form 10-K for a particular year, adjusted as described in the following sentence, in comparison to GAAP Net Revenue as reported in the financial statements included in the Company’s Annual Report on Form 10-K for the prior year. For purposes of determining Net Revenue Growth, the effects of unique transactions or divestitures and foreign exchange fluctuations are disregarded, and only the exchange rates used in the Company’s annual operating plan are used. For a reconciliation of Net Revenue to the most directly comparable financial measure calculated and presented in accordance with GAAP, please see Appendix A hereto. |
| 2) | Free Cash Flow is defined as cash flow from operating activities, beneficial interest collected in exchange for securitized accounts receivables, proceeds from divestitures of businesses and other assets, net of cash used for capital investment. For purposes of determining Free Cash Flow, the effects of unique transactions or divestitures and foreign exchange fluctuations are disregarded, and only the exchange rates used in the Company’s annual operating plan are used. For a reconciliation of Free Cash Flow to Cash Flow from Operating Activities, please see Appendix A hereto. |
Before the conclusion of the three-year performance period, we do not publicly disclose our specific performance measure targets and the corresponding minimums and maximums because of the potential for competitive harm from such disclosure. These measures are competitively sensitive and would reveal information about our view of our anticipated trajectory, which is not otherwise public. The HR and Compensation Committee and the Board believe that they have set performance goals at rigorous and challenging levels so as to require significant effort and achievement by our executive officers to be attained, and that such goals have been established in light of our internal forecast as well as the macroeconomic and industry environments. After the end of the performance period, the targets and achievement relative to such targets will be disclosed.
Target, Threshold and Maximum Performance Levels
Similar to the annual cash incentive plan, for the PSUs, the HR and Compensation Committee and the Board defined payout levels representing the number of PSUs to be earned by executive officers based on the weighted average earning percentages for each of the two performance metrics.
Net Revenue Growth. For Net Revenue Growth performance is calculated as four point-to-point measurements from 2024 to 2026—for each of the three calendar years, as well as for the three-year period as a whole. The HR and Compensation Committee determines the Company’s performance achievement percentage for each individual period within the overall performance period. If performance achievement for a particular year exceeds the maximum, the target for the following year will be set based on the maximum level of performance for the prior year.
The performance achievement percentage for each of these four measurement periods is then converted to an earning percentage for the Net Revenue Growth metric as set forth below.
| Level of Achievement of Net Revenue Growth(*) | EarningPercentage |
|---|---|
| Below Threshold | 0% |
| Threshold | 25% |
| Target | 100% |
| Maximum | 200% |
| (*) | Linear interpolation will be used to determine the applicable earning percentage between levels. |
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The HR and Compensation Committee then determines the average earning percentage for the Net Revenue Growth metric. Each of the four measurement periods carries a weight of 25% in calculating the average earning percentage.
69 |Teva Pharmaceutical Industries Ltd. 2025 Proxy Statement
Free Cash Flow. For Free Cash Flow, the HR and Compensation Committee determines the Company’s performance achievement percentage for the three-year period (three-year cumulative Free Cash Flow). The performance achievement percentage is then converted to an earning percentage as set forth below.
| Level of Achievement of Free Cash Flow(*) | PerformanceAchievement % | EarningPercentage |
|---|---|---|
| Below Threshold | Below 85% | 0% |
| Threshold | 85% | 25% |
| Target | 100% | 100% |
| Maximum | 110% | 200% |
| (*) | Linear interpolation will be used to determine the applicable earning percentage between levels. |
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The HR and Compensation Committee then calculates the weighted average of the earning percentages for the two performance measures.
Absolute Stock Price Modifier
The HR and Compensation Committee and the Board view the inclusion of Absolute Stock Price as critical because it ties executive officer compensation to the shareholder experience and the creation of shareholder value, and it aligns the interests of executive officers with those of Teva and its shareholders.
If the weighted average of the earning percentages for Net Revenue Growth and Free Cash Flow is less than 100%, then the modifier will not apply.
If the weighted average of the earning percentages for Net Revenue Growth and Free Cash Flow is greater than 100%, then the weighted average is multiplied by an Absolute Stock Price modifier.
As noted above, strong performance, as measured by the other two metrics, is fully rewarded only if it also results in meaningful stock price growth. The HR and Compensation Committee will calculate the 20-trading day average ending on the last trading day of the last month of the performance period at the end of December 2026. The HR and Compensation Committee will also calculate the 20-trading day average ending on the last trading day of December 2023. If the average for the end of 2026 is less than the average for the end of 2023, then any weighted average earning percentage above 100% will be reduced to 100%. If the average for the end of 2026 is greater than the average for the end of 2023, then any weighted average earning percentage above 100% will be multiplied by a modifier based on the Absolute Stock Price. The HR and Compensation Committee will calculate the Absolute Stock Price to use based on the highest price within a 30 consecutive trading day period within 2026, where each day’s price is the 15-trading day average price. To have any benefit from the modifier, the stock price will have to increase by approximately 50%, and is effective for increases up to approximately 100%, which the HR and Compensation Committee considers robust and rigorous.
There is a cap on the final earning percentage, as modified by any potential modifier, of 250%. The product of (1) the weighted average of the earning percentages for the two metrics and (2) the Absolute Stock Price modifier is multiplied by the target number of PSUs granted to each of the executive officers to determine the final number of PSUs earned by each individual.
Ultimately, the HR and Compensation Committee approves and presents the performance achievement percentages, the calculation of the average earning percentage and the Absolute Stock Price modifier (if applicable), and the determination of the number of PSUs earned by each executive officer to the Board for its review and approval.
70 |Teva Pharmaceutical Industries Ltd. 2025 Proxy Statement
2024 Grants of PSUs and RSUs
In making determinations about 2024 long-term equity incentive grants to executive officers, the HR and Compensation Committee and the Board considered, among other things: sustained performance; criticality of contributions to Teva; comparison against our Peer Group; the executive officer’s role, skills, experience and development; internal fairness among executive officers; current value of prior granted equity and pay mix. The portion of executive officer compensation that is composed of these equity vehicles is “at risk” and directly aligned with shareholder value creation.
The following table sets forth the 2024 annual grant date fair values at target approved by the HR and Compensation Committee and the Board for the CEO and the other NEOs.
| Executive | PSUs ($)(*) | RSUs ($)(*) | Total ($)(*) |
|---|---|---|---|
| Richard Francis | 6,300,000 | 2,700,000 | 9,000,000 |
| Eli Kalif | 2,500,000 | 1,250,000 | 3,750,000 |
| Dr. Eric A. Hughes | 2,500,000 | 1,250,000 | 3,750,000 |
| Richard Daniell | 2,200,000 | 1,100,000 | 3,300,000 |
| Christine Fox | 2,200,000 | 1,100,000 | 3,300,000 |
| (*) | Equity values have been rounded to the nearest $10,000. |
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Consistent with historical practice, the dollar value allocated to PSUs was converted to a number of units, based on the grant date fair value as determined in accordance with the Financial Accounting Standards Board Accounting Standards Codification Topic 718. The dollar amount allocated to RSUs was converted to a number of shares using the fair market value on the grant date.
2022-2024 Performance Share Unit Payout
In 2022, the HR and Compensation Committee and the Board selected Net Revenue andnon-GAAP Operating Profit as metrics for the PSUs and granted PSUs with performance-based vesting requirements for the three-year performance period of 2022-2024. In connection with the 2022 PSU grants, the number of PSUs earned by the NEOs who were executive officers at the time the grants were made has been determined in two steps as follows.
In step one, there were two Company financial performance measures, 2022-2024 Net Revenue and 2022-2024 non-GAAP Operating Profit, each of which was weighted 50%. For each of these two measures, the HR and Compensation Committee and the Board determined the Company’s performance achievement percentage for the three-year period. The performance achievement percentage was then converted to an earning percentage based on the following:
| Level of Achievement of Objectives(*) | % Achievement of Target | Earning Percentage |
|---|---|---|
| Below Threshold | Below 85% | 0% |
| Threshold | 85% | 25% |
| Target | 100% | 100% |
| Maximum | 120% | 200% |
| (*) | Linear interpolation was used to determine the applicable earning percentage between levels. |
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The HR and Compensation Committee and the Board then calculated the average of the earning percentages for the two performance measures.
71 |Teva Pharmaceutical Industries Ltd. 2025 Proxy Statement
In step two, this average of the earning percentages was multiplied by a modifier that was determined based on our TSR performance relative to the companies included in the peer group used as a reference point for 2022 compensation decisions for the three-year period, as set forth below.
| Level of Achievement of Relative TSR(*) | Relative TSR Ranking | Modifier |
|---|---|---|
| Threshold | Up to 25th percentile | 80% |
| (i.e., 20% less than unmodified average of the earning percentages) | ||
| Target | 50th percentile | 100% |
| Maximum | 75th percentile | 120% |
| (*) | Linear interpolation was used to determine the applicable modifier. |
|---|
The product of (1) the average of the earning percentages and (2) the relative TSR modifier was multiplied by the target number of PSUs granted to the NEOs, to determine the final number of PSUs earned by each individual, except that the number of PSUs to be issued could not exceed 240% of the target number of PSUs.
The HR and Compensation Committee and the Board approved an average earning percentage of 102% which was then subject to a relative TSR modifier, which adjusted the earning percentage to be 120% of the actual earning percentage, resulting in a modified earning percentage of 123%.
| Weighting · Performance Metric · Threshold(85%) ($B)() · Target(100%) ($B)() · Maximum(120%) ($B)(*) · ActualResults($B) · %Achievement · Earning % | ||||||||
|---|---|---|---|---|---|---|---|---|
| 50% | Net Revenue | 39,364 | 46,310 | 55,572 | 47,315 | 102% | 111% | |
| 50% | Non-GAAP Operating Income | 11,036 | 12,983 | 15,580 | 12,830 | 99% | 94% | |
| Weighted Average: | 102% | |||||||
| Relative TSR Modifier (+20%, reflecting 87th percentile) | 120% | |||||||
| Final Earning % | 123% | |||||||
| (*) | We applied actual foreign exchange rates throughout the period when determining performance achievement. |
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Based on this outcome, the NEOs earned Teva PSUs in respect of their 2022-2024 PSU awards as follows (Mr. Francis, Dr. Hughes and Ms. Fox had not joined Teva in 2022 when these PSUs were granted):
| Executive | Target Award(# of PSUs) | Final EarningPercentage(*) | Final Award (# of PSUs) |
|---|---|---|---|
| Eli Kalif | 148,942 | 123% | 183,169 |
| Richard Daniell | 148,942 | 123% | 183,169 |
| (*) | Percentages have been rounded to the nearest whole percentage. |
|---|
Sign-On Cash Bonus Payout
The HR and Compensation Committee and the Board do not generally intend to provideone-time cash awards except in a very judicious and limited manner in rare circumstances as warranted by the situation. The HR and Compensation Committee and the Board view any such cash awards to the NEOs as a special and exceptional nonrecurring event to meet the Company’s needs during a specific period or for a specific purpose. The HR and Compensation Committee and the Board continue to prudently and carefully evaluate our compensation program to ensure that it aligns the interests of executive officers and shareholders and links their pay to the Company’s performance.
As previously disclosed, upon commencing employment, in light of forfeited compensation opportunities at his prior employer and to incentivize him to join the Company as CEO, Mr. Francis received asign-on cash award of $5 million, which is being paid in three installments. The second installment, equal to $1,500,000, was paid in 2024 and is reflected in the “Bonus” column of the Summary Compensation Table.
72 |Teva Pharmaceutical Industries Ltd. 2025 Proxy Statement
Supplemental Non-GAAP Income Data
We utilize certainnon-GAAP financial measures to evaluate performance, in conjunction with other performance metrics. The following are examples of how we utilize thenon-GAAP measures:
| • | our executive officers and Board use non-GAAP measures to evaluate our operational performance, to prepare and evaluate our work plans and annual budgets, and ultimately to evaluate the performance of our executive officers; |
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| • | our annual budgets are prepared on a non-GAAP basis; and |
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| • | senior executive officers’ annual compensation is derived, in part, using these non-GAAP measures. While qualitative factors and judgment also affect annual cash incentives, the principal quantitative elements in the determination of the annual cash incentives are the various performance targets tied to the work plan. |
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Non-GAAP financial measures have no standardized meaning and accordingly have limitations in their usefulness to investors. We provide thisnon-GAAP data because our executives believe that the data provide useful information to investors. However, investors are cautioned that, unlike financial measures prepared in accordance with U.S. GAAP, non-GAAP measures may not be comparable with the calculation of similar measures for other companies.
For the definitions ofnon-GAAP financial measures and a reconciliation of these items to the most directly comparable financial measures calculated and presented in accordance with GAAP, reference is made to the section captioned“Non-GAAP Net Income and Non-GAAP EPS Data” in the Company’s Form 10-K for the year ended December 31, 2024 and the reconciliations provided in Appendix A hereto.
Other Elements of Compensation
We generally provide to our executive officers the same benefits that are provided to all employees, including certain health and welfare benefits and other benefits. In addition, our executive officers are provided with certain additional benefits, intended to be competitive with the practices of companies in our Peer Group.
Health and Welfare Benefits
We offer health and welfare benefits to all eligible employees, including all executive officers, which are tailored to each location’s competitive market. Health and welfare benefits may include medical, dental, prescription drug, vision, life insurance, accidental death and dismemberment, short- and long-term disability coverage and an employee assistance program.
Retirement and Other Local Benefits
Israel
Israeli law generally requires severance pay equal to one month’s salary for each year of employment upon the termination of an employee’s employment due to retirement, death, termination without cause and other circumstances as defined under Israeli law. We make monthly contributions on behalf of our executive officers on Israel payroll to pension plans. These funds provide a combination of pension allowance and/or insurance and severance pay benefits to the executive officers. We contribute 7.5% of an NEO’s monthly salary to the pension component (including disability insurance) and 8.33% of the NEO’s monthly salary to the severance component, and the employee contributes an amount between 6% and 7% of the monthly salary to the pension component. The contributions to the severance component are on account of Teva’s obligation to pay severance upon termination as referenced above. Our CEO is entitled to similar contributions on behalf of the Company as a pension contribution and on account of severance. Accordingly, a substantial part of our statutory severance obligation is covered by these monthly contributions.
Generally, in addition, our NEOs on Israel payroll (excluding those on relocation), like all of our employees in the country, are entitled to participate in a study fund plan, pursuant to which each employee who participates in the plan contributes an amount equal to 2.5% of his or her monthly salary to the study fund and Teva contributes to this fund or pays 7.5% of his or her monthly salary.
Furthermore, as is very common and accepted market practice in Israel, we provide eligible employees, including our NEOs on Israel payroll, with a car or car allowance. This is the norm in Israel and this benefit is provided to a broad range of our employees. This benefit is similarly provided in other countries where it is typical market practice.
73 |Teva Pharmaceutical Industries Ltd. 2025 Proxy Statement
North America
Our North American subsidiaries mainly provide various defined contribution plans for the benefit of their employees. Under these plans, contributions are based on specified percentages of pay. In addition, Teva USA offers a supplemental deferred compensation plan to eligible employees. The plan is a nonqualified plan which is intended to work as a complement to the qualified 401(k) Retirement Savings Plan. The plan has been designed to address the “retirement gap” that many senior-level employees face, primarily due to IRS-imposed limits on qualified plans and IRAs.
Expatriate Benefits / International Assignment and Relocation Benefits
Teva provides benefits to our employees who either accept an expatriate assignment or relocate internationally. The benefits are designed to provide ongoing assignment management and physical relocation support services. These benefits can vary depending on the nature of the assignment or relocation, but generally include a housing allowance, transportation support, acost-of-living allowance (where applicable), home leave, global health insurance, and Company-paid education for approved dependents in locations where public education is not suitable. Additionally, we provide tax preparation and tax support services, dependent on the nature of the assignment (e.g., tax equalization for home-based assignments or tax gross up of relocation benefits and ongoing assignment allowances for host-based assignments), as well as immigration services to manage compliance within all global jurisdictions. The purpose of these benefits is to keep our expatriate employees “economically neutral” for the costs associated with living and working outside their home country, with the goal that they are not financially advantaged or disadvantaged as a result of relocating to another country and incurring associated taxes.
Details regarding benefits and perquisites specific to each NEO can be found in the footnotes to the 2024 Summary Compensation Table set forth below under “Additional Compensation Information.”
The text of this filing, as the company filed it with the SEC, without its images or exhibits. This is not investment advice.