Form DEF 14A TEVA PHARMACEUTICAL INDU For: Jun 14

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of

the Securities Exchange Act of 1934

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Filed by a Party other than the Registrant    ☐

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TEVA PHARMACEUTICAL INDUSTRIES LIMITED

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

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                                 Notice of 2021 Annual Meeting of Shareholders

By Order of the Board of Directors,

Dov Bergwerk

Senior Vice President,

Company Secretary

April 21, 2021

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting to be Held on June 14, 2021

The accompanying Proxy Statement and our Annual Report are available at www.tevapharm.com/2021proxymaterials. We expect the proxy materials to be mailed and/or made available on or before April 30, 2021.

Table of Contents

2020 Overview

Teva is a leading global pharmaceutical company. In 2020, we continued helping patients around the world to access affordable medicines and benefit from innovations to improve their health. Despite the COVID-19 pandemic challenges, we saw minimal impact on our supply chain, R&D programs and product launches. Our key growth drivers delivered promising results and milestones, and we met all components of our 2020 financial guidance.

Looking ahead, we will continue to optimize our manufacturing network, portfolio and pipeline, improve our profitability and generate cash, as we remain on track to repay our debt and achieve our long-term financial targets.

2020 Financial Results

Revenue		EPS		Cash
$16.7 billion		$(3.64)   (GAAP)		$1.2 billion   (cash flow from operating activities)
		$2.57 (non-GAAP*)		$2.1 billion   (free cash flow**)

Key Product Updates—Leveraging Our Growth Engines

2020 Overview

Teva’s Response to COVID-19

For further details, see “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations—The COVID-19 Pandemic” in our Annual Report on Form 10-K for the year ended December 31, 2020.

Continuing to Reduce our Debt

		In the past three years, we have reduced our net debt by approximately $10 billion. As of December 31, 2020, our net debt was $23.7 billion.

Proposal 1: Election of Directors

We continue our efforts to attract the highest quality talent to our Board, by adding diverse and highly qualified directors with global pharmaceutical experience and other qualifications.

Dr. Barer, our Chairman of the Board, is an independent director under NYSE regulations. Kåre Schultz, our President and Chief Executive Officer (the “President and CEO”) serves on the Board, which facilitates collaboration between the Board of Directors and management. Corporate governance remains a high priority and we continue to evaluate the size and composition of the Board to ensure that it maintains dynamic, exceptionally qualified leadership.

Following the recommendation of our Corporate Governance and Nominating Committee, the Board of Directors recommends that shareholders approve the appointment of Rosemary A. Crane, Abbas Hussain, Gerald M. Lieberman and Prof. Ronit Satchi-Fainaro to serve as directors until our 2024 annual meeting of shareholders. All nominees are currently members of the Board of Directors and qualify as independent directors under NYSE regulations.

In accordance with the Israeli Companies law, 5759-1999 (as amended from time to time, the “Israeli Companies Law”), all nominees for election as directors at the Annual Meeting have declared in writing that they possess the requisite skills and expertise, as well as sufficient time, to perform their duties as directors.

Directors

The following table sets forth information regarding the directors and director nominees of Teva as of April 10, 2021:

Proposal 1: Election of Directors

Persons Being Considered for Election at the Annual Meeting

Proposal 1: Election of Directors

Proposal 1: Election of Directors

Continuing Directors

Proposal 1: Election of Directors

Proposal 1: Election of Directors

Proposal 1: Election of Directors

Family Relationships

There are no family relationships among any of our executive officers or directors.

Corporate Governance and Director Compensation

Under our Articles of Association, the Board of Directors must consist of three to 18 directors (including our President and CEO and two statutory independent directors, if required). Our Board of Directors consists of 12 persons, including our President and CEO. The Board of Directors has determined that all of the directors that currently serve and that will serve on the Board of Directors following the Annual Meeting are independent, except for Kåre Schultz, our President and CEO.

We currently maintain a policy to have at least two directors qualify as financial and accounting experts under Israeli law. Accordingly, the Board of Directors has determined that Gerald M. Lieberman and Roberto A. Mignone are financial and accounting experts under such criteria.

Our directors are generally entitled to review and retain copies of our documentation and examine our assets, as required to perform their duties as directors and to receive assistance, in special cases, from outside experts at our expense.

Board Diversity and Skills

Over the course of 2020, inclusion and diversity was a point of emphasis for our Board and our management team. Teva believes that inclusion and diversity are essential to its ability to innovate and grow its business. It is our desire to create and sustain an inclusive and diverse work environment.

Corporate Governance and Director Compensation

The chart below summarizes the notable skills, qualifications and experience of each of our directors and director nominees (in addition to requisite skills and expertise to perform their duties as directors) and highlights the balanced mix of skills, qualifications and experience of the Board as a whole. These are the same attributes that the Board considers as part of its ongoing director succession planning process. This high-level summary is not intended to be an exhaustive list of each director’s and director nominee’s skills or contributions to the Board.

Board Practices

Director Terms and Education. Our directors are generally elected in three classes for terms of approximately three years. Due to the complexity of our businesses and our extensive global activities, we value the insight and familiarity with our operations that a director is able to develop over his or her service on the Board of Directors. Because we believe that extended service on our Board enhances a director’s ability to make significant contributions to Teva, we do not believe that arbitrary term limits on directors’ service are appropriate. At the same time, it is the policy of the Board that directors should not expect to be renominated automatically.

In recent years, we strengthened our Board of Directors with the addition of new highly qualified and talented directors, adding expertise as well as diversity to our Board of Directors. The average tenure of our

Corporate Governance and Director Compensation

current directors is 4.8 years of service and the average age is 61.5 years. We currently have three female directors out of 12 members serving on our Board of Directors. Our Chairman of the Board is independent under NYSE regulations, and 11 out of 12 of our directors are independent under NYSE regulations. Our only non-independent director is our President and CEO, which facilitates collaboration between the Board of Directors and management. We continue to evaluate the size and composition of our Board of Directors to ensure it maintains dynamic, exceptionally qualified members.

We provide an orientation program and a continuing education process for our directors, which include business and industry briefings, provision of materials, sessions from leading experts and professionals, meetings with key management and visits to Teva facilities. We evaluate and improve our education and orientation programs on an ongoing basis to ensure that our directors have the knowledge and background needed for them to best perform their duties.

Board Meetings. The Board of Directors holds at least six meetings each year to review significant developments affecting Teva and to consider matters requiring approval of the Board, with additional meetings scheduled when important matters require Board of Directors action between scheduled meetings. In consideration of the health and safety of our directors, executive officers and other employees, our Board and Committees meetings were conducted virtually in 2020, due to the COVID-19 pandemic. Members of senior management regularly attend Board meetings to report on and discuss their areas of responsibility. Information regarding the number of Board committee meetings and attendance rates for 2020 is presented in the table below under “—Committee Composition and Board and Committee Attendance in 2020.”

Executive Sessions of the Board. Our directors meet in executive session (i.e., without the presence of management, including our President and CEO) generally in connection with each regularly scheduled Board meeting and additionally as needed. Executive sessions are chaired by Dr. Barer, the Chairman of the Board.

Annual Meetings. We do not have a formal policy requiring members of the Board to attend our annual meetings, although all directors are strongly encouraged to attend. All of our directors attended the 2020 annual meeting of shareholders, which was held virtually.

Board Leadership. The Board of Directors recognizes that one of its key responsibilities is to establish and evaluate an appropriate leadership structure for the Board of Directors so as to provide effective oversight of management. The Board of Directors has separate roles for the Chief Executive Officer and Chairman of the Board of Directors, with Dr. Barer serving as independent Chairman and Mr. Kåre Schultz as President and CEO. Dr. Barer’s long career as a senior pharmaceutical executive and leadership roles in various biopharmaceutical companies, as well as his extensive scientific expertise and knowledge of the global pharmaceutical business, have made him an invaluable resource to both the Board of Directors and the Chief Executive Officer. The Board of Directors has determined that this leadership structure is appropriate for Teva at this time because it ensures that the appropriate level of oversight, independence and responsibility is applied to all Board decisions.

Board of Directors Role in Risk Oversight. Management is responsible for assessing and managing risk, subject to oversight by the Board of Directors. Our annual risk assessment process includes both a top-down review of strategic risks and a bottom-up review of operational risks, which are presented to the Board of Directors. The Board of Directors fulfills its oversight responsibility for risk assessment and management by reviewing risk management policies and the risk appetite of our operations and business strategy and by instructing its committees to assist and advise in their areas of expertise, as described below. Each committee provides regular updates to the full Board regarding its activities.

Corporate Governance and Director Compensation

During 2020, the Board and the HR and Compensation Committee closely monitored our performance in light of the COVID-19 pandemic. This included review of the effects the COVID-19 pandemic had on our business performance and operations, as well as on the safety, morale and engagement of our employees.

Cybersecurity Risk Management. The Audit Committee assists the Board with the oversight of cybersecurity risks. As part of its risk oversight function, the Audit Committee reviews our cyber risk assessment and management policies and receives briefings concerning Teva’s information security and technology risks, including cybersecurity. During 2020, the Audit Committee received four periodic briefings on Teva’s information security and risk management programs, including with respect to cyber security, global cyber threat trends, SAP implementation, threats arising from the COVID-19 pandemic and privacy controls. Teva’s information security office leads our cybersecurity risk management program. We also maintain cyber risk insurance coverage.

Director Service Contracts. Except for equity awards that accelerate upon termination, we do not have any contracts with any of our non-employee directors that provide for benefits upon termination of services. Information regarding director compensation can be found under “Non-Employee Director Compensation” below.

Communications with the Board. Shareholders, employees and other interested parties can contact any director or committee of the Board of Directors by writing to them care of Teva Pharmaceutical Industries Ltd., 124 Dvora HaNevi’a Street, Tel Aviv, 6944020, Israel, Attn: Company Secretary or Internal Auditor or by email to [email protected]. Comments or complaints relating to our accounting, internal controls or auditing matters may also be referred to members of the Audit Committee, as well as other appropriate Teva departments. The Board of Directors has adopted a global “whistleblower” policy, which provides employees and others with an anonymous means of communicating with the Audit Committee.

Nominees for Directors. In accordance with the Israeli Companies Law, a nominee for service as a director must submit a declaration to us, prior to his or her election, specifying that he or she has the requisite qualifications to serve as a director and the ability to devote the appropriate time to performing his or her duties as such and that he or she is not restricted from serving as director under the Israeli Companies Law. All of our directors, including those nominated for appointment as directors at the Annual Meeting, have provided such declaration. A director who ceases to meet the statutory requirements to serve as a director must notify us to that effect immediately and his or her service as a director will terminate upon submission of such notice.

Corporate Governance and Director Compensation

Our Board of Directors believes that it should be composed of directors with diverse, complementary backgrounds and that directors should, at a minimum, exhibit proven leadership capabilities and possess experience at a high level of responsibility within their chosen fields. When considering a candidate for director, our Corporate Governance and Nominating Committee considers whether the directors, both individually and collectively, can and do provide the experience, judgment, commitment, skills and expertise appropriate to lead Teva in the context of its industry. In addition, our Corporate Governance and Nominating Committee considers a nominee’s expected contribution to the diversity of skills, background, experiences and perspectives, as well as whether such nominee could provide added value to any of the committees of the Board of Directors, given the then existing composition of the Board of Directors as a whole. When seeking new candidates, the Corporate Governance and Nominating Committee also considers candidates representing a diversity of backgrounds, perspectives, ethnicities, races and genders. Our Corporate Governance and Nominating Committee also provides input and guidance regarding the independence of directors, for formal review and approval by our Board of Directors.

When seeking candidates for directorships, our Corporate Governance and Nominating Committee may solicit suggestions from incumbent directors, management, shareholders and others. Additionally, the Board of Directors has in the past used and may continue to use the services of third party search firms to assist in the identification and analysis of appropriate candidates. After conducting an initial evaluation of a prospective candidate, members of the Board of Directors will interview that candidate if they believe the candidate may be suitable. The Chairman of the Board of Directors may also ask the candidate to meet with certain members of executive management.

If our Corporate Governance and Nominating Committee believes a director should be re-approved or a candidate would be a valuable addition to the Board of Directors, it may recommend to the Board of Directors that candidate’s appointment or election, who, in turn, can submit the candidate for consideration by the shareholders.

The Israeli Companies Law provides a process by which one or more shareholders holding 1% or more of the voting rights of Teva may propose the nomination of a candidate to the Board of Directors. See “Shareholder Proposals for the 2021 Annual Meeting and the 2022 Annual Meeting” below.

Non-Employee Director Compensation

As required by the Israeli Companies Law, we have adopted a Compensation Policy for Executive Officers and Directors (the “Compensation Policy”), which is presented for shareholder approval at least once every three years. Pursuant to the Israeli Companies Law and regulations promulgated thereunder, any arrangement between Teva and a director relating to his or her compensation as a director or other position with Teva must generally be consistent with Teva’s Compensation Policy and approved by the HR and Compensation Committee, the Board and by a simple majority of Teva’s shareholders.

As approved at our 2019 annual general meeting of shareholders, our non-employee director annual compensation program (applicable to all non-employee directors except for the Chairman of the Board) is comprised of:

Corporate Governance and Director Compensation

As approved at our 2019 annual general meeting of shareholders, the annual compensation for the Chairman of the Board is comprised of:

The Chairman of the Board is not entitled to additional annual cash fees for service on Board Committees.

Fees for Board and committee service are payable over the period of time during which the individual serves as a non-employee director. In the event that a non-employee director serves as a member of the Board during only part of the year, a pro-rated amount of the annual board membership fee and standing committee fees will be paid. In the event of an appointment to the Board between annual meetings of shareholders, the annual equity-based award shall be pro-rated. Upon completion of a non-employee director’s service as a director, other than removal pursuant to a shareholder resolution due to a breach of fiduciary duties, any unvested awards granted to such director by virtue of such position and held by such director will immediately become vested.

We purchase directors’ and officers’ liability insurance for our directors and executive officers, as approved by our shareholders and consistent with the Compensation Policy. In addition, we release our directors from liability and indemnify them to the fullest extent permitted by law and our Articles of Association, and provide them with indemnification and release agreements for this purpose, substantially in the form approved by our shareholders at our 2012 annual meeting.

In addition, Teva reimburses or covers its non-employee directors’ expenses (including travel expenses) incurred in connection with attending meetings of the Board and its committees or in performing other services for Teva in their capacity as non-employee directors, in accordance with Israeli law and the Compensation Policy.

Any director elected to serve as a member of our Board and all directors currently serving on our Board will be compensated in the manner described above and will benefit from the insurance, indemnification and release discussed above.

No additional compensation is received for attendance at a Board or committee meeting.

Director Stock Ownership Guidelines

In 2019, we established director stock ownership guidelines requiring ownership of five times the annual cash fee paid to directors for board membership (excluding committees fees), which must be achieved within the later of six years of first becoming subject to these guidelines and January 1, 2025.

Corporate Governance and Director Compensation

2020 Director Compensation

Mr. Schultz was not and will not be entitled to any compensation in his capacity as a member of the Board or any committee thereof.

Corporate Governance and Director Compensation

Committees of the Board

Our Articles of Association provide that the Board of Directors may delegate its powers to one or more committees as it deems appropriate to the extent such delegation is permitted under the Israeli Companies Law. The Board of Directors has appointed the standing committees listed below, as well as ad-hoc committees appointed from time to time for specific purposes determined by the Board.

We have adopted charters for all of our standing committees, formalizing the committees’ procedures and duties. These committee charters are available on our website at www.tevapharm.com.

Committee Composition and Board and Committee Attendance in 2020

In 2020, our Board of Directors met 10 times. In 2020, each of our current directors attended 100% of the meetings of the Board and Board committees on which he or she served. In consideration of the health and safety of our directors, executive officers and other employees, our Board and Committees meetings were conducted virtually in 2020, due to the COVID-19 pandemic.

In addition to the above, during 2020, the Chairman of the Board and various Committee chairpersons held discussions focusing on pending litigation matters.

Audit Committee

The Israeli Companies Law requires publicly held Israeli companies to appoint an audit committee. As a NYSE-listed company, Teva’s Audit Committee must be comprised solely of independent directors, as defined by the Securities and Exchange Commission (the “SEC”) and NYSE regulations.

The responsibilities of our Audit Committee include, among others: (a) identifying flaws in the management of our business and making recommendations to the Board of Directors as to how to correct them and providing for arrangements regarding employee complaints with respect thereto; (b) making determinations and considering providing approvals concerning certain related party transactions and certain actions involving conflicts of interest; (c) reviewing the internal auditor’s performance and approving the internal audit work program and examining our internal control structure and processes; (d) examining the independent auditor’s scope of work and fees; and (e) providing for arrangements regarding employee complaints regarding questionable accounting or auditing matters and monitoring compliance with and investigating alleged violations and enforcing provisions of Teva’s Code of Conduct. Furthermore, the Audit Committee discusses the financial statements and the disclosure under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (the “MD&A”) and presents to the Board of Directors its recommendations with respect to the proposed financial statements and MD&A.

Corporate Governance and Director Compensation

In accordance with the Sarbanes-Oxley Act and NYSE requirements, the Audit Committee is directly responsible for the appointment, compensation and oversight of the work of our independent auditors. In addition, the Audit Committee is responsible for assisting the Board of Directors in monitoring our financial statements, the effectiveness of our internal controls and our compliance with legal and regulatory requirements. The Audit Committee also discusses our policies with respect to risk assessment and risk management regarding financial reporting and risks that may be material to us and major legislative and regulatory developments that could materially impact Teva’s contingent liabilities and risks.

The Audit Committee charter sets forth the scope of the committee’s responsibilities, including its structure, processes and membership requirements; the committee’s purpose; its specific responsibilities and authority with respect to, among others, registered public accounting firms; complaints relating to accounting, internal accounting controls or auditing matters; and its authority to engage advisors as determined by the Audit Committee.

The Audit Committee also reviews and receives briefings concerning Teva’s information security and technology risks, including cybersecurity, and has been briefed on Teva’s information security and risk management programs. Teva’s information security office leads our cybersecurity risk management program.

All of the Audit Committee members have been determined to be independent as defined by SEC and NYSE regulations.

The Board of Directors has determined that, of the directors on this committee, Gerald M. Lieberman (chair) and Roberto A. Mignone are “audit committee financial experts” as defined by applicable SEC regulations.

Human Resources and Compensation Committee

The Israeli Companies Law requires publicly held Israeli companies to appoint a compensation committee. As a NYSE-listed company, Teva’s HR and Compensation Committee must be comprised solely of independent directors, as defined by the SEC and NYSE regulations.

The HR and Compensation Committee is responsible for establishing annual and long-term performance goals and objectives for our executive officers, as well as reviewing our compensation philosophy and policies (including our Compensation Policy).

The HR and Compensation Committee is responsible for reviewing plans for the succession of our chief executive officer and other senior members of executive management.

The HR and Compensation Committee also evaluates the performance of our chief executive officer and other executive officers, makes recommendations to the Board of Directors regarding the compensation of our executive officers and directors, reviews any organizational restructuring pertaining to the roles, responsibilities and selection of executive officers and oversees our labor practices.

All of the HR and Compensation Committee members have been determined to be independent as defined by SEC and NYSE regulations.

Corporate Governance and Nominating Committee

The NYSE Listed Company Manual requires publicly listed companies to appoint a corporate governance / nominating committee composed entirely of independent directors, as defined by NYSE regulations.

The role of our Corporate Governance and Nominating Committee is to (i) identify individuals who are qualified to become directors; (ii) recommend to the Board of Directors director nominees for each annual meeting of shareholders; and (iii) assist the Board of Directors in establishing and reviewing Teva’s statement of corporate governance principles and promoting good corporate governance in Teva.

Corporate Governance and Director Compensation

All of the Corporate Governance and Nominating Committee members have been determined to be independent as defined by NYSE regulations.

Finance and Investment Committee

The role of our Finance and Investment Committee is to assist the Board of Directors in fulfilling its responsibilities with respect to our financial and investment strategies and policies, including determining policies on these matters and monitoring implementation. It is also authorized to approve certain financial transactions (such as material loans and other financing arrangements), review our financial risk management policies and evaluate the execution, financial results and integration of Teva’s completed acquisitions, as well as various other finance-related matters, including our global tax structure and allocation policies. According to the committee’s charter, at least one of the committee’s members must be qualified as a financial and accounting expert under SEC regulations and/or the Israeli Companies Law.

The Board of Directors has determined that, of the directors on this committee, Gerald M. Lieberman and Roberto A. Mignone (chair) are financial and accounting experts under Israeli law.

A majority of committee members must be determined to be independent as defined by NYSE regulations.

Compliance Committee

The role of our Compliance Committee is to oversee our: (i) policies and practices for complying with laws, regulations and internal procedures; (ii) policies and practices regarding issues that have the potential to seriously impact our business and reputation; (iii) global public policy positions; (iv) strategy and governance of ESG matters and to advise the Board on ESG matters; and (v) implementation of our culture of integrity.

A majority of committee members must be determined to be independent as defined by NYSE regulations. The chairperson of the Audit Committee shall be invited by the committee chairperson to participate in the Compliance Committee, as deemed relevant to the committee’s agenda.

Science and Technology Committee

The Science and Technology Committee oversees our overall strategic direction and investment in research and development and technological and scientific initiatives. As part of this responsibility, it reviews scientific and R&D strategy and priorities, scientific aspects of business development activities and technological trends. It assists the Board of Directors in risk management oversight relating to R&D and our intellectual property, advises on our intellectual property strategy, reviews new technology in which Teva is, or is considering, investing and reviews the efficacy and safety profile of new pharmaceuticals.

All of the committee members must be determined to have scientific, medical or other related expertise. A majority of committee members must be determined to be independent as defined by NYSE regulations.

Code of Business Conduct

Teva has adopted a code of business conduct applicable to its directors, executive officers, and all other employees. A copy of the code is available to every Teva employee on Teva’s internet site, upon request to its human resources department, and to investors and others on Teva’s website at www.tevapharm.com or by contacting Teva’s investor relations department, legal department or the internal auditor. If we make any amendment or grant any waiver to this code that applies to our chief executive officer, chief financial officer, chief accounting officer or controller, or persons performing similar functions, and that relates to an element of the SEC’s “code of ethics” definition, then we will disclose the nature of the amendment or waiver on Teva’s website. The Board of Directors has approved a whistleblower policy which functions in coordination with Teva’s code of business conduct and provides an anonymous means for employees and others to communicate with various departments of Teva, including the Audit Committee. Teva has also implemented a training program for new and existing employees concerning the code of business conduct and whistleblower policy.

Corporate Governance and Director Compensation

Principles of Corporate Governance

We have adopted a set of corporate governance principles, which is available on our website at www.tevapharm.com. We place great emphasis on maintaining high standards of corporate governance and continuously evaluate and seek to improve our governance standards. These efforts are expressed in our corporate governance principles, our committee charters and the policies of our Board of Directors. Teva is in compliance with all corporate governance standards currently applicable to Teva under Israeli and U.S. laws, SEC regulations and NYSE listing standards.

Insider Trading Policy

Our directors, executive officers and employees, as well as their immediate family members, persons living in their home and entities controlled by any of the foregoing persons are subject to Teva’s insider trading policy (the “Policy”). The Policy prohibits insider trading and certain speculative transactions (including short sales, buying put and selling call options and other hedging or derivative transactions in Teva’s securities), and establishes a regular blackout period schedule during which directors, executive officers and certain employees may not trade in Teva’s securities. In addition, the Policy establishes pre-clearance procedures that directors and executive officers must observe prior to effecting any transaction in Teva’s securities. The Policy applies not only to Teva’s ADSs and ordinary shares, but also to its debt securities and other securities for which Teva securities serve as underlying assets.

Board Evaluation Process

Our Board of Directors is committed to continuous improvement and recognizes the fundamental role a robust Board of Directors and committee evaluation process play in ensuring that our Board of Directors maintains optimal composition and functions effectively.

In the annual self-evaluation process, the members of the Board of Directors conduct a confidential oral assessment of the performance, risk oversight and composition of the Board and any committees of which he or she is a member with the Company Secretary. As part of the evaluation process, the Board of Directors, in conjunction with the Corporate Governance and Nominating Committee, reviews the effectiveness and overall composition, including director tenure, board leadership structure, diversity and skill sets, of the Board of Directors to ensure the Board of Directors serves the best interests of shareholders and positions the company for future success. The results of the oral assessments are then summarized and communicated back to each committee, committee chair and the entire Board of Directors. After the evaluations, each committee, committee chair and the entire Board of Directors and management work to improve upon any issues presented during the evaluation process and to identify opportunities that may lead to further improvement. The Corporate Governance and Nominating Committee also uses this process to assess and determine the characteristics and skills required of prospective candidates for election to the Board of Directors.

Shareholder Engagement

In late 2020 and early 2021, the Board conducted discussions with our shareholders as part of our ongoing commitment to strengthen our corporate governance and to gather input from our stakeholders, which we believe enables us to better understand their perspectives. During this time, we contacted shareholders representing approximately 50% of our outstanding shares. Our Chairman of the Board, the Chair of our HR and Compensation Committee and another member of the Board who presented on ESG matters participated in discussions with shareholders representing approximately 22% of our outstanding shares. In addition, we engaged with the research teams at proxy advisory firms Institutional Shareholder Services Inc. and Glass Lewis & Co.

The discussions covered a broad array of matters, including:

Feedback from our shareholders was shared and discussed with the HR and Compensation Committee, the Corporate Governance and Nominating Committee and the Board.

The Board and management continue to engage regularly in dialogue with many of the Company’s largest shareholders, and the HR and Compensation Committee will continue to consider shareholder feedback and the results of the advisory vote on executive compensation in connection with its determinations of executive compensation. Through our shareholder outreach, we have established important feedback channels that provide a valuable way to receive ongoing input from our shareholders.

See also “Executive Compensation—Compensation Discussion & Analysis—2020 Say-on-Pay Vote and Shareholder Engagement.”

Human Capital Management

Our employees are the heart of our company. We seek to make Teva an inclusive, diverse and safe workplace, with meaningful compensation, benefits and wellness programs, and offering training and leadership development programs that foster career growth.

Our HR and Compensation Committee, Compliance Committee and Board play key roles in overseeing human capital management at Teva and devote time throughout the year to its strategy and execution.

The Board and executive management view inclusion and diversity as essential to our ability to innovate and grow our business. It is our desire to create and sustain an inclusive and diverse work environment.

Human Capital Management

As of December 31, 2020, Teva’s work force consisted of 40,216 employees. We have employees in 60 countries around the world, representing a wide range of nationalities. Employees identifying as female represent 45% of our global employee population, 47% of managers and 23% of top executives as of December 31, 2020.

We seek to underscore our inclusive and diverse culture through employee resource groups and training, among other things. For instance, in the U.S., the Teva Inclusion Network is made up of nine employee resource groups, which have a key role in creating a culture of inclusion and bring together employees with shared characteristics and life experiences to foster opportunities for networking, mentoring, collaboration, community outreach, career development, leadership training and cultural exchanges.

Since the start of the COVID-19 pandemic, we have operated conscientiously, focusing on the health, safety and well-being of our employees as a top priority. We have reduced the number of employees in our facilities to enable social distancing by introducing virtual solutions and flexible work arrangements. We adhere to PPE and hygiene instructions to protect our people, their families and the communities where we operate and live.

We enhanced our well-being programs, equipped our managers with information and tools on effective management in times of disruption, and provided employees with online resources to address the challenges of working remotely.

We have been monitoring employee morale during this time in many ways, including by conducting our annual employee survey. Results of the 2020 survey show that employee engagement levels are high. Employees are feeling connected with Teva’s mission and values. They feel pride in Teva’s positive impact on society and have trust in Teva’s future.

For further information, see “Item 1—Business— Human Capital Management” in our Annual Report on Form 10-K for the year ended December 31, 2020.

Environmental, Social and Governance

In 2020, as the world confronted some of the most complex challenges of our time, Teva reevaluated its ESG strategy with the support of its leadership and Board of Directors. Our new strategy views ESG as core to our business and reflects how we address environmental and social issues, while also bringing value to Teva.

Our 2020 materiality assessment identified the ESG topics that we believe matter most to our stakeholders and our business. These topics are the basis of our ESG efforts and complement the areas disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020, together reflecting our financial and non-financial performance. We report annually on how we manage these topics and our progress towards achieving them.

Environmental, Social and Governance

Of these material topics, we identified ten where we believe Teva can have the greatest impact and which have the greatest impact on our business. These include access to health and medicines, inclusion and diversity, ethics and climate action and resilience. We focus additional resources on these areas, appointing task forces, working groups and committees to set goals and ensure progress.

ESG at Teva

For the health of our patients, our world and our business

Environmental

With 61 manufacturing sites around the world, and a growing list of issues impacting our planet, we have a responsibility to lessen our impact on the environment. This year, Teva set new long-term environmental targets to help advance climate action and resilience, responsible use of natural resources through improved management and reductions in emissions, effluents and waste.

Social

Advancing access to medicines is imperative to our business. We are focused on becoming a committed global health partner addressing unmet needs, increasing the reach of affordable medicines and expanding our generic and innovative medicines portfolio. We aspire to achieve this as a donor, convener and access innovator. Our efforts to create quality, affordable medicines for more people around the world are governed by our Access to Medicines working group and guided by Teva’s Position on Access to Medicines. In 2020, we received marketing authorizations for 800 generic medicines and 100 specialty medicines. We engage partners to advance access initiatives, help reduce healthcare costs and create cost-effective solutions, respond to drug shortages and participate in global health tenders in an effort to make treatments easily accessible and affordable for all.

Governance

As part of our culture of compliance, Teva promotes ethical behavior across our business and expects every employee to comply with relevant laws, regulations and Teva policies. Centered on our values, Teva’s Code of Conduct outlines our policies to uphold high ethical standards and conduct our business with integrity. Teva’s Policy on the Prevention of Corruption is designed to prevent corruption and to ensure Teva complies with applicable laws and regulations.

Environmental, Social and Governance

For Teva, upholding a culture of compliance means an environment where all employees and management have a comprehensive understanding of rules, regulations, policies, procedures, best practices and behaviors, as well as accountability for the risks and potential consequences associated with non-compliance. We encourage rigorous, open debate that leads to ethical business decisions. A robust culture of compliance encompasses all aspects of Teva’s global operations—from research and development to sourcing APIs.

ESG Governance

Teva’s Board of Directors oversees ESG activities and provides strategic guidance and direction, receiving updates from its committees on their respective ESG-related activities. The Compliance Committee reviews emerging best practices, trends and key issues related to ESG, oversees our ESG strategy and governance and reports to the Board on ESG matters. In November 2020, the Board of Directors held a dedicated session on ESG and appointed a Board representative to serve as a voice on Teva’s ESG progress in our engagement with shareholders. Our executive management approves all global commitments and targets and reviews Teva’s annual ESG Progress Report. Teva’s dedicated ESG team is responsible for strategy implementation, coordination with relevant internal functions and local markets and engagement with various external stakeholders, as well as reporting, disclosures and communications. Cross-functional task forces, working groups and committees meet quarterly or on an ad-hoc basis to manage individual priority ESG topics. They are responsible for goal setting and coordination with relevant business units to ensure progress and accountability.

Teva 2020 ESG Performance

We continue to enhance ESG transparency, which has already resulted in steady improvements in ESG ranking indices, as evidenced by the chart below:

For more details on Teva’s ESG performance, please see our 2020 ESG Progress Report (expected to be published in May 2021).

Executive Officers

The following table sets forth information regarding our executive officers as of April 10, 2021:

Executive Officers

Executive Officers

Executive Compensation

COMPENSATION DISCUSSION AND ANALYSIS

This compensation discussion and analysis (“CD&A”) describes the philosophy, objectives, process, components and additional aspects of our 2020 executive compensation program. This CD&A is intended to be read in conjunction with the tables that immediately follow this section, which provide further historical compensation information for the following named executive officers (“NEOs”):

Quick CD&A Reference Guide

I. BUSINESS AND COMPENSATION OVERVIEW

Compensation Objectives

In order to accomplish our key corporate objectives, we must attract, motivate and retain highly skilled and experienced people to execute our corporate strategy and lead our team. To that end, our executive officer compensation program is designed to:

2020 Select Business Highlights

In 2020, despite challenges due to COVID-19, we made meaningful progress in executing on our strategic plan and delivered results within our original financial guidance, as detailed below.

Executive Compensation

Executive Compensation

Ensuring Business Continuity and Achieving Performance Goals Despite COVID-19

As a leading global pharmaceutical company, Teva provides essential medicines to millions of patients around the world every day. The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains and created significant volatility and disruption of financial markets. Despite these challenges, in 2020, we did not experience significant impacts or delays from the COVID-19 pandemic on our business operations and we delivered financial results in line with our original guidance as communicated in February 2020. We remain focused on the health and well-being of our employees and on our responsibility to continue to provide our medicines to the nearly 200 million patients who depend on us every day.

In 2019, we had essentially concluded our restructuring plan, steadied our earnings performance and begun bringing new specialty products to market around the world. In 2020, we began transitioning to a growth orientation, with several product launches and growth in sales and market share of recently launched products.

Consistent with this strategic shift, the HR and Compensation Committee and the Board shifted the focus of incentives by incorporating Net Revenue into our long-term incentive equity metrics. Non-GAAP EPS and Free Cash Flow remained the financial performance metrics under our annual incentive plan. Even amidst the headwinds and operational impacts of the global pandemic, our CEO and our executive officers led the Company in successfully achieving 101% of the 2020 non-GAAP EPS goal, which reflected an increase of 7% over 2019 actual performance, and achieving 106% of the 2020 Free Cash Flow goal, which reflected an increase of 3% over 2019 actual performance. No adjustments were made to these goals due to the global pandemic.

See “—Key Aspects of 2020 Executive Compensation—3. 2020 Targets Increased and Rigorous; Performance Achievement under Annual and Long-Term Programs Aligned with Targets; No Adjustments Due to COVID-19” below for additional information on the target and achievement levels of performance for these metrics.

Key Aspects of 2020 Executive Compensation

Approximately 86% of our CEO’s 2020 compensation was variable and at-risk, with the substantial majority being performance-based. In addition, 70% of the long-term incentive equity grants were in the form of performance share units (“PSUs”). The PSUs are subject to three-year performance metrics tied to our key goals and there is a relative Total Shareholder Return (“TSR”) modifier (+/- 20%). The PSUs will vest, if at all, at the end of the performance period. The other 30% of long-term incentive equity grants were in the form of time-based restricted share units (“RSUs”), which vest over four years. In 2020, our shareholders approved an increase in the target grant date fair value of the CEO’s long-term incentive equity award by $4 million in connection with an amendment to his employment agreement, in order to bring his target total direct compensation in line with the market median range. The increase, which took the form of performance-based PSUs, raised the performance-based proportion of long-term incentive equity to 70%, as described above, and the performance-based portion of total direct compensation to 66%. There was no increase to the CEO’s annual base salary or target annual incentive as compared to 2019.

Executive Compensation

2020 CEO Target Total Direct Compensation

Similar to 2019, 50% of the value of the target equity grant for executive officers is subject to performance-based vesting conditions in the form of PSUs (excluding the CEO, whose target equity grant is 70% performance-based, as described in Item 1 above), and the other 50% is in the form of time-based RSUs. This enhances the strong link between pay and performance for our NEOs and the alignment of the interests of the NEOs with those of Teva and its shareholders.

A minimum of 85% of target performance must be achieved in order to earn any PSUs for a particular metric, which is a rigorous and challenging level of achievement that must be met before any PSUs are earned. In addition, the HR and Compensation Committee and the Board established three-year goals for the performance period.

No Adjustments Due to COVID-19. The HR and Compensation Committee and the Board did not make any adjustments to the targets and did not exercise any discretion to make adjustments to our annual or long-term incentive plan goals due to COVID-19, demonstrating our strong performance relative to those goals despite challenging circumstances.

Annual Cash Incentives. At the beginning of 2020, we established annual cash incentive plan targets for Non-GAAP EPS and Free Cash Flow that were aligned to the ranges of our outlook as communicated to investors in February 2020. These goals were considered rigorous, aggressive and challenging, attainable only with strong performance, and took into account the relevant opportunities and risks, including the significant continuing headwinds we were facing.

The 2020 Non-GAAP EPS goal was set at $2.55, 6% higher than our actual 2019 performance and 2% higher than the 2019 goal, and the Free Cash Flow goal remained the same as 2019 at $2.0 billion, based on the assumptions communicated to investors in February 2020, including:

In spite of the challenges we faced in 2020, we achieved very solid results. For the 2020 annual incentive plan, the HR and Compensation Committee and the Board determined that the Company’s

Executive Compensation

achievement was 101% of our 2020 Non-GAAP EPS target, and 106% of our 2020 Free Cash Flow target. Based on achievement of these corporate objectives, along with determination of the NEOs’ individual performance achievement (which represented 25% of the target total opportunity), the HR and Compensation Committee and the Board approved an annual incentive plan payout of 109% of target for the CEO and between 115% and 128% of target for the other NEOs.

Long-Term Incentives. For 2018-2020 PSUs, the HR and Compensation Committee and the Board determined that the achievement for the combined three-year performance period was 106% of the target for Non-GAAP EPS, resulting in an earning percentage of 131%, and achievement of 117% of the target for Free Cash Flow, resulting in an earning percentage of 185% (2018 was the last year before we changed to different metrics for the PSUs; in 2019 the metrics were Net Debt and Non-GAAP Operating Profit with a Relative TSR Modifier and in 2020 the metrics were Net Revenue and Non-GAAP Operating Profit with a Relative TSR Modifier). The average of these earning percentages, 158%, was then subject to a relative TSR modifier, which adjusted the earning percentage downward by 20%, resulting in a modified earning percentage of 126% of the target number of PSUs.

Realizable Pay Demonstrates Pay for Performance Alignment

Realizable pay reflects the actual value of annual incentives and equity awards received or to be received by our NEOs, and fluctuates with performance and with increases or decreases in share price. For this reason, contrasting target pay with realizable pay provides a meaningful demonstration of pay for performance alignment.

When the Company does not meet performance targets and/or the share price decreases, an executive’s realizable pay is affected. The following charts demonstrate the relationship between the target and realizable pay values, in each of the past three years, of our NEOs’: (1) annual incentive, and (2) annual equity grants, including PSUs, RSUs, and stock options, as applicable, following the conclusion of the applicable three-year PSU performance period (December 31) and RSU and option values from the same annual grant as of that date. The equity grants to the NEOs in 2016 included PSUs and stock options and in 2017 and 2018 included PSUs, RSUs and stock options. The realizable value of this equity has been calculated by multiplying the number of earned shares for each PSU grant and the number of vested and unvested RSUs (for the 2017 and 2018 grants) by the stock price per share on the last trading day of the relevant performance period, and by determining the intrinsic (or “in the money”) value of vested and unvested stock options on these dates, as applicable.

With respect to PSUs, for 2016 grants, the Company’s three-year performance produced an earning percentage of 75%, but because of the decrease in the share price, the realizable value of such PSUs represented just 22% of the target value.

For NEOs that received a grant in February 2017, the Company’s three-year performance produced an earning percentage of 100%, but because of the decrease in the share price, the realizable value of such PSUs represented just 35% of the target value, and the realizable value of RSUs represented just 31% of the grant value. Per the terms of Mr. Schultz’s employment agreement, he received a grant of PSUs, RSUs, and stock options upon commencing employment in November 2017. The decline in the share price that had taken place before his grant date resulted in a lower grant date fair value per unit, which led the CEO’s realizable value of such PSUs to represent 104% of the target value and the realizable value of RSUs to represent 94% of the grant value.

For 2018 grants, the Company’s three-year performance produced an earning percentage of 126%, but because of the decrease in the share price, the realizable value of such PSUs represented just 72% of the target value and the realizable value of RSUs represented just 52% of the grant value.

Executive Compensation

With respect to stock options granted in 2016, 2017, and 2018, because of the decrease in the share price, no stock options granted had any intrinsic value at the conclusion of the respective PSU performance periods.

Average NEO Annual Cash Incentive Payout as % of Target		Average NEO Annual Equity Grant (PSUs, RSUs, Options) Realizable Value as % of Target Value
		* The average NEO 2017 grant realizable value is 22% excluding the CEO’s annual equity award granted in November 2017, which had a lower fair value per unit when it was granted.

No Earned Shares for CEO 3-Year Sign-On PSU Grant. In 2017, in connection with the recruitment and inducing of Kåre Schultz to serve as CEO of Teva, the Company granted three-year and five-year sign-on PSUs to Mr. Schultz. The three-year PSUs had a target grant date fair value of $7.5 million (as determined based on the closing price of Teva’s shares on the date prior to the announcement of Mr. Schultz’s hire), to be earned based on the achievement of performance goals related to the absolute increase in the price of Teva’s shares over the three-year period following the commencement date of his employment. The performance goals ranged from a 16% increase to a 158% increase for the three-year performance period, and generally would have vested on the third, fourth and fifth anniversaries of the commencement date. At the end of the three-year performance period, the stock price had not achieved the threshold level. Accordingly, no shares were earned in respect of the three-year sign-on PSUs, which underscores the substantial pay for performance orientation of our CEO’s compensation. The five-year PSU performance period will end in 2022.

2020 Say-on-Pay Vote and Shareholder Engagement

At the 2020 annual meeting of shareholders, our shareholders approved, on an advisory basis, in our Say-on-Pay proposal, the compensation of our NEOs, with approximately 79% of the votes cast on the matter “For” such approval.

In late 2020 and early 2021, the Board conducted discussions with shareholders, as part of our ongoing commitment to strong corporate governance and continuous dialogue with our stakeholders, which we believe enables us to better understand their perspectives.

During this time, we contacted shareholders representing approximately 50% of our outstanding shares. Our Chairman of the Board, the Chair of our HR and Compensation Committee and another member of the Board who presented on ESG matters participated in discussions with shareholders representing approximately 22% of our outstanding shares. In addition, we engaged with the research teams at proxy advisory firms Institutional Shareholder Services Inc. and Glass Lewis & Co.

Executive Compensation

The discussions covered a broad array of matters as presented in the table below.

Executive Compensation

Feedback from our shareholders was shared and discussed with the HR and Compensation Committee, the Corporate Governance and Nominating Committee and the full Board.

Executive Compensation

The Board and management continue to engage regularly in dialogue with many of the Company’s largest shareholders, and the HR and Compensation Committee will continue to consider shareholder feedback and the results of the advisory vote on executive compensation in connection with its determinations of executive compensation as depicted in our annual shareholder engagement cycle below. Through our shareholder outreach, we have established important feedback channels that provide a valuable way to receive ongoing input from our shareholders.

II. COMPENSATION PHILOSOPHY AND OBJECTIVES

Compensation Philosophy

Executive Compensation

Compensation Policy under the Israeli Companies Law

Due to our unique position as an Israeli company with an extensive global footprint, we aim to adopt compensation policies and practices that match those of similar global companies, but we must also comply with applicable Israeli law, including the requirement that Israeli publicly-traded companies adopt a compensation policy which is submitted periodically for shareholder approval and contains certain limits on elements of compensation. Executive compensation decisions must generally be consistent with that policy.

As approved at our 2019 annual meeting of shareholders, and as required by the Israeli Companies Law, we have adopted a Compensation Policy regarding the terms of office and employment of our “Office Holders” (as defined under the Israeli Companies Law, which includes directors, the CEO, other executive officers and any other managers directly subordinate to the CEO), including cash compensation, equity-based awards, releases from liability, indemnification and insurance, severance, and other benefits (the “Terms of Office and Employment”). Each of our NEOs is an Office Holder within the meaning of the Israeli Companies Law. The Compensation Policy is reviewed from time to time by the HR and Compensation Committee and the Board to ensure its alignment with our compensation philosophy and objectives and to consider its appropriateness for Teva. Under the Israeli Companies law, we are required to submit the compensation policy to shareholders at least once every three years for approval. Please see “—Compensation Policy Requirements” below.

Compensation Governance

The HR and Compensation Committee assesses the effectiveness of our compensation program periodically and reviews risk mitigation and governance matters. We do this by maintaining the following best practices:

Executive Compensation

Executive Compensation

III. COMPENSATION DETERMINATION PROCESS

Key Participants

The roles and responsibilities of all parties involved with the compensation determination process are set forth below:

Executive Compensation

Role of Independent Compensation Consultant

The HR and Compensation Committee has the authority to retain independent compensation consultants to assist it in the performance of its duties and responsibilities without consulting or obtaining the approval of management of the Company. The HR and Compensation Committee has retained Semler Brossy Consulting Group LLC (“Semler Brossy”) as its independent compensation consultant. Semler Brossy reported directly to, and was directly accountable to, the HR and Compensation Committee. While the HR and Compensation Committee took into consideration the review and recommendations of this independent advisor when making decisions about the Company’s executive officer and director compensation practices and governance related topics, the HR and Compensation Committee ultimately made its own independent decisions about these matters.

The HR and Compensation Committee assessed the independence of Semler Brossy pursuant to the rules of the SEC and the NYSE. In doing so, the HR and Compensation Committee considered the factors set forth by the SEC and NYSE with respect to a compensation consultant’s independence. The HR and Compensation Committee also considered the nature and amount of work performed for the HR and Compensation Committee and the fees paid for those services in relation to the firm’s total revenues. After these reviews, the HR and Compensation Committee concluded that there were no conflicts of interest, and that Semler Brossy was independent pursuant to SEC and NYSE rules.

Compensation Peer Group and Peer Selection Process

The HR and Compensation Committee believes that obtaining relevant market and benchmark data is very important to making determinations about executive compensation. This information provides a solid reference point for making decisions and very helpful context even though, relative to other companies, there are differences and unique aspects of the Company.

The HR 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, as derived from public filings and other sources when making decisions about the structure and component mix of our executive compensation program. The HR and Compensation Committee also considers broader industry practices and our competitors for talent.

The HR and Compensation Committee has developed and maintained a relevant group of peer companies (the “Peer Group”) using the following criteria:

Revenues are considered a primary factor in determining the Peer Group, which has been constructed so that our revenues are generally in the middle of the revenue range of the Peer Group companies. In general, the HR and Compensation Committee accords less weight to market capitalization due in part to the number of factors that can influence and cause volatility in the spot price of the common stock of a company. The HR and Compensation Committee believes that the Peer Group companies are the companies with which we compete for talent.

Executive Compensation

The Peer Group established for setting 2020 compensation consisted of the following companies: