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 (Amendment No.     )

Baxter International Inc.

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)

Table of Contents

Notice of Annual Meeting of Stockholders and Proxy Statement

How Do I Vote?

 

				By Internet, following the instructions on the Notice of Internet Availability of Proxy Materials or the proxy card;
				By telephone, using the telephone number printed on the proxy card; or
				By mail (if you received your proxy materials by mail), using the enclosed proxy card and return envelope.

 

 

Important Notice Regarding

the Availability of Proxy Materials for

the Annual Meeting Of Stockholders

to be Held On May 2, 2017

 

 

This Proxy Statement relating to the 2017

Annual Meeting of Stockholders and the

Annual Report to Stockholders for the year

ended December 31, 2016 are available at

http://materials/proxyvote.com/071813.

Proxy Statement

The accompanying proxy is solicited on behalf of the Board of Directors for use at the Annual Meeting to be held on Tuesday, May 2, 2017. On or about March 17, 2017, Baxter began mailing to stockholders of record a Notice of Internet Availability of Proxy Materials providing instructions on how to access proxy materials via the Internet and how to vote online (www.proxyvote.com). Stockholders who did not receive the Notice of Internet Availability of Proxy Materials as a result of a previous election will receive a paper or electronic copy of the proxy materials, which Baxter also began sending on or about March 17, 2017.

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Proxy Statement Highlights

To assist you in reviewing the proposals to be acted upon at the Annual Meeting, this section presents concise detail about each non-routine voting item. For more complete information, please review our Annual Report on Form 10-K and the complete Proxy Statement.

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Directors Continuing in Office

Key

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2016 Corporate Developments

Board Qualifications, Experiences and Backgrounds

The following chart sets forth the varied qualifications, experiences and backgrounds of the Board. Each chevron represents a director who possesses the specific attribute or experience. See “Corporate Governance at Baxter International Inc.—Board of Directors—Director Qualifications” and “—Director Nominations” for additional information.

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Performance Highlights

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				Advisory Vote on the Frequency of Executive Compensation Advisory Votes   What am I voting on? You are asked to cast a non-binding advisory vote on the frequency of Baxter’s “say-on-pay” votes (as described in Proposal 2).
				What is the Board’s recommendation? The Board of Directors recommends a ONE YEAR vote for this proposal. After careful consideration, the Board of Directors recommends that stockholders vote in favor of an annual say-on-pay vote, consistent with the company’s historical practices.   Where can I find more information?
						See “Proposal 3–Advisory Vote on the Frequency of Executive Compensation Advisory Votes.”

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				Proxy Access Bylaw Amendment to Increase Aggregation Cap   What am I voting on? If properly presented, you will be asked to vote on a stockholder proposal. The stockholder proposal asks the Board to amend Baxter’s proxy access bylaw provision, to replace the limit of 20 stockholders who are currently allowed to aggregate their shares with a 50 stockholder limit.
				What is the Board’s recommendation? The Board of Directors recommends a vote AGAINST the stockholder proposal.   Where can I find more information? Concise supporting information is presented below.
						See “Proposal 5—Proxy Access Bylaw Amendment to Increase Aggregation Cap” for additional information.

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Corporate Governance at Baxter International Inc.

Baxter’s Bylaws require each director to be elected by the majority of the votes cast with respect to such director in uncontested elections; that is, the number of shares voted “for” a director must exceed 50% of the number of votes cast with respect to that director. Abstentions will not be considered votes cast. In a contested election (a situation in which the number of nominees exceeds the number of directors to be elected), the standard for election of directors will be a plurality of the shares represented in person or by proxy and entitled to vote on the election of directors. If a nominee who is serving as a director is not elected at an annual meeting of stockholders, under Delaware law the director would continue to serve on the Board as a “holdover director.” However, under the Bylaws, any incumbent director who fails to be elected must offer his or her resignation to the Board. The Corporate Governance Committee would then make a recommendation to the Board whether to accept or reject the resignation, or whether other action should be taken. In accordance with the Bylaws, the Board would act on the Corporate Governance Committee’s recommendation and publicly disclose its decision and the rationale behind it within 90 days from the date that the election results are certified. The director who offers his or her resignation would not participate in the Board’s decision.

All of the nominees have indicated their willingness to serve if elected, but if any should be unable or unwilling to stand for election, proxies may be voted for a substitute nominee designated by the Board. No nominations for directors were received from stockholders, and no other candidates are eligible for election as directors at the Annual Meeting. Accordingly, there is no director election contest and each director nominee must receive a majority of the votes cast with respect to such director in order to be reelected to the Board. Unless proxy cards are marked otherwise, the individuals named as proxies intend to vote the shares represented by proxy in favor of all of the Board’s nominees.

Set forth below under “—Nominees for Election as Directors (Term Expires 2017)” and “—Directors Continuing in Office (Term Expires 2018)” is information concerning the nominees for election as well as the current directors in the class continuing after the Annual Meeting.

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Nominees for Election as Directors (Term Expires 2017)

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Directors Continuing in Office (Term Expires 2018)

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Board of Directors

The Board currently consists of 12 members. The Board has determined that each of the following 11 current directors satisfies Baxter’s independence standards and the listing standards of the New York Stock Exchange (NYSE) for independence: Thomas F. Chen, John D. Forsyth, James R. Gavin III, M.D., Ph.D., Peter S. Hellman, Munib Islam, Michael F. Mahoney, Stephen N. Oesterle, M.D., Carole J. Shapazian, Thomas T. Stallkamp, K. J. Storm and Albert P.L. Stroucken. The Board had previously determined that Uma Chowdhry, Ph.D., a former Baxter director, was also independent in accordance with NYSE listing standards. Please refer to “—Director Independence” below for a discussion of Baxter’s independence standards.

Ms. Chowdhry retired from the Board, effective as of October 31, 2016. Dr. Oesterle was appointed to the Board in February 2017. In 2016, the Board held 10 meetings. Each director attended at least 75% of the total number of Board meetings and meetings of the committees on which he or she served in 2016. Baxter’s Corporate Governance Guidelines set forth the company’s expectation that directors attend each annual meeting of stockholders. In 2016, 11 of the company’s 12 directors then in office attended the 2016 Annual Meeting.

The Board has a mix of relatively new and longer-tenured directors. This mix provides the Board with the benefit of new ideas and perspectives from shorter-tenured directors. It also helps to maintain the continuity of the Board and the Board’s familiarity with, and knowledge of, the Baxter organization. The average tenure of Baxter directors (including Mr. Joe Almeida) has decreased from 9.4 years (immediately after the June 2015 Baxalta spin-off) to 8.3 years as of March 15, 2017.

Director Independence

Baxter’s Corporate Governance Guidelines require that the Board be composed of a majority of directors who meet the criteria for “independence” established by the rules of the NYSE. To be considered independent, the Board must affirmatively determine that a director does not have any direct or indirect material relationship with Baxter (either directly or as a partner, stockholder or officer of an organization that has a relationship with Baxter), and solely with regard to Compensation Committee members, consider all relevant factors that could impair his or her ability to make independent judgments about executive compensation.

In making its independence determinations, the Board considers transactions, relationships and arrangements between Baxter and entities with which directors are associated as partner, shareholder or officer. When these transactions, relationships and arrangements have existed, they have generally been in the ordinary course of business and of a type customary for a global diversified company such as Baxter.

Director Qualifications

As discussed below in “—Nomination of Directors,” directors are selected on the basis of the specific criteria set forth in Baxter’s Corporate Governance Guidelines. The experience, expertise and knowledge represented by the Board as a collective body allow the Board to lead Baxter in a manner that serves its stockholders’ interests appropriately. Key attributes, experience and skills for each of the company’s current directors are included in “—Nominees for Election as Directors (Term Expires 2017)” and “—Directors Continuing in Office (Term Expires 2018).” Set forth below is a summary of the Board’s collective qualifications, experiences and backgrounds. Each chevron represents a director who possesses the specific attribute or experience.

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Nomination of Directors

It is the policy of the Corporate Governance Committee to consider candidates for director recommended by stockholders, members of the Board and management.

From time to time, the Corporate Governance Committee also considers directors recommended by independent search firms retained by the Board to help identify and evaluate potential director nominees or by stockholders. In 2016, the Corporate Governance Committee retained a search firm to assist in its search for an additional director, to replace Ms. Chowdhry and as part of its ongoing assessment of the Board and commitment to board refreshment. These efforts resulted in the appointment of Dr. Oesterle in February 2017.

The Corporate Governance Committee evaluates all candidates for director in the same manner regardless of the source of the recommendation. Stockholder recommendations for candidates for director should include the information required by Baxter’s Bylaws and be sent to the Corporate Governance Committee, c/o Corporate Secretary, Baxter International Inc., One Baxter Parkway, Deerfield, Illinois 60015.

Baxter’s Corporate Governance Guidelines provide that (as described below), director nominees selected by the Corporate Governance Committee must:

The Corporate Governance Guidelines also provide that directors are selected on the basis of talent and experience. Diversity of background, including diversity of gender, race, ethnic or geographic origin, age and experience (including in business, government and education as well as healthcare, science and technology), is a relevant factor in the selection process. This factor is relevant as a diverse Board is likely to be a well-balanced Board with varying perspectives and a breadth of experience that will positively contribute to robust discussion at Board meetings. A nominee’s ability to meet the independence criteria established by the NYSE is also a factor in the nominee selection process. If a vacancy occurs or is expected to occur (as it did in connection with Ms. Chowdhry’s retirement), the Board initiates a process to identify potential candidates. Once a candidate has been identified, the Corporate Governance Committee and the independent search firm will engage in a process that includes a thorough investigation of the candidate, an examination of his or her business background and education, research on the individual’s accomplishments and qualifications, in-person interviews and reference checking. If this process generates a positive indication, the lead director, members of the Corporate Governance Committee and the Chairman of the Board will meet separately with the candidate and then confer with each other regarding the candidate. Reflecting the output from these background screens and interviews (possibly with multiple candidates), the Corporate Governance Committee may then recommend an individual to the full Board for further evaluation and ultimately election. If the full Board agrees, the Chairman of the Board is then authorized to extend an offer to the individual candidate to join the Board at that time or nominate the candidate for election at the next Annual Meeting. Dr. Oesterle was appointed to the Board in February 2017 through the application of this process.

In addition to making recommendations to the Board, eligible stockholders are able to nominate candidates for election to the Board through the proxy access provisions of Baxter’s Bylaws. Subject to compliance with the related requirements (including with respect to the nominating stockholders, the nominee and the manner in which the nominee was nominated), the nominees will be included in the

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related proxy statement as a stockholder nominee. The proxy access provision provides that a group of up to 20 stockholders that have held at least 3% of Baxter’s outstanding shares for at least three years can nominate up to two individuals or 20% of the Board, whichever is greater, for election at an annual stockholders’ meeting. No stockholders submitted any proxy access nominees for consideration at the Annual Meeting.

Communicating with the Board of Directors

Stockholders and other interested parties may contact any of Baxter’s directors, including the lead director or the non-management directors as a group, by writing a letter to Baxter Board of Directors c/o Corporate Secretary, Baxter International Inc., One Baxter Parkway, Deerfield, Illinois 60015, or by sending an e-mail to boardofdirectors@baxter.com. Baxter’s Corporate Secretary will forward communications directly to the lead director, unless a different director is specified.

See “Executive Compensation—Compensation Discussion and Analysis—Summary—Stockholder Engagement” for a discussion of the company’s stockholder outreach efforts.

Other Corporate Governance Information

Corporate Governance Guidelines

Baxter’s Board of Directors has long adhered to corporate governance principles designed to ensure effective corporate governance. Since 1995, the Board of Directors has had in place a set of corporate governance guidelines reflecting these principles. Baxter’s current Corporate Governance Guidelines, most recently reviewed in February 2017, cover topics including director qualification standards, director responsibilities (including those of the lead director), director access to management and independent advisors, director compensation, director orientation and continuing education, succession planning and the annual evaluations of the Board and its committees. Baxter’s Corporate Governance Guidelines are available on Baxter’s website at www.baxter.com under “About Baxter—About Us—Governance—Guidelines.”

Board Responsibilities

Code of Conduct

Baxter has adopted a Code of Conduct that applies to all members of the Board of Directors and all employees of the company, including the Chief Executive Officer, Chief Financial Officer, Controller and other senior financial officers. Any amendment to, or waiver from, a provision of the Code of Conduct that applies to Baxter’s Chief Executive Officer, Chief Financial Officer, Controller or persons performing similar functions will be disclosed on Baxter’s website, at www.baxter.com under “About Baxter—About Us—Governance.” The Code of Conduct is available on Baxter’s website at www.baxter.com under “About Baxter—About Us—Governance—Code of Conduct.”

Board’s Oversight of Risk

Baxter’s risk management activities include the identification and assessment of the key risks facing the company among the universe of business risks (strategic, operational, financial and regulatory/compliance). These risks are identified across the organization and come from multiple businesses, regions and functions. The Board reviews these risks on an annual basis after they have been identified and assessed by management and regularly reviews the initiatives put in place to mitigate the effects of these risks. These reviews include updates throughout the year from the businesses, regions and functions from which the key risks arise. Depending on the risk, the update may be presented to the full Board or if appropriate to a committee. For example, the Audit Committee reviews the financial risk assessment process and findings of the internal auditors while the Quality, Compliance and Technology Committee and the Audit Committee jointly receive an update from the ethics and compliance function at least annually. Some risks are reviewed by the Board as well as a committee. For example, quality updates are provided at least annually to the full Board although more frequently provided to the Quality, Compliance and Technology Committee. Through its risk oversight activities, the company identifies opportunities to further embed systematic enterprise risk management into its business processes. The Board actively encourages management to continue to identify enterprise risk and develop appropriate mitigation strategies.

The Audit Committee commenced the first phase of its annual enterprise risk management review in March 2016 by reviewing key risks across the organization (as identified by management). Over the course of the rest of the year, each of the key risks and related mitigation strategies were reviewed with the Board or a committee of the Board that then reported to the Board.

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In addition to the Board’s role in enterprise risk management, various committees of the Board are also expressly tasked by their charters to be responsible for the oversight of certain risks. More specifically, the Audit Committee is charged with oversight of the process by which management assesses and manages risk as well as the company’s major financial risk exposures and the steps taken to monitor and control these exposures, while the Quality, Compliance and Technology Committee is charged with oversight of Baxter’s quality, compliance and innovation strategy programs as well as review of strategic issues and corporate actions relating to current and emerging political issues, corporate citizenship and public policy.

Certain Relationships and Related Person Transactions

The Board recognizes that related person transactions present a heightened risk of conflicts of interest. Accordingly, pursuant to Baxter’s Corporate Governance Guidelines, the Corporate Governance Committee has been charged with reviewing related person transactions regardless of whether the transactions are reportable pursuant to applicable rules of the SEC. For purposes of this policy, a “related person transaction” is any transaction in which the company was or is to be a participant and in which any related person has a direct or indirect material interest other than transactions that involve less than $50,000 when aggregated with all similar transactions. For any related person transaction to be consummated or to continue, the Corporate Governance Committee must approve or ratify the transaction. The Corporate Governance Committee will approve or ratify a transaction if it determines that such transaction is in Baxter’s best interest. Related person transactions are reviewed as they arise and are reported to the Corporate Governance Committee. The Corporate Governance Committee also reviews materials prepared by the Corporate Secretary (including information identified in questionnaires distributed annually to the company’s directors, executive officers and controller) to determine whether any related person transactions have occurred that have not been reported. It is Baxter’s policy to disclose all related person transactions in the company’s applicable filings to the extent required by the applicable rules and regulations of the SEC.

Board Structure and Processes

Board Leadership Structure; Lead Director

Mr. Almeida has served as Chairman of the Board and Chief Executive Officer since January 1, 2016. Thomas T. Stallkamp serves as the lead director and has served in such capacity since May 2014.

The Board regularly reviews the leadership structure of the company, including whether the position of Chairman should be held by an independent director. In connection with Mr. Almeida’s appointment, the Board determined that it was in Baxter stockholders’ best interests to keep the Chairman and Chief Executive Officer roles combined. The Board reached this decision in light of Mr. Almeida’s significant industry and leadership experience, including as Chairman and Chief Executive Officer of Covidien. They also believed that Mr. Almeida would effectively connect the Board and Baxter management as he worked with management to establish Baxter’s new strategic framework and refresh its long range plans. As Chairman of the Board, he has developed a process through which this strategic framework is reviewed with the Board on a regular basis.

As Chairman of the Board and pursuant to Baxter’s Bylaws, Mr. Almeida presides at all Board and stockholder meetings, serves as the primary spokesperson for Baxter and acts as a liaison between the Board and the stockholders. As Chief Executive Officer and pursuant to Baxter’s Bylaws, Mr. Almeida supervises the business of the company, subject to the direction of the Board. As lead director and pursuant to Baxter’s Corporate Governance Guidelines, Mr. Stallkamp (or in his absence, another independent director) presides at all executive sessions of the Board, acts as the liaison between the independent directors and the Chairman, reviews meeting agendas for the Board and works with the Chairman to facilitate timely and appropriate information flow to the Board. In 2016, these executive sessions occurred as part of every regularly scheduled meeting of the Board and covered critical issues facing the company, including matters related to the company’s product portfolio, capital allocation strategies, the evaluation of potential business development opportunities (including the company’s agreement to acquire Claris Injectables Limited) and the disposition of the company’s retained stake in Baxalta. The lead director, together with the chairpersons of the Compensation and Corporate Governance Committees, also leads the non-employee directors in the annual review and approval of compensation for the Chief Executive Officer.

Mr. Stallkamp also serves as the contact person for interested parties to communicate directly with the independent members of the Board.

The Corporate Governance Committee recommends a lead director to the full Board for approval on an annual basis, with the expectation that once elected a lead director will serve for three consecutive years. It is anticipated that Mr. Stallkamp will be reappointed by the Board as lead director in May 2017.

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As discussed above, the Board has determined that the combined Chief Executive Officer—Chairman structure continues to serve the best interests of the company’s stockholders in light of the related requirements as set forth in Baxter’s Bylaws and Corporate Governance Guidelines and the skills and experience that Messrs. Almeida and Stallkamp bring to their respective roles. The Board made this determination in advance of extending an offer to Mr. Almeida to serve as Baxter’s Chairman and Chief Executive Officer.

Executive Sessions

As discussed above, independent directors of the Board met in executive session without management at every regularly scheduled meeting during 2016 in accordance with Baxter’s Corporate Governance Guidelines. Mr. Stallkamp, as lead director, led these executive sessions. Additionally, the Audit Committee is required by its charter to regularly hold separate sessions during committee meetings with each of the internal auditor, the independent registered public accounting firm and management. The Corporate Governance and Compensation Committees generally meet in executive session at each meeting.

Committees of the Board

The standing committees of the Board of Directors currently consist of the Audit Committee, the Compensation Committee, the Corporate Governance Committee and the Quality, Compliance and Technology Committee.

Each committee consists solely of independent directors and is governed by a written charter. All committee charters are available on Baxter’s website at www.baxter.com under “About Baxter—About Us—Governance—Committees & Charters.”

Audit Committee

The Audit Committee is currently composed of K. J. Storm (Chair), Peter S. Hellman, Munib Islam, Thomas T. Stallkamp and Albert P.L. Stroucken, each of whom is independent under the rules of the NYSE and Rule 10A-3 of the Securities Exchange Act of 1934, as amended (Exchange Act). The Board has determined that Messrs. Hellman, Stallkamp, Storm and Stroucken each qualify as an “audit committee financial expert” as defined by the rules of the SEC. The Audit Committee is primarily concerned with the integrity of Baxter’s financial statements, system of internal accounting controls, the internal and external audit process, and the process for monitoring compliance with laws and regulations. The Audit Committee’s duties include: (1) reviewing the adequacy and effectiveness of Baxter’s internal control over financial reporting with management and the external and internal auditors and reviewing with management Baxter’s disclosure controls and procedures; (2) retaining and evaluating the qualifications, independence and performance of the independent registered public accounting firm; (3) approving audit and permissible non-audit engagements to be undertaken by the independent registered public accounting firm; (4) reviewing the scope of the annual external and internal audits; (5) reviewing and discussing Baxter’s financial statements (audited and unaudited), as well as earnings press releases and related information, prior to their filing or release; (6) overseeing legal and regulatory compliance as it relates to financial matters; (7) holding separate executive sessions with the independent registered public accounting firm, the internal auditor and management; (8) discussing guidelines and policies governing the process by which Baxter assesses and manages risk; and (9) approving certain financing matters, proposed corporate transactions and capital expenditures. The Audit Committee met 12 times in 2016. The Audit Committee Report appears on page 55.

Compensation Committee

The Compensation Committee is currently composed of John D. Forsyth (Chair), Peter S. Hellman, Michael F. Mahoney, Carole J. Shapazian and Thomas T. Stallkamp, each of whom is independent under the rules of the NYSE. The Compensation Committee exercises the authority of the Board relating to employee benefit and equity-based plans and the compensation of the company’s officers. The Compensation Committee’s duties include: (1) making recommendations for consideration by the Board, in executive session and in coordination with the Corporate Governance Committee, concerning the compensation of the Chief Executive Officer; (2) determining the compensation of the company’s officers (other than the Chief Executive Officer) and advising the Board of such determination; (3) making recommendations to the Board with respect to incentive compensation plans and equity-based plans and exercising the authority of the Board concerning benefit plans; (4) serving as the administration committee of the company’s equity-based plans; (5) making recommendations to the Board concerning director compensation; (6) reviewing the adequacy of the company’s stock ownership guidelines and periodically assessing compliance with these guidelines; and (7) overseeing the company’s compensation philosophy and strategy and periodically assessing the risk related to its compensation policies and practices. The Corporate Governance and Compensation Committees work together to establish a link between the Chief Executive Officer’s

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performance and decisions regarding his compensation. All compensation actions relating to the company’s Chief Executive Officer are subject to the approval of the independent directors of the Board. The Compensation Committee met five times in 2016. The Compensation Committee Report begins on page 25.

The Compensation Committee has the sole and direct responsibility for the appointment, compensation and oversight of the work of any advisor retained by the Compensation Committee, and it has directly engaged George B. Paulin, Chairman of Frederic W. Cook & Co., Inc. (FW Cook), as its independent compensation consultant. Additionally, Aon Hewitt assists the Compensation Committee with the compilation of market data from time to time. Mr. Paulin reports directly and exclusively to the Compensation Committee and his firm provides no other services to Baxter except advising on executive and Board compensation matters. He provides analyses and recommendations that inform the Compensation Committee’s decisions, but he does not decide or approve any compensation actions. During 2016, he advised the Compensation Committee Chairman on setting agenda items for Compensation Committee meetings; reviewed management proposals presented to the Compensation Committee; assisted in the Compensation Committee’s assessment of Baxter’s compensation policies and practices; and conducted a review of the compensation of non-employee directors at Baxter’s peer companies. He also assisted in the identification of new peer companies for Baxter prior to the Baxalta spin-off and again for 2017, as described in “Executive Compensation—Compensation Discussion and Analysis—Elements of Executive Compensation—Structure of Compensation—Baxter’s Peer Group and Use of Peer Group Data.” In accordance with the rules of the SEC and the NYSE regarding the independence of compensation consultants, Mr. Paulin provided the Compensation Committee information regarding any personal, financial, or business relationships between FW Cook and Baxter, its management or the members of the Compensation Committee that could impair its independence or present a conflict of interest. Based on its review of this information, the Compensation Committee determined that there were no relationships that impair the independence or create a conflict of interest between Baxter and FW Cook and the partners, consultants and employees who provide services to the Compensation Committee. In addition, the Compensation Committee annually reviews the substantive performance of Mr. Paulin and FW Cook as part of its engagement process.

Corporate Governance Committee

The Corporate Governance Committee is currently composed of James R. Gavin III, M.D., Ph.D. (Chair), Thomas F. Chen, John D. Forsyth, Michael F. Mahoney and K. J. Storm, each of whom is independent under the rules of the NYSE. The Corporate Governance Committee assists and advises the Board on director nominations, corporate governance and general Board organization and planning matters. The Corporate Governance Committee’s duties include: (1) developing criteria for use in evaluating and selecting candidates for election or re-election to the Board and assisting the Board in identifying and attracting qualified director candidates; (2) selecting and recommending that the Board approve the director nominees for the next annual meeting and recommending persons to fill any vacancy on the Board; (3) determining Board committee structure and membership; (4) overseeing the succession planning process for management, including the Chief Executive Officer; (5) developing and implementing an annual process for evaluating the performance of the Chief Executive Officer; (6) developing and implementing an annual process for evaluating Board and committee performance; (7) overseeing the continuing education of the Board; and (8) reviewing at least annually the adequacy of Baxter’s Corporate Governance Guidelines. The Corporate Governance Committee met seven times in 2016.

Quality, Compliance and Technology Committee

The Quality, Compliance and Technology Committee is currently composed of Carole J. Shapazian (Chair), Thomas F. Chen, James R. Gavin III, M.D., Ph.D., Stephen N. Oesterle, M.D. and Albert P.L. Stroucken. The Quality, Compliance and Technology Committee was previously named the Public Policy Committee and was renamed in early 2017. This change was made to better emphasize Baxter’s commitment to quality and compliance matters and to assign responsibility for oversight of the company’s innovation strategy from the Board to the committee. The Quality, Compliance and Technology Committee assists the Board in fulfilling its oversight responsibilities with respect to legal, regulatory (including quality) and other compliance matters and the company’s innovation strategy. The committee also advises the Board with respect to Baxter’s responsibilities as a global corporate citizen. The Quality, Compliance and Technology Committee’s duties include: (1) overseeing risk management in the area of product quality and safety; (2) reviewing periodic reports on significant compliance matters from senior executives in charge of the company’s quality and compliance functions; (3) coordinating with the Audit Committee on quality and compliance issues; (4) overseeing the company’s innovation strategy; and (5) reviewing strategic issues and corporate actions relating to current and emerging political, corporate citizenship and public policy issues that may affect Baxter. The Quality, Compliance and Technology Committee met three times in 2016.

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Director Compensation

Non-employee directors are compensated for their service under Baxter’s non-employee director compensation plan with cash compensation and equity awards of stock options and RSUs. Beginning in 2016, Mr. Islam was paid solely in cash an amount equal to the cash compensation paid to all other non-employee directors (as described below under “—Cash Compensation”) and an amount equal to the target value of the RSUs and stock options awarded to all other non-employee directors in May 2016 (as described below under “—Stock Options” and “—Restricted Stock Units”). The cash compensation to be paid in lieu of the equity award will be paid subject to Mr. Islam’s satisfaction of the one year vesting period to which RSUs and stock options granted to other non-employee directors in 2016 are subject. Baxter’s director compensation program utilizes equity awards in order to further align the interests of directors with Baxter stockholders. Notwithstanding that Mr. Islam will continue to receive solely cash awards in 2017, he serves on the Board as a Third Point nominee in accordance with the terms of the September 2015 Support Agreement with Third Point and as a senior Third Point executive. Third Point is the company’s second largest stockholder as of the date of this Proxy Statement. See “Ownership of Our Stock—Security Ownership by Certain Beneficial Owners” for additional information regarding Third Point’s holdings.

Cash Compensation

In 2016, each non-employee director was paid a $65,000 annual cash retainer and a $2,000 fee for each Board and committee meeting attended.

Each non-employee director who acts as the chairperson of any committee meeting receives an additional annual retainer of $15,000, except for the Chair of the Audit Committee who receives an additional retainer of $20,000 in light of the frequency of meetings held by this committee. The lead director is paid an additional annual cash retainer of $50,000. Non-employee directors are eligible to participate in a deferred compensation plan that allows for the deferral of all or any portion of cash payments until Board service ends and provides participants with a select subset of investment elections available to all eligible employees under Baxter’s tax-qualified Section 401(k) plan.

Beginning in 2017, each non-employee director is now paid an $85,000 annual cash retainer but will not receive any Board meeting fees. Each non-employee director will also continue to receive committee meeting fees, as applicable.

Stock Options

Except as described above with respect to Mr. Islam, each non-employee director received an annual grant of stock options on the 2016 Annual Meeting date. Under Baxter’s director compensation plan for 2016, each non-employee director received an annual stock option grant with a value of $60,000 as of the grant date in May 2016, rounded to the nearest ten shares. The stock options become exercisable on the date of the next annual meeting, and may become exercisable earlier in the event of death, disability or a change in control of Baxter.

For 2017, the aggregate value of a non-employee director’s annual equity grant was increased from $175,000 to $180,000. Historically (including for 2016), this annual equity grant has consisted of 50% stock options and 50% RSUs (as described below). Beginning in 2017, 100% of this grant will be made in fully vested Baxter shares unless a director elected to receive 50% of the value of the grant in fully vested options. All equity awards are subject to a six-month clawback period in the event the director stops serving on the Board during that period (other than as a result of death, disability or qualifying retirement).

Restricted Stock Units

Except as described above with respect to Mr. Islam, each non-employee director received an annual grant of RSUs on the 2016 Annual Meeting date. The number of RSUs granted in 2016 equaled the quotient of $115,000 divided by the closing sale price for a share of Baxter common stock on the 2016 Annual Meeting date, rounded to the nearest ten shares. Directors had the option of deferring the distribution of the shares of stock underlying the RSUs until termination from service as a director. These RSUs are scheduled to vest on the Annual Meeting date and may vest earlier in the event of death, disability or a change in control of Baxter. Directors are credited with dividend equivalents on the shares underlying the RSUs (whether vested or unvested) and such dividend equivalents are reinvested in additional unvested RSUs. Directors have no other rights of a stockholder with respect to the shares underlying the RSUs prior to vesting.

As discussed above, beginning in 2017, non-employee directors will receive fully vested shares of Baxter common stock and, if they elect, fully vested Baxter stock options. These awards will be subject to a six-month clawback period. Additionally, if a non-employee

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director does not make a stock option election by the applicable deadline, his/her entire equity award (beginning in May 2017) will consist of fully vested Baxter shares.

Other Director Compensation

Directors are eligible to participate in the Baxter International Foundation matching gift program, under which Baxter’s foundation matches gifts made by employees and directors to eligible non-profit organizations. The maximum gift total for a non-employee director participant in the program is $20,000 in any calendar year.

Baxter’s Stock Ownership Guidelines for Directors; Prohibitions on Trading

Baxter’s Corporate Governance Guidelines provide that after five years of Board service, each director is recommended to hold common stock equal to five times the annual cash retainer provided to directors. The Board has determined that Mr. Islam satisfies this guideline by virtue of Third Point’s ownership of Baxter common stock. See “Ownership of Our Stock—Security Ownership by Certain Beneficial Owners” for a description of Third Point’s holdings.

Pursuant to Baxter’s securities trading policy, Baxter directors are prohibited from engaging in short-term trading activities and option transactions in Baxter stock. As a result, directors cannot enter into any “put” or “call” options or otherwise buy or sell derivatives on any Baxter stock.

Director Compensation Table

The following table provides information on 2016 compensation for non-employee directors who served during 2016.

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Executive Compensation

The Board encourages stockholders to carefully review the “Executive Compensation—Compensation Discussion and Analysis” section of this Proxy Statement, in connection with this advisory vote. The Compensation Discussion and Analysis section describes Baxter’s executive compensation program and the decisions made by the Compensation Committee and the Board with respect to the compensation of the company’s named executive officers for 2016.

The company has designed its executive compensation programs to attract, motivate, reward and retain the senior management talent required to achieve its corporate objectives and increase stockholder value. As discussed below in Compensation Discussion and Analysis, pay-for-performance is the most significant structural element of Baxter’s executive compensation program, where the majority of executive pay is at risk and subject to specific annual and long-term performance requirements.

In addition, Baxter has also adopted policies, like the stock ownership guidelines and the executive compensation recoupment policy, to help ensure long-term focus and appropriate levels of risk-taking by executive officers.

The Board believes that Baxter’s executive compensation program is designed to meet the objectives discussed in the Compensation Discussion and Analysis section. Accordingly, the Board recommends that stockholders vote in favor of the following resolution:

RESOLVED, that the stockholders of Baxter International Inc. approve the compensation paid to the company’s named executive officers as described in this Proxy Statement under “Executive Compensation,” including the Compensation Discussion and Analysis, the compensation tables and other narrative disclosure contained therein.

This say-on-pay advisory vote is non-binding on the Board. Although the vote is non-binding, the Board and the Compensation Committee will review and thoughtfully consider the voting results when making future decisions concerning the compensation of the company’s future named executive officers.

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Compensation Committee Report

The Compensation Committee is responsible for the oversight of Baxter’s compensation programs on behalf of the Board. In fulfilling its oversight responsibilities, the Compensation Committee has reviewed and discussed with management the Compensation Discussion and Analysis set forth in this Proxy Statement.

Based on the review and discussions referred to above, the Compensation Committee recommended to the Board of Directors that the following Compensation Discussion and Analysis be included in Baxter’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016 and this Proxy Statement, each of which will be filed with the SEC.

Compensation Committee

John D. Forsyth (Chair)

Peter S. Hellman

Michael F. Mahoney

Carole J. Shapazian

Thomas T. Stallkamp

Compensation Discussion and Analysis

This Compensation Discussion and Analysis discusses the 2016 compensation paid to Baxter’s executive officers who are identified as named executive officers below. The purpose of this discussion is to provide investors with an understanding of the company’s executive compensation policies and practices, and the decisions regarding the compensation for the named executive officers.

Summary

2016 Results

Baxter’s financial results for 2016 reflect the company’s achievement of significant financial, operational and strategic objectives. The related highlights include:

Baxter’s global net sales totaled $10.2 billion in 2016 (or $11.0 billion calculated on an adjusted basis at budgeted exchange rates), with adjusted earnings from continuing operations per diluted share of $1.96. Additionally, Baxter achieved free cash flow (operating cash flow less capital expenditures) of $905 million and adjusted operating margin of 13.6% in 2016. See “—Structure of Compensation Program—Financial Targets” and “—Performance Over the Long-Term—Performance Against ROIC/Adjusted Operating Margin” for a reconciliation of adjusted net sales, adjusted earnings per diluted share, free cash flow and adjusted operating margin to the closest GAAP measure.

As discussed in “—Structure of Compensation Program—Financial Targets” below, Baxter’s short-term cash compensation program for 2016 was based, in part, on the achievement of adjusted EPS, adjusted net sales and free cash flow for 2016.

The company’s financial, operational and strategic performance (as discussed above) were all significant factors in the compensation decisions made for 2016. A comparison of the performance of Baxter’s common stock against certain of its peers over the past year provides another perspective on Baxter’s overall performance and is an additional factor that the Compensation Committee (and with

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respect to Chief Executive Officer compensation, the Board) considered when making compensation decisions for 2016. While the Compensation Committee has historically considered the relative performance of Baxter’s common stock over a five year period when making compensation decisions, the shorter time period is intended to reflect the impact of Mr. Almeida as the company’s new Chief Executive Officer and Chairman effective January 1, 2016 and the subsequent changes to the company’s strategic framework and long range plans.

The following graph compares the cumulative total shareholder return (including reinvested dividends) on Baxter common stock and the Standard & Poor’s 500 Composite Index and the Standard & Poor’s 500 Health Care Index for 2016 (Source: Bloomberg). As set forth below, the total shareholder return for Baxter in 2016 totaled approximately 17.6%, as compared to 11.9% for the S&P 500 Composite Index and (2.7)% for the S&P 500 Health Care Index over the same period.

2016 Say-on-Pay Vote

At the 2016 Annual Meeting, approximately 95% of the stockholders voting at the meeting approved the compensation paid to Baxter’s named executive officers in 2015.

The Compensation Committee and management are committed to strengthening pay-for-performance alignment, as well as the overall design of the company’s executive compensation programs. In 2016 and early 2017, Baxter has reached out to certain of its top stockholders to seek feedback on Baxter’s executive pay practices and the 2016 say-on-pay vote, as part of the outreach discussed below in “—Stockholder Engagement.” No stockholders that took part in those discussions identified any issues with the company’s say-on-pay practices.

Stockholder Engagement

Baxter sponsors an active stockholder engagement program. As part of this program, the company is committed to engaging in constructive dialogue with its stockholders. Management is primarily responsible for stockholder communications and engagement, with involvement from the lead director, Corporate Governance and Compensation Committees. Management provides regular updates to the Board concerning stockholder feedback. The Board considers this feedback as well as the interests of all stakeholders when overseeing company strategy, formulating governance practices and designing or evaluating compensation programs, as discussed above.

During 2016 and early 2017, Baxter management and Baxter directors have met with stockholders as part of the company’s annual outreach program. This program included an outreach to top Baxter investors representing approximately 40% of Baxter’s outstanding shares. These investors include institutional investors, hedge funds, mutual funds and public pension funds. As part of this outreach,

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Baxter offered to make senior management and select Board members available to discuss recent corporate governance matters impacting Baxter, and other matters of interest to the investors. Investors representing approximately 10% of Baxter’s outstanding shares agreed to participate in these discussions. Topics covered in these discussions include Baxter’s strategy and performance, Board composition, structure and refreshment (including Dr. Oesterle’s recent appointment to the Board), succession planning and the company’s proxy access bylaw amendment. Management solicited feedback from stockholders on these subjects and provided a summary of responses to the Board.

2016 Changes to Compensation Program

For 2016, Baxter’s Compensation Committee approved the following plan design changes, consistent with Baxter’s long range plans:

The annual cash metrics and weightings used for 2016 annual cash bonus assessment were as follows:

The mix of equity awards for the named executive officers for 2016 was as follows:

2016 Executive Compensation Awarded and Earned

For his service as Baxter’s Chairman and Chief Executive Officer in 2016, Mr. Almeida has compensation reported in the Summary Compensation Table of $5,813,945. In reviewing the company’s programs and the decisions made relative to Mr. Almeida’s compensation, the Compensation Committee believes that Mr. Almeida was fairly rewarded for leading the company through a period of significant change and restructuring, including a rebalancing of the company’s strategic priorities and long range plan. The Compensation Committee also believes that Mr. Almeida’s compensation reflects the increased value delivered to Baxter stockholders in 2016, as partially reflected in the total shareholder return graph for 2016 set forth above.

A primary component of this total was Mr. Almeida’s base salary of $1,300,000, as established in October 2015 in connection with his hiring. Mr. Almeida did not receive a salary increase in 2016 or in 2017.

Another primary component of Mr. Almeida’s 2016 compensation was his annual cash bonus of $3,510,000. Mr. Almeida’s annual bonus funded at 183% of target reflecting the company’s adjusted net sales, EPS and free cash flow achievements. This payout

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includes an adjustment of approximately 110% made by the Board in assessing his individual performance for 2016. See “—Elements of Executive Compensation—Cash Bonuses—Determination of 2016 Annual Bonus—Payouts Individual Performance” for a discussion of the factors evaluated by the Board in connection with making these adjustments.

In connection with Mr. Almeida’s hiring in October 2015, he received equity grants on his hire date that represented an acceleration of his 2016 annual equity grants. Consistent with Baxter’s long-term incentive plan design, Mr. Almeida received 50% of the grant in stock options and 50% of the grant in PSUs.

One-half of the PSUs granted to Mr. Almeida in 2015 are measured against Baxter GSV performance for the period from October 28, 2015 (his hire date) through December 31, 2018, and one-half are measured on three annual adjusted operating margin targets for 2016, 2017 and 2018. In 2016, Mr. Almeida received a long-term incentive grant with a grant date fair value of $826,481. This grant represents the first one-third of the adjusted operating margin PSUs awarded to him in connection with his hiring in October 2015. The remaining two-thirds will be deemed granted to him in 2017 and 2018 (in two equal installments), at such time as the related performance criteria for each year is established. Mr. Almeida did not receive any additional equity awards in 2016. Mr. Almeida’s compensation for 2015 (as reported in the Summary Compensation Table) includes his October 2015 stock option grant and his October 2015 GSV PSU grant. Those awards had an aggregate grant date fair value of $7,714,087.

For 2016, aside from Mr. Almeida, the other Baxter named executive officers include James K. Saccaro, Corporate Vice President and Chief Financial Officer; Giuseppe Accogli, Corporate Vice President and President, Renal; Brik V. Eyre, Corporate Vice President and President, Hospital Products; and David P. Scharf, former Corporate Vice President and General Counsel. Mr. Scharf resigned his position as Corporate Vice President, General Counsel effective February 27, 2017. Effective February 28, 2017, Mr. Sean Martin was appointed as Corporate Vice President and General Counsel. Jill M. Schaaf, Baxter’s former Corporate Vice President and President, Renal, is the other named executive officer included in the Summary Compensation Table.

Each named executive officer (other than Mr. Almeida) received total performance based compensation (cash bonus, stock options and PSUs) for 2016 as follows, based on Baxter’s financial performance: Mr. Accogli $1,286,595; Mr. Eyre $2,772,578, Mr. Saccaro $3,181,077 and Mr. Scharf $2,803,274. These amounts reflect adjustments made by the Compensation Committee to reflect the individual’s 2016 performance or potential, as discussed below. The performance based compensation paid to Ms. Schaaf in 2016 totaled $1,160,920.

A significant component of the total compensation paid to the named executive officers in 2016 was in the form of equity. The ability of the named executive officers to realize the grant date fair value of long-term incentives subject to the satisfaction of future performance vesting requirements will ultimately depend on the company’s performance over the long term.

Compensation Philosophy

Baxter’s compensation program is designed to:

The objective of the program is to compensate Baxter’s executive officers in a manner that is consistent with these principles, align the interests of management and stockholders and drive sustained and superior performance relative to the company’s peers. The program is also designed to be comparable with companies with which Baxter competes for executive talent in order to attract, retain and motivate high-performing executives.

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Components of Executive Compensation

The table below describes the components of Baxter’s executive compensation for 2016. See “—Elements of Executive Compensation” below for additional information on each component. In addition to the compensation components listed below and in order to ensure we provide an overall competitive total compensation program, we also offer our executives employee benefits that are generally available to all employees.

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Structure of Compensation Program

Pay-for-Performance

Pay for performance is the most significant structural element of Baxter’s compensation program. Baxter’s focus on pay-for-performance is best demonstrated through the structure of its executive compensation programs, where the majority of executive pay is at risk and subject to specific annual and long-term performance requirements (including in the case of stock options, the performance of Baxter common stock). As shown below for 2016, 89% percent of Mr. Almeida’s target compensation and 76% percent of the target compensation for the other named executive officers (excluding Ms. Schaaf) was at risk and subject to performance. Mr. Almeida’s target compensation includes his 2015 equity hiring grant.

Named Executive Officer (NEO) Total Target Direct Compensation

For 2016, annual performance against financial targets of adjusted EPS, adjusted net sales and free cash flow helped to determine the payout of cash bonuses under Baxter’s cash bonus plan. Free cash flow was introduced as the third metric under the company’s cash bonus plan in 2016. These results were further adjusted to reflect the officer’s individual performance for 2016, as discussed below under “—Individual Performance.”

For 2016, Baxter executive officers received 50% of their annual equity grants in the form of PSUs, of which:

Stock options make up the remaining 50% of annual equity awards for 2016. The overall performance of Baxter’s common stock determines the value of the stock options. Equity awards were adjusted to reflect the officer’s potential for future performance or advancement, as assessed by the Compensation Committee or the Board. See “—Individual Performance” for additional information.

Financial Targets

The Compensation Committee selected adjusted EPS, adjusted net sales and free cash flow as the financial measures for funding the cash bonus pool for 2016. The table below shows the relative weight assigned to each measure for 2016:

Since each financial measure was met, the cash bonus pool was funded at two times the base salary for each executive officer covered by the bonus pool (other than the Chief Executive Officer, for whom the bonus pool was funded at two times his target cash bonus) with negative discretion applied as described below.

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The Compensation Committee selected adjusted EPS and adjusted net sales as financial metrics for the 2016 cash bonus plan as they are of immediate interest to stockholders and are the primary measures on which Baxter regularly provides guidance to the market. Free cash flow (operating cash flow less capital expenditures) was included as a third metric to reflect the company’s increased focus on the disciplined use of capital expenditures. The table below provides adjusted EPS, adjusted net sales and free cash flow targets for 2016 as well as actual results.

The company calculates adjusted EPS for purposes of funding its cash bonus pool the same way it calculates adjusted EPS when publicly announcing earnings. As a result, the special items that were excluded from GAAP earnings per share to arrive at adjusted EPS for purposes of announcing earnings results for 2016 were the same as the adjustments made for purposes of funding the 2016 cash bonus pool.

Baxter uses adjusted net sales (rather than net sales) as a target for the same reason that Baxter provides sales guidance excluding the impact of foreign currency fluctuations and certain other items — that is, the company believes it provides a better perspective on underlying sales growth. The use of budgeted exchange rates allows Baxter to evaluate final performance on the same foreign currency basis that was used for setting the target and establishing the budget.

Baxter uses free cash flow (rather than operating cash flow) as it gives effect to the company’s capital expenditures and better reflects the cash available for future investment. It also calculates free cash flow for purposes of funding its cash bonus pool on the same basis that was used for setting the target and when publicly announcing earnings.

Performance Over the Long-Term

As a healthcare company, Baxter operates in a rapidly changing, increasingly competitive and heavily regulated environment. Accordingly, encouraging its executive officers to focus on the long-term performance of the company is particularly important to Baxter. In 2016, Baxter awarded PSUs designed to reward strong and sustained long-term performance by the company on two important measures: GSV and adjusted operating margin. Fifty percent of each PSU award in 2016 was based on each of GSV and adjusted operating margin. The adjusted operating margin measure was added to the PSU grants in 2016, in lieu of ROIC, consistent with the company’s heightened focus on improving profit margins.

Baxter did not grant any PSUs during the annual equity award process for 2015. Baxter made this decision in light of difficulties associated with establishing performance targets in advance of the Baxalta spin-off. Fifty percent of the PSUs granted in 2014 are measured based on ROIC. The ROIC target for the final one-third portion of the 2014 ROIC PSU award was established in March 2016.

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Performance Against Peers

As discussed above, although no PSUs were awarded during the annual equity award process for 2015, GSV PSUs granted in 2014 had a three-year performance period which ended on December 31, 2016. The GSV performance period for 2016 GSV PSUs is also three years and is scheduled to end on December 31, 2018. For the 2014 GSV PSU grants, the combined value of the stock prices of Baxter and Baxalta (calculated as of June 2, 2016) was used to determine the extent to which the related PSUs paid out.

The GSV for both the 2014 and 2016 GSV PSUs was or will be measured based on the following formula:

Average Closing Stock Price Over the Last Twenty Consecutive Trading Days of the Performance Period

minus Average Closing Stock Price Over the Last Twenty Consecutive Trading Days Immediately

Preceding the Commencement of the Performance Period

plus Reinvested Dividends

Average Closing Stock Price Over the Last Twenty Consecutive Trading Days Immediately Preceding the

Commencement of the Performance Period

The GSV PSUs pay out in shares of Baxter common stock in a range of 0% to 200% of the number of PSUs awarded. The table below shows how the company’s GSV against its peers (as discussed below) correlates with the 0% to 200% range of payouts for the 2016 GSV PSUs.

The GSV PSUs pay out linearly between each set of data points above the 25^th percentile and below the 85^th percentile. In order to pay out at the 100% target level, Baxter must outperform its peers at the 60^th percentile over the relevant performance period.

The peer group used for measuring performance for the 2014 GSV PSUs (with a performance period that ended on December 31, 2016), reflects the nature of Baxter’s business at the time the peer group was established and includes medical products and biopharmaceuticals companies:

* St. Jude was acquired by Abbott Laboratories on January 4, 2017.

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The Baxter peer group, as updated and approved in July 2014 in anticipation of the Baxalta spin-off, is set forth under “—Baxter’s Peer Group and Use of Peer Group Data.” The Compensation Committee used the updated peer set for executive-level benchmarking and for the establishment of equity awards, including the PSU grants made in March 2016. For 2017, the Compensation Committee further revised the peer group for purposes of evaluating the competitiveness of executive officer compensation. For 2017, the Compensation Committee elected to remove Allergan plc and Varian Medical Systems, Inc. from the peer group based on management’s assessment that they have different business strategies and executive compensation models as compared to Baxter. The Compensation Committee also determined to use a peer index (the Dow Jones Medical Equipment Index) for purposes of evaluating GSV performance, beginning with the 2017 GSV PSU awards. See “—Baxter’s Peer Group and Use of Peer Group Data” for additional information.

Performance Against ROIC/Adjusted Operating Margin

ROIC PSUs were granted in 2014. Prior to 2016, the annual ROIC performance had been assessed with respect to the first two tranches of the 2014 ROIC PSUs. Performance criteria for the third tranche of the 2014 ROIC PSUs was established in 2016 and assessed in early 2017.

ROIC measures how effectively Baxter is allocating and utilizing capital in its operations. ROIC had historically been used as the second PSU measure in order to balance the GSV measure, helping to ensure a focus on efficient and value-maximizing investment and appropriate long-term management of capital. In 2016, the Compensation Committee replaced ROIC with adjusted operating margin as the second performance metric for the 2016 PSU awards. See “—Structure of Compensation Program” for a discussion of the related changes for 2016.

ROIC is calculated by dividing annual cash flows from operations for a period (excluding the impact of interest expense) by average invested capital for the period. During the three-year performance period from 2014 – 2016, the Compensation Committee has set an annual ROIC target each year. The 2016 ROIC goals were used to measure performance for the third tranche of the 2014 ROIC PSUs. The related PSUs were paid out in shares of Baxter common stock in a range of 0% to 200% of the number of PSUs awarded. The table below shows how the company’s ROIC performance (for the 2014 ROIC PSUs) correlates with the 0% to 200% range of payouts.

Baxter does not provide guidance on ROIC nor does it disclose ROIC in its public filings. However, for 2016, the first half of 2015 and the second half of 2015 and 2014, Baxter achieved 120.3%, 96.4%, 119.9%, and 102.5% of the applicable ROIC target for the period with corresponding payouts of 200%, 62%, 200% and 136%.

In connection with the Baxalta spin-off in June 2015, continuing Baxter employees (including Messrs. Accogli, Eyre, Saccaro and Scharf and Ms. Schaaf) received Baxalta ROIC PSUs in exchange for a portion of the Baxter ROIC PSUs granted to them in 2013 or 2014. These PSUs, while payable in Baxalta shares, were compensation for services rendered to the company prior to the separation. Performance under the final tranche of the 2014 Baxalta ROIC PSUs was to be assessed for continuing Baxter employees based on Baxter’s ROIC performance for 2016. However, in anticipation of the Shire – Baxalta merger, Baxter ROIC performance for 2016 was deemed to have been achieved at target for purposes of calculating the number of Shire restricted stock units issued in exchange for the 2014 Baxalta ROIC PSUs upon the closing of the merger in June 2016.

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Adjusted operating margin PSUs were granted in 2016. Adjusted operating margin is calculated by dividing adjusted operating income by net sales for the period. Baxter calculates adjusted operating margin (for purposes of its long term incentive plan) in the same manner that it calculates and publicly announces its adjusted operating margin guidance and performance. Adjusted operating margin PSUs, like their ROIC PSU counterparts, will pay out in shares of Baxter common stock in a range of 0% to 200% of the number of PSUs awarded. The table below shows how the company’s operating margin performance (for the 2016 operating margin PSUs) correlates with the 0% to 200% range of payouts.

The company set the adjusted operating margin target for the 2016 adjusted operating margin PSUs at 11.3%. Baxter achieved adjusted operating margin of 13.6%, or 120% of the adjusting operating margin target.

Adjusted operating margin performance for 2016 includes $659 million in adjustments to GAAP operating income of $724 million. These adjustments primarily related to net realized gains on intangible asset amortization, business optimization items, product related reserves, separation related costs for the Baxalta separation and asset impairment. GAAP operating margin for 2016 was 7.1%.

Performance Payout is “At-Risk”

As it is possible that there will be no payout under PSUs, these awards are completely “at-risk” compensation. For example, the company did not issue any shares of common stock with respect to the GSV PSUs granted in 2012 and otherwise payable in 2015 or the GSV PSUs granted in 2013 and otherwise payable in 2016 because the company did not achieve the threshold level of performance over the applicable three-year periods. This result is consistent with the company’s pay-for-performance philosophy and the Compensation Committee’s belief that a portion of equity granted to the company’s officers be completely “at-risk.” The payout in 2017 of GSV PSUs granted in 2014 was 140% of target, reflecting the company’s improved financial performance between 2014 and 2016 as compared to its peers.

Performance of Baxter Common Stock

The performance of Baxter common stock determines the value of the stock options and RSUs that were granted to the named executive officers in 2016.

Individual Performance

The Compensation Committee assesses the individual performance of each executive and corporate officer (other than the Chief Executive Officer) in making compensation decisions related to cash bonuses and equity awards. The Board makes this determination with respect to the Chief Executive Officer. Baxter believes it is important to consider an individual’s performance in assessing compensation and not just the company’s overall performance relative to the financial targets discussed above.

The assessment of an individual’s performance in the prior fiscal year may result in an adjustment of the amount that would otherwise be paid out to that individual under the cash bonus plan for that year based on the company’s financial performance. Assessment of the future potential of an officer may cause the Compensation Committee or the Board, as applicable, to adjust the size of equity grants that would otherwise be made to that officer under the company’s long-term incentive plan based on the company’s financial performance.

The Compensation Committee’s assessment of individual performance and future potential is inherently subjective and requires significant input from the Chief Executive Officer, who reviews the performance goals and self-evaluations of each of the other executive officers and shares his insights and recommendations with the Compensation Committee. Based on that input, the Compensation Committee assesses how well an officer fulfilled his or her obligations in the past year (with respect to awards to be made under the cash bonus plan) and an officer’s potential for future contributions to, and growth within, Baxter (with respect to equity

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awards to be made under the long-term incentive plan). The assessment of the prior year’s performance focuses on how well the operations or function for which an officer is responsible performed during the year. The Compensation Committee also considers how well an officer performed against the performance goals set for the officer.

The Board is responsible for assessing the Chief Executive Officer’s performance each year and making adjustments to any bonus or equity award that would otherwise be made to the Chief Executive Officer under the cash bonus plan or long-term incentive plan, as applicable. As part of this assessment, the Board reviews the extent to which the Chief Executive Officer has satisfied his goals for the year (as described below). This review is conducted with the support of the lead director and the Corporate Governance and Compensation Committees, which oversee the establishment of the Chief Executive Officer’s goals and the annual review process.

The goals set for each named executive officer for 2016 reflected the diversity of the company’s business and the wide range of responsibilities that are attributed to each of these officers. For example, Mr. Almeida had performance goals for 2016 covering the following areas: financial performance; organizational development and human resources; corporate strategy and business development; quality and regulatory; operational excellence; board relations and governance; constituent relations (including with respect to sustainability matters); leadership; and innovation and research and development. For the other named executive officers, the Compensation Committee considers various performance criteria depending on the nature of the executive’s role. These criteria include goals such as implementation of critical projects (like acquisitions or divestitures), product development, regulatory or quality performance and innovation or research goals.

In evaluating each officer’s performance against his goals, consideration is given not only to whether an objective was met but most significantly how the objective was met. This consideration reflects how appropriately the officer prioritized meeting an objective relative to the officer’s other responsibilities.

Accordingly, the adjustments that are made to an officer’s compensation based on his or her performance are not directly correlated to the number of goals that an officer achieved. The Compensation Committee believes that this type of rigid correlation could motivate an officer to focus on achieving his or her performance goals rather than on fulfilling his or her job responsibilities in a manner that is in the best interests of the company and its stockholders. For 2016, the individual adjustments made by the Compensation Committee or the Board with respect to the compensation awarded to the named executive officers ranged from 100% to 125% (excluding Mr. Almeida and Ms. Schaaf) and from 90% to 110% (excluding Ms. Schaaf) under the company’s equity incentive plan and company’s cash bonus plan, respectively. There was no individual adjustment made to Mr. Almeida’s equity award as it represents his initial onboarding grant. Ms. Schaaf did not receive any cash bonus award for 2016. Her March 2016 equity awards were terminated in connection with her departure from the company. See “—Elements of Executive Compensation—Equity Awards—Individual Equity Grants” and “—Elements of Executive Compensation—Cash Bonuses—Determination of 2016 Annual Bonus Payouts—Individual Performance” for additional information regarding individual adjustment determination made for the named executive officers in 2016.

Baxter’s Peer Group and Use of Peer Group Data

Use of peer group data plays a significant role in the structure of the compensation program as it is a primary input in setting target levels for base salaries, cash bonuses and equity awards and helps to ensure that compensation is market competitive in order to attract and retain top talent. Baxter uses data from companies that the Compensation Committee has objectively selected as comparable companies (the peer group) to help identify a reasonable starting point for base salaries, cash bonuses and equity awards and then analyzes company and individual performance to determine whether it is appropriate to move away from this baseline. Peer group data also plays a role in what non-cash compensation is paid to the named executive officers as the market data the company obtains regarding companies in its peer group helps determine what types and amounts of non-cash compensation are appropriate for competitive purposes. If data is not available for a particular officer’s position at the company, the Compensation Committee utilizes the information that is available to Aon Hewitt as well as internal equity principles to set an officer’s compensation targets at levels that are competitive with other officers at Baxter.

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As discussed above, information may not be available from each of the companies in Baxter’s peer group for every officer position. As a result, the number of companies in Baxter’s peer group may fluctuate as applied to each officer. In connection with the spin-off of Baxalta, the Compensation Committee approved a new peer group for Baxter in July 2014, reflecting Baxter’s emergence as a stand-alone medical products company. Note that this peer group differs from the peer group used to determine the payout of the GSV PSUs granted in 2014, as set forth above under “—Performance Over the Long-Term—Performance Against Peers.” As of December 31, 2016, the following companies were included in Baxter’s updated peer group:

* St, Jude was acquired by Abbott Laboratories on January 4, 2017.

The median revenue and market capitalization for these companies was approximately $8.7 billion and $18.6 billion, respectively, as of December 31, 2016. As of December 31, 2016, Baxter’s revenue of $10.2 billion and market capitalization of approximately $24.1 billion were between the 50^th and 75^th percentiles of the new peer group.

For 2017, the Compensation Committee removed Allergan plc and Valeant Pharmaceuticals International, Inc. from the peer group based on management’s assessment that they have different business strategies and executive compensation models as compared to Baxter. This revised peer group, however, is only used for purposes of assessing the competitiveness of executive and corporate officer compensation. For purposes of assessing GSV performance beginning with the 2017 GSV PSUs, the Compensation Committee determined to use the companies contained in the Dow Jones Medical Equipment Index. The index, which consists of approximately 50 companies, is significantly larger than the revised peer group (which consists of 15 companies as of March 15, 2017) and should be subject to less stock price volatility than the revised peer group. The decreased volatility may result in a final GSV calculation more representative of performance within the medical equipment industry, as compared to a GSV calculated based on the performance of the revised peer group. Additionally, Baxter management utilizes the index for purposes of comparing Baxter’s performance to that of its peers.

Elements of Executive Compensation

Base Salaries

As discussed above, the Compensation Committee or the Board (in the case of the Chief Executive Officer) generally sets salaries within a competitive range between the 25th to the 75th percentile of salaries paid to comparable officers of companies in the peer group based on multiple factors, with a primary focus on the 50^th percentile of the peer group. These factors include the individual’s prior performance, overall experience, tenure in position and impact on company results, current comparison to benchmark position and an assessment of internal equity among peers.

For 2016, Mr. Almeida received a base salary of $1,300,000. Effective as of February 15, 2016, the base salaries of each of the named executive officers (other than Messrs. Almeida and Accogli) were increased as part of the annual review process. As a result of these adjustments, salaries increased from (i) $600,000 to $621,000 (for Mr. Eyre), (ii) $625,000 to $647,000 (for Mr. Saccaro), (iii) $575,000 to $581,000 (for Ms. Schaaf) and (iv) $670,000 to $680,000 (for Mr. Scharf). Mr. Accogli was an expatriate to the United States prior to his appointment as Corporate Vice President and President, Renal. In connection with his promotion to Corporate Vice President and President, Renal he received a salary increase to $550,000 effective July 1, 2016. For 2017, the base salaries for Messrs. Saccaro, Accogli and Eyre have been increased to $673,000, $600,000 and $660,000 respectively. Mr. Almeida’s salary remains unchanged at $1,300,000.

Cash Bonuses

Cash bonus targets, like salaries, are set by the Compensation Committee or Board generally within a competitive range between the 25th to the 75th percentile of the peer group, with a primary focus on the 50^th percentile of the peer group. The same factors which

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influence the setting of salaries also impact the establishment of cash bonus targets. Payouts under the cash bonus plan range from 0% to 260% based on a combination of company (0% to 200%) and individual performance (0% to 130%).

Target Setting

For each of the last three years, cash bonus targets for all applicable named executive officers were set within a range that is competitive with cash bonuses targets of comparable officers at companies in Baxter’s peer group (as in effect for the applicable period). The Compensation Committee has the discretion to further adjust each officer’s target as it deems appropriate. Typical reasons for adjusting cash bonus targets are how long an officer has been in his or her current role and how the officer’s role fits within the structure of the organization.

Determination of 2016 Annual Bonus Payouts

Based on the company’s performance against its 2016 financial targets, the bonus pool was funded at two times the base salary for each executive officer covered by the bonus pool (other than Mr. Almeida). For Mr. Almeida, the bonus pool was funded at two times his target cash bonus in accordance with the terms of his offer letter. The Compensation Committee (or the Board in the case of Mr. Almeida) then had the ability to use “negative discretion” to deviate from the bonus pool funding and determine the actual cash bonus target for each named executive officer. The actual cash bonus paid to each named executive officer was calculated using the following formula: (x) the product of such officer’s cash bonus target multiplied by (y) the company performance adjustment percentage (as described below). The Compensation Committee or the Board then had the ability to further adjust the resulting amount in light of the applicable officer’s individual performance for the relevant period, as discussed below in “—Individual Performance.”

Company Performance. For 2016, Baxter performed relative to its adjusted EPS, adjusted net sales and free cash flow financial targets at 127.0%, 101.4% and 182.8%, respectively. This resulted in aggregate company performance of 183%. See “Structure of Compensation Program—Financial Targets” for a reconciliation of these non-GAAP financial measures to the closest GAAP measures. Given the relative weighting of these targets (60% for adjusted EPS and 20% each for adjusted net sales and free cash flow, respectively) and the associated funding schedule for each metric, this performance translated into an adjustment to each officer’s cash bonus of 183% of target, after application of the Compensation Committee’s “negative discretion” (as discussed in the prior paragraph). The funding schedule associated with each metric ranges from 0% to 200% with the baseline for each metric being 100%. The band of funding around the baseline varies by metric. This variation reflects the probability of achievement of a given target based on historical performance data as well as the scope of the given metric.

Individual Performance. The goals for each Baxter named executive officer for 2016 reflect the responsibilities that are attributed to each of these officers. In evaluating each officer’s performance against his or her goals, consideration was given not only to whether an objective was met, but also to how the objective was met. The Compensation Committee used its discretion to adjust cash bonuses payable for 2016 for individual performance in light of the Compensation Committee’s overall assessment of how well an officer fulfilled his or her obligations to Baxter in the past year.

The Compensation Committee believes that the methodology it uses in paying cash bonuses is consistent with providing compensation that reflects how an officer is valued within the company and the marketplace. Based on the Compensation

Committee’s assessment (or the Board’s assessment in the case of Mr. Almeida) of individual performance for 2016, each named executive officer’s cash bonus target was adjusted in a range of 90% to 110% of target.

In determining the adjustment for Mr. Almeida, the Board considered not only the financial performance of the company, but also acknowledged the contributions made by Mr. Almeida towards the achievement of the company’s strategic and operational goals,

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including the establishment of a new strategic framework for the company and the updating of the company’s long range plan and other goals related to the company’s innovation, quality, operational and human capital activities (See “—Structure of Compensation Program—Individual Performance”). In determining the adjustments for the other named executive officers, the Compensation Committee took into consideration Mr. Saccaro’s leadership of the company’s finance and information technology functions and his leadership in implementing initiatives to improve profitability and efficiently allocate capital (including the complete and timely disposition of the company’s retained stake in Baxalta). The Compensation Committee considered the contributions of both Messrs. Accogli and Eyre in transforming their respective franchises in light of the company’s new strategic framework (Renal and Hospital Products) when evaluating their adjustments. For Mr. Scharf, the Compensation Committee considered his leadership of the company’s legal and government affairs functions in an increasingly complex and regulated environment and legal oversight of the disposition of company’s retained stake in Baxalta. For Ms. Schaaf, the Compensation Committee considered her performance prior to her departure in May 2016.

Other 2016 Bonuses. In connection with Mr. Accogli ending his expatriate status and becoming a local employee in Deerfield, Illinois, he received a $400,000 discretionary relocation bonus.

Equity Awards

Equity awards are a significant component of each named executive officer’s compensation package. The company’s compensation program emphasizes equity awards to motivate executive officers to drive the long-term performance of the company and to align their interests with those of the company’s stockholders. This emphasis is appropriate as these officers have the greatest role in establishing the company’s direction and should have the greatest proportion of their compensation aligned with the long-term interests of Baxter’s’ stockholders. This alignment is furthered by requiring officers to satisfy the stock ownership guidelines discussed below under “—Baxter’s Stock Ownership Guidelines for Executive Officers; Prohibitions on Trading.”

Structure of Equity Compensation Program

Baxter’s equity compensation program for named executive officers has historically provided for annual grants in equal proportion of PSUs and stock options based on grant value. This practice was temporarily suspended in 2015 in advance of the Baxalta spin-off. Because of difficulties in establishing financial targets for PSUs in advance of the spin-off, Baxter issued an equal proportion of RSUs and stock options to its named executive officers in 2015.

The company also periodically grants equity to named executive officers for recognition, recruitment and retention purposes, and as discussed above, utilizes equity as a primary vehicle to attract and retain high performing executives. In general, the Compensation Committee views one-time grants and grants not tied to performance as appropriate in limited circumstances (for example, in connection with the Baxalta spin-off) and seeks to avoid their use to the extent it may be inconsistent with a pay-for-performance philosophy.

Individual Equity Grants

In order to determine the size of equity grants to be awarded to each named executive officer (other than Mr. Almeida) in connection with the annual grant process in March 2016, the Compensation Committee reviewed market data on the size of equity awards made to similarly situated officers at companies in Baxter’s peer group, as established in July 2014. The Compensation Committee (or the Board in the case of the Chief Executive Officer) set targets that were competitive with the peer group for each of the named executive officers. In determining the actual amount of each officer’s equity grant, the Compensation Committee then used its discretion (in March 2016) to adjust 2016 target equity grants for the company’s named executive officers, other than Mr. Almeida and Ms. Schaaf, across a range of 100% to 125% of the applicable peer group benchmark. These adjustments were made primarily to reflect the Compensation Committee’s assessment of each named executive officer’s future potential.

In connection with Mr. Almeida’s hiring, he received an equity grant on his date of hire, October 28, 2015. Consistent with Baxter’s historical equity mix and in light of Baxter’s 2016 compensation structure, Mr. Almeida received 50% of his equity grant in stock options and 50% of his equity grant in PSUs. The Compensation Committee referenced the updated Baxter peer group, as described above in “—Structure of Compensation Program—Baxter’s Peer Group and Use of Peer Group Data,” to help determine, and competitively position, this grant.

One-half of the PSUs granted to Mr. Almeida in 2015 are measured on Baxter’s GSV performance for the period from October 28, 2015 through December 31, 2018, and one-half are measured on annual adjusted operating margin targets for 2016, 2017 and 2018.

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The structure of these grants is similar to the equity grants made to other executive officers in March 2016. Mr. Almeida did not receive any additional equity grants in 2016. For all other executive officers, the measurement period for their 2016 GSV PSUs runs from January 1, 2016 through December 31, 2018.

In connection with Mr. Accogli’s appointment to CVP, President—Renal, he received a one time grant of 25,000 stock options and 5,000 RSUs. The RSUs will vest in September 2019, on the third anniversary of the grant date, and the stock options will vest in three equal annual installments beginning in September 2017.

Perquisites

Baxter provides a very limited range of perquisites to its named executive officers. Baxter permits limited personal travel on company aircraft due to the potential efficiencies associated with such use. All personal aircraft usage must be pre-approved by the Chief Executive Officer. Baxter reimburses business-related travel and other related entertainment and incidental costs for executive officers and their significant others when executive officers are invited to attend Board meetings or other business-related activities where the attendance of a significant other is expected. Baxter pays these expenses and costs as the business purpose served is closely related to the benefits received. During 2016, Baxter’s named executive officers were also eligible for reimbursement for executive physical examinations and related health services. In 2016, except as disclosed in the footnotes to the “—Executive Compensation Tables—Summary Compensation Table, the aggregate incremental cost associated with providing these perquisites was less than $10,000 for each named executive officer.

Retirement and Other Benefits

Prior to his departure, Mr. Scharf participated in Baxter’s pension and supplemental pension plans to the same extent and on the same terms as any other eligible Baxter employee hired prior to December 31, 2006. Messrs. Eyre and Saccaro are participants in Baxter’s pension and supplemental pension plans due to their prior employment with Baxter. These plans were closed to new participants as of December 31, 2006. Since Messrs. Eyre and Saccaro were rehired after this date, they are not eligible to accrue additional benefits in the pension plans. Ms. Schaaf was a participant in the pension plans prior to her departure. Messrs. Almeida and Accogli are not eligible to participate in Baxter’s pension plans as each executive was hired by Baxter or transferred to the United States after the plans were closed to new participants in 2006. Employees hired or rehired after that date, including Messrs. Almeida, Accogli, Eyre and Saccaro, receive an additional employer contribution equal to 3% of their compensation in Baxter’s tax-qualified Section 401(k) plan and nonqualified deferred compensation plan if their compensation exceeds the compensation that can be taken into account under Baxter’s 401(k) plan. A more detailed discussion of the pension program is provided under the caption “—Executive Compensation Tables—Pension Benefits.”

Each of the named executive officers is eligible to participate in Baxter’s deferred compensation plan, which permits the officer to defer the receipt of covered compensation and receive a 3.5% company match. Baxter allows named executive officers to participate in a deferred compensation plan in order to provide a market competitive plan as well as to facilitate retirement savings as part of the total compensation program in a cost- and tax-effective way for the company. The terms of Baxter’s deferred contribution plan are more fully described under the caption “—Executive Compensation Tables—Nonqualified Deferred Compensation.”

Risk Assessment of Compensation Policies and Practices

With the assistance of the Compensation Committee’s independent compensation consultant, the Compensation Committee reviewed Baxter’s material compensation policies and practices applicable to its employees, including its executive officers, and concluded that these policies and practices do not create risks that are reasonably likely to have a material adverse effect on the company. The key features of the executive compensation program that support this conclusion include:

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Baxter’s Stock Ownership Guidelines for Executive Officers; Prohibitions on Trading

In order to align their economic interests with those of stockholders, executive officers are required to own a certain amount of Baxter stock. The Chief Executive Officer is required to achieve ownership of Baxter common stock valued at a minimum of six times annual base salary within five years of his or her appointment. Each of the other executive officers is required to achieve ownership of Baxter common stock valued at a minimum of four times annual base salary, in each case within five years of becoming an executive officer. As of December 31, 2016, Messrs. Almeida, Accogli, Eyre and Saccaro were still within the five-year phase-in period and Mr. Scharf had satisfied the ownership guideline. This requirement, like the executive compensation recoupment policy discussed below, helps ensure long-term focus and appropriate levels of risk-taking by executive officers.

Pursuant to Baxter’s securities trading policy, officers and certain other employees, including all named executive officers, are prohibited from engaging in short-term trading activities and option transactions in Baxter stock. As a result, these persons cannot enter into any “put” or “call” options or otherwise buy or sell derivatives on any Baxter stock. Additionally, it is Baxter’s policy to not permit officers to pledge Baxter stock as collateral for loans or otherwise as a security interest.

Executive Compensation Recoupment Policy

Baxter has an executive compensation recoupment policy that applies to all cash bonuses paid by Baxter under its incentive plans and all grants of equity awarded by the company to any person designated as an officer by the Board. Following any restatement of the company’s financial results or if an officer violates a restrictive covenant contained in any agreement between the company and the officer, the Board will review the facts and circumstances that led to the requirement for the restatement or the violation and take any actions it deems appropriate with respect to executive incentive compensation. With respect to a restatement, the Board will consider whether an officer received compensation based on performance reported, but not actually achieved, or was accountable for the events that led to the restatement, including any misconduct. Actions the Board may take include recovery, reduction or forfeiture of all or part of any bonus, equity or other compensation previously provided or to be provided in the future, disciplinary actions and the pursuit of any other remedies.

Post-Termination Compensation

Named executive officers may be entitled to receive certain payments if Baxter undergoes a change in control and the officer ceases to be employed by the company pursuant to severance agreements between Baxter and each executive officer. Providing for payments in a change in control situation is consistent with market practice and helps ensure that if a change in control is in the best interests of the stockholders, officers have appropriate incentives to remain focused on their responsibilities before, during and after the transaction without undue concern for their personal circumstances. In consideration for these benefits, the named executive officers have agreed to be bound for two years from the date of their respective termination to non-competition, non-solicitation and non-disparagement covenants. The named executive officers’ severance benefits were not a significant factor in determining their other compensation elements because the Compensation Committee did not believe that these benefits, as provided, exceeded market practices of peer companies in a way that justified a reduction in any other elements or vice versa. None of the named executive officers is entitled to any excise tax gross-up covering the officer’s change in control benefits. For a more detailed discussion of these agreements, including the estimated amounts that would be payable assuming a termination date of December 31, 2016, please refer to the information under the caption “Executive Compensation Tables—Potential Payments Upon Termination or Following a Change in Control.”

Advisory Vote on Executive Compensation

At the 2011 Annual Meeting, stockholders recommended on an advisory basis to hold advisory votes approving named executive officer compensation (commonly referred to as “say-on-pay” votes) annually. The Board determined to follow the stockholders’ recommendation and hold the say-on-pay vote annually. As described in “Proposal 3—Advisory Vote on the Frequency of Executive Compensation Advisory Votes,” the Board is recommending that stockholders vote in favor of annual say-on-pay votes, consistent with the company’s established practice.

Stockholders are being asked again this year to consider a resolution to approve the compensation paid to Baxter’s named executive officers in 2016 as disclosed in this Proxy Statement under “Proposal 2—Advisory Vote to Approve Named Executive Officer Compensation.” Although advisory votes, like Proposal 2, are not binding on the Board, the Board reviews and thoughtfully considers the voting results when determining compensation policies and making future decisions concerning the compensation of named executive officers. Any impact of the 2017 voting results will be disclosed in the proxy statement to be filed in connection with the 2018 Annual Meeting.

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Executive Compensation Tables

Summary Compensation Table

The following table shows for the years indicated below the compensation provided by Baxter and its subsidiaries to its named executive officers.

PSU awards reflect the grant date fair value computed in accordance with the Financial Accounting Standards Board Accounting Standards Codification Topic 718, Stock Compensation (FASB ASC Topic 718). Refer to Note 12 to the Consolidated Financial Statements included in the company’s Annual Report on Form 10-K for the year ended December 31, 2016 for a discussion of how grant date fair value of PSU awards were calculated. RSU awards were valued as of the grant date by multiplying the per share closing price of Baxter common stock by the number of shares subject to the awards. Dividend equivalents accrue on the unvested PSUs and RSUs included in this table but are paid only if the underlying awards vest. For further information on these awards, see the “—2016 Grants of Plan-Based Awards” table.

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