Everyone and thank you for joining us today for our inaugural ESG Investor Briefing. Earlier this week, we published our 2021 Integrated Performance Report entitled Engineering Impact, which details our fiscal year 2021 environmental, social and governance efforts. Today, we plan to cover some of these key areas of that report and you'll hear from the leaders who are working on important initiatives across Medtronic. This past year and a half brought global challenges that tested each of us in new ways, highlighting how important good health is to the foundation of our global society. Driven by our mission to improve human welfare, we answered this call with decisive actions and transformative results.
We accelerated innovation, restructured our business and evolved our culture. And just yesterday, for the first time since Medtronic and Covidien came together, we launched an updated corporate brand to better reflect our role in society, engineering the extraordinary. We have a bold ambition to become the global health care technology leader. And as a global leader, we're committed to tackling the most complex health challenges facing our world. We see possibilities to further increase our positive impact and drive better outcomes.
Our environmental, social and governance efforts, combined with the passion of our 90,000 plus employees in over 150 countries, help advance measurable impact for a healthier society, a healthier planet and a healthier business. I hope you'll come away from today's event with a deeper appreciation for the advances we're making to protect our planet, increase patient safety and product quality and advance inclusion, diversity and equity, to name just a few of the areas that we're going to touch upon today. Our ESG program is both fueled by our mission and critical to achieving it. Written over 60 years ago, our mission holds us to extraordinary expectations across both what we do and how we do it. Its first five words echo in my mind daily, to contribute to human welfare.
Our mission was designed to serve patients, health care professionals, our employees and our communities. It focuses Medtronic's long term purpose and strategy. It directs us to strive without reserve for the greatest reliability and quality in our products. It dictates that we maintain good citizenship as a company and that we focus not just on profits, but making a fair profit. And it directs us to recognize the personal worth of all employees.
Our focus on ESG is not because it's the latest trend, but rather because ESG is at the core of who we are as a company. And while we're proud of our past ESG achievements, we recognize that there's more work to be done as we continue to evolve our practices. Today, Ginny Cassidy, the Director of our Enterprise Sustainability Program, will detail our approach to ESG and share our commitment to robust communication and transparency. Our integrated performance report and today's event are great examples of this commitment. We've conducted ESG materiality assessments, seeking input from many key stakeholders to focus our efforts on the areas where we can make the biggest difference.
These focus areas support several of the UN Sustainability Goals. Today, we'll talk about the new ESG performance targets we've set and how we're driving our organization to achieve them. These targets build upon the environmental goal that we set last year to be carbon neutral in our operations by the end of the decade. Jeannie will also provide an update to our environmental sustainability efforts across the company, with a focus on reducing our carbon footprint and advancing our product stewardship. Next, you'll hear from our Chief Quality Officer, Noelle Colon.
Noelle will walk through what we're doing to continuously improve patient safety and product quality. Of all the things we do at Medtronic, nothing is more important. The quality, safety and reliability of our products are essential to the well-being of patients accessing our treatments and vital to delivering on our mission. We will never compromise on quality and we monitor it throughout every stage of our value chain. Quality is embedded into our culture and we have a robust system of preventative programs and leading indicators that we're regularly watching to ensure ongoing quality improvements.
By paying close attention to product quality, we build and maintain trust with our key stakeholders and uphold our reputation with patients and health care professionals. Seriously and proactively work to identify and address potential vulnerabilities in our products. We build security into our products and then rigorously monitor them post market. We're also engaging with experts, both in our industry and other industries to help shape regulations, standards, technology and best practices. The next section of our program will be focused on people, our investment in employees and our broader communities.
While our mission has directed us in this area for decades, in today's highly competitive labor market, it's never been more important to have a robust talent strategy. You're going to hear from our Chief Human Resources Officer, Carol Surface, how recent changes to our operating model and enhancements to our culture are driving a more innovative, inclusive and engaging work environment. We're offering some of the most sought after positions in healthcare. Our focus on inclusion, diversity and equity is leading us to assemble and retain top talent from around the globe, creating a company that's a destination for people interested in purpose driven careers. And as we go forward, I want this to increasingly become a competitive advantage for Medtronic.
In the last section of today's briefing, you'll hear a panel discussion on governance and accountability, including a look at compensation and incentives from a few of our Medtronic leaders. As a relatively new CEO, I've benefited a great deal from the wisdom and strategic counsel I received from our Board of Directors. We have a very active and engaged Board and they bring independence and diversity to our thinking. Our directors are highly involved in providing oversight of our company's long term strategy for creating value, including the ESG activities across the company. Our Board is also driving management accountability through the evolution of a robust compensation plan.
The Board has implemented a number of compensation changes over the past couple of years aimed at providing incentives that drive long term value creation and are highly aligned with the goals of our shareholders. We've also added non financial ESG metrics into our management incentive plans, which you'll hear about during the panel. To wrap up, we believe successful ESG practices are directly tied to driving sustainable business performance and value creation for our stakeholders. Our company has a stated long range plan to accelerate our revenue growth to 5% plus with an emphasis on the plus, EPS growth to 8% plus and with our dividend to provide a consistent double digit return to our shareholders. And with a focus on ESG, we can achieve these results and sustain this performance over the long term.
If we do this right, I believe these actions will be accretive to our growth, create differentiated value for our shareholders and ultimately lead to healthier people, healthier communities and a healthier planet. Extraordinary times call for extraordinary action. And at Medtronic, we're engineering impact. With that, let's now turn to the first section of the day where Ginny Cassidy, the Director of our Enterprise Sustainability Program, will give you an overview of the program, outline our priority ESG issues and cover what we're doing to protect the planet. Ginny?
Thank you, Jeff. To succeed today, companies must focus on transparency and carefully weigh the impacts of business decisions on all stakeholders, patients, health care professionals, customers, investors, employees, business partners and communities. At Medtronic, our environmental, social and governance strategy addresses our global impacts and long term sustainability. We apply a disciplined approach starting with governance, prioritized efforts on our material focus areas, proactive risk assessment and change management in our operations, and ongoing dialogue with key stakeholders. With the release of our fiscal year 2021 integrated performance report this week, we continue a strong legacy of sustainability disclosure.
We demonstrate our commitment to corporate transparency by providing investor focused, data driven disclosures about our priority ESG focus areas and our progress on each. Since 2008, we've publicly reported clear, standardized metrics aligned with leading disclosure standards and frameworks, including SASB and TCFD. And we are committed to continuous improvement, including maturing our ESG data governance, processes and controls. We also engage with ratings agencies such as MSCI and Sustainalytics to verify our ESG data and address inaccuracies. Our corporate sustainability and ESG strategy is guided by an executive level steering committee that meets quarterly to review progress and discuss emerging trends.
Our Chief Financial Officer, Karen Parkhill, who you will hear from later today, serves as the executive sponsor of the committee, which benefits from the oversight of the nominating and corporate governance committee of our Board of Directors, for which ESG is a standing agenda item. Our Enterprise Sustainability Program Office drives execution of our ESG strategy in partnership with key leaders across the company. To advance an ESG strategy aligned with our business, our stakeholders and our mission, we regularly assess our most important ESG priority areas of focus. Our current strategy centers on 14 items identified in our recent materiality assessment by both internal and external stakeholders as being most impactful to the company's long term success. We are proud of our unique ability to demonstrate how these focus areas align with our mission as well as with key U.
N. Sustainable Development Goals. Leaders across the company are engaged in proactive management of the risks and opportunities associated with these focus areas. We've set performance objectives to advance business strategies while also addressing stakeholder expectations. As Jeff mentioned, this year we are pleased to announce new targets for the ESG focus areas where we feel we can make the greatest contributions.
For innovation and access, we set FY25 targets to benefit more patients around the world by generating 20% of our revenue from innovative products and therapies released in the prior 36 months, a so called vitality index. We also set a goal of using access strategies to serve 85,000,000 patients annually by FY25. For patient safety and product quality, we will enhance product quality and patient experience by achieving a 10% reduction in aggregate product complaint rate for specified product families by FY 'twenty five compared to FY20. And for inclusion, diversity and equity, we set new representation targets for FY26. 45% of global manager and above positions are expected to be held by women and 30% of U.
S. Manager and above positions are expected to be held by ethnically diverse talent. And after exceeding our FY 'twenty environmental goals, which were set in FY 'thirteen and successfully reducing our carbon intensity by 36% during that time, we announced last year our ambition to be carbon neutral in our operations by 2,030, and we're making good progress toward this goal. We are dedicated to reducing our environmental impact because we recognize the connection between a healthy planet and human health. Our efforts include finding innovative ways to reduce our operational carbon footprint, cut water usage and waste, and build sustainability into product design.
To achieve our carbon neutrality goal, we are taking a multipronged approach that includes continuous improvements in energy efficiency, on-site renewable and alternative energy installations and investments in renewable energy credits along with virtual power purchase agreements, the latter of which will support the global transition to clean energy by funding new wind and solar projects. As part of this long term goal, we've also set aggressive FY 'twenty five targets on emissions and energy in addition to targets on water and waste. This includes reducing our greenhouse gas emissions intensity by an additional 50% by FY 'twenty five while also increasing our renewable and alternative energy sources by 50%. We are also experiencing a shifting demand within our sustainable products and packaging, particularly as our stakeholders consider the global environmental impacts across a product's full lifecycle. To minimize waste and reduce our impacts, we look for ways to optimize how our products are designed, manufactured and reused or recycled.
Through product take back programs, we diverted more than 4,000,000 of our products equaling 217 metric tons from landfills last fiscal year. Currently, we are establishing a product stewardship center of expertise to drive consistent integration of sustainability considerations across our product and packaging development processes. The center will focus initially on packaging and we have set a target to reduce packaging for specified high volume products by 25% by FY 'twenty five. We also expect to minimize the impact of product instructions for use documentation within our packages and we've set a goal for a 35% reduction in paper by FY27. With escalating climate concerns, we know that we must address our Scope 3 emissions as well.
In FY 'twenty one, we initiated an emissions reduction program for our global distribution and logistics. This program leverages several ongoing initiatives, including modal and efficiency improvements across our upstream and downstream logistics footprint and participation in the U. S. Environmental Protection Agency SmartWay program. We also have had great success with our program to offset freight emissions, which we've implemented in partnership with a leading logistics provider.
This program resulted in a meaningful 50% reduction in our medical surgical portfolio global freight emissions in calendar year 2020. As we continue to establish baseline measurements for our Scope 3 emissions, we will engage internal and external stakeholders to set interim targets and long term goals where we have the greatest opportunities. We are also considering the science based targets initiative to align our Scope 3 emission strategy to a globally recognized framework. These are just a few examples of the numerous actions Medtronic is taking to be good environmental stewards and improve our planet. For a comprehensive review of our ESG strategies and performance related to all of our priority ESG focus areas, I encourage you to read our FY 'twenty one integrated performance report on medtronic.com/ourimpact.
Thank you for your interest. Back to you, Jeff.
Thanks, Jenny. It's impressive to hear how we're applying our engineering mindset to innovate for environmental sustainability from reducing our carbon footprint and water usage to designing sustainability into our products. Much of what we do at Medtronic affects the health of this generation, but the steps we're taking to protect our planet that will contribute to the health of future generations. Next, let's move to patient safety and quality. And to present this section, let me introduce our Senior Vice President and Chief Quality Officer, Noelle Colon.
Noelle has been at Medtronic for over 13 years, serving in a number of different quality leadership roles throughout the company and making a lasting impact on the company. Prior to becoming our Chief Quality Officer, Noelle was my Head of Quality in the Restorative Therapies Group. Leveraging his technical and operational depth, his passion for patient safety and his strong leadership skills, Noel did an incredible job advancing quality in RTG. Noel is also a founding member of the Medtronic Hispanic Latino Network, one of our 5 diversity networks.
So to cover what we're doing to continuously improve patient safety and product quality at Medtronic, let me turn it over to Noel. Thanks, Jeff. I am excited to talk to you today about patient safety, product quality and our unwavering commitment to assure both. There is nothing more important than the safety and well-being of patients. We know the greatest commitment we can make to our patients, clinicians and customers is to consistently design and produce safe and reliable health care technology that creates better outcomes.
As Jeff mentioned earlier, we recognize that patient safety and product quality are critical and foundational to the success of our company. Ensuring high product quality builds on the trust we have earned with our key stakeholders from patients to health care professionals to investors. We also know that when it comes to product quality, there is always room for improvement. We continue to strengthen existing processes while looking for new and innovative ways to drive improved outcomes. I want to talk with you about our quality system, our leading indicators and how we leverage both to ensure patient safety and product quality.
But before I turn to those topics, I want to address recent product related regulatory actions that we have communicated and are working to resolve. Like every company in health care and across a broad portfolio of devices, we have situations where product quality is not where it should be and where we want it to be. Medical device technologies are complex. And even when they are carefully designed, manufactured and continuously test, they carry both benefits and potential risk. On rare occasions, some medical devices may not perform as intended.
When these happen, we may require corrective improvements or conduct recalls to minimize any potential risk to patients. Last fiscal year, Medtronic communicate 10 voluntary Class 1 recalls. In each of these cases, we engage in transparent communication with patients, physicians and regulatory bodies to ensure optimal patient management. With each recall, we not only focus on correcting safety issues, we conduct rigorous root cause investigation focused on product and our processes. While these ten recalls represent a very small portion of our devices, we take every recall seriously.
There is no goal more important to us than continuing to strive for perfection in quality and continuous improvement in patient safety. I think the best way to begin a discussion on patient safety and quality at Medtronic is with our culture. We are guided by the Medtronic mission to strive with our reserve for the greatest possible reliability and quality in our products, to be the unsurpassed standard of comparison and to be recognized as a company of dedication, honesty, integrity and service. Everyone at Medtronic shares responsibility for patient safety and the quality of our technologies and devices. Our Quality Begin With Me culture requires all employees to uphold 4 key expectations: put the patients first, be courageous, prevent issues before they arise and hold each other accountable.
We reinforce these fundamental expectations through regular communications and training, and we continue to look for opportunities to do better. We seek new ways to put patients front and center in each decision we make. We learn from our past experience to improve future outcomes. Let me give you some examples. Every newly promoted and hired Vice President in our organization is required to attend a 3 hour interactive session asking these leaders to navigate various quality scenarios.
Training programs such as this are part of our ongoing effort to improve our quality and patient safety performance. Another example I want to share relates to improving quality standards during acquisitions. We recently established an acquisition and integration center of expertise to develop common tools and to provide expert consultation for business leaders to leverage once we have closed on an acquisition of a company. This center of expertise is driving improved rigor and oversight of acquisition integration and ensuring early risk identification and mitigation. Throughout our company, we are embracing lessons learned to drive continuous improvement.
We monitor our performance through leading indicators and metrics, and this data driven analysis of our quality system improves in sophistication and insight continuously. We have developed and refined metrics that are predictive indicators of our future quality performance and help us ensure any improvements we make deliver the results we are expecting. An example of a leading indicator is our design for reliability and manufacturability methodology or DRM. Let me explain. Our robust quality management system ensures we maintain high quality across the entire supply chain.
We have firm compliance with our quality standards at every point in a product's lifecycle, beginning with design. We do this through DRM. DRM is a set of best practices that drive product quality, patient safety, security and reliability. DRM and its training and certification enable our engineers to simulate device use to help predict performance and identify areas of continuous improvement. We drive DRM in the product design process through customized DRM certification for development teams and project assessments to assure consistent use across our project portfolio.
And because we know that utilization of DRM results in higher quality outcomes and early identification of product issues, we have committed to use this tool even more. This year, we have accelerated full adoption of high maturity DRM practices for all new Medtronic design products prior to launch. Metrics and measurements are important and so is execution in the actual manufacture of our products. Our commitment to safety and product quality extends and comes to life in our manufacturing facilities. Where standardized manufacturing quality programs result in a consistent approach across all Medtronic sites.
For example, the Medtronic corporate wide assessment for regulatory excellence program allows sites to learn from one another and benefit from enterprise wide best practices. First time quality or FTQ teaches employees to see the potential for errors, develop strong controls and identify where improvements can have the biggest impact. Last year, our FTQ methodology achieved a 90% reduction of identified risk areas and quality instabilities. The Medtronic operating system or MOS improves manufacturing and supplier quality by building continuous improvement principles into production through Lean 6 Sigma methodologies. By using the MOS principle last year, we converted 338 manufacturing lines to high maturity performance lines.
These complementary programs help ensure that Medtronic exceeds the highest level of quality and compliance to regulations. We also drive patient safety in our supply chain through strong collaboration with our trusted suppliers. Our suppliers are important partners in fulfilling our mission. We have well developed policies to manage suppliers' performance, risk mitigation and continuous improvement. For example, through our Supplier Optimization and Risk Reduction Initiative, also known as SOAR, we partner with strategic suppliers to ensure that risks are mitigated and products are designed correctly.
In fiscal year 2021, we expand the number of SOAR partnerships to more than 70 strategic suppliers compared to 42 in fiscal year 2020. Our commitment to patient safety and product quality does not end when a product is launched. We carefully monitor the use and performance of our products to improve safety, while also informing future designs. We connect data and automation to patient care. We have well established tools for monitoring and responding to reported clinical concerns and real world performance of our probes.
We also gather data from post market clinical studies on specific products. In fiscal year 2021, in line with our commitment to keep patients at the forefront of our work, we consolidated our global complaint handling system. We created a single company wide organization to improve our ability to detect pro performance issues and resolve them more quickly. We're making it easier than ever before to listen to patient directly. We also carefully consider and manage the risk of cyber threats to our medical devices.
Secure products are safe products. Last year, our Pro Security Office finalized our new Pro Security strategy and road map, which includes a focus on pre and post market pro security rigor and engagement in industry activities to help shape regulations, standards, technologies and practices. We engage internally and externally to monitor current practices and emerging risk, including with regulators, peers, health care organizations and security researchers. To ensure Medtronic products meets or exceed expectations, The team bridges communication with industry partners through active relationships that focus on improving product and process related to cybersecurity. As we move forward, we will continue to embrace our responsibility as a leader in innovative, responsible and ethical development of life saving medical technologies.
We're dedicated to our mission of delivering products that are safe, reliable and effective. I am proud of our culture that guides every employee to do the right thing by driving value for patients with high quality, safe therapies that alleviate pain, restore health and extend life. With that, let's turn to your questions.
All right. Thanks, Noelle. Yes, let's kick off the first Q and A session of the day, which is focused on the topics of environmental sustainability and patient safety and quality, including product and enterprise security. As a reminder, we're going to take questions live from the sell side analysts that cover Medtronic. If you have a question and you're not one of those sell side analysts, please send your questions to the sell side analysts or you can email them to us atmdt2021esgbriefingmedtronic.com.
And I'll work in as many of those questions as possible. If you email us, please let us know if you'd like me to mention your name and firm. Otherwise, I'll read your question anonymously. So let's turn to the panel and introductions. I'd like to welcome back Jeff Marca, Jimmy Cassidy and Noel Coron.
And I'd like to introduce our other panelists Laura Maury, our SVP and Chief Clinical and Regulatory Officer Ann Sheldon, our VP of Product Security and Pat Joyce, our VP and Chief Information Security Officer and Chief Security Officer. If you're a sell side analyst that covers Medtronic and you intend to ask a live question during this Q and A session, please make sure you're connected to the Zoom If you're using the mobile app, press the More button and select Raise Hand. Your lines are currently on mute. When called upon, you will receive a request to unmute your line, which you must respond to before asking your question. During this session, I ask that you please keep your questions focused on the topics of environmental sustainability, patient safety and quality, including product and enterprise security, And we'll have additional Q and A sessions later today to cover other topics.
Finally, in the interest of getting to as many questions as possible, we ask that you stick to one question and if needed, one related follow-up. With that, I'll pause for a moment while the hands go up in queue. This question came in from a couple of investors that they're asking about SBTI. These questions came from Keith Mills at Trillium and Hayley McCurdy at Terra Alpha Investments. Thanks to Keith and Hayley for submitting this.
We'll go to you, Jenny, on this question. What is your plan for Scope 3 emission reduction and aligning to 2,050 targets? Does Medtronic intend to submit climate target to the Science Based Target Initiative or SBTI that will be in line with the global goal of net 0 emissions by 2,050? And if so, by when? And can you share some details?
And if not, why not?
Well, thank you for the question. As you may know, over the last 2 years, we've continued to reduce logistics emissions through ongoing initiatives, including participation in the U. S. Environmental Protection Agency SmartWay program. We've also had success working with a leading logistics provider to offset freight emissions with our medical surgical portfolio, which resulted in offsetting the equivalent of nearly 25 1,000 metric tons of CO2 emissions.
Currently, we're working to establish a baseline measurement for all of our relevant Scope 3 emissions so that we can engage with internal and external stakeholders to set interim targets and long term goals where we have the greatest opportunities. We plan to pursue participation in the science based targets initiative to align our Scope 3 emission strategy to a globally recognized framework. Setting science based targets is a multiyear process, which we hope to begin during our next fiscal year.
Great. Thanks, Jenny. Let's next go to the line of Travis Steed at Barclays. Travis, are you there?
Yes. Can you hear me?
We can. Yes. Please go ahead.
Yes. So on the topic of product recalls,
I was curious
if you could add a little more color on kind of what you're doing in terms of investing in product quality and design from a manufacturing perspective kind of more upfront. And when you think about you're doing to make some of these more proactive and getting on the other side of that versus regulatory discussions and making being forced to do product recalls? And then any additional color on cybersecurity as well would be helpful too given some of the concerns around that longer term?
All right,
Travis, this
is Jeff. Thanks for the question. And I think it's a 2 part question that I'll hit Noelle in a second. And the second piece, was it on product quality I'm sorry, product security or enterprise security? I just want to make sure.
I think it was product security you're asking about.
Yes, it was more yes, product security with but some cybersecurity issues, whether it's like remote monitoring and stuff like that.
Sure. Okay. So, let me start on the first part of it regarding kind of the design of the products to avoid these quality issues altogether. So obviously, that's the path that we're investing. We're investing quite a bit in that.
And as Noel pointed out in his discussion, we're looking at our quality with we're measuring it, if you will, with leading indicators and lagging indicators, which aligns to your question. The leading indicators are really meant these are areas that we're investing that would prevent the problems in the first place, things like design for reliable manufacturing, things like the maturity of our manufacturing processes. We have ways to measure that. And then the lagging indicators would be like audit findings from regulators like the FDA, things like that. But we've got a pretty we've got a very robust program around DRM, that's the design for Reliable Manufacturing, and that's the or design for Reliable Manufacturing, that's the program I'd say that we're really counting on the most stake on the design side.
And I'll, Noel, if you want to add some comments on that.
All right. Very good. Thank you, Jeff. So on the question on that, I want to emphasize the fact that we take all these recalls very serious. We emphasize the importance of acting with speed and transparency when we address these issues in the marketplace.
We have a number of recalls this year, and we're taking a hard look at those individually and making sure that we have robust actions associated with the particular actions that we identified in the broad design or also in the post market surveillance processes. But the goal, as we said in the mission, is to strive with our reserve for the greatest possible quality and reliability, and that's our most and that's the work that we're doing. And to that end, we have initiated an enterprise comprehensive plan to improve on product quality and patient safety, specifically to make investments as it relates to the way that we do all development and utilizing the design for reliability and manufacturability tools that we have deployed successfully in the organization.
Okay. And then for the second part of question on product security, I'll turn it over to Anne. Do you want to take that? Yes.
Thank you, Jeff. And thank you for the question. This is an important question. Security is built into the products that we design. As Noelle mentioned in his opening comments, a secure product is a safe product.
And we have a broad approach that focuses on risk management, including threat models, which help us evaluate vulnerabilities throughout the lifecycle of a product. We leverage in house and third party resources that employ attacker like approaches to testing products across the enterprise. These resources are purposely independent from the development teams and offer a different perspective of testing. If anything is found, the results are fed back into the development teams and maintain the products and security issues are addressed.
Okay. Thank you. And thanks for the question, Travis. Next, we'll go back to questions that have been submitted. And this one is for you, Jeff.
This one is from an anonymous investor who's asking or making a statement. He's saying that some ESG rating agencies such as MSCI rate some of the larger medical device industry unfavorably due to product quality. How do you think about engagement on that subject?
Okay. Yes, we do get quite a few questions on MSCI. And when it comes to these, the MSCI and other rating agencies, there is unfortunately a low correlation between the different agencies and investors are they're increasingly pulling from more than one agency versus relying on
one and actually doing their own research. So let me say, at Medtronic, we are committed to transparency. You're going
to hear that throughout the day that we're airing on the side of transparency across a wide range of issues here. And we regularly engage with all these agencies and the large agencies in particular, and we assess increasing our disclosures where we feel there are potential gaps even. So for example, our latest integrated report, we looked for ways to increase disclosure in areas where we feel would be helpful for the rating agencies. So we're trying to help them out here with our disclosures. But turning to MCSI specifically and how they view quality issues in the medical device industry, first, I'd say it's important to look at the denominator, if you will, the number of products a company produces.
And we think that normalizing the data based on revenue is a better way to look at the numbers. Also, think you need to take into account the complexity of the product. So in our case, these are lifesaving, life preserving technologies. And in those cases, the severity of the recalls often goes hand in hand with the lifesaving and sustaining nature of our devices. So that would be how I answer the question on
MCSI. Great. Thanks, Jeff. I'll remind the sell side analysts on the Zoom, if you'd like to ask
a question,
please raise your hand in the Zoom app. And the next question, we will go to this one is for you, Noelle, and this one also comes from Keith Mills at Trillium. Keith asked, after the implementation of the new operating model, what changes have been made in the company's product safety and quality management at the corporate level as well as across each of the 20 new operating units? And he's asking if you can share some specific examples.
Sure. Thank you, Ryan. Thank you, Keith, for the question. With the operating model changes that we implement earlier, we took a look of the organization, and we did a holistic transformation that involved changes in the structure, improvement in the process, the culture and the decision making processes that we have in the organization. Let me give you some examples.
For example, in the case of the operating units, we equip them and we move experts in the organization that have deep product knowledge to make sure that we have the right investments and the right minds when we have this product development activities and projects moving forward. The second example I will give you is we took key operational functions and we centralized those functions. So we can create standard ways of doing the work, and we can create better effectiveness in the processes that we follow. And then the last example I will give you is we took an opportunity in specific areas to leverage best practice and create expertise by forming centers of expertise in areas like risk management, design for reliability and the one that I discussed in the video, which was the acquisitions and integration center of expertise. Those are examples of how the operating model is helping us improve quality and patient safety.
Next, we'll go back to the submitted questions here. And this one is for you, Jenny. This question comes from Haley McCurdy at Terra Alpha Investments. Haley is asking, it looks like Medtronic does not believe it can decarbonize fully without relying on offsets. Can you explain the residual emissions that you plan to offset and why there are no better alternatives available?
Thinking past 2,030, is it reasonable for Medtronic to achieve carbon neutrality within its operations without the reliance on offsets?
Well, thank you for the question. And yes, beyond 2,030, we do feel that we can reach carbon neutrality without using offsets. We do anticipate that we will have to use them through FY30. But as we see shifts and new technologies emerge and we are able to continue to refine our own strategies, we feel like we can achieve those results and truly reach carbon neutrality, but just at a date most likely post FY30.
Okay. Thanks, Jenny. And thanks for submitting the question, Haley. We've got time for one more question and this was also submitted by Keith Mills at Trillium. We'll go to you, Noel.
Have there been any product safety and quality corporate governance or process changes identified that have not yet been made and will be made in the next 1 to 3 years? And if so, can you please share some examples?
Okay. Thank you for the question, Ryan Keith. Look, we look for continuous improvements constantly in the organization, And we look for ways of improving our processes and our systems, and we place important priority in areas of opportunities that will improve patient safety and quality and the customer experience. So I will give you two examples of things that we recently start and will give us benefits in the future. So first one is with the change in the operating model, we centralized the complaint handling function in Medtronic.
And that will help us improve and get better in the investigation of product complaints and customer experience. The idea is that we create a foundation with that so we can standardize the processes, create best practices that will be used across the enterprise. So that is a change that we recently initiated, and we're going to see the improvements in the coming future. The next example I will give you is the one that we discussed in the video, which is the center of expertise for acquisitions and integration. This create a foundation for us to develop standard practices, create the proper coaching, have a network of patient safety issue that comes in the process of acquisitions and integration.
So we feel very good with these changes that will have an impact, a positive impact in the future as part of the changes that we're making in the organization.
Okay. Thanks, Noelle, and thanks for the question, Keith. We're going to wrap up this Q and A session there. Thanks for all the thoughtful questions. Thanks to all the panelists.
And at this time, we'll pause for a short 15 minute break. When we come back, we'll hear from Carol Surface, Executive Vice President and Chief Human Resources Officer, on our people and communities. And during the break, we'll stream videos showcasing our ESG and technology efforts. So if you can stay in front of your screen, I think you'll find these videos interesting. So we'll see you in about 15 minutes.
We're at a time when companies are required to be a part of a global response on so many issues. And we need to be there sometimes leading the charge. Medtronic Foundation is really an outgrowth of our mission. Our founders are actually quite profound and wise in realizing that in order to really alleviate pain, restore health and extend life, you have to be a global citizen. And the best way to do that is to give back in service as well as in partnership with nonprofits.
And with every generation of employees, it is reborn to really address the needs that society has in our time. Our company gets involved with our voice, with responsible positioning of our products and most importantly, with how we actually give and partner not only with nonprofits, but with governments, with our patients and with health systems. It's not business and society, it's business in society.
Financial donations are fantastic. Financial grants are fantastic for our organization. We need them to be able to survive. But people sharing their knowledge really helps us as a young staff to build our capacity. It's completely invaluable to us to have skilled people come in and donate their time to us.
We've been partnered for a couple of years now and Medtronic consistently sends teams out to our different projects around the world. It's awesome because we don't just have that kind of financial support and the resource support, but also the physical humans
who come and help on our projects.
The mission of Children's HeartLink really closely aligns with Medtronic's mission. This partnership with Children's HeartLink provides pediatric cardiac surgery for 10,000 children in India, China and Brazil. It trains 10,000 hospital staff and importantly, it reduces the disparities in healthcare access. One of the most amazing parts is the opportunity for us to engage Medtronic's employees to be skills based volunteers.
The skills based volunteering means taking what you've been skilled in, what you've been trained in and transferring it someone who needs those skills.
The way that comes to
life is organizing teams based on what a nonprofit may need, really tied to an outcome, making sure that if it's in healthcare that it's tied to getting to greater health impact?
The ability to take our technical skills and work closely with our global partners that have variable outlooks on the way healthcare can be improved, that's really where you see things really move fast, because we take those different perspectives, we meld them together and create solutions and models that are going to probably cause bigger impact than if we did it separately in each regional home.
The thing that I love about this skill based volunteering effort is the fact that we are working so closely with our partners and we're not coming in and doing something, but we're actually collaborating and working together.
Volunteering does make you realize some of us are more fortunate than others, especially in these times, we decided to work with a nonprofit called Mapping Prejudice. So we get together as a group every Tuesday on a Zoom call, and we do this activity together. And it's been really, really good because it's something that people are passionate about.
Our team gets involved to shape the right team. And we purposely bring together a diverse group of people who have a diverse set of skills from all around the world. You have to be able to, in your mind's eye, remember that when you're gone, this continues without you and
you have to solve for what's going
to continue without you. We can't always just respond to what's going on. We've got to be able to see what the future possibilities could be.
Supplier diversity used to be the right thing to do.
But then a
lot of corporations understood that there are real opportunities for diverse suppliers to bring value into the supply chain. And that's when it became a business imperative. These suppliers have to earn it. They have to be able to bring that value to the organization. But it is a business process that allows for individuals who may have come from underserved communities to be able to participate in a global supply chain.
That's what it's all about, equal opportunity.
What I think that being a diversifier and a women owned business does in particular is to bring creativity and a different perspective. I also, personally speaking, like to have people see a woman running a manufacturing company that's often considered a male dominated place to be. PMC Smart Solutions is a full service contract manufacturer. Our relationship with Medtronic started in 20 13 with actually one of the most complex medical devices that we manufacture.
And as
far as the broader impact, I mean, we've been in our manufacturing location in Shelbyville, Indiana since 1973 and grown and grown and grown in the community. So, I couldn't feel better about creating more opportunity in a community that's been so good to us for so long.
JIT Services delivers smart models for utility management and human centric built environments. We've been doing business with Medtronic since 2007 and it's so critically important when we're thinking about the medtech vertical. When we're talking about saving lives, we're talking about creating sustainable communities, healthier communities. We feel like our innovation helps to drive part of that innovation. And therefore, we know that we're doing something as a stakeholder of the broader community.
Since I've been the CEO and the leader of PMC, we've had people approach us about becoming a certified women owned business. And many of those companies are looking to check the box and meet numbers that are required, whether it's by the government or to publish to the community. But I see in Medtronic that they're committed not just in suppliers like us and diversifying their supply base, but they're also committed in what they do in their own organization.
In the era that we're in, private companies and publicly traded companies are going to have to be thinking about themselves as stewards of broader citizenry and broader social responsibility. And at JIT, we want to be an extension of that, so that we're living it with our business practices. How many people are we hiring as a result of Medtronic doing business with us? That's the exponential growth and the multiplier effect. And it ultimately, it leads for equity, justice and economic growth.
I think that's important because in equitable cultures build trust. And when you build trust, it becomes a primary driver to innovation. We're all in this together and we're all dependent on each other.
We touch 2 people's lives every second and to know that that diverse supplier was a part of that, that's just magical.
I was really, really depressed. I needed assistance for everything.
It was very depressing to see her just really break down.
I was around 17 years old and I took the Elektra stairs and fell back. I had a gigantic bruise on my back.
Really her goals were simple. She wanted to care for herself, do her household work, do her art, which is her passion, and most importantly, play with and care for her grandson.
I did physical therapy and medication, but then in 2020, that's when things got really bad. And they were just treating the pain for a short time. So then I had to see another doctor and another doctor. And at some point, I was just like, okay, I think I'm going to have to take medication forever because I didn't feel a complete recovery.
That's not really ideal, you know, to be constantly taking, you know, pain medications every, every single day.
Arlene and I met about a year ago now when she came in for an evaluation of her chronic low back pain. I discussed various different treatment options that were available to her, including DTM spinal cord stimulation.
We've tried everything. So when she said I'm getting another procedure for my back, I was like, oh, wow. I'm scared because usually after procedures, she gets worse. Things don't get better.
After the surgical implant was done, she remains at 70% relieved. She's having more fun than ever with her grandson and she's back to doing her art.
She's got a skip in her step. She can do what she was doing before. She's now back to herself. She's got a better outlook on life and she comes every day with happiness on her face.
It felt like a weight lifted off my shoulders.
And when you see your mom flourish and her smiling again, it
just felt like I could take
a deep breath and I just could breathe again and I could just be.
Well, I remember my son told me one time, oh my god, mom, I'm so happy that you're happy. They saw the change and I seen it too. The fact that I can do household chores, clean the kitchen, mop, that really makes a difference, and it makes me feel you're back again. You're getting younger.
To see her go from when she walked in and just visibly defeated to having hope and playing with her grandson and doing her art again, it makes me feel great.
I am good. It's like a new
Okay, welcome back. And to present this section, which we're calling people and communities, let me introduce our Executive Vice President and Chief Human Resources Carol Serfis. Over the past 8 years that she's been with the company, Carol's had an unquestionable impact on Medtronic. Look, we're in the business of innovation and innovation is a people driven business. Carol has aligned our human capital strategy to our business strategy.
She's built an HR function that enables people to thrive at Medtronic and strengthens their connection to our mission. So I'll now turn it over to Carol to talk about how our efforts to attract top talent is delivering a competitive advantage. Our efforts to improve inclusion, diversity and equity and how we're investing in our communities. Carol?
Thank you, Jeff. And thank you all for taking time to join us today. I'm happy to be here to talk about our human capital, our people and our commitment to communities outside our four walls. A company's performance is the result of tens of thousands of individual talent, organizational and cultural decisions. These decisions define who a company is, how it innovates and the results it delivers.
Medtronic is no different. But what sets us apart is that we are engineers at heart, putting ambitious ideas to work to generate cutting edge technology for real people every day. Many of you know our company was founded in 1949 when 2 talented and innovative people started a repair business focused on medical electronics. The team's background in engineering combined with their physician customers' understanding of patient needs resulted in significant innovation fueled by diversity of thought and experience. Operating out of a garage in Minnesota, they hired a handful of employees.
And those first talent decisions, combined with the tens of thousands of decisions we've made in the 72 years since make Medtronic the company it is today. A global team of more than 90,000 talented people boldly addressing some of the most challenging health issues facing humanity. Working across 150 countries, we have the talent, diverse perspectives and the tenacity to engineer the extraordinary. Talent is our competitive advantage. They have fueled innovation driven growth for Medtronic since the beginning.
The same growth that creates value for our shareholders both in the near and long term. Driven by our bold ambition to become the global leader in health care technology, we've made important changes over the past year to further accelerate innovation, to find a new gear, to enable us to perform at an even higher level. First, we implemented a new operating model designed to increase decision making speed, get closer to the customer and improve agility, competitiveness and accountability. We introduced a new structure with 20 operating units at the center, and we are reshaping our processes, operating mechanisms and incentives. We also recognized a need to work differently, to think differently, to act differently.
Any organizational transformation of this magnitude would not be complete nor successful without addressing culture. So we introduced the Medtronic mindset to reimagine how our everyday behaviors and actions drive results. I'll talk more about the mindset later. I'm impressed with how our employees are embracing these changes. Others are taking notice too.
We're pleased that Fast Company recently recognized Medtronic as one of the world's best workplaces for innovators. We have also doubled down our efforts to build an even more inclusive and diverse workplace recognizing that diversity fuels innovation, growth and creativity. By now, it's also fairly well known that diversity contributes to stronger financial results. In 2020, McKinsey looked at companies in the top quartile for ethnic and racial diversity on their executive teams. And they found that they were 36% more likely to have above average profitability than those in the bottom quartile.
And those with greater gender diversity were 25% more likely to outperform peers, A finding that's been reinforced by Credit Suisse in its Gender 3000 report. This report suggests companies with women strongly represented in senior management and on the board may yield a diversity premium. This correlates to higher returns on capital, higher margins and lower volatility through the market cycle, while also being reflected in diverse companies' valuations and share price performance. The fact that diversity fueled innovation and impacts profitability, coupled with employee and shareholder expectations, is driving many companies to put a sharper focus on diversity. As Jeff mentioned earlier, this focus is not new for Medtronic.
Our mission, which our co founder, Earl Bakken wrote more than 6 decades ago, holds us to extraordinary expectations across both what we do and how we do it. You could say that inclusion, diversity and equity really are a part of our DNA. And our founder, Earl Bakken, was a leader well ahead of his time with a vision that included a world where women lead. What may feel different though is that we're talking about inclusion, diversity and equity more externally than we have in the past, including in forums like this. To strengthen our long standing commitment, we recently announced a second set of 5 year diversity goals after achieving our 2020 goals.
As Juni mentioned earlier, by FY 'twenty six, we aim for women to hold 45% of our 12,000 management roles within Medtronic globally and ethnic diverse talent to hold 30% of our 6,500 management roles in the U. S. We've focused on pay equity for almost a decade. And in the U. S, we've achieved 100% pay equity for ethnically diverse employees and maintained 100% gender pay equity.
Globally, we have 99% gender pay equity and are committed to closing all remaining gaps. We are also building on our long standing commitment to transparency. Our workforce and pay equity data are published annually in our integrated performance report and in our inclusion, diversity and equity report. This year, we also began publicly disclosing our U. S.
Demographic workforce data by publishing our annual EEO-one report. Because we believe diversity is a strategic business lever that drives innovation, we are taking our commitment even further. We've aligned our strategy to 3 pillars focused on individuals, the company and the communities in which we operate. To enable this, we have codified inclusion, diversity and equity as a business strategy. We are shifting primary responsibility for truly driving that strategy from HR, diversity networks and employee resource groups to senior business regional and functional leaders and tying incentive compensation and advancement to inclusion, diversity and equity goals.
Our diversity networks and employee resource groups will continue to play a critical role in how we engage with employees and our communities. New this fiscal year, our executive leaders have diverse representation and inclusion goals, which are measured quantitatively. During the governance section of today's event, you'll hear more about how changes to our annual incentive plan design will drive even greater accountability. Jeff and our entire executive committee are equally engaged and passionate about these efforts and they participate in quarterly diversity reviews to ensure we are approaching inclusion, diversity and equity with the same rigor and attention as any other business priority. Inclusion is a prerequisite for diverse talent to truly thrive.
So as we developed our renewed culture, the Medtronic mindset, we were intentional about including foster belonging as one of its elements. Our mindset also emphasizes the importance of being bold, more competitive, moving with greater speed and decisiveness and delivering results, but the right way. Each of these elements were informed through conversations with employees and customers who shared how we need to act to become the global leader in health care technology. We've also linked culture directly to our annual performance process to help ensure it truly becomes how we do things at Medtronic. I'd be remiss though if I didn't mention that the mindset in no way replaces our mission.
The Medtronic mission is why we exist. It is our enduring purpose, our North Star and a source of great pride and inspiration for our employees. It is reinforced by our strategy, which guides what we do to deliver results and is accelerated by our culture, our how, which defines the day to day behaviors that deliver on our strategy and better fulfill our mission. Understanding how employees experience our culture and other aspects of our workplace is critical, especially in this competitive environment for top talent. High levels of employee engagement are known to promote retention, foster customer loyalty and improve business performance and stakeholder value.
Our leaders are accountable for delivering high levels of engagement and inclusion. To track our progress, we conduct our organizational health survey twice a year. This survey measures key drivers of employee engagement and helps us to identify where we need to take action and improve. These results are shared regularly with our Board of Directors. In May, almost 80,000 employees reported the highest levels of engagement and inclusion we've seen across the company, truly world class.
Inclusion, diversity and equity are all key drivers of engagement as our training and development. We offer an array of leadership development programs to accelerate employees path and readiness to move to higher levels of leadership and this encourages mobility within the company which also supports retention. People want to work for a company that stands for something. Medtronic has always been purpose driven. In fact, it's written into our mission, which calls on us to maintain good citizenship as a company.
I'd like to close by sharing a few ways we're investing in communities. The COVID-nineteen pandemic and social justice movement continue to bring to light societal inequities and disparities in care. Together, Medtronic and the Medtronic Foundation provided nearly $53,000,000 in COVID-nineteen support through the end of fiscal year 2021 and contributed more than 174,000 employee volunteer hours. Beyond pandemic relief though, Medtronic and the Medtronic Foundation contributed more than $103,000,000 in combined philanthropic investments during FY 2021. Funding focused on the medical community improving the health of underserved people worldwide and supporting communities where our employees live and give.
We also funded disaster recovery efforts and engaged employees and volunteerism. Aligned to our mission, we've also pioneered a dedicated global health initiative called Medtronic Labs. Focused primarily on non communicable diseases, Medtronic Labs designs and implements tech powered health care delivery solutions that strengthen and extend health systems into local underserved communities delivering sustainable outcomes. Since its inception in 2014, Medtronic Labs has reached close to 1,000,000 lives in India, Kenya and Ghana. Earlier, I mentioned the 3 pillars of our inclusion, diversity and equity strategy, which include a focus on communities.
We know these efforts cannot stop within the walls of Medtronic. And to see real progress, we need all companies to take this responsibility in earnest. In FY 'twenty one, the Medtronic Foundation committed $16,000,000 to health and education partnerships to address racial disparities and advance social justice in black communities in the United States. This includes a national partnership with the Thurgood Marshall College Fund to support students in STEM fields at historically black colleges and universities. Medtronic is also partnering with the organization to bring more diverse talent into our talent pipeline.
We are also a founding member of 110, a coalition of leading CEOs and companies that are committed to moving at least 1,000,000 black Americans into livable wage jobs over the next decade. We've taken on a lead role alongside Target and Cargill to help build out the local ecosystem of our talent pipeline and support systems in the Minneapolis St. Paul area, the home of our operational headquarters. And we're supporting the multiple pathways initiative. This is a multi year effort to foster equity and diversity in workplaces by rewarding the value of skills not just the educational credentials in recruitment, hiring and career advancement.
We have also expanded our supplier diversity program globally and directed $644,000,000 to diverse suppliers. When combined with small businesses, this reaches $2,400,000,000 totaling 35% of our U. S. Supplier spend. Our contracts with diverse suppliers help to create jobs and advance equity in many communities, driving sustainable economic change.
From expanding access to care to introducing new life saving technologies, people are at the center of everything we do at Medtronic. They are our competitive advantage and the reason we will continue to innovate today and into the future. It's been my pleasure to speak with you. Thank you. Let's now turn it to Q and A.
Thanks, Carol. Yes, let's start our second Q and A session of the day, which is focused on people and communities. As a reminder, we're going to take questions live from the sell side analysts that cover Medtronic. If you have a question and you're not one of those sell side analysts, please send your questions to the sell side analysts or email it to us at mdt2021esgbriefingmedtronic.com. That's mdt2021esgbriefingmedtronic.com and I'll work in as many of those questions as possible.
If you email us, please let us know if you would like me to mention your name and firm, otherwise, I'll read your question anonymously. For this panel, I'll welcome back Jeff Martha and Carol Serfis and introduce our other panelists, Doctor. Sallie Saba, who is our VP and Chief Inclusion and Diversity Officer. If you're a sell side analyst that covers Medtronic and you'd like to ask a live question during this Q and A session, please raise your hand in the Zoom application and refer to your screen for additional instructions. I ask that you please keep your questions focused on people and communities, including our employees, culture, inclusion, diversity and equity, and our work in our communities.
We'll have another Q and A session later today to cover other topics. And in the interest of getting to as many questions as possible, we ask that you stick to one question and if needed, one related follow-up. With that, I'll pause a moment to see if some hands come up in the queue. Okay. Let's go to the line of Travis Steed at Barclays.
Travis? Can you hear us, Travis?
Can you hear me now?
We can. Yes. Please go ahead.
All right, great. Sorry about that. So the employee turnover in the 13% range today and we're in an environment now where finding good talent is really hard for a lot of companies and staff are facing burnout with COVID. So just curious where you think the turnover rate can go over time, if you have any long term goals there? And any kind of examples you can give with the culture change and actually trying to improve that turnover rate and examples of the Medtronic mindset.
When it comes from a recruitment standpoint, what are the biggest challenges you have today as a corporation on recruiting people to Medtronic? And what are the changes you can do on the recruitment standpoint to overcome some of those challenges?
Okay, Travis. Hey, it's Jeff. Thanks for the question. I'll phone a friend here as well in a second here and ask Carol to chime in on
this one. But in terms of recruiting,
attracting and retaining talent, as Carol said in her comments there, more and more we're finding people of all stages in their career are looking to work for companies that organizations, I should say, that align with their core values. So it goes beyond historical, at least when I came out of college, way back when it was like I want to go to a company with a good reputation and good career opportunities. It's beyond that now to really aligning your core values. And so that's where I think all the programs that we're and we are in a battle for talent, in particular, tech talent. And all the programs that we've been talking about here, inclusion, diversity, equity, our position on climate, these are important.
These are employees are really looking for these things and they want to, as Carol said, they want to work for a company that stands for something. And the other big recruitment tool is just our investment in cutting edge technology for the purpose of helping people. And one lesson learned for me over my first whatever 5 or 6 quarters as CEO is when we're investing in technology tied to therapies to help people, everybody at Medtronic is happy, including our external stakeholders like customers, physician customers, hospital customers, investors. And so the fact that we are investing at all time highs in R and D and doing some of these tuck in acquisitions that are really technology related as well and linking those to a really robust product roadmap and refilling that pipeline of products is a huge retention and recruiting tool. And so the whole branding of the company that we launched is really meant to get that narrative out there to a broader audience.
Engineering the extraordinary, it ties right into everything I said and we think it's distinctive to Medtronic because so many companies are out there talking about how they're innovative, like consulting companies that don't do this type of work. Innovation is in their branding. That's why we thought engineering, the extraordinary, the engineering piece is distinctive and the extraordinary is the right kind of aspiration for us. And so that is a big recruiting tool as well. And that those I'll let Carol hit you with the numbers here on the turnover and where it's going.
But I can tell you it is going in the right direction. And there's a lot of energy out there towards Medtronic. So as recruiting, I get involved some of the more senior recruiting as well as the internship programs actually as well in the early stage, early career recruiting, there is a lot of excitement and pull in the Medtronic from these the idea of investing in these life saving innovations, I would say. But also inclusion, diversity and equity, climate, all of this feeds into our employee value proposition. Carol, you want to add to that?
Yes. Thanks, Jeff, and thanks, Travis, for your question. You're right around our turnover, it's roughly 13% globally, our voluntary turnover, and it's remained flat over the past couple of years. We're beginning to see a slight uptick driven primarily in our manufacturing segment of our population in specific geographic locations. But I have to tell you that our ability to attract talent is really increasing the more familiar that our brand becomes with prospective employees.
And in fact, over just the past quarter or so, our year over year interest measured by applications at Medtronic has increased 40% versus pre COVID. And when we look at a really important segment of our population, which is our early career engineering talent, their interest has also increased by 50%. So those are a couple of stats that give us confidence that were an attractive proposition for many employees. You mentioned culture and how the Medtronic mindset is really core to enabling our operating model and fulfilling our strategic priorities as well as our mission. And as we've introduced our culture over the course of the past year, it's been just about a year now, we continue to monitor our employees' sentiment on our culture, how they're adopting it, if they think it's the right thing to do.
And we're really pleased that more than 86% of our employees are really committed to and understand why this renewed culture is so important to Medtronic's future. So, look, we're feeling really optimistic that we have a huge opportunity in the marketplace to create Medtronic as a destination for talent and place where talent is going to come to accelerate their career? Thanks again for your question.
Yes. Thanks, Travis. I'll remind the sell side analysts again, if you're a sell side analyst that covers Medtronic, you'd like to ask a live question, please raise your hand in the Zoom application and refer to your screen for additional instructions. Next, we'll go to a question that was submitted via the inbox, and this is from an anonymous investor. And we'll go to you, Sally, for this one.
How do you measure the success of your ID and E programs?
Thank you, Ryan, for the question and for whoever asked that question. I appreciate it. At Medtronic, we believe that inclusion, diversity and equity success means a time where companies reflect the communities that they serve, where gender parity and equitable representation of talent is evident at all levels. It's also one where all employees feel a deep sense of belonging, feel valued and fully engaged in the company's mission and one and well as where pay equity is the norm throughout the organization. The last component to that is where companies come together and solve societal inequity challenges that no one company can solve alone.
Together, these outcomes enable business innovation, growth and sustainability in a global landscape. This perspective is really what shaped the new strategy that we've put forward that you heard from Carol, and it's enabling us to broaden our focus in terms of how we leverage the entirety of our company to really lean into these new strategic pillars of our strategy. However, we recognize that measuring representational loan is not an effective measure of success for a strong inclusion and diversity strategy. So we measure our progress on a few critical and interdependent ways. First, as you heard from Carol, we definitely measure inclusion across the enterprise through inclusion indices, through our organizational health survey.
And you've seen the indices that Carol shared. We are at world class with that at 80%. We also look at representation at all levels throughout the enterprise. And we hold now in our new model all business leaders accountable for both of those indices, representation and inclusion at all levels. In addition to that, we really look at how we equitably move talent throughout our organization.
So we have a very robust process of looking at recruitment, participation and development programs, promotion rates, retention rates and early career talent representation. And Jeff, Martha and Carol and other members of our executive team sit in a quarterly diversity review to review this data on a quarterly basis. However, beyond the workforce, we also look at other metrics like our progress on supplier diversity. We look at representation in clinical trials. We also look at how philanthropically we engage with inclusive and inclusive set of community partners.
So the bottom line is done well. Inclusion, diversity and equity infiltrates really the fabric of everything we do as an organization and it's a metric throughout all of what we consider.
Okay. Thanks, Sally. Next, let's go to the line of Matt Miksic at Credit Suisse Securities. Matt?
Hi. Thanks so much for taking the question. So, on this topic of sort of recruiting and sort of culture, I just wanted to get a sense of how the last 12, 18 months have changed the type of talent that you're seeing and the way it's presenting to Medtronic in terms of new hires and folks rotating other elements of the healthcare system potentially and wanting to take a role with your team. And I have one quick follow-up.
Hey, Matt, good to hear from you. It's Jeff. I'll start that and ask Carol to chime in. One thing that's changed that I see and is the number of folks from outside of medtech or even outside of healthcare that are interested in the company. So, for example, and I think when I ask them why they're interested, and I'll give you some examples, a lot of it is about people wanting to move into an industry like healthcare that has a clear societal benefit.
I don't know if it's COVID or whatever, people are rethinking things. And another reason that I hear is they like the idea that we are innovating at historic levels in terms of they hear about things like the surgical robot, they hear about things like these are products, Matt, you're familiar with the PillCam or things like that that are very innovative that involve data and AI. And so we're getting people from the tech industry that have data and AI backgrounds that are interested in joining the company. And then a third, but less it's a little bit less than the first two. As we've talked about more direct to consumer as some of our businesses like diabetes and others are moving or more direct to consumer, coming in with that expertise and want to apply it again to healthcare.
And so that I think partly I don't know all the root causes. I've got my hypothesis. Like I said, some people rethinking things. But part of it is just the narrative that's out there on Medtronic now around innovation and using cutting edge technology beyond the traditional mechanical, electrical kind of technologies that we've been in and including data and AI and some new things we're doing around consumer. It's attracting different people.
Carol, I'll let you chime in on this one as well.
Yes, sure. Thanks, Jeff, and thanks, Matt, for your question. I think Jeff really covered the landscape well in terms of where we're recruiting, the types of talent that we're looking at and that really is cross industry. I'll give you one example of a recent executive hire, Greg Smith, coming from Walmart with a really deep skill in supply chain and global manufacturing and that scaling capability transcends industries and is certainly something that we needed at Medtronic. In terms of core capabilities and perhaps new and emerging capabilities that Jeff mentioned, such as data scientists, software engineering, beyond what we've looked at historically, being the core to Medtronic, which of course is biomedical engineering, we're finding ourselves in competition with many other industries for that same set of talent, including the Googles and the Apples of the world as well as others in our industry.
Having said that though, we really are finding that talent is attracted to Medtronic for a few different things. 1, because we are purpose driven and committed to impact, committed to society, committed to inclusion, diversity and equity. And that's not recent for us. It's deeply embedded in our decades old mission. And talent is very attracted to that and sees the authenticity associated with it.
And then is even further inspired when they see that coming to life working at Medtronic and experiencing it for themselves. And we hear that, as Jeff mentioned, from our early career interns as well. In terms of how we continue to recruit ongoing, it really is an active methodology in connecting with talent even when we don't have live openings per se, so that we're building long term relationships with talent, so that when we're ready and they're ready, we've got a match. So, lots more to do on this front. The last point I would offer is that we continue to leverage our employees as ambassadors for Medtronic and the brand and the employee experience through their social networks ensuring that we continue to elevate our brand as a destination for talent and Medtronic is the place to be.
Thanks so much for the color.
Okay. Thanks, Matt. Next, I'm going to ask Laura Morey, our SVP and Chief Clinical and Regulatory Officer to come back even though she was on the first panel, but to participate here because this question really deals with clinical trials and it comes to us from Josh Jennings at Cowen. And Josh is wondering, Laura, is there an ongoing initiative by Medtronic and the rest of the industry to ensure that a higher percentage of minority patients are included in clinical trials that are investigating the efficacy and safety of medical devices?
Thanks, Ryan. Thanks, Josh. So, it's a great question to ask. Really, it's important. And as you know, it's not simple clinical trials and who gets enrolled in them really reflects broader disparities in healthcare and access to healthcare.
But we really think that clinical trials are also part of the solution because we need to have patients who represent the breadth of patients who may benefit from therapies so that we get the right data, we understand how things work, we understand what these therapies mean to patients, and they allow us to innovate new products that will benefit everyone. And so we have been engaged in initiatives to have immediate impact and sustaining impact on getting better representation in clinical trials, both across our enterprise. We recognize that there's lots of opportunity, as well as partnering with FDA and with other industry partners who are engaged across the board. But some of the specific things that we're doing are working with sites. For example, traditionally, clinical trials, especially in the medical device space, have selected sites in high volume locations, not necessarily reflecting communities of color.
And simply by actively using a parameter for site selection that involves finding sites that are located in communities of color, we can have an immediate impact and we're already doing that. It's also by looking at our investigators and making sure that they are also representing Zuber's backgrounds so that patients can have a better connection to be able to enroll in trials. And then things like providing tools for sites, whether it's unconscious bias training to our sites or providing sites with patient recruitment tools that are particularly suited to various different communities, especially in areas like hypertension and diabetes where communities of color are disproportionately affected both by the disease as well as poor outcomes related to that. So our employees and our investigators are really passionate about this topic, and we feel confident that we can have a positive impact.
Just to build on that real quick, beyond clinical trial sites, I've done a lot of customer visits in the United States at least because it had been hard to go overseas until recently here. But every single C suite customer I meet with, we go to C suite with a CEO or other leading clinicians in the United States, every single one wants to talk about health disparities and how we can partner. And many times we're bringing in a payer. So you've got a leading provider, a payer like the Blue Cross Blue Shield or whomever, there's the dominant payer in that area and a Medtronic coming together and going into these disadvantaged communities that are adjacent to many of these health system or in the health system catchment area and really focusing on these the big three, I call them heart failure, hypertension, diabetes. So beyond the clinical trial work that Laura just walked through, there's a lot of work on taking where we have products and therapies in the year, especially in those three areas I just mentioned and working on targeted programs for these communities in conjunction with our hospital partners and payers.
Thanks, Jeff. Thanks, Laura. I think we're going to wrap we'll wrap the panel there. So, thanks for all the questions and thanks to Carol and Sally as well for being panelists on this Q and A session. So we'll turn it back to you, Jeff.
Thanks, Ryan. Next, we're going to assemble a panel to discuss the topic of governance, both as it relates to governance of ESG topics in the company, but also the broader governance by our Board of Directors. The independent insights, guidance and engagement of our Board has been invaluable to me, as well as members of my leadership team. The panel will also discuss management compensation and incentive plans, an important topic as we align employees to achieving the long term strategies of the company. I trust that you'll find both of these topics helpful as you develop a deeper understanding of Medtronic.
With that, Ryan, please start the panel.
Thanks, Jeff. Joining me today are Karen Parkhill, Medtronic EVP and Chief Financial Officer Martha VP, Chief Counsel and Deputy Covert Secretary and Ken Fairchild, VP of Global Rewards. Thanks for joining us today. As Jeff mentioned, we're going to cover the topics of governance and management compensation. I'll ask the panel some questions over the next 15 to 20 minutes.
And after that, we'll go to our final Q and A session of the day. So Karen, let's start with you. Can you talk about how engaged the Board of Directors are on ESG matters?
Sure. Our Board is really active on all things ESG related. In fact, our Nominating and Corporate Governance Committee has the responsibility and oversight of ESG matters. And we speak about all things related to the E, the S and the G with that committee. But all of our committees in one way, shape or form touch ESG.
In fact, our quality committee is focused on matters related to product quality, patient safety, cybersecurity. And our compensation committee is really deeply involved in reviewing our executive compensation plans and ensuring that they're aligned to the social goals and objectives of our company. And we regularly discuss ESG to the full Board as well. So our Board is really heavily engaged.
Thanks, Sharon. So as Chair of our Executive Led Sustainability Steering Committee, can you talk about the role the committee plays in managing ESG topics at Medtronic? Which functions are represented on the committee? And maybe you can touch on some of the topics that we discuss and how you think that, that impacts ESG here at Medtronic.
Sure. Let me start by saying that our sustainability steering committee is a really important governance mechanism for ESG at Medtronic because we oversee the company's sustainability strategy. And our committee brings together different functions. You asked about them. They're really HR, quality, global operations and supply chain, legal, investor relations.
You know you're on it, Ryan. Enterprise risk management, government affairs, philanthropy. And then we also have some of our executive leaders that run our portfolios and our regions as well. And it really it provides us a forum to have a rich dialogue about where we stand and where we should be on our ESG efforts. Our committee is heavily involved in charting the material ESG issues for Medtronic, but also we set bold and aspirational goals for achieving higher standards over time.
We also regularly assess our progress toward those goals, and we discuss emerging trends that are on the top of the minds of our stakeholders that include climate risk and resilience or product stewardship or inclusion, diversity and equity and corporate transparency because we know the bar is always rising quickly on all of those.
Thanks, Karen. Martha, let's turn to you. So one of the questions that comes up from time to time with investors as it relates to our Board is the topic of independence. It's common practice for U. S.
Listed companies to have a joint chair and CEO, which is what we have at Medtronic. So can you talk about how the board composition and practices help ensure independence?
Absolutely, Ryan. So as you know, our board composition is such that we have combined CEO and Chair role in Jeff and a separate lead independent director. The board believes that having Jeff as CEO combined with the Chairman role is an asset to Medtronic. Jeff has extensive knowledge in both Medtronic, where he's been here for over 10 years, as well as the global healthcare industry, particularly medical devices. This is critical for identifying strategic priorities and executing on them.
That said, you are right. For U. S. Publicly listed companies, it's more likely to have a combined CEO and Chairman role. In fact, the 2020 survey shows that of the top 100 publicly listed companies in the U.
S, 75% of them had a combined CEO and share role. In order to ensure though that we have the integrity of an independent board leadership and diversity of thought and experience, we have a strong lead independent director, Scott Donnelly. Scott has over 2 decades of experience in innovation, manufacturing, sales, marketing, business processes and extensive experience also in corporate governance. He is actively involved in leading the board in thoughtful and meaningful discussions in independent executive committee sessions, as well as with full board. He also plays a significant role in setting the agendas and strategic topics for the committee, as well as the board.
The bottom line is that the board believes that having a lead independent director combined with a board chair who's deeply engaged in the operations and directly involved in the broader industry is the right combination.
Thanks Martha. Another question that comes up with investors is how the Board is looking at tenure and replenishment. Are there any skill sets that the Board is looking to add? And how is it thinking about ethnic and gender diversity as it makes these decisions? And maybe to sneak in a third part to the question, our proxy indicated that 2 directors weren't nominated for reelection at this year's Annual General Meeting.
So does the Board plan to add new directors soon?
Well, those are a lot of questions there, Ryan. But as you know, the Board and the NCG Committee regularly review its composition to ensure that it has the right mix of skills, background and experience. The Board has been focused on ensuring that there are diverse thoughts and perspectives represented throughout. In terms of tenure, the average tenure on our Board is approximately 8.5 years, and that's right in line with the largest U. S.
Companies by market capsize. We do have 2 relatively longer tenured directors who bring their extensive experience and invaluable strategic insights to Medtronic and are actively involved in company strategy and discussions at both the full board sessions as well as the committee levels. In addition, as we look at refreshment, we have notably added 2 new directors in the last 18 months. With regard to diversity and skill sets, we're currently looking for potential directors with skill sets that align with our top strategic priorities and business priorities, such as customer facing experience, artificial intelligence and data and experience in go to market execution in China. In addition to all of this, the Board has been and continues to be very focused on diversity and has been for several years, diversity of thought, perspective, background and experience.
This past summer, in fact, the Board approved its first Board Diversity Policy. And although it was the 1st formal policy, it's something that's been in practice at the Board level and part of our principles of corporate governance for the past several years. The diversity policy in fact is posted on our website. The board hasn't set explicit targets with regard to gender and ethnic diversity, but having more gender and ethnic diversity is definitely a priority of the board and has been over the past several years. Regarding potentially adding new directors, as you know, the current Board size is 12 directors.
At the end of the Annual General Meeting in December, it will be reduced down to 10. For now, the board thinks it has the right mix of skill sets and experience and background, but it regularly reviews its composition and will refresh its membership as needed.
Thanks, Martha. Ken, let's turn to you and discuss some of the hot topics on compensation. I'll start with changes to the comp plan. Investors will notice there have been several changes to the compensation plan as it's evolved over the last couple of years. So first, can you speak to the changes that occurred in FY '21 to our long term incentive plan?
And what was the Board looking to achieve with these changes? Happy to, Ryan. Thank you. So first off, for FY 'twenty one, the Board really wanted to strengthen the shareholder value creation in our long term incentives. So the first thing they did is they eliminated our previous cash incentive component that we had and moved the long term incentive structure to all equity.
And the equity value is delivered half through performance share units, 30% stock options and 20% restricted stock units. Additionally, the Board looked at strengthening the correlation between revenue growth and shareholder value creation and did that through the performance share units by making half of the payout based on 3 year revenue growth, and that's organic revenue growth, The other half based on the relative total shareholder return versus our peer group of companies in the proxy. So clearly, very important changes that the board made. Also important to note that return on invested capital is still an important metric. It was previously in our long term incentive structure, and it's still there.
But it acts as a threshold, which means if we don't achieve a minimum ROIC, which is above our weighted average cost of capital, then the payout is reduced by 30%. The other thing that's just a side note is that our restricted stock units no longer have a performance hurdle, which previously was EPS, and that was in line with the changes to tax deductibility that happened in the last couple of years. It's no longer a common practice to have that hurdle, so we too have eliminated that. Thanks, Ken. That's very helpful.
Karen, Ken talked about ROIC moving from being a 1 third weighting of our long term performance plan to now being a threshold metric. Does this mean that management is less focused on ROIC?
Definitely not. ROIC is a really important value creation metric. And when we look at capital allocation priorities, we always look at the impact on ROIC. And sometimes an acquisition may bring ROIC down slightly in the earlier years, but we're really looking for acquisitions that are accretive to ROIC in the short term. It's also an important metric that we track and discuss all the time too.
Thanks for reinforcing the importance of ROIC, Karen. Ken, I'll come back to you. As we look at our current fiscal year FY 'twenty two, Jeff alluded to some changes to the annual incentive plan on our earnings call back in August. And specifically, he talked about new non financial ESG metrics. Can you fill us in on what's changing for FY 'twenty two and how these changes are related to our long term strategies?
Yes, happy to, Ryan. And actually, there's quite a bit that we changed with our annual incentive program, so I'll break it down. So first off, it's important that the incentive align with our new operating model for the company that's driving our growth strategy. So the first thing that we've done, and Jeff has talked a lot about how important it is for us to become more competitive in the marketplace. So we've actually added market share as a metric into the annual incentive.
And clearly, that's an important metric for us, but it's also important to know that we're not going to drive market share at the cost of everything else. So earnings, free cash flow are still very important metrics in the annual incentive. And of course, as always, we expect our employees to do the right thing when they're delivering results. The second thing that we did, which is also very important, is we strengthened the ability to differentiate performance, both for teams and for individuals. So for example, operating units and region level employees, their performance will play a bigger role in their incentive opportunity than it has in the past.
And we've also done the same thing with individual performance and strengthened that for all employees across the board. The third change that we've done, which is to introduce inclusion, diversity and equity into the annual structure as an important ESG metric, particularly for our executive leaders. So for this year, executive leaders will have goals that include representation as well as some other qualitative, but measurable goals that will provide us a holistic view of their performance. And that will be tied directly into their incentive payout for this year. And it can impact their incentive payout up to 15% of the total.
So clearly, a very important change for the company. We're going to look to expand that further throughout the organization in future years. And then last but not least, it's very important to emphasize that quality is still a metric in our incentive structure. We've actually increased the weighting of quality from 5% to 10% for all employees and from 10% to 20% for those employees in operating units.
Thanks, Ken. So I'm going to wrap it there. So we have time to get to our audience's questions. But I want to thank Karen, Ken, Martha for joining us today. And let's move to the final Q and A session of today's event.
So this Q and A session will focus on governance and accountability, including executive compensation, ethics and compliance. And as a reminder, we're going to take questions live from the sell side analysts that cover Medtronic. If you have a question and you're not one of those sell side analysts, please send your questions to the sell side analysts or email it to us at mdp2021esgbriefingnetronic.com and I'll work in as many of those questions as possible. If you email us, please let us know if you would like me to mention your name and firm. Otherwise, I'll read your question anonymously.
So turning to our panel, I'll invite back Jeff Martha, Karen Partill, Ken Fairchild, Martha and Ginny Cassidy. I'd also like to introduce Tara Shuchak, who is our VP and Chief Ethics and Compliance Officer. If you're a sell side analyst that covers MedSonic and you'd like to ask a live question during the Q and A session, please raise your hand in the Zoom application and refer to your screen for additional instructions. During this session, I ask that you please keep your questions focused on the topics of governance and accountability, including executive compensation, ethics and compliance. And in the interest of getting to as many questions as possible, we ask again that you stick to one question and if needed, one related follow-up.
With that, I'll pause for a moment and watch the hands go up here in the queue. Okay. So the first question, let's go to the line of Travis Steed at Barclays. Travis, please go ahead.
Hi. Thanks again for the question. So, I had a bigger picture question for Karen and Justin. When the Board and management thinks about how to balance some of the near term shareholder objectives around revenue margins and earnings, so some of the longer term ESG goals, kind of curious how you balance that and how it impacts how you decide where to allocate resources? And another question to be good from investors is like out of all the ESG metrics, what has the biggest impact on shareholder value over the longer term?
And so I'd love to hear your thoughts on that question as well.
Karen, do you want to take this one?
I am happy to, Jeff, and I know you'll want to add. So I would say, Travis, thank you for the question. We do really focus on managing this company for the long term. And so, as we think about capital allocation and resources, particularly against important ESG, we're going to focus on investing. It is an incredibly important part of who we are as a company.
It's ingrained in our culture. It's important that we make these investments. And we find ways to self fund them when we need to. It's just critically important and we do focus on really managing for the long term. In terms of what's the biggest impact that we can have, I don't know if I can pick 1, Travis.
So go ahead, Jeff.
On that one, I think the biggest impact and it's probably is really tied to the people. Meaning, again, we're in the innovation business. When we're innovating, everything takes care of itself. And so but we need people, we need the right people from different disciplines
and in
our different businesses to do this. And it's not just tech talent but all talent to make the Company innovative. So, like I said earlier, to attract and retain the best people, they're very focused, not to downplay the G and ESG, but they're more focused on the E and ES and aligning to their values. And it's an important part of what we're doing. And then, the G comes in, again, I'm putting it from like a talent perspective.
They want to make sure that we have a good reputation and we're very compliant and all that. But, that's kind of table stakes. You have to do that in my opinion. But, the E and ES are differentiators right now. And so, I think that as we make investments in those areas, it's proving to be a differentiator for us to attract people.
And then, you talked about balancing, balancing growth versus profitability or how do we determine what another way to put it, how do we determine how we divide out our investments between different technology programs or geographic expansion or in the ESG area. ESG has really risen up. We've always had a strong focus on governance. And then, I would argue maybe 10 years ago, we ramped up under Omar's leadership, my predecessor ramped up the investment in inclusion, diversity. And we started and we've elevated that even more over the last couple of years with equity and all the things that we've added equity to that and all the programs.
And then, I can see a significant investment going into the E, the environmental side of things here. As Ginnie mentioned, we're going beyond scope 2 here and looking at scope 3, and that's going to decarbonizing the industry, it's going to take some real innovation here in packaging, sterilization and things like that. And these are right up there at the top of our list of investment priorities. And I think they're mission critical for many stakeholders, but employees is a big one. Our customers are looking for us to do this and of course governments around the world.
I would just close by saying on this one, Travis, that we do believe that these investments drive long term value for the Company. They help our employees be more engaged. They make sure that we're continuing to innovate. They do they make sure that we're driving sustainability. But in driving sustainability, we believe we have ROIs on that too.
So, we believe it is all tied.
Okay. Thanks, Travis. Let's next go to the line of Matt Miksic at Credit Suisse. Matt?
Hey, thanks again for taking the question. So, on the topic of sort of the G, on the one hand, you've got really inspiring missions facing your company and your industry around addressing unmet medical needs, inspiring things like increasing access to healthcare and so on. On the other, healthcare operates in a regulated environment, obviously, and occasionally there is litigation. And so, maybe if you could speak to given the increasing importance of compliance and governance to investors, how you are potentially changing or putting to work some of the strengths behind your operating model to sort of to protect yourself against either missteps or compliance issues or situations where you might face an unwanted or unexpected litigation situation that sort of puts you off your ESG mission?
Matt, it's Jeff. Thanks for the good question there. And I can address that one head on. So, the new model, we like to describe it as playing small and playing big at the same time, where we as you know, we've decentralized a lot of the company into these 20 operating units, including the P and L and the R and D budgets. And the whole idea there is to empower them, put them closer to the customer, the patients and the physicians that they serve.
And the idea is that they will innovate at a faster pace and pick the right things, right? And that's kind of the small or the focus part of the model. But then, at the same time, there are certain things that I think take kind of enterprise focus and where we set up centers of excellence, if you will. And a lot of those get to risk management. And things like and you heard from Noelle on quality, like centralizing, obviously, our quality framework and policies that all the businesses have to follow, all the regions, all the functions, but also things like complaint handling where we centralize it, we think we can do it more efficiently but with a higher quality.
Our compliance program, you heard from Tara, our compliance program is one of the big side of the model where this is more centrally directed. And we spent a lot of time getting that down into the frontline of the company. But the structure of the program, we don't have 20 operating units coming up with their own compliance programs. That is done centrally. A lot of our audit function, the financial controls, much of our legal work is done in these centers of excellence where we believe we can get consistency and a higher level of quality.
I don't know if that answers the question, but that's how we're handling it in the new model. And I think I'm pleased with the progress we're seeing on how the operating units are embracing this as well. And I think, we're going in the right direction here. Thanks, Matt. We had anonymous question come in that builds on Matt's question.
I'll turn to Tara. Tara, can you give us an overview of our ethics and compliance program?
Thanks, Ryan. Just to even underline what Jeff was just saying, I think one of the great advantages about Medtronic is, first of all, the mission is our touchstone. And so, we have a values based program at sort of its core. But also at the operating level, as Jeff mentioned, we have the opportunity to have a lot of scale and efficiencies because of the large company that we are relative to the core components of our compliance program. So we have sort of embedded within our compliance program a number of additional centers of expertise around particular parts of the effective compliance program, whether it's around auditing and monitoring or training and culture.
And so that's really how we're able to drive largely the scale piece. But also at that individual risk level, each of our operating units and regions do have some unique risks. There's a lot of enterprise wide risks that we tackle and that's how we can drive our scale and efficiency. But at the sort of local level, we also have sort of feet on the ground and eyes on the ground who can really help manage those unique risks that may show up in a particular business or a particular region. And so I feel like we're able to really balance both the scale and efficiencies of a large company with the unique risk mitigation that we need to do at the local level.
And then just maybe just a quick point around culture, because I think again coming back to the mission and culture, and we've had a lot of themes today around culture. And you can write rule books for lots of compliance related issues. But at the end of the day, it comes down to individual decision making. And that is how we're driving through ethical culture is ensuring that employees have the tools and the resources and really empowering them to speak up and raise concerns when they have them. And ultimately that's what helps make us have the right decision making at the local level and everyday decisions.
And so, that's really, I'd say, sort of the core components of our program,
Ryan. Next, let's go to the line of Brian Zimmerman at BTIG. Brian, please go ahead.
Yes. Thank you, Ryan, and thanks for hosting today. Maybe Jeff and Karen for you guys. As you think about the targets that are being set today and not to diminish the quality of any one initiative, there's a lot to do. But as we think about them, is there one that you consider maybe easier to achieve relative to some of the others or in terms of something that you view as, again, not to diminish the quality of any single one, but low hanging fruit, if you will, relative to others?
And then, just the other part of that question is, do the targets today get incrementally tougher relative to what you've already achieved from your previous ESG targets, whether it's respect to governance or environmental? Appreciate your thoughts on that. Thank you.
Well, that's a good question. I mean, when we set these targets, we were really shooting for best in class. And so that by definition, that isn't easy. Some of these areas I think we have, I don't know if I want to say a head start, but like a lot more momentum like inclusion, diversity and equity. We just hit our 2020 goals, which were have been considered pretty aggressive, having 40%.
First of all, we're fifty-fifty from a gender perspective. But, 40% of our management positions on a global basis are female, and we're taking that up to a much higher number over the coming years. And then, we had like 23% of our management positions are ethnically diverse. That's more of a U. S.
Number. And so, as we set higher targets, we've got momentum in both of those areas. And I just had a chance to peek at the ethnic diversity numbers here before this call. And already, we've made good progress since we set those goals. So, I wouldn't say that they're easy, but I'd say we have momentum.
I think the climate goals, for example, the scope free, that is going to take innovation. So, there's innovation risk in there. I mean, it's so anytime you have, like when analysts ask me, what are your chances of achieving this product pipeline or that, How I answer that question is, is there scientific or clinical discovery that needs to happen or is it more of an engineering working through our product development process, which anytime there's scientific or clinical or something like innovation that needs to happen, it's a higher risk. And some of the Scope III, if we're going to get to what we well, we're not yet, but we're going to get there. It's just a matter of how much is it going to take here.
There is some innovation that needs to happen to achieve the Scope 3. So, I think that one in my I hadn't really anticipated this question. So, it's a good one. I think there it's a little more difficult because there is some scientific innovation that needs to happen that we don't have derisked yet. I don't know if that answers your question.
Karen, if you want to add to that in any way or I
would just add that on the sustainability committee where we debate and set these targets, we are very focused on setting aspirational targets, not easy to hit targets. And we're also always discussing once we've achieved a target, where do
we set the next aspirational target. And again, when we set these targets, to Karen's point, we're thinking about a number of stakeholders. Investors are one important stakeholder, governments, our customers. But, one very important stakeholder is our own employees. And our employees don't want to see kind of check the box targets that are easy, to use a sports analogy, a layup, right?
They're not inspired by that. They want to see us take bolder take a bolder stand and shoot for higher goals. And so, the debate inside the Company on some of these goals is, are we thinking big enough? It's more of that and less of we got to put something out there that we can definitely hit. That being said, we've done the numbers on this, the research.
We think we can hit these, like I said, some of the areas like climate where we have scope 3, we have some innovation to do. I think it's a little it's going to the path isn't as clear, but we'll figure it out. Next, we'll go to a submitted question that came in from Joanne Lynch, who covers us from Citi Research. And this one is for you, Ken. How are the ESG goals linked to management compensation?
And how has this changed over the years?
All right.
Thanks to answer the question. So, first off,
I think what I'd highlight is that we've had goals around inclusion, diversity and equity for managers now for several years. And those goals and the accountability associated with that is a part of decisions that are made about their merit salary increases, about promotion opportunities. So, we've had that for a while. But the step that we've taken for this year is for the first time linking those goals directly into the incentive payout calculation for the very top executives in the Company. So, we're starting with the executive committee and their direct reports.
And that is a part of their incentive calculation. So, it would represent up to 15% of the incentive opportunity, either plus or negative, depending on how they do against those goals. So, that's the big step that we've taken and how it ties directly into incentives. I will also say, I think an important point is that representation goals are obviously an important part of that. But, we do have other goals in there that are maybe more qualitative in nature but are getting at some of the things that Carol and Sally talked about in the previous segment around scores that we get from our organizational survey and other metrics that help us understand how holistic we're being about our approach to inclusion, diversity and equity and that's an important part of this as well.
I think, we've got time for one more question. This one came in from an investor who asked to be anonymous. This we'll send to you Martha And perhaps Jeff you want to weigh in as well. In selecting Board members, how do you think about the trade off between getting expertise on the health expertise from the healthcare system versus the potential conflict of interest in having Board members from your customers? Yes.
Well, I'll turn this over to Martha for the first crack at this and I'll chime in.
Okay. From a purely technical standpoint, we always do a very rigorous analysis on a number of different fronts for all of our directors, both for new directors as well as existing directors. We check for interlocking directorates under the Clayton Act in terms of having directors on potentially competitive sides. Every year we have a formal independence analysis, both from an objective standpoint, our New York Stock Exchange requirements as well as just facts and circumstances based. And then, of course, we're always monitoring for conflicts of interest and related party transactions to the extent the director is already on our Board.
Okay. That was pretty thorough. I'm not sure I can add to that too much. But clearly, I'd say this that obviously we want to avoid conflicts, but certainly our directors. Our directors are the only part of this either.
So, I think both sides are looking at this. Okay. Thanks for that question. Thanks for the answer, Martha and Jeff. I want to thank everybody for all their questions throughout today's event.
And thanks to all of the members of management who participated today. And now, I'll turn it over to Karen for some closing remarks to wrap up today's event. Karen?
Thanks, Ryan. I really appreciated everyone's participation today and I hope that the panels and presentations really help showcase the importance and commitment of our efforts across the ESG landscape. And I know that I join all of my colleagues in saying that we have enjoyed sharing with you all of the work that we're doing across Medtronic in all of these areas. I really enjoyed and appreciated hearing from our shareholders too who were able to submit questions. So thank you to Keith from Trillium and Haley McCurdy from Terra Alpha Investments and so many others.
Thank you also for those who the analysts who asked those questions. And I do hope that we were able to answer all of your questions either through our prepared remarks or through the Q and A session. So, I would say sustainable business practices really do support our long range growth objectives. And we believe that driving good in the world and delivering value for our shareholders is so powerful, so important and it really is what we do. So as you heard, we are dedicated to reducing our environmental impact by reducing our carbon footprint, by reducing water usage and waste and by building sustainability into our product designs.
And we look forward honestly to setting interim and long term targets for our Scope 3 emissions once we've established a good baseline. You've also heard that when it comes to patient safety and quality, nothing, I say nothing is more important at Medtronic. Our focus and execution in this area is really critical to the success of our business and even more important, critical to the livelihood and health of our patients that we serve. So, we continue to strive for the greatest possible reliability and quality and work to improve our processes to achieve this every day. Noelle discussed our quality begins with me culture that's instilled across our entire employee base.
And we're committed to safety and quality through our supplier relationships, through the monitoring of our products following their launch and by managing the risk of cyber threats. And during the Q and A, we were able to elaborate a little bit further on these efforts to achieve carbon neutrality and our continued emphasis on cybersecurity and of course quality. So, we also shared today what we're doing for our employees and our communities. And our new operating model, as Carol talked about, em competitiveness and accountability. And along with our Medtronic mindset, it truly is transforming our culture to one that thrives on results and competition, while really remaining centered around our Medtronic mission.
So, innovation and creativity are not fostered through like mindedness, but really through diverse thought, perspective and experience. And we continue to strive to be a leader in inclusion, diversity and equity. And you heard many of the targets that we set around diverse representation, pay equity and transparency. We will continue to identify areas of improvement really to keep driving to a world class level of employee engagement. And we will also continue to use our leadership position to effect positive change in the communities in which we operate, which are really best seen through our community programs and philanthropic efforts.
And we discussed questions on diversity and the importance of diversity, not just within our walls, but in our clinical trials as well. So hopefully through that, you can see that we are always focused on improving representation. And on governance and accountability, which we just spoke about, you heard from our panel on topics such as the importance of diversity within the boardroom and on adding ESG goals as a metric in executive compensation. And as part of our commitment to quality and accountability, we are increasing the waiting for quality and the incentive structure for all of our employees. Ken talked about that.
And I know we shared in this final Q and A session, but I'll emphasize it again that we do strongly believe that investments in our ESG programs will provide a long term financial benefit to our company and to our shareholders. And so we encourage you to take a look at the integrated performance report that we released earlier this week on our website. You can find it at medtronic.com/ourimpact. And we also have published a disclosure index, which gives you a really quick reference on our disclosures aligned to the reporting standards of GRI and SaaS B as well as guidelines from TCFD. So finally, I just want to take a moment to acknowledge all the leaders and the numerous people across Medtronic that helped make today such a success.
Thank you for setting the standard really high. And as Jeff mentioned at the beginning of the event, at Medtronic, ESG is not a trend or a box that needs to be checked. It is really and truly a fundamental pillar of our cultural identity and deeply rooted within our mission that was written more than 60 years ago. And while we celebrated the accomplishments and milestones that we've reached, we do recognize that we still have work ahead of us. And our ambition to become a global leader does not stop at healthcare technology, but really does extend to our environmental, social and governance responsibilities as well.
So thank you so much again for your participation today, for your interest, and I hope you enjoy the remainder of your day.