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18 Mr. Carpenter — Group President, Global Quality and Business Operations 2016 Threshold 2016 Target Threshold Threshold as Percentage Change Over 2015 Actual Potential Payment as Percentage of Total Target Bonus (%) Target Target as Percentage Change Over 2015 Actual Potential Payment as Percentage of Total Target Bonus (%) Core Bonus Potential: Operating income $2.429 bil. -2.1% 20 $2.699 bil. 8.8% 40 Sales $9.667 bil. -2.8% 20 $10.450 bil. 5.1% 40 Functional goal (1) — — 0 — — 20 40 100 Overachievement Bonus Potential: Operating income $2.699 bil. 8.8% 0 $2.807 bil. 13.1% 50 Sales $10.450 bil. 5.1% 0 $10.764 bil. 8.2% 25 Diluted net earnings per share $5.60 9.4% 0 $5.88 14.8% 25 0 100 ______________ (1) Qualitative assessment of his contributions to the execution of driving the Company's cost transformation initiative with a focus on reduced product cost, execution of Company-wide cost reduction initiative and deployment of the enterprise resource planning platform, accelerating growth in international markets and reducing regulatory compliance enforcement actions against the Company by health authorities. Long-Term Incentive Compensation: In 2016, all of our NEOs, other than Mr. Jellison, were awarded stock options and performance stock units. The stock options granted on February 10, 2016 to our NEOs have an exercise price of $96.64 per share, the closing price of our Common Stock as reported for NYSE Composite Transactions on the last trading day before the grant date. Such stock options have ten-year terms, vest as to 20% of the underlying shares on each of the first five anniversaries of the grant date and are subject to the other terms and conditions generally applicable to stock options granted to other officers and key employees. Our plans prohibit repricing stock options without shareholder approval. The performance stock units granted to the NEOs in 2016 will be earned based on the achievement of a pre-established threshold level of three-year average adjusted diluted net earnings per share growth, with the actual number of shares earned being determined based on the actual average adjusted diluted net earnings per share growth as well as sales growth performance relative to a comparison group of companies over the 2016 to 2018 performance period. The performance stock units will vest and be settled in Common Stock in March 2019 following completion of the three-year performance period. The number of performance stock units ultimately earned can range from 0% to 200% of the target award. In addition, recipients of performance stock units are entitled to dividend equivalents on vested awards that will be converted into additional performance stock units based on the fair market value of a share of Common Stock on the dividend payment date. The details of the 2016 stock awards grants to the NEOs are provided in the "2016 Grants of Plan-Based Awards" table on page 26. Stock awards in 2016 for other key employees generally consisted of stock options and restricted stock units. Stock options, performance stock units and restricted stock units are granted to provide employees with a personal financial interest in Stryker's long-term success, encourage retention through vesting provisions and enable us to compete for the services of employees in an extremely competitive market and industry. Objectives of the long-term incentive portion of our compensation package include: • Aligning the personal and financial interests of management and other employees with shareholder interests; • Balancing near-term considerations with a focus on improving the business and creating shareholder value over the long-term; and • Providing a means to attract, reward and retain a skilled management team. Management makes recommendations to the Compensation Committee about the stock award levels and terms. The stock award levels for the NEOs other than the Chief Executive Officer were approved by the Compensation Committee after receiving recommendations from the Chief Executive Officer and for the Chief Executive Officer were approved by the Compensation Committee subject to final approval by the independent members of the Board, which subsequently occurred. A number of factors are considered in determining the stock award levels for the NEOs, but the final award is ultimately a subjective decision. While the Compensation Committee did not apply specific performance measures or weightings to determine the individual NEO awards of stock options and performance stock units in 2016, factors considered included the level of responsibility and position within the Company, demonstrated performance over time, value to our future success, the level of retention value from prior awards, Company or business area performance in recent years, comparisons among positions internally and market comparison data. The Compensation Committee also considered, in the aggregate for the Company, share availability under our equity plans, annual run rate, the financial expense of stock awards and potential shareholder dilution. The terms and conditions of our stock awards include recoupment provisions that are applicable in the event of a violation of the non-compete agreement to which each recipient has agreed. See "Recoupment Policy" on page 22 for information regarding our recoupment policy that applies to all cash and equity incentive payments made pursuant to awards granted to elected corporate officers after 2014. 2014 Performance Stock Units: Results for the 2014-2016 Performance Period In 2014, the Company granted performance stock units to members of our then executive leadership team. The 2014 performance stock units ("2014 PSUs") could be earned based on the achievement of two equally weighted financial measures (average adjusted diluted net earnings per share growth and average sales growth relative to a comparison group of companies) over the three-year performance period of January 1, 2014 to December 31, 2016. The Compensation Committee chose these as measures for the 2014 PSUs in order to focus the executive leadership team on longer-term growth and profitability. The Committee also believed that it was important to have a measure that assessed the Company's growth on a relative basis, which resulted in the use of sales growth relative