Get Started for Free Contexxia identifies hard-to-find pieces of information in SEC filings. No more highlighters, no more redlining, no more poring over huge documents. HEALTH NET INC (916085) 10-K published on Feb 29, 2016 at 6:16 am
Reporting Period: Dec 30, 2015
Cash Retainers and Meeting Fees. The non-employee director annual retainer has been $65,000 per year, since October 1, 2014. During 2015, each non-employee director who chaired the Compensation Committee, Governance Committee or the Finance Committee received an additional annual retainer of $10,000. The non-employee director who chaired the Audit Committee received an additional annual retainer of $15,000. Each non-employee director was also entitled to a $2,000 fee for each meeting of the Board of Directors attended, and a $1,000 fee for each committee meeting attended, other than the Audit Committee. Non-employee directors received a $2,000 fee for each Audit Committee meeting attended. In lieu of these retainer and meeting fees, Mr. Greaves received $20,000 per month for his services as Chairman of the Board of Directors. No fees are paid to Health Net employees for service as a director.
Equity Grants. Until December 2010, our non-employee director equity compensation program provided for non-employee directors to receive initial grants of nonqualified stock options when they join our Board of Directors and automatic annual grants of nonqualified stock options upon their re-election to our Board of Directors. In December 2010, the Board of Directors approved a modification to our non-employee director equity compensation program. Since the beginning of 2011, initial equity grants and automatic annual equity grants to non-employee directors have been made in the form of RSUs, rather than nonqualified stock options. Grants in 2015 were made under the Company’s Amended and Restated 2006 Long-Term Incentive Plan (the “Amended and Restated 2006 Plan”). The target value of each of the initial and annual non-employee director grants is $130,000 and is calculated based on the fair market value of the shares underlying the RSUs on the date of grant. A non-employee director’s annual equity grant will be pro-rated if the non-employee director received an initial equity grant during the preceding twelve month period. Each grant vests as to 33 1/3% of the RSUs on each of the first three anniversaries of the date of grant, provided that, RSUs granted prior to May 7, 2015 will become immediately vested in the event of a “change in control” of Health Net, as defined in the Company’s 2006 Long-Term Incentive Plan, as amended (the “2006 Plan”), and RSUs granted on or after May 7, 2015 are subject to “double trigger vesting” and will become immediately vested if the non-employee director’s service is involuntarily terminated without “cause” on or within 24 months following a “change in control”, each as defined in the Amended and Restated 2006 Plan. Upon vesting, the non-employee director will be entitled to receive the number of shares of Common Stock underlying the vested portion of the RSU grant. Each non-employee director may elect to defer the distribution of shares underlying the vested RSUs in accordance with deferral procedures established by the Company.
The Compensation Committee believes that employment agreements with our named executive officers benefit Health Net by clarifying the terms of their employment and ensuring that we are protected by non-solicitation, non-disclosure and compensation recovery provisions. The Compensation Committee believes that severance and change in control benefits are necessary to attract and retain senior talent in the managed care industry, which protects the interests of our stockholders. Our severance and change in control arrangements are designed to attract key employees, preserve employee morale and productivity and encourage retention in the face of the potentially disruptive impact of internal restructuring activities or an actual or potential change in control. In addition, these benefits allow executives to assess takeover bids objectively without regard to the potential impact on their own job security. We do not permit tax gross-up payments under Section 280G of the Code on severance and change in control pay for any person who became an executive officer after 2007. Messrs. Gellert and Woys are the only named executive officers that are entitled to such gross-up payments, which are provided for in each of their long-standing employment agreements. However, as indicated in the table below under “Executive Compensation—Potential Payments Upon Change in Control or Termination”, neither executive would trigger excise tax or related tax gross-up payments upon a change in control, assuming a change in control occurred on December 31, 2015. In addition, Ms. Hefner and Messrs. Sell and Tough’s employment agreements provide that, to the extent that any change in control payment or benefit would be subject to an excise tax imposed in connection with Section 4999 of the Code, such payments and/or benefits may be subject to a “best pay cap” reduction to the extent necessary so that the executive receives the greater of the (i) net amount of the change in control payments and benefits reduced such that such payments and benefits will not be subject to the excise tax and (ii) net amount of the change in control payments and benefits without such reduction.
To determine each named executive officer’s Individual Performance Score, which may range from 0% to 200%, Mr. Gellert presented to the Compensation Committee performance evaluations for Mr. Woys and Ms. Hefner, as well as a self-evaluation of his own performance for 2015, and Mr. Woys presented to the Compensation Committee performance evaluations for Messrs. Sell and Tough. Mr. Gellert’s and Mr. Woys’ evaluations included, among other things, an assessment of the named executive officers’ performance with respect to the following performance factors: (i) individual and/or business unit contributions to 2015 combined Western Region and Government Contracts PTI, Western Region Operations year-end total medical membership, combined Western Region Operations and Government Contracts segment revenues, Western Region Operations total MCR, Western Region Operations general & administrative expense ratio, GAAP EPS, and Combined Western Region Operations and Government Contracts EPS; (ii) individual and/or business unit contributions to the achievement of the Strategic Initiatives; (iii) leadership; (iv) talent development; (v) succession planning; (vi) regulatory and operational compliance; (vii) organizational climate; (viii) successful responses to changing market conditions, including, but not limited to, changes resulting from health care reform, to ensure the Company is well positioned for 2015 and beyond; (ix) business unit performance and operations; and (x) process improvements to drive enterprise outcome (collectively, the “Performance Factors”). The Performance Factors were not an exhaustive listing of factors to be considered and were intended to be subjective factors. In addition, no single factor was to be determinative, nor must all factors have been considered with respect to a particular individual. Mr. Gellert recommended to the Compensation Committee Mr. Woys’ and Ms. Hefner’s Individual Performance Score while Mr. Woys recommended to the Compensation Committee Messrs. Sell’s and Tough’s Individual Performance Scores.
The Compensation Committee then made a final determination, in its sole and absolute discretion, as to the Individual Performance Score for each named executive officer after considering Mr. Gellert’s and Mr. Woys’ recommendations, reviewing the individual’s performance with respect to the Performance Factors, among other things, and considering its own observations and assessments of our named executive officers and Health Net’s performance in 2015, taking into account, among other things, the impact of the announcement of the proposed Merger and the operation of the business in light thereof. The Compensation Committee approved Messrs. Sell’s and Tough’s Individual Performance Scores as recommended by Mr. Woys of 170% and 110%, respectively and approved Ms. Hefner’s Individual Performance Score as recommended by Mr. Gellert of 110%. For each of Mr. Gellert and Mr. Woys (our second-highest paid executive), the Compensation Committee recommended an Individual Performance Score of 200% to the Board, which the Board approved. When approving the Individual Performance Scores of our named executive officers, the Compensation Committee and the Board, as appropriate, considered each named executive officer’s individual and business unit contributions to the Performance Factors among other things, including, but not limited to, the following: (i) Mr. Gellert’s leadership and significant contributions in support of the Company’s successful performance with regard to the Strategic Initiatives, positioning the Company to continue to benefit from the unprecedented changes in the managed care industry, and negotiating and effectuating the Merger Agreement; (ii) Mr. Woys’ significant contributions to the economic success of the Company through his leadership and guidance, as well as his contributions in negotiating and effectuating the Merger Agreement and preparing for the close of the proposed Merger; (iii) Ms. Hefner’s significant contributions in preparing for the commencement of services under the Cognizant Services Agreement and the subsequent “unwinding” of such efforts, including efforts to support IT infrastructure after the suspension of the Cognizant Services Agreement to improve our business operations that provide customer services to our members; (iv) Mr. Tough’s significant contributions in support of our Government Contracts segment, including
We have adopted a written Related Party Transactions Policy (the “Policy”), which has been approved by the Audit Committee in accordance with its charter. The Policy outlines our policies and procedures for the review, approval or ratification of certain transactions in which any of our related parties had or will have a direct or indirect material interest. For purposes of the Policy, a “related party” means any of our directors or director nominees, our executive officers, holders of more than five percent (5%) of any class of our voting securities, any “immediate family member” (as such term is defined in the Policy) of any of the foregoing persons, any firm, corporation or other entity in which any of the foregoing persons is employed or is a partner or principal or in a similar position, or in which any number of the foregoing persons hold in the aggregate a 10% or greater beneficial ownership interest, or any charitable, tax exempt or non-profit organization in which any of the foregoing persons is actively involved in fundraising or otherwise serves as a director, officer, trustee, or any similar capacity. The Policy provides, among other things, for any proposed related party transaction to be submitted to the Audit Committee, or under delegated authority to the Chair of the Audit Committee (the “Chair”), for approval. The factors to be considered by the Audit Committee, or Chair, as applicable, when reviewing such related party transaction shall include, but are not limited to, the following: (i) the benefits to Health Net of the transaction; (ii) the impact on a director’s independence in the event the related party is a member of the Board of Directors, an immediate family member of a member of the Board of Directors or an entity in which a member of the Board of Directors is a partner, shareholder, trustee, director, executive officer or similar position; (iii) the availability of other sources for comparable products or services; (iv) the terms of the transaction; and (v) the terms available to unrelated third parties or to employees generally.
The Policy also provides that if we find that a related party transaction is ongoing that did not receive prior approval by the Audit Committee, or Chair, as applicable, then such transaction will be promptly submitted to the Audit Committee or Chair for consideration of all of the relevant facts and circumstances available, and taking into account the same factors as described above, to determine whether the transaction should be ratified, amended or terminated. If