Definitive Proxy Statement

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(a)

OF THE SECURITIES EXCHANGE ACT OF 1934

Filed by the Registrant  ☒

Filed by a Party other than the Registrant  ☐

Check the appropriate box:

 

   Preliminary Proxy Statement       CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY RULE 14A-6(E)(2))

   Definitive Proxy Statement      

   Definitive Additional Materials      

   Soliciting Material Pursuant to Rule 14a-12      

KINDRED HEALTHCARE, INC.

 

(Name of Registrant as Specified in Its Charter)

 

 

 

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

Payment of Filing Fee (Check the appropriate box):

 

☒  No fee required.

 

☐  Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

 

  (1)  Title of each class of securities to which transaction applies:

 

  

 

  (2)  Aggregate number of securities to which transaction applies:

 

  

 

  (3)  Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee was calculated and state how it was determined):

 

  

 

  (4)  Proposed maximum aggregate value of transaction:

 

  

 

  (5)  Total fee paid:

 

  

 

 

☐  Fee paid previously with preliminary materials.

 

☐  Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

 

  (1)  Amount Previously Paid:

 

  

 

  (2)  Form, Schedule or Registration Statement No.:

 

  

 

  (3)  Filing Party:

 

  

 

  (4)  Date Filed:

 

  

 


LOGO

KINDRED HEALTHCARE, INC.

April 4, 2017

Dear Shareholder:

You are cordially invited to attend the Annual Meeting of Shareholders of Kindred Healthcare, Inc. to be held at 9:00 a.m., local time, on Wednesday, May 24, 2017 at the Four Seasons Hotel New York Downtown, 27 Barclay Street, New York, New York 10007.

Information concerning the business to be conducted at the meeting is included in the accompanying Notice of Annual Meeting of Shareholders and Proxy Statement. Please give all of the information contained in the Proxy Statement your careful attention.

In accordance with rules adopted by the Securities and Exchange Commission, we are providing access to our proxy materials over the Internet. Accordingly, we are mailing to our shareholders a Notice of Internet Availability of Proxy Materials, which contains instructions on how to access our proxy materials over the Internet and vote online. If you received a Notice of Internet Availability of Proxy Materials, you will not receive a printed copy of our proxy materials by mail unless you request one. If you wish to receive a printed copy of our proxy materials for the Annual Meeting of Shareholders, please follow the instructions for requesting those materials set forth in the Notice of Internet Availability of Proxy Materials.

YOUR VOTE IS VERY IMPORTANT. Whether or not you plan to attend the meeting, it is important that your shares be represented. Therefore, we urge you to vote by submitting your proxy over the Internet, by telephone or by mail. Please refer to the Notice of Internet Availability of Proxy Materials for more detailed voting instructions. If you attend the meeting, you will, of course, have the right to vote in person.

I look forward to greeting you personally, and on behalf of our Board of Directors and management, I would like to express our appreciation for your interest in Kindred.

Sincerely,

 

LOGO

Benjamin A. Breier

President and Chief Executive Officer

Kindred Healthcare, Inc.

680 South Fourth Street

Louisville, Kentucky 40202


LOGO

KINDRED HEALTHCARE, INC.

680 SOUTH FOURTH STREET

LOUISVILLE, KENTUCKY 40202

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

TO BE HELD ON MAY 24, 2017

To the Shareholders of Kindred Healthcare, Inc.:

The Annual Meeting of Shareholders of Kindred Healthcare, Inc. (“Kindred”) will be held at 9:00 a.m., local time, on Wednesday, May 24, 2017 at the Four Seasons Hotel New York Downtown, 27 Barclay Street, New York, New York 10007 for the following purposes:

 

  (1) to elect a board of 11 directors;

 

  (2) to hold an advisory vote on Kindred’s executive compensation program;

 

  (3) to hold an advisory vote on the frequency of shareholder advisory votes on Kindred’s executive compensation program;

 

  (4) to approve the Kindred Healthcare, Inc. Stock Incentive Plan, Amended and Restated;

 

  (5) to approve the Kindred Healthcare, Inc. Equity Plan for Non-Employee Directors, Amended and Restated;

 

  (6) to ratify the appointment of PricewaterhouseCoopers LLP as Kindred’s independent registered public accounting firm for fiscal year 2017; and

 

  (7) to transact such other business as may properly come before the meeting.

Only shareholders of record at the close of business on March 29, 2017 will be entitled to notice of, and to vote at, the meeting and any adjournments or postponements thereof.

IT IS IMPORTANT THAT YOU VOTE YOUR SHARES. WHETHER YOU PLAN TO ATTEND THE MEETING OR NOT, PLEASE SUBMIT YOUR VOTING INSTRUCTIONS AS SOON AS POSSIBLE IN ORDER TO AVOID ADDITIONAL SOLICITING EXPENSES TO KINDRED. THE PROXY IS REVOCABLE AND WILL NOT AFFECT YOUR RIGHT TO VOTE IN PERSON IN THE EVENT YOU FIND IT CONVENIENT TO ATTEND THE MEETING.

April 4, 2017

Joseph L. Landenwich

General Counsel and Corporate Secretary


PROXY STATEMENT

FOR ANNUAL MEETING OF SHAREHOLDERS

TO BE HELD ON MAY 24, 2017

GENERAL INFORMATION

Overview

This Proxy Statement and the accompanying form of proxy are being provided to shareholders of Kindred Healthcare, Inc. shareholders as part of a solicitation of proxies by its board of directors (the “Board” or “Board of Directors”) for use at the Annual Meeting of Shareholders (the “Annual Meeting”) and at any adjournments or postponements thereof. This Proxy Statement is dated April 4, 2017 and is first being furnished to shareholders on or about April 7, 2017. This Proxy Statement provides shareholders with information they need to know to be able to vote or instruct their vote to be cast at the Annual Meeting.

All references in this Proxy Statement to “Kindred,” “Company,” “we,” “us,” or “our” mean Kindred Healthcare, Inc. and, unless the context otherwise requires, our consolidated subsidiaries.

Date, Time and Place of the Annual Meeting

The Annual Meeting will be held at the Four Seasons Hotel New York Downtown, 27 Barclay Street, New York, New York 10007 on Wednesday, May 24, 2017, at 9:00 a.m., local time.

Purposes of the Annual Meeting

At the Annual Meeting, shareholders will be asked:

 

   

to elect the director nominees named in this Proxy Statement;

 

   

to hold an advisory vote on Kindred’s executive compensation program;

 

   

to hold an advisory vote on the frequency of shareholder advisory votes on Kindred’s executive compensation program;

 

   

to approve the Kindred Healthcare, Inc. Stock Incentive Plan, Amended and Restated;

 

   

to approve the Kindred Healthcare, Inc. Equity Plan for Non-Employee Directors, Amended and Restated;

 

   

to ratify the appointment of PricewaterhouseCoopers LLP as Kindred’s independent registered public accounting firm for fiscal year 2017; and

 

   

to transact such other business as may properly come before the meeting.

Record Date; Outstanding Shares; Shares Entitled to Vote

The record date for the Annual Meeting is March 29, 2017. This means that you must be a shareholder of record of common stock, $0.25 par value per share (“Common Stock”), of the Company at the close of business on March 29, 2017 in order to vote at the Annual Meeting. You are entitled to one vote for each share of Common Stock you own. At the close of business on March 29, 2017, there were 85,682,061 shares of Common Stock outstanding and entitled to vote, held by approximately 2,800 holders of record.

A complete list of shareholders entitled to vote at the Annual Meeting will be available for inspection at the Company’s principal place of business during regular business hours for a period of no less than ten days before the Annual Meeting and at the Annual Meeting.

 

1


Important Notice Regarding the Internet Availability of Proxy Materials for the Annual Meeting to Be Held on May 24, 2017

In accordance with rules adopted by the Securities and Exchange Commission (the “SEC”), the Company is providing access to its proxy materials over the Internet. Pursuant to these rules, the Company’s Proxy Statement, proxy card, 2016 annual report to shareholders and driving directions to the Annual Meeting are available online at www.proxyvote.com. In addition, on or about April 7, 2017, the Company is mailing to its record and beneficial shareholders a Notice of Internet Availability of Proxy Materials, which contains instructions on how to access the Company’s proxy materials over the Internet and vote online. The Notice of Internet Availability of Proxy Materials is also available online at www.proxyvote.com. If you received a Notice of Internet Availability of Proxy Materials, you will not receive a printed copy of the Company’s proxy materials by mail unless you request one. If you wish to receive a printed copy of the Company’s proxy materials for the Annual Meeting, please follow the instructions for requesting those materials set forth in the Notice of Internet Availability of Proxy Materials.

Quorum and Vote Required

A quorum of shareholders is necessary to hold a valid Annual Meeting. The required quorum for the transaction of business at the Annual Meeting is a majority of the issued and outstanding shares of Common Stock entitled to vote on a matter at the Annual Meeting, whether in person or by proxy. Under rules of the New York Stock Exchange (“NYSE”), matters subject to shareholder vote are classified as “routine” or “non-routine.” In the case of non-routine matters, brokers may not vote shares held in “street name” for which they have not received instructions from the beneficial owner (which are referred to as “broker non-votes”), whereas they may vote those shares in their discretion in the case of any routine matter. The ratification of the appointment of the independent registered public accounting firm (proposal 6) is a routine matter. All other proposals, including the election of directors, are non-routine matters, and broker non-votes will have no effect on the outcome of the vote on those proposals.

The Company’s bylaws provide for majority voting for directors in uncontested elections. This means that each director-nominee listed in this Proxy Statement will be elected if the votes cast “for” such nominee’s election exceed the votes cast “against” such nominee’s election (proposal 1). Abstentions will have no effect on the outcome of the vote. As set forth in the Company’s Corporate Governance Guidelines, the Board of Directors expects a director to tender his or her resignation for consideration by the Board of Directors if he or she fails to receive the requisite number of votes for re-election.

The affirmative vote of a majority of the shares of Common Stock present in person or represented by proxy at the Annual Meeting and entitled to vote on the subject matter will be necessary (a) to approve, on a non-binding, advisory basis, the Company’s executive compensation program (proposal 2), (b) to approve the Kindred Healthcare, Inc. Stock Incentive Plan, Amended and Restated (proposal 4), (c) to approve the Kindred Healthcare, Inc. Equity Plan for Non-Employee Directors, Amended and Restated (proposal 5), (d) to ratify the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for fiscal year 2016 (proposal 6), and (e) to approve any other matters that may properly come before the Annual Meeting for shareholder consideration. Abstentions with respect to each of these proposals will have the same effect as an AGAINST vote.

With respect to the non-binding advisory vote on the frequency of shareholder advisory votes on Kindred’s executive compensation program (proposal 3), the choice receiving the most votes will be the frequency that has been selected by shareholders. Abstentions will have no effect on the outcome of the vote.

Votes cast in person or by proxy at the Annual Meeting will be tabulated by the inspectors of election appointed for the Annual Meeting, who also will determine whether a quorum is present. Shares of Common Stock represented at the Annual Meeting but not voted, including abstentions and broker non-votes, will be counted for purposes of determining whether a quorum is present.

 

2


Voting of Proxies

Shares of Common Stock represented by duly executed and unrevoked proxies in the form of the accompanying proxy will be voted at the Annual Meeting in accordance with specifications made by the shareholders, unless authority to do so is withheld. If no specification is made, shares represented by duly executed and unrevoked proxies in the form of the accompanying proxy will be voted FOR proposals 1, 2, 4, 5, and 6 and one year on the proposal regarding the advisory vote on the frequency of advisory votes to approve Kindred’s executive compensation program. If your shares of Common Stock are held in “street name” by your bank, brokerage firm, or other nominee, you should instruct your bank, brokerage firm, or other nominee on how to vote your shares of Common Stock using the instructions provided by your bank, brokerage firm, or other nominee.

How to Vote

Whether or not you plan to attend the Annual Meeting, the Company requests that you complete, sign, date, and return the accompanying proxy card or use the telephone or Internet to vote. Please refer to the Notice of Internet Availability of Proxy Materials or the accompanying proxy card for instructions on how to vote by mail, telephone, or the Internet.

If you hold shares of the Company’s Common Stock in a stock brokerage account or through a bank, brokerage firm, or other nominee, or, in other words, in “street name,” please follow the voting instructions provided by that entity. If you receive more than one set of proxy materials or voting instructions, it means that you have multiple accounts at the transfer agent and/or with banks, brokerage firms, or other nominees. Please follow the voting instructions provided for each set of proxy materials received to ensure that all of your shares are voted.

A number of banks and brokerage firms participate in a program that permits shareholders whose shares are held in “street name” to direct their vote by telephone or over the Internet. If your shares are held in an account at a bank or brokerage firm that participates in such a program, you may direct the vote of these shares by telephone or over the Internet by following the voting instructions enclosed with the proxy form from the bank or brokerage firm. Directing the voting of your shares will not affect your right to vote in person if you decide to attend the Annual Meeting; however, you must first obtain a signed and properly executed legal proxy from your bank, brokerage firm, or other nominee to vote your shares held in “street name” at the Annual Meeting. Requesting a legal proxy prior to the deadline described above will automatically cancel any voting directions you have previously given by telephone or over the Internet with respect to your shares.

Revoking Your Proxy

If you are the owner of record of shares of the Company’s Common Stock, you can revoke your proxy at any time before its exercise at the Annual Meeting by:

 

   

sending a written notice to the Company, at 680 South Fourth Street, Louisville, Kentucky 40202, Attention: Corporate Secretary, bearing a date later than the date of the proxy, that is received prior to the Annual Meeting and states that you revoke your proxy;

 

   

submitting your proxy again by telephone or over the Internet, so long as you do so before the deadline of 11:59 p.m., Eastern Daylight Time, on May 23, 2017;

 

   

signing another proxy card(s) bearing a later date and mailing it to the address set forth therein so that it is received prior to the Annual Meeting; or

 

   

attending the Annual Meeting and voting in person, although attendance at the Annual Meeting will not, by itself, revoke a proxy.

 

3


If your shares of Common Stock are held in “street name” by your broker, you will need to follow the instructions you receive from your broker to revoke or change your proxy.

Other Voting Matters

Voting in Person

If you plan to attend the Annual Meeting and wish to vote in person, the Company will provide you a ballot at the Annual Meeting. However, if your shares of Common Stock are held in “street name,” you must first obtain from your bank, brokerage firm, or other nominee a legal proxy authorizing you to vote the shares in person, which you must bring with you to the Annual Meeting. If your shares of Common Stock are held in “street name” by your bank, brokerage firm, or other nominee, and you plan to attend the Annual Meeting, you must present proof of your ownership of Common Stock, such as a bank or brokerage account statement, to be admitted to the meeting.

Persons with Disabilities

The Company can provide reasonable assistance to help you to participate in the Annual Meeting if you inform the Company about your disability and how you plan to attend. Please write to the Company at 680 South Fourth Street, Louisville, Kentucky 40202, Attention: Corporate Secretary, or call at (502) 596-7300.

Proxy Solicitations and Expenses

The cost of preparing, assembling, posting, and mailing the Notice of Internet Availability of Proxy Materials (including the notice of Annual Meeting), Proxy Statement, and proxies will be paid by the Company. In addition to the use of the mail, proxies may be solicited by directors, officers, and other employees of the Company, without additional compensation, in person, by telephone, or other electronic means. The Company has also engaged Georgeson LLC, a proxy solicitation firm, to assist in the solicitation of proxies for a fee estimated not to exceed $25,000, plus reimbursement of expenses. The Company and its proxy solicitors also will request that banks, brokerage houses, and other custodians, nominees, and fiduciaries send proxy materials to the beneficial owners of Common Stock and will, if requested, reimburse them for their reasonable out-of-pocket expenses in doing so.

Adjournment or Postponement of the Annual Meeting

Although it is not currently expected, the Annual Meeting may be adjourned or postponed, including for the purpose of soliciting additional proxies, if there are insufficient votes at the time of the Annual Meeting because a quorum is not present. Other than an announcement to be made at the Annual Meeting of the time, date, and place of an adjourned or postponed meeting, an adjournment or postponement generally may be made without notice. Any adjournment or postponement of the Annual Meeting for the purpose of soliciting additional proxies will allow shareholders who have already sent in their proxies to revoke them at any time prior to their use at the Annual Meeting as adjourned or postponed.

Other Business

The Board of Directors is not aware of any other business to be acted upon at the Annual Meeting. If, however, other matters are properly brought before the Annual Meeting, your proxies will have discretion to vote or act on those matters according to their best judgment and they intend to vote the shares as the Board of Directors may recommend.

 

4


PROPOSAL 1.    PROPOSAL TO ELECT DIRECTORS

The Board of Directors currently consists of 12 persons. The Board of Directors has nominated the 11 persons listed below to be elected as directors at the Annual Meeting. Pursuant to the Company’s Corporate Governance Guidelines, a director who is 72 shall be ineligible to be elected as a director unless the Board of Directors requests that such director serve one additional term if his or her retirement would cause a substantial hardship on the Company. Dr. Thomas P. Cooper is currently serving one additional term per this policy and is therefore ineligible for re-election to the Board of Directors. The Board of Directors has requested that Mr. Kleisner, who is 72, serve one additional term in accordance with this policy. Consistent with the Company’s bylaws, the Board has unanimously adopted a resolution to reduce the size of the Board from 12 to 11 members effective upon the conclusion of Dr. Cooper’s term. Shareholders may not vote their shares for a greater number of persons than the nominees named below. Each director elected at the Annual Meeting will serve, subject to the provisions of the Company’s bylaws, until the next annual meeting of shareholders or until his or her successor is duly elected and qualified. The names and ages of the nominees proposed for election as directors, all of whom are presently directors of the Company, together with certain information concerning the nominees, are set forth below.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE ELECTION AS DIRECTORS OF EACH OF THE NOMINEES LISTED BELOW.

Nominees for Director

JOEL ACKERMAN (51) has served as a director of the Company since December 2008. Mr. Ackerman has served as Chief Financial Officer of Davita Inc. (“Davita”) (NYSE:DVA), a Fortune 500 company that provides a variety of healthcare services to patients throughout the United States and abroad, since March 2017. Mr. Ackerman serves as Chairman of the board of directors of Champions Oncology, Inc. (NASDAQ:CSBR), a company engaged in the development of advanced technology solutions and services to personalize the development and use of oncology drugs, and previously served as its Chief Executive Officer from October 2010 to January 2017. Previously, Mr. Ackerman was a Senior Portfolio Fellow with the Acumen Fund, a nonprofit global venture fund that uses entrepreneurial approaches to solve the problems of poverty, from November 2009 to July 2010. Mr. Ackerman served as Managing Director and head of the Health Services Group at Warburg Pincus LLC (“Warburg Pincus”), a global private equity firm, from January 1998 to September 2008. In his role with Warburg Pincus, Mr. Ackerman gained extensive experience with strategic planning, mergers, and acquisitions and capital markets in the healthcare services sector. While at Warburg Pincus, he served as an advisor to senior executives of more than 15 healthcare services companies and reviewed over 500 healthcare services opportunities. Mr. Ackerman also served as a director of Coventry Health Care, Inc. (formerly NYSE:CVH), a national managed healthcare company, from November 1999 to May 2013. His experience at Warburg Pincus and his leadership of other healthcare organizations serve him well in advising the Company on strategic, transactional and other healthcare related matters. (1)(2)

JONATHAN D. BLUM (58) has served as a director of the Company since December 2008. Mr. Blum served as the Chief Global Nutrition Officer from 2012 to March 2016, and Senior Vice President and Chief Public Affairs Officer from 1997 to March 2016 for Yum! Brands, Inc. (NYSE:YUM), a restaurant company with over 43,000 restaurants in 135 countries and territories and ranked number 218 in the Fortune 500. Mr. Blum has extensive experience in government and public affairs, corporate brand development and management, and corporate communications. Given his prior role at Yum! Brands, Mr. Blum provides valuable insights into public relations matters, corporate compliance, and best management practices of multi-site operators with large employee-based operations. (1)(3)

BENJAMIN A. BREIER (45) has served as President of the Company since May 2012 and as Chief Executive Officer and a director since March 2015. Previously, Mr. Breier served as the Company’s Chief

 

5


Operating Officer from August 2010 to March 2015, as Executive Vice President and President, Hospital Division from March 2008 until August 2010, and as President, Rehabilitation Division from August 2005 to March 2008. Given his current role as Chief Executive Officer and his prior operational oversight over each of the Company’s businesses, Mr. Breier provides valuable insights into the Company’s clinical, operational, and strategic opportunities.

PAUL J. DIAZ (55) has served as a director since May 2002. He served as Executive Vice Chairman of the Company from March 2015 to March 2016, as Chief Executive Officer from January 2004 to March 2015, as President from January 2002 to May 2012, and as Chief Operating Officer from January 2002 to December 2003. Mr. Diaz is a director of Davita (NYSE:DVA), a Fortune 500 company that provides a variety of healthcare services to patients throughout the United States and abroad. Mr. Diaz serves as a Partner with Cressey and Company, a private equity firm that invests in and advises healthcare companies. Mr. Diaz also serves as a director of Patterson Medical Products, Inc., a private medical supply distribution company. Mr. Diaz has also served in various executive capacities with other long-term healthcare providers in operational, financial, and legal positions. Given his prior service as Chief Executive Officer of the Company, Mr. Diaz provides a unique perspective regarding the business and strategic direction of the Company and has experience in all aspects of the Company’s businesses. (4)

HEYWARD R. DONIGAN (55) has served as a director of the Company since March 2014. Ms. Donigan has served as President, Chief Executive Officer and a director of Vitals, a leading consumer transparency company, since March 2015. From 2010 to 2014, Ms. Donigan served as President, Chief Executive Officer and a director of ValueOptions, Inc., a health improvement company specializing in mental and emotional wellbeing and recovery, which merged with Beacon Health Strategies during 2014. Previously, Ms. Donigan was Executive Vice President and Chief Marketing Officer of Premera Blue Cross, an insurer doing business in Washington, Alaska, and Oregon, from 2003 to 2010. Ms. Donigan also serves as a director of NxStage Medical, Inc. (NASDAQ:NXTM), a leading medical technology company that develops, manufactures and markets innovative products for the treatment of end-stage renal disease and acute kidney failure. With over 30 years of experience in all facets of the health plan business, including network management, contracting, sales and marketing, product development, and operations, Ms. Donigan is highly qualified to advise the Company on the managed care business, strategy, and operational matters. (3)(4)

RICHARD GOODMAN (68) has served as a director of the Company since March 2014. Mr. Goodman has had a three-decade career as a global finance executive, most recently serving as Executive Vice President of Global Operations of PepsiCo, Inc. (NYSE:PEP), a leading global food and beverage company, from 2010 to 2011 and as Chief Financial Officer from 2006 to 2010. Mr. Goodman is a director and chair of the audit committee of Adient plc (NYSE:ADNT), a global leader in automotive seating, The Western Union Company (NYSE:WU), a leader in global payment services, and Toys “R” Us, Inc., the world’s leading toy and juvenile products retailer. Mr. Goodman served as a director of Johnson Controls, Inc. (NYSE:JCI), a global diversified technology and industrial company, until its merger with Tyco International in September 2016. His corporate finance, managerial, and auditing experience and expertise position him well to advise the Company with respect to financial, accounting, auditing, strategic, and operational matters. (1)(2)

CHRISTOPHER T. HJELM (55) has served as a director of the Company since June 2011. He has served as the Executive Vice President and Chief Information Officer of The Kroger Co. (NYSE:KR) since September 2015, which operates approximately 2,800 retail food stores in 35 states along with a number of pharmacies, convenience stores, fine jewelry stores, supermarket fuel centers, and food production plants, and he previously served as Senior Vice President and Chief Information Officer from August 2005 to September 2015. Mr. Hjelm is a director of Arcode Software Solutions Ltd., a software company delivering secure email communications. Mr. Hjelm served on the board of directors of RehabCare Group, Inc. (formerly NYSE:RHB) from July 2007 until June 2011. Mr. Hjelm has gained significant operational and information technology expertise during his tenure with The Kroger Co., which allows him to provide valuable insights into information technology, cyber security, and operational matters. (1)(2)

 

6


FREDERICK J. KLEISNER (72) has served as a director of the Company since March 2009. Mr. Kleisner served as President and Chief Executive Officer of Morgans Hotel Group Co. (NASDAQ:MHGC), a hospitality company that owns, operates, acquires, develops, and redevelops boutique hotels in the United States and Europe, from September 2007 to March 2011, and as a director from February 2006 to March 2011. From October 2007 to March 2011, Mr. Kleisner served as President and a director of Hard Rock Hotel Holdings, LLC, a destination casino and resort company. Mr. Kleisner also served as a director, Chairman, Chief Executive Officer, and President of Wyndham International, Inc. (NYSE:WYN), a global hospitality company that operates and develops hotels and vacation resorts, from 1999 to 2006. Mr. Kleisner is a director of Caesars Entertainment Corporation (NASDAQ:CZR), the world’s most diversified casino entertainment provider, Ashford Hospitality Trust (NYSE:AHT), a real estate investment trust, Playtime, LLC, a manufacturer of playground installations for resorts, restaurants, and shopping centers, among others, and Aimbridge Hospitality, a hotel and resort management firm. Mr. Kleisner also served as a director of Innkeepers USA Trust (previously Other-OTC:INKPP), a real estate investment trust, from November 2007 to August 2011, and Apollo Residential Mortgage, Inc. (formerly NYSE:AMTG), a real estate investment trust, from July 2011 to August 2016. Mr. Kleisner has substantial management experience in operating multi-site locations in the hospitality industry. His prior tenure in a chief executive officer position along with his experience at other hotel operators has provided him with strong operating, market positioning, customer service, and financial management experience. (3)(4)

SHARAD MANSUKANI, M.D. (47) has served as a director of the Company since October 2015. Dr. Mansukani has served as Senior Advisor to TPG Capital, a global private equity firm, since January 2005. Dr. Mansukani served as Strategic Advisor to the board of directors of Cigna Corp. (NYSE:CI), a global health services company, from 2013 to June 2016. Dr. Mansukani is a director of Surgical Care Affiliates, Inc. (NASDAQ:SCAI), the largest ambulatory surgery center business in the United States, and Immucor, Inc., a global leader in transfusion and transplantation diagnostics. Dr. Mansukani also serves as the lead independent director of IASIS Healthcare, a healthcare services company. Dr. Mansukani served as Chairman of the board of directors of Envision Pharmaceutical Services, a pharmacy benefits management company, from November 2012 until June 2015, and as a director of IMS Health Holdings, Inc. (formerly NYSE:IMS), a leading provider of market intelligence to the pharmaceutical and healthcare industries. Dr. Mansukani has extensive experience in various segments of the healthcare industry and a deep understanding of the regulatory and reimbursement environment, which allows him to provide insights into the Company’s strategic, policy, managed care, and operational matters. (3)(4)

LYNN SIMON, M.D. (57) Dr. Simon has served as a director of the Company since November 2016. Dr. Simon has served as President, Clinical Services and Chief Quality Officer for Community Health Systems (NYSE:CYH), a leading operator of general acute care hospitals in communities across the country, since 2014, and previously served as Senior Vice President, Chief Quality Officer from 2010 to 2014. Given her substantial healthcare experience from serving as a practicing physician as well as an executive overseeing all aspects of clinical operations, Dr. Simon provides valuable insights into clinical, quality, and compliance issues, physician matters and healthcare operations. (2)(4)

PHYLLIS R. YALE (59) has served as Chair of the Board of Directors since May 2014 and as a director since January 2010. Ms. Yale has been a Senior Advisor with Bain & Company, Inc., a global management consulting firm, since July 2010. Ms. Yale was a partner with Bain & Company, Inc. from 1987 to July 2010, and was a leader in building Bain & Company, Inc.’s healthcare practice. In her role at Bain & Company, Inc., Ms. Yale works with healthcare payers, providers, and medical device companies, and frequently advises the world’s leading private equity firms on their investments in the healthcare sector. She has served as a member of the board of directors of several public and private companies in the healthcare sector, and currently serves as Chair of the board of directors of Blue Cross Blue Shield of Massachusetts, a not-for-profit health plan headquartered in Boston, and as a director of Davita (NYSE:DVA), a Fortune 500 company that provides a variety of healthcare services to patients throughout the United States and abroad, and National Surgical Hospitals, a privately held specialty hospital operator. Ms. Yale previously served as a director of ValueOptions,

 

7


Inc., a health improvement company specializing in mental and emotional wellbeing and recovery, which merged with Beacon Health Strategies during 2014. Ms. Yale has a deep knowledge base and experience in several segments of the healthcare industry including corporate strategies, marketing, cost and quality management, as well as mergers and acquisitions. (4)

 

(1) Member of the Nominating and Governance Committee of which Mr. Blum is Chair.
(2) Member of the Audit Committee of which Mr. Goodman is Chair.
(3) Member of the Executive Compensation Committee of which Mr. Kleisner is Chair.
(4) Member of the Quality of Care and Patient Outcomes Committee of which Dr. Simon is Chair.

The information contained in this Proxy Statement concerning the nominees is based upon statements made or confirmed to the Company by or on behalf of such nominees, except to the extent certain information appears in its records. Nominees’ ages are given as of January 1, 2017.

SHARES OF COMMON STOCK OF THE COMPANY REPRESENTED BY PROXIES EXECUTED AND RETURNED PURSUANT TO THE INSTRUCTIONS SET FORTH IN THE NOTICE OF INTERNET AVAILABILITY OF PROXY MATERIALS WILL BE VOTED FOR THE ELECTION OF ALL THE NOMINEES AS DIRECTORS, UNLESS OTHERWISE SPECIFIED. The Board of Directors does not contemplate that any of the nominees will be unable to serve as a director. However, in the event that one or more nominees are unable or unwilling to accept or are unavailable to serve, the persons named in the proxies or their substitutes will have the authority, according to their judgment, to vote or refrain from voting for other individuals as directors.

 

8


CORPORATE GOVERNANCE AND BOARD MATTERS

Board Meetings and Committees

During 2016, the Board of Directors held nine meetings, including five regular meetings and four special meetings. During 2016, each director attended more than 75% of the total number of meetings held by the Board of Directors and each committee of which he or she was a member.

The Board of Directors has established an Audit Committee, an Executive Compensation Committee, a Nominating and Governance Committee, and a Quality of Care and Patient Outcomes Committee. Each committee has a written charter, which is available on the Company’s website at www.kindredhealthcare.com. The Company’s Corporate Governance Guidelines also are available on its website. Information on the Company’s website is not part of this Proxy Statement.

Audit Committee

The Audit Committee currently has five members consisting of Mr. Richard Goodman (Chair), Mr. Joel Ackerman, Thomas P. Cooper, M.D., Mr. Christopher T. Hjelm, and Lynn Simon, M.D. Each member of the Audit Committee is independent and financially literate as defined under the listing standards of the NYSE. The Board of Directors has determined that Mr. Goodman and Mr. Ackerman are Audit Committee financial experts as defined in Item 407 of Regulation S-K promulgated under the Securities Act of 1933, as amended (the “Securities Act”), and the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Audit Committee held seven meetings during 2016. The Audit Committee assists the Board of Directors in monitoring: (1) the integrity of the Company’s financial statements and the adequacy of the Company’s system of internal controls, accounting policies, and financial reporting practices; (2) the independent registered public accounting firm’s qualifications and independence; (3) the performance of the Company’s internal audit function and of its independent registered public accounting firm; and (4) the Company’s compliance with legal and regulatory requirements.

Executive Compensation Committee

The Executive Compensation Committee has four members consisting of Mr. Frederick J. Kleisner (Chair), Mr. Jonathan D. Blum, Ms. Heyward R. Donigan, and Sharad Mansukani, M.D. Ms. Phyllis R. Yale served on the Executive Compensation Committee from January 1, 2016 until she voluntarily resigned from such committee on March 28, 2016. Each member of the Executive Compensation Committee is independent as defined under the listing standards of the NYSE, qualifies as an outside director within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), and qualifies as a non-employee director within the meaning of Rule 16b-3 under the Exchange Act. The Executive Compensation Committee held seven meetings during 2016. The Executive Compensation Committee assists the Board of Directors in fulfilling its responsibility to the Company’s shareholders, potential shareholders, and the investment community by ensuring that the Company’s key executives, officers, and Board members are compensated in accordance with the Company’s overall compensation policy and executive compensation program. The Executive Compensation Committee recommends and approves compensation policies, programs, and pay levels that are necessary to support the Company’s objectives and that are rational and reasonable to the value of the services rendered. The Executive Compensation Committee also reviews and discusses with management the Compensation Discussion and Analysis prepared for inclusion in this Proxy Statement and, based upon such review, determines whether to recommend to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement. Furthermore, the Executive Compensation Committee prepared the section entitled “Compensation Committee Report” on page 61 of this Proxy Statement.

The Executive Compensation Committee’s processes and procedures for the consideration and determination of executive compensation, including the role of the Company’s Chief Executive Officer in

 

9


making recommendations to the Executive Compensation Committee and the role of its independent compensation consultant in assisting the Executive Compensation Committee in its functions, are more fully described below in the section entitled “Compensation Discussion and Analysis” beginning on page 18 of this Proxy Statement.

Nominating and Governance Committee

The Nominating and Governance Committee has four members consisting of Mr. Jonathan D. Blum (Chair), Mr. Joel Ackerman, Mr. Richard Goodman, and Mr. Christopher T. Hjelm. Mr. Ackerman served as Chair of the Nominating and Governance Committee for all of 2016. Each member of the Nominating and Governance Committee is independent as defined under the listing standards of the NYSE. The Nominating and Governance Committee held five meetings during 2016. The Nominating and Governance Committee assists the Board of Directors by: (1) identifying individuals qualified to become members of the Board of Directors, approving the director nominees for the next annual meeting of shareholders, and approving nominees to fill vacancies on the Board of Directors; (2) recommending to the Board of Directors nominees and chair(s) for each committee; (3) leading the Board of Directors in its annual review of the Board of Directors’ and senior management’s performance; and (4) recommending to the Board of Directors the Corporate Governance Guidelines applicable to the Company. The Nominating and Governance Committee also recommends to the Board of Directors whether or not to accept the expected resignation of any director who fails to receive the required vote for re-election in any uncontested election as set forth in the Company’s bylaws and Corporate Governance Guidelines.

Quality of Care and Patient Outcomes Committee

The Quality of Care and Patient Outcomes Committee has seven members consisting of Lynn Simon, M.D. (Chair), Thomas P. Cooper, M.D., Mr. Paul J. Diaz, Ms. Heyward R. Donigan, Mr. Frederick J. Kleisner, Sharad Mansukani, M.D., and Ms. Phyllis R. Yale. Dr. Cooper served as Chair of the Quality of Care and Patient Outcomes Committee for all of 2016. With the exception of Mr. Diaz, all members of the Quality of Care and Patient Outcomes Committee are independent as defined under the listing standards of the NYSE. The Quality of Care and Patient Outcomes Committee held four meetings during 2016. The Quality of Care and Patient Outcomes Committee assists the Board of Directors in evaluating and monitoring the Company’s: (1) programs, policies, procedures, and performance-improvement practices that support and enhance the quality of care provided by the Company; (2) compliance with applicable healthcare laws, regulations, policies, professional standards, and industry guidelines; and (3) compliance with the Company’s Code of Conduct.

Director Independence

The Board of Directors has determined that the following ten directors are independent, as defined under the listing standards of the NYSE: Mr. Joel Ackerman; Mr. Jonathan D. Blum; Thomas P. Cooper, M.D.; Ms. Heyward R. Donigan; Mr. Richard Goodman; Mr. Christopher T. Hjelm; Mr. Frederick J. Kleisner; Sharad Mansukani, M.D.; Lynn Simon, M.D.; and Ms. Phyllis R. Yale.

The independent directors have regularly scheduled meetings at which members of management are not present. Ms. Yale presides at these and all other Board meetings in her capacity as independent Chair of the Board of Directors.

The Board of Directors’ independence determination for each director was based upon a review in which each director’s independence was evaluated on a case-by-case basis. In performing the independence evaluations, the Board of Directors considers any matters that could affect the ability of each outside director to exercise independent judgment in discharging his or her responsibilities as a director, including all transactions and relationships between each such director, the director’s family members, and organizations with which the director or the director’s family members have an affiliation and the Company, its subsidiaries, and its management. Any such matters are evaluated both from the standpoint of the director and from that of persons or

 

10


organizations with which the director has an affiliation. In addition, the Board of Directors also considers any other transactions, relationships, or arrangements that could affect director independence.

On an ongoing basis, the Board of Directors reviews relationships between the Company and other entities for which a director of the Company also serves as a director or otherwise has an employment or other relationship. This review included analysis of ordinary course business transactions between the Company and: (1) Davita, for which Mr. Ackerman serves as Chief Financial Officer and Mr. Diaz and Ms. Yale serve as non-employee directors; (2) Hanger, Inc., for which Dr. Cooper serves as a non-employee director; (3) Casamba, Inc., for which Dr. Cooper serves as a non-employee director; (4) The Kroger Co., for which Mr. Hjelm serves as Executive Vice President and Chief Information Officer; (5) IASIS Healthcare, for which Dr. Mansukani serves as a non-employee director; (6) Immucor, Inc., for which Dr. Mansukani serves as a non-employee director; (7) Community Health Systems, for which Dr. Simon serves as President, Clinical Services and Chief Quality Officer; (8) Blue Cross Blue Shield of Massachusetts, for which Ms. Yale serves as a non-employee director; and (9) Bain & Company, Inc., for which Ms. Yale serves as Senior Advisor.

During these reviews, the Board of Directors identified no transactions, relationships, or arrangements in which a director of the Company had or will have a direct or indirect material interest or that otherwise adversely impacted the Board of Directors’ independence evaluation of the applicable outside directors.

Related Person Transactions

In accordance with the written charter for the Nominating and Governance Committee of the Board of Directors, the Nominating and Governance Committee evaluates each related person transaction involving a director or executive officer for the purpose of determining whether to recommend to the disinterested members of the Board that the transactions are fair, reasonable, and within Company policy, and whether they should be ratified or approved by the Board. The Nominating and Governance Committee considers each related person transaction in light of all relevant factors and the controls implemented to protect the interests of the Company and its shareholders.

Relevant factors include:

 

   

the benefits of the transaction to the Company;

 

   

the terms of the transaction and whether the terms have been negotiated at arm’s length and in the ordinary course of the Company’s business;

 

   

the direct or indirect nature of the related person’s interest in the transaction;

 

   

the amount involved and the expected term of the transaction; and

 

   

other facts and circumstances that bear on the materiality of the related person transaction under applicable law and listing standards.

Approval by the Board of Directors of any related person transaction involving a director also must be made in accordance with applicable law and the Company’s organizational documents as from time to time in effect. When a vote of the disinterested directors is required, such vote is called only following full disclosure to such directors of the facts and circumstances of the relevant related person transaction. Transactions that are not approved or ratified as required by the Code of Conduct are subject to termination by the Company, if so directed by an employee’s supervisor, the Nominating and Governance Committee, or the Board of Directors, as applicable, taking into account such factors as such individual or body deems appropriate and relevant. Based upon its review, the Nominating and Governance Committee did not identify any related person transactions under Item 404 of Regulation S-K during 2016 or that are currently proposed.

 

11


Board Leadership Structure

The Board of Directors has elected to separate the roles of Chair of the Board of Directors and Chief Executive Officer. The Company’s Corporate Governance Guidelines provide that the Chair of the Board shall, whenever possible, be an independent director. This independent Chair policy does not apply if an independent director is unavailable or unwilling to serve. Ms. Phyllis R. Yale, an independent director, became Chair of the Board of Directors on May 22, 2014 and continues to serve in that capacity.

If at any time the Chair of the Board is not an independent director, the Board of Directors’ policy is that the independent directors are to choose a lead independent director from among themselves. In that case, the lead independent director would: (1) approve meeting agendas for the Board of Directors; (2) approve Board meeting schedules to assure there is sufficient time to discuss all agenda items; (3) preside at all meetings of the directors at which the Chair of the Board of Directors is not present, including all meetings of the independent directors; (4) serve as a liaison between the Chair of the Board of Directors and the independent directors; (5) approve information sent to the Board of Directors; (6) have the authority to call meetings of the independent directors; (7) be available for direct communication with the Company’s major shareholders; and (8) have such other duties as determined by the Board of Directors.

The independent directors meet in executive session at each regular Board meeting to consider such matters as they deem appropriate, including, but not limited to, a review of the performance of the Chief Executive Officer.

The Board’s Role in Risk Oversight

The Board of Directors annually reviews a company-wide enterprise risk assessment, as presented by the Company’s senior strategy, risk management, and internal audit executives. This presentation is intended to give the Board of Directors a current view of the Company’s primary operational, compliance, financial and strategic risks, on both a company-wide as well as a division-specific basis. In addition to this annual enterprise risk assessment, an evaluation of principal areas of risk and corresponding mitigation strategies are examined in further detail during the year by: (1) the Board of Directors regarding key strategic risks; (2) the Audit Committee regarding key financial and compliance risks; (3) the Quality of Care and Patient Outcomes Committee regarding key operational and quality risks; and (4) the Executive Compensation Committee regarding the relationship of the Company’s executive compensation program and risk.

Director Nominations and Proxy Access

The Company allows shareholders to nominate directors for inclusion in the Company’s proxy materials if certain conditions are met (“Proxy Access”). To nominate a director using Proxy Access, the nominating shareholder (or group of shareholders) must have owned 3% or more of the Company’s outstanding Common Stock continuously for at least three years. A group of up to 20 shareholders may aggregate their shares to meet the 3% ownership requirement (or, if the Company’s market capitalization exceeds $2.5 billion, up to 25 shareholders). Shareholders meeting the ownership requirements may nominate and include in the Company’s proxy materials directors constituting up to 20% of the Board (or, if greater, two directors). To utilize Proxy Access, shareholders must also comply with the procedures set forth below. Additional details on Proxy Access are contained in the Company’s bylaws.

In addition to Proxy Access, the Nominating and Governance Committee has a general policy for considering director candidates recommended by shareholders in accordance with the procedures set forth below and who appear to be qualified to serve on the Board of Directors. The Nominating and Governance Committee may choose not to consider an unsolicited recommendation if no vacancy exists on the Board of Directors. There have been no material changes to the procedures by which shareholders may recommend director candidates since the Company last disclosed such procedures.

 

12


To nominate a director candidate under the Proxy Access procedures or to submit a recommendation of a director candidate to the Nominating and Governance Committee, a shareholder should submit the following information in writing, addressed to Corporate Secretary, at the Company’s principal executive office:

1. the name of the person recommended as a director candidate and the number and class of each class of stock of the Company owned of record or beneficially by such director candidate;

2. all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors pursuant to Regulation 14A under the Exchange Act (including, without limitation, the information required by paragraphs (a), (e), and (f) of Item 401 of Regulation S-K);

3. the written consent of the person being recommended as a director candidate to being named in the Proxy Statement as a nominee and to serving as a director if elected;

4. as to the shareholder making the recommendation, the name and address, as they appear on the Company’s records, of such shareholder; provided, however, that if the shareholder is not a registered holder of the Company’s Common Stock, the shareholder should submit his or her name and address along with a current written statement from the record holder of the shares that reflects beneficial ownership of the Company’s Common Stock and the right to vote such Common Stock, and the number and class of all shares of each class of stock of the Company owned of record or beneficially by such holder; and

5. for Proxy Access nominations, certain representations and undertakings by the shareholder (or group of shareholders) making the recommendation, as required by the Company’s bylaws.

In order to utilize Proxy Access or for a director candidate to be considered for nomination at the Company’s Annual Meeting, the recommendation must be received in accordance with the requirements for Proxy Access or the advance notice provisions of the Company’s bylaws, respectively. See “Shareholder Proposals and Director Nominations” on page 85.

Director Selection and Evaluation

The Nominating and Governance Committee has generally identified director nominees based upon suggestions by directors, members of management and/or shareholders and outside search firms, and has interviewed and evaluated those persons on its own. The Company also engages outside search firms to identify and screen potential director candidates.

As set forth in its written charter, the Nominating and Governance Committee generally will seek directors who possess integrity, a high level of education and business experience, broad-based business acumen, an understanding of the Company’s businesses and the healthcare industry in general, strategic thinking and a willingness to share ideas, a network of contacts and diversity of experiences, expertise, and backgrounds. While the Corporate Governance Guidelines do not prescribe diversity standards, as a matter of practice, the Nominating and Governance Committee considers diversity in the context of the Board of Directors as a whole and takes into account the personal characteristics and experience of current and prospective directors to facilitate deliberations that reflect a broad range of perspectives.

As set forth in the Company’s Corporate Governance Guidelines, the Nominating and Governance Committee annually reviews with the Board of Directors the requisite skills and characteristics of new Board members, as well as the composition of the Board of Directors as a whole. This assessment includes a review of each director’s independence, as well as consideration of diversity, age, tenure, skills, expertise, and experience in the context of the needs of the Board of Directors.

The Nominating and Governance Committee also conducts an annual evaluation of the Board of Directors and its committees, as well as of each individual director. This process includes the circulation of an evaluation

 

13


form where specific questions are asked and comments sought. These results are then reviewed and discussed by the Nominating and Governance Committee and the Board of Directors. The Chair of the Board reviews the results with each individual director. On occasion, the Nominating and Governance Committee also engages outside consultants to assist in director evaluations.

The Nominating and Governance Committee uses the criteria and processes set forth above to evaluate potential nominees, and does not evaluate proposed nominees differently depending upon who has made the proposal. The Nominating and Governance Committee reviews current directors who may be proposed for re-election considering the factors and individual evaluation described above and their past contributions to the Board of Directors. In so doing, the Nominating and Governance Committee has determined that the directors proposed for election at the Annual Meeting have experience, skills, and qualifications consistent with the principles set out in the charter of the Nominating and Governance Committee as described above under “—Nominees for Director.”

Director Attendance at Annual Meetings of Shareholders

The Board of Directors does not require directors to attend the annual meeting of shareholders. Each member of the Company’s Board of Directors serving at that time attended the 2016 annual meeting of shareholders.

Code of Business Conduct and Ethics

The Company has adopted a Code of Conduct that serves as its code of ethics and applies to all of the Company’s directors and employees, including the principal executive officer, principal financial officer, principal accounting officer, and certain other persons performing similar functions. The text of the Company’s Code of Conduct is posted on the Company’s website located at www.kindredhealthcare.com under the “Investors” section and is available in print to any requesting shareholder. Information contained on the Company’s website is not part of this Proxy Statement. In addition, the Company intends to disclose on its website: (1) the nature of any amendment to a provision of the Code of Conduct that applies to the Company’s principal executive officer, principal financial officer, principal accounting officer, or certain other persons performing similar functions; and (2) the nature of any waiver, including an implied waiver, from provisions of the Code of Conduct that is granted to one of these specified individuals (which may only be made by the Board of Directors or a Board committee), the name of the person to whom the waiver was granted and the date of the waiver. Such disclosure will be made within four business days following the date of the applicable amendment or waiver.

The Code of Conduct generally prohibits the Company’s directors, executive officers, and employees from engaging in activities that conflict with the interests of the Company and the residents and patients served by the Company. Situations that may give rise to a potential conflict of interest under the Code of Conduct include: (1) having a material direct or indirect financial or business interest in any entity that does business with the Company; (2) having a direct or indirect financial or business interest in any transaction between the Company and a third party; and (3) serving as a director, officer, employee, consultant, or agent of an organization that does business with the Company.

To facilitate compliance with these rules, the Code of Conduct requires that individuals report to their supervisors, or to the Board of Directors in the case of directors and executive officers, circumstances that may create or appear to create a conflict between the personal interests of the individual and the interests of the Company, regardless of the amount involved. In addition, each director and executive officer annually confirms to the Company certain information about potential related person transactions as part of the preparation of the Company’s Annual Report on Form 10-K and its annual Proxy Statement. Director nominees and persons promoted to executive officer positions also must confirm such information. In addition, management reviews its

 

14


records and makes additional inquiries of management personnel and, as appropriate, third parties and other resources for purposes of identifying related person transactions, including related person transactions involving beneficial owners of more than 5% of the Company’s voting securities.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires the Company’s directors and executive officers and persons who own more than 10% of the Common Stock of the Company to file initial stock ownership reports and reports of changes in ownership with the SEC. Based upon a review of these reports and on written representations from the Company’s directors and executive officers that no other reports were required, the Company believes that the applicable Section 16(a) reporting requirements were complied with for all transactions that occurred in 2016.

 

15


SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information regarding beneficial ownership of the Company’s Common Stock as of February 1, 2017 (except as noted below) by (1) each person who is a director or nominee for director, (2) each of the Company’s named executive officers, (3) all of the persons who are directors and executive officers of the Company, as a group, and (4) each shareholder known by the Company to be the beneficial owner of more than 5% of its outstanding shares of Common Stock.

 

Name of Beneficial Owner

   Amount and Nature of
Beneficial Ownership (1)
     Percent of Class (1)  

Directors, Nominees and Named Executive Officers

     

Joel Ackerman

     75,315        *  

Jonathan D. Blum

     75,315        *  

Benjamin A. Breier

     673,379        *  

Thomas P. Cooper, M.D.

     79,943        *  

Paul J. Diaz

     398,285        *  

Heyward R. Donigan

     25,382        *  

Richard Goodman

     25,382        *  

Christopher T. Hjelm

     60,539        *  

Frederick J. Kleisner

     75,315        *  

Sharad Mansukani, M.D.

     23,660        *  

Lynn Simon, M.D.

     17,242        *  

Phyllis R. Yale

     70,015        *  

Stephen D. Farber

     146,564        *  

Kent H. Wallace

     109,119        *  

David A. Causby

     263,074        *  

Joseph L. Landenwich

     114,663        *  

All Directors and Executive Officers as a Group (21 persons)

     2,563,418        3.01

Other Security Holders with More than 5% Ownership

     

BlackRock, Inc. (2)

     10,100,594        11.86

The Vanguard Group, Inc. (3)

     7,429,836        8.73

Dimensional Fund Advisors LP (4)

     6,297,510        7.40

Wellington Management Group, LLP (5)

     5,637,433        6.62

 

* Denotes less than 1%.

 

(1) Includes shares subject to stock options which are exercisable within 60 days from February 1, 2017. The number of shares of Common Stock that may be acquired through exercise of stock options, which are exercisable as of, or within 60 days after, February 1, 2017, are as follows: Mr. Ackerman – 15,000 shares; Mr. Blum – 15,000 shares; Mr. Kleisner – 15,000 shares; and Mr. Causby – 42,172 shares. Unless otherwise noted below, the Company believes that all persons named in the table have sole voting and investment power with respect to all shares of Common Stock beneficially owned by them.

 

(2) Based upon a Schedule 13G/A filed by BlackRock, Inc. (“BlackRock”) with the SEC on January 12, 2017. According to the Schedule 13G/A, BlackRock is a parent holding company for subsidiaries that hold Common Stock. The address of BlackRock is 55 East 52nd Street, New York, New York 10055. BlackRock has sole voting power over 9,896,110 shares of Common Stock, and sole dispositive power over 10,100,594 shares of Common Stock.

 

(3) Based upon a Schedule 13G/A filed by The Vanguard Group, Inc. (“Vanguard”) with the SEC on February 10, 2017. According to the Schedule 13G/A, Vanguard is an investment adviser with an address of 100 Vanguard Blvd., Malvern, Pennsylvania 19355. Vanguard has sole voting power over 101,616 shares of Common Stock, sole dispositive power over 7,327,003 shares of Common Stock, shared voting power of 6,058 shares of Common Stock, and shared dispositive power over 102,833 shares of Common Stock.

 

16


(4) Based upon a Schedule 13G/A filed by Dimensional Fund Advisors LP (“Dimensional”) with the SEC on February 9, 2017. According to the Schedule 13G/A, Dimensional, as an investment adviser, furnishes investment advice to four investment companies and serves as investment manager to certain other commingled group trusts and separate accounts (which are collectively referred to as the “Funds”). The address of Dimensional is Building One, 6300 Bee Cave Road, Austin, Texas 78746. Dimensional has sole voting power over 6,119,564 shares of Common Stock and sole dispositive power over 6,297,510 shares of Common Stock. According to the Schedule 13G/A, in its role as investment adviser, sub-adviser or manager, Dimensional and its subsidiaries may be deemed to be the beneficial owner of the shares of Common Stock owned by the Funds, but Dimensional and its subsidiaries disclaim beneficial ownership of such shares of Common Stock.

 

(5) Based upon a Schedule 13G/A jointly filed by Wellington Management Group LLP, Wellington Group Holdings LLP, Wellington Investment Advisors Holdings, LLP (collectively, “Wellington Group”), and Wellington Management Company LLP (“Wellington Management”) with the SEC on February 9, 2017. According to the Schedule 13G/A, Wellington Group and Wellington Management are investment advisors with an address of 280 Congress Street, Boston, Massachusetts 02210. Wellington Group has shared voting power over 1,924,404 shares of Common Stock and shared dispositive power of 5,637,433 shares of Common Stock. Wellington Management has shared voting power over 1,917,846 shares of Common Stock and shared dispositive power over 5,489,505 shares of Common Stock.

 

17


COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS

COMPENSATION DISCUSSION AND ANALYSIS

Executive Summary

The Executive Compensation Committee (the “Committee”) has structured our compensation program and goal setting practices to (1) align the interests of our named executive officers and long-term shareholders, (2) ensure that compensation paid reflects both Company and individual named executive officer performance during the year, and (3) to attract, motivate and retain highly qualified senior executives that are critical for our success in a challenging and rapidly evolving healthcare marketplace.

We are one of the largest healthcare providers in the United States, operating in a highly regulated industry subject to a number of healthcare reform initiatives. At December 31, 2016, we had approximately 100,100 employees providing healthcare services in 2,654 locations in 46 states, including 82 transitional care (“TC”) hospitals (certified as long-term acute care (“LTAC”) hospitals under the Medicare program), 19 inpatient rehabilitation hospitals (“IRFs”), 91 nursing centers, 17 sub-acute units, 635 Kindred at Home home health, hospice and non-medical home care sites of service, 102 inpatient rehabilitation units (hospital-based) and contract rehabilitation service businesses which served 1,708 non-affiliated sites of service.

We operate highly regulated businesses and receive a substantial portion of our revenues from patients covered by the Medicare and Medicaid programs. We are therefore more susceptible to external pressures affecting our business, including the impact and uncertainty from legislation and other initiatives to reform the delivery and reimbursement of healthcare and reduce costs. Several of these reforms are very significant and could ultimately change the nature of our services, the methods of payment for our services, and the underlying regulatory environment. One such reform is new patient criteria for LTAC hospitals, which reduces the population of patients eligible for reimbursement under the Medicare payment system for LTAC hospitals and changes the basis upon which we are paid for other patients.

During 2016, we refined our strategic plan to position the Company to succeed in a rapidly evolving healthcare market, while beginning our transformation to becoming a post-acute benefits manager

This strategy is based on three pillars:

 

  I. Optimizing our core operations in the near term;

 

  II. Extending our core operations by building high performance post-acute networks; and

 

  III. Positioning the Company for a value-based marketplace in which we capture the financial upside we create.

This strategy has focused us on several key objectives:

 

  (1) Succeeding in our core business by providing superior clinical outcomes and quality of care;

 

  (2) Repositioning our assets to enhance future performance by focusing on higher growth, less capital intensive businesses;

 

  (3)

Optimizing our Continue the Care® strategy to increase market share and improve care coordination;

 

  (4) Developing differentiated care management capabilities supported by information technology, data analytics and the Kindred Contact Center; and

 

  (5) Creating high performance post-acute networks through partnerships with leading health systems to gain market share, improve quality and increase efficiency.

 

18


2016 was a challenging year for us, but under the leadership of our named executive officers, we executed several actions which advanced our strategy and will improve our operations and earnings profile going forward

 

   

Improving Quality and Clinical Outcomes – Our TC hospitals, IRFs, and home health and hospice operations continue to improve on quality indicators and outperform national benchmarks, which enables us to send more patients home with better clinical outcomes.

 

   

Portfolio Optimization and Strengthening the Core – During 2016, we took several steps to optimize our portfolio and strengthen our core operations. These actions reflect our focus on higher-growth and less capital-intensive businesses, such as our home health, hospice and IRF operations. These actions included:

 

   

LTAC Mitigation Strategy. We began to implement our multi-faceted mitigation strategy in response to new patient criteria for LTAC hospitals. During 2016, we implemented tailored mitigation strategies for each of our TC hospitals and successfully executed on several transactions which reduced our TC hospital bed capacity by 14%.

 

   

Strategic Exit from Skilled Nursing Facility Business. In November 2016, we announced our strategic decision to exit the skilled nursing facility business as an owner and operator. Our exit from the skilled nursing facility business will provide us with opportunities to reduce our rent and capital expenditure costs, optimize overhead, and further our ability to build preferred provider networks with leading skilled nursing facility operators to support our integrated care markets. We are actively engaged in a process to exit the skilled nursing facility business and are targeting to complete the exit by the end of 2017.

 

   

Aggressively growing Kindred at Home. We continue to expand our presence in the home health, hospice and community care businesses. During 2016, we acquired 24 home health locations, nine hospice locations, and expanded our community care business.

 

   

Growing IRF portfolio. During 2016, we opened two new IRFs (50 beds in Avon, Ohio and 50 beds in Chandler, Arizona) and have definitive agreements in place with joint venture partners to open four additional IRFs, three of which we expect to open in 2018 and one we expect to open in 2019. We intend to continue expanding our IRF portfolio through joint ventures with leading health systems across the United States.

 

   

Successful Integration and Synergy Capture. We successfully completed the integration of Gentiva Health Services, Inc. (“Gentiva”) and Centerre Healthcare Corporation (“Centerre”) into our operations during 2016, both of which were acquired in 2015. We exceeded our Gentiva synergy expectations by $20 million, ultimately achieving $90 million in aggregate synergies from the acquisition of Gentiva (the “Gentiva Merger”).

 

   

Advancing the Continue the Care Strategy – In 2016, we significantly advanced and operationalized our Continue the Care strategy by identifying 13 focus markets where we implemented systems and processes to enhance patient placement, discharge planning and transition of our patients among post-acute care settings and to home.

 

   

Strengthening Care Management Capabilities – During 2016, we continued to develop our capabilities to better manage episodes of care, optimize post-acute care placement, create seamless transitions between care settings, and enhance performance improvement reporting processes. These enhanced capabilities include:

 

   

Our Kindred Contact Center, a 24-hour telephone contact center staffed by registered nurses that we use to effectively manage patient populations by providing education, discharge planning and aftercare services, and

 

   

Kindred House Calls®, our home-based primary care business.

 

19


Our executive compensation programs are responsive to our performance

Total direct compensation for the named executive officers is primarily based on the following components: (1) base salary, (2) short-term cash incentives, (3) long-term cash incentives, and (4) equity-based incentive compensation. Since base salary is the only component of compensation that is fixed, we placed a significant portion of our Chief Executive Officer (88%) and other named executive officer (76%) compensation at risk during 2016. The chart below illustrates the mix of fixed versus variable compensation for our Chief Executive Officer and the other named executive officers, based upon target award levels.

2016 TARGET FIXED vs. VARIABLE COMPENSATION

 

LOGO

As noted above, 2016 was a challenging year for us and our shareholders in terms of overall financial and stock price performance. Since our named executive officers are incentivized to achieve high levels of financial and stock price performance, their compensation is materially reduced when they fail to achieve those results.

 

   

Upon the recommendation from our Chief Executive Officer, the Committee exercised its discretion to reduce the awards earned under our short-term incentive plan for 2016 by 20% to reflect our overall financial and stock price performance during 2016 and to better align interests with our shareholders.

 

   

Based on our 2016 performance on the metrics applicable to our short-term and long-term incentive plans and performance-based restricted stock awards, and due to a decline in our stock price between the grant and vesting dates of such performance-based restricted stock awards, as well as the 20% reduction set forth above:

 

   

Our Chief Executive Officer realized 37% of his targeted incentive compensation opportunity for 2016 under our short-term and long-term incentive plans and performance-based restricted stock awards (a shortfall of approximately $2.3 million); and

 

   

Our other named executive officers realized 42% of their targeted incentive compensation opportunity for 2016 under our short-term and long-term incentive plans and performance-based restricted stock awards (an average shortfall of approximately $500,000 per person).

 

20


We have adopted best pay practices into our executive compensation program

The Committee regularly reevaluates our executive compensation program to achieve its stated objectives and to implement best pay practices as appropriate. To demonstrate this commitment, the Committee uses the following best practices in executive compensation:

 

What we do:

 

What we don’t do:

•     Strongly emphasize performance-based compensation – with 88% of Chief Executive Officer and 76% of other named executive officer compensation at risk during 2016

 

•     Allow hedging or pledging of Company stock

 

•     Allow change in control tax “gross ups”

 

•     Allow backdating or repricing of options without shareholder approval

 

•     Approve change in control agreements that provide for payments above a minimum threshold without shareholder approval

 

•     Encourage unreasonable risk taking with our executive compensation program

•     Strongly emphasize financial performance metrics – with 79% of our Chief Executive Officer’s targeted incentive compensation opportunity for 2016 based on financial performance metrics

 

•     Use a leading independent compensation consultant that provides no other services to the Company to advise on executive compensation program design, pay levels and best practices

 

•     Target total direct compensation at approximately the 50th percentile of our peers

 

•     Include recoupment provisions or “clawbacks” in our cash and equity compensation plans

 

•     Maintain significant stock ownership and retention policies (net shares must be held one year following a vesting or exercise date)

 

•     Use change in control agreements and equity plans with “double trigger” severance/equity acceleration requirements

 

•     Focus a significant portion of short-term incentive plan awards on strategic and operational performance goals that promote long-term value

 

•     Use performance-based restricted stock awards as a material component of total direct compensation

 

•     Welcome engagement with shareholders to evaluate and critique our executive compensation program

 

•     When appropriate, use our negative discretion to reduce earned awards to better align interests with our shareholders

 

 

21


We have adopted best governance practices to benefit our shareholders

The Committee, with the assistance of its independent compensation consultant, Frederic W. Cook & Co. (“F.W. Cook”), as well as the Company, stay attuned to recent trends in compensation and governance practices. In recent years, we have:

 

   

Formally separated the offices of Chair of the Board and Chief Executive Officer, and further required, whenever possible, that the Chair be an independent director;

 

   

Adopted Proxy Access (shareholders that own at least 3% of our Common Stock over a three-year period may nominate up to 20% of the Board and include such nominees in our proxy materials); and

 

   

Achieved the highest governance rating on the Institutional Shareholder Services (“ISS”) QualityScore rating system in March 2017.

Our Executive Compensation Process

The Committee is comprised entirely of independent directors who meet regularly to review and oversee the Company’s executive compensation program. The Committee reviews all components of, and makes all decisions regarding, the compensation of the named executive officers. The Committee also engages a leading independent compensation consultant to advise it on several aspects of our executive compensation program.

Our Chief Executive Officer and Chief People Officer participate frequently in meetings of the Committee to provide evaluations related to the performance of our other executive officers and discuss the roles and responsibilities of such executive officers. In addition, Committee members frequently interact directly with our executive officers and receive input from other independent Board members, thereby gaining an appreciation of the roles and levels of responsibility of the executive officers, as well as their performance. The Chief Executive Officer makes non-binding recommendations for the Committee’s consideration regarding executive compensation, including base salary, incentive targets, performance measures, equity compensation and any special awards for our executive officers. The Committee also regularly holds executive sessions not attended by any members of management. The Committee discusses Mr. Breier’s compensation with him and then makes decisions with respect to Mr. Breier’s compensation without him present. The named executive officers other than the Chief Executive Officer and Chief People Officer do not make recommendations on compensation or otherwise significantly participate in the Committee’s compensation decision-making process.

Internal Pay Equity

Compensation opportunities for the named executive officers reflect their positions, responsibilities and tenure in a given position and are generally similar for executives who have comparable levels of responsibility (although actual compensation delivered may differ depending on relative performance). The Chief Executive Officer has generally been the most highly compensated executive due to his ultimate responsibility for the strategic direction and performance of the Company, the unique nature and scope of his leadership and the competitive marketplace for attracting and retaining a talented chief executive officer.

Evaluation of Compensation Policies and Practices as They Relate to Risk Management

The Committee believes that the performance measures it selects appropriately reward performance without encouraging unnecessary or excessive risk taking on the part of our employees. The Committee encourages our employees to balance short-term objectives with long-term operational and clinical performance and financial stability by conditioning performance-based pay on the achievement of various financial, quality, strategic and operational goals which are aligned with our key success factors and operational goals and objectives. In addition, the goals are often tied to facility, district, regional, divisional and/or enterprise performance with no single goal comprising a significant portion of the overall total target. We also have in place various controls such as internal audit functions, a compliance hotline and quality controls to further support the Committee’s conclusions on its risk assessment.

 

22


Engaging with our shareholders

We have directly engaged several of our largest shareholders in the past two years to solicit feedback on our executive compensation program and governance practices.

In 2015, following a coordinated outreach campaign to our shareholders, including contacting our 25 largest shareholders (which held more than 70% of our Common Stock), (1) we adopted a Proxy Access bylaw permitting shareholders who have owned at least 3% of Common Stock for a three-year period to nominate directors constituting up to 20% of the Board and to include such nominees in our proxy materials, and (2) we amended our Corporate Governance Guidelines to require shareholder approval or ratification of amended or future change in control severance agreements that provide for payments in excess of 2.99 times base salary and target bonus under our short-term incentive plan.

At the 2016 annual meeting of shareholders, we received an 84% favorable vote on our non-binding proposal to approve the compensation for our named executive officers. This result was lower than our prior three-year average of a 94% favorable vote, and was primarily driven by an “against” vote issued by one of our largest shareholders. Following the annual meeting, our Chair of the Board and Chief Executive Officer met with representatives of this shareholder to learn and discuss the shareholder’s concerns. In response, the Committee reviewed our executive compensation plans and practices, and asked F.W. Cook to identify potential modifications against practices within our peer group and general industry. Following further analysis, F.W. Cook confirmed that our overall executive compensation program is appropriately structured and generally consistent with our peer group. Following its detailed review of the potential modifications and F.W. Cook’s analysis, the Committee elected in March 2017 to broaden the payout ranges applicable to the Consolidated Adjusted EBIT metric (as defined below) under our short-term incentive plan and the Consolidated Adjusted EBITDAR metric (also as defined below) applicable to our long-term cash incentive plan and performance-based restricted stock awards. These changes will require larger changes in performance before higher award percentages are attained, making payouts above the targeted amount more challenging to achieve.

We welcome shareholder feedback on our executive compensation program and governance practices, and encourage shareholders to contact us to express their views.

Use of Compensation Consultants

The Committee’s charter provides that it has the sole authority to select, evaluate, retain and dismiss an independent compensation consultant. During 2016, the Committee retained F.W. Cook as its independent compensation consultant to review our executive compensation program, including base salaries, and short-term and long-term incentive compensation. Prior to engaging F.W. Cook, the Committee assessed the independence of F.W. Cook pursuant to NYSE rules and concluded that no conflict of interest exists that would prevent F.W. Cook from being an independent compensation consultant to the Committee. F.W. Cook has never served the Company in any capacity except as an independent compensation consultant to the Committee.

In 2016, F.W. Cook’s review of our executive compensation program included:

 

   

Reviewing our senior executive compensation plans;

 

   

Benchmarking the total direct compensation levels for the executive officers, including salaries and targeted short-term and long-term incentive opportunities;

 

   

Evaluating key executive compensation program practices among our peers, including short-term and long-term performance metrics, the prevalence of executive retirement programs, severance programs and perquisites, stock ownership guidelines, incentive compensation targets and award levels, and equity compensation usage;

 

   

Recommending companies be added or removed from our peer group based upon objective metrics;

 

23


   

Comparing the actual compensation paid to our Chief Executive Officer to the amounts targeted by the Committee;

 

   

Evaluating potential compensation plan changes, including several recommended by one of our largest shareholders; and

 

   

Advising the Committee on recent regulatory, governance, and market-based executive compensation trends and developments.

Based on its review of our executive compensation plans, practices and performance targets during 2016, F.W. Cook indicated that:

 

   

On average, base salaries and target cash compensation approximated the 50th percentile of our peers for the named executive officers but that the base salary and target cash compensation for our Chief Executive Officer was positioned slightly below the 25th percentile of our peers;

 

   

Targeted total direct compensation was below the 50th percentile of our peers for each of our named executive officers other than our Chief Financial Officer and slightly above the 50th percentile for our Chief Financial Officer;

 

   

Our use of financial, strategic and operational objectives under our incentive plans continues to be consistent with the practice of our peers;

 

   

Our use of restricted stock and performance stock as part of our long-term incentive program is consistent with typical peer companies, but the additional use of performance cash is atypical (though we believe it is appropriate given our capital structure) and results in a heavier weighting of performance-based awards than our peers;

 

   

Our retirement and deferral programs are consistent with those provided by peer companies;

 

   

Our perquisite program is limited and generally more conservative than our peers but consistent with broader market practices;

 

   

Severance benefits for our executive officers are generally consistent with our peer group;

 

   

Our stock ownership guidelines for executive officers are standard among peers and the broader market;

 

   

Our three year equity plan share usage continued to decline compared to previous years, but was high relative to our peers primarily due to a depressed stock price and special promotion and retention grants in 2012 and 2013; and

 

   

Our aggregate grant date fair value and potential equity plan dilution ranks in the bottom quartile of our peers.

Peer Group

Consistent with the Committee’s goal of providing competitive compensation, the Committee benchmarks our executive officer compensation against the executive officer compensation at a selected group of peer companies that the Committee believes compete with us for executive officers and reflects the size, scope and diverse nature of our businesses and the healthcare industry.

There are very few publicly traded companies that operate within our primary businesses of home health and hospice, TC hospitals, IRFs, rehabilitation services and nursing centers, and none that operate with the same breadth and scope within each of these businesses. As such, our peer group primarily consists of healthcare companies that approximate our size, scale and complexity. We operate in several segments of post-acute care and provide healthcare services in more than 2,600 locations in 46 states. It is also useful to note that many of the companies in the peer group are not subject to the same Medicare and Medicaid reimbursement risks as we are,

 

24


which can make comparisons difficult. The peer group is periodically reviewed and updated by the Committee based upon organic changes in the peer companies and upon recommendations from its independent compensation consultant. In developing the peer group, the Committee considers a variety of selection criteria such as: (1) inclusion of U.S.-based public companies in the Global Industry Classification Standard sub-industry codes for health care facilities and health care services, (2) inclusion of companies with revenues approximating one-third to three times our revenues, and (3) exclusion of companies with market capitalization greater than $40 billion. For 2016, the Committee elected to remove OmniCare, Inc., which was acquired, and added Genesis Healthcare, Inc., since it satisfied the criteria discussed previously.

The Committee and its independent compensation consultant also review companies that do not meet the aforementioned criteria but are otherwise used by proxy advisory firms (such as ISS) in creating a peer group used solely by such firms for comparative analysis. Following a detailed review and upon recommendation of its independent compensation consultant, the Committee elected not to include any additional peer companies used by such proxy advisory firms because such companies (1) did not meet the above-referenced criteria, (2) were healthcare distributors or managed care companies and not healthcare service providers, and (3) thus were not subject to the same business and reimbursement risks as we were.

For each company in the peer group, the Committee reviews data including base salary, annual cash incentive compensation, long-term incentive compensation and total annual direct compensation of such company’s named executive officers. The following companies comprised our peer group for compensation benchmarking purposes during 2016:

 

Brookdale Senior Living, Inc.    Lifepoint Hospitals, Inc.
Community Health Systems, Inc.    MEDNAX, Inc.
DaVita Inc.    Quest Diagnostics, Inc.
Envision Healthcare Holdings, Inc.    Select Medical, Inc.
Genesis Healthcare, Inc.    Team Health Holdings, Inc.
HealthSouth Corporation    Tenet Healthcare Corporation
Laboratory Corp. of America Holdings    Universal Health Services, Inc.

 

25


The following chart compares us and our peer group on several of the selection criteria used by the Committee.

 

Company   Symbol  

Revenues (1)

($ in millions)

 

Enterprise
value (1)(2)

($ in millions)

 

Market
capitalization (1)

($ in millions)

  Number of
employees (1)

Community Health Systems

  CYH   $19,491   DVA    $27,545   DVA    $15,587   CYH    135,000

Tenet Healthcare

  THC   $17,568   CYH    $25,098   UHS    $12,360   THC    108,989

Davita

  DVA   $13,290   THC    $20,097   LH    $10,966   KND    104,000

Universal Health Services

  UHS   $8,576   LH    $19,048   DGX    $8,824   GEN    95,000

Quest Diagnostics

  DGX   $7,551   UHS    $16,104   MD    $7,207   BKD    82,000

Laboratory Corp. of America Holdings

  LH   $7,056   DGX    $14,358   EVHC    $6,833   UHS    68,700

Kindred Healthcare

  KND   $6,003   BKD    $13,225   CYH    $5,054   DVA    57,900

Genesis Healthcare

  GEN   $5,056   EVHC    $9,263   BKD    $4,237   DGX    45,000

Lifepoint Health

  LPNT   $4,963   MD    $8,661   TMH    $3,914   LPNT    38,000

Envision Healthcare

  EVHC   $4,907   GEN    $6,970   THC    $3,676   LH    36,000

Brookdale Senior Living

  BKD   $4,151   KND    $6,260   HLS    $3,509   EVHC    33,748

Team Health

  TMH   $3,221   HLS    $6,024   LPNT    $3,149   SEM    31,400

Select Medical

  SEM   $3,165   LPNT    $5,300   SEM    $1,418   HLS    24,100

HealthSouth

  HLS   $2,678   SEM    $5,221   KND    $1,321   TMH    13,200

MEDNAX

  MD   $2,593   TMH    $4,857   GEN    $941   MD    10,175

75th percentile

  $8,320        $18,312        $8,420        78,675

Median

  $5,009        $11,244        $4,645        41,500

25th percentile

  $3,454        $6,260        $3,551        31,987

Percentile rank

  57%      31%      6%      90%

 

 

(1) These amounts represent information as of October 29, 2015 as prepared by F.W. Cook and reviewed by the Committee in selecting the peer group.

 

(2) Enterprise value equals the market capitalization plus total debt minus cash and cash equivalents with an adjustment for the latest fiscal year rents capitalized at eight times.

Components of Executive Compensation

Our executive compensation program generally uses the following components to structure the total direct compensation for the named executive officers: base salary; short-term cash incentives; long-term cash incentives; and equity-based incentive compensation. In addition, from time to time the Committee considers the grant of special one-time awards which enable it to reward executive officers in special circumstances. Each of these components is discussed in more detail below.

As illustrated in the chart below, we utilize a variety of incentive compensation plans and performance measures to link named executive officer compensation to our short-term and long-term performance in meaningful ways. These financial, quality, strategic and operational goals encourage the named executive officers to strive for appropriate financial results related to our operating budget and key financial measures, while maintaining an appropriate focus on the quality and customer service objectives that are critical to ensuring patient satisfaction and regulatory compliance and achieving favorable short-term and long-term financial results.

 

26


SUMMARY OF KEY COMPONENTS OF EXECUTIVE COMPENSATION

 

Component   Performance
Period
 

Vesting /Payout

Timing

 

2016
Performance

Metrics

 

Target Incentive

Opportunity for 2016

(% of Salary)

        CEO   Other NEOs

Short-Term Incentive Plan (Cash)

  One year   Paid in full in the year following the end of the performance period   Consolidated Adjusted EBIT, Adjusted EBITM, growth, efficiency, quality, customer satisfaction, employee turnover, and capital goals   125%   80% -  50%

Long-Term Incentive Plan (Cash)

  Each
tranche
based upon
performance
during
one year
(with a three
year total
shareholder
return
modifier)
  Paid in full one year following the end of the three-year performance period   Consolidated Adjusted EBITDAR, Consolidated Adjusted Free Cash Flows, and relative total shareholder return   75%   60% - 50%

Performance-Based Restricted Stock Units

  Each
tranche
based upon
performance
during
one year
  Vest pro rata over three years   Consolidated Adjusted EBITDAR and Consolidated Adjusted Free Cash Flows   (1)   (1)

Service-Based Restricted Stock

  n/a   Vest pro rata over three years   n/a   (1)   (1)

 

 

(1) Awards vary based upon peer analysis, our performance and the named executive officer’s individual performance as discussed in more detail below.

Base Salary

The base salary for each named executive officer is determined annually by the Committee following a review of each individual executive officer’s performance, changes in the executive officer’s position or responsibility, relevant comparisons to peer group data, an assessment of our overall or division performance, and a consideration of general market salary increases for all employees. The Committee generally attempts to establish base salaries at approximately the 50th percentile of our peer group because it believes that a significant portion of total compensation should be subject to the attainment of performance goals. Since awards under our cash incentive plans are calculated as a percentage of base salary, the Committee also considers how changes in base salary may impact the total direct compensation opportunity for the named executive officers. In 2016, the

 

27


base salary was 12% of Mr. Breier’s targeted total annual direct compensation and approximately 24% of the targeted total annual direct compensation for the other named executive officers.

In February 2016, the Committee conducted its annual review of base salaries for the named executive officers. The Committee recognized that the base salaries were at or slightly above the 50th percentile for each of the named executive officers other than Mr. Breier, which was slightly below the 25th percentile and Mr. Landenwich, which was below the 50th percentile.

The following chart reflects the changes in base salary for the following named executive officers from 2015 to 2016:

 

     2015      2016  

Mr. Breier, President and Chief Executive Officer

   $ 925,000      $ 1,050,000  

Mr. Farber, Executive Vice President, Chief Financial Officer

   $ 600,000      $ 606,000  

Mr. Wallace, Executive Vice President and Chief Operating Officer

   $ 700,000      $ 707,000  

Mr. Causby, Executive Vice President and President, Kindred at Home

   $ 550,000      $ 575,000  

Mr. Landenwich, General Counsel and Corporate Secretary

   $ 410,000      $ 414,100  

In 2016, the Committee increased Mr. Breier’s base salary to reflect his continuing strong performance in leading our strategic and operational efforts and to move him closer to the median of the peer group based on data provided by F.W. Cook. The Committee increased Mr. Causby’s base salary to reflect his continuing strong performance in leading our Kindred at Home division and to move his total direct compensation closer to the median of the peer group based on data provided by F.W. Cook. The Committee also increased each of the other named executive officer’s base salaries by 1% over the previous year, consistent with how base salaries were treated across the Company during 2016.

Cash Incentives

Under our executive compensation program, a significant portion of total cash compensation for the named executive officers is subject to the attainment of objective financial, quality, strategic and operational goals. We use two cash incentive plans: an annual short-term incentive plan and a long-term incentive plan (“LTIP”). All named executive officers participated in both of these plans for 2016.

Short-Term Incentive Plan

Under the short-term incentive plan, the Committee establishes company-wide and divisional annual financial and quality goals, as well as specific strategic and operational goals for our named executive officers. In establishing annual performance goals, the Committee considers the appropriate relative weighting of financial, quality, strategic and operational goals on an annual basis and seeks to appropriately reward performance without encouraging unnecessary or excessive risk taking on the part of our employees.

Target Award Levels—Annual cash bonuses under the short-term incentive plan are determined as a percentage of the named executive officer’s base salary. The following chart reflects the target award levels for each named executive officer as a percentage of his base salary for 2016. For 2016, Mr. Breier’s target award level was increased from 100% to 125% to move his total direct compensation opportunity closer to the median of our peers. The target award levels for the other named executive officers were unchanged from 2015.

 

     2016 Target
Award Level
 

Mr. Breier

     125

Mr. Farber

     80

Mr. Wallace

     80

Mr. Causby

     60

Mr. Landenwich

     50

 

28


Use of Financial, Quality, Strategic and Operational Goals—For 2016, the financial goals for the named executive officers were based upon our operating budget approved by the Board of Directors and other financial metrics that support the achievement of our 2016 operating budget. We believe that certain of these financial goals are measures generally used by investors to value our Common Stock and are therefore appropriate goals to motivate executive performance. The quality goals were based upon key quality metrics across our operating divisions and new initiatives to enhance quality of care and customer service. The quality goals are objective measures and are established with a view to be challenging but achievable with solid operational focus on our businesses. The Committee believes that maintaining or improving the quality of our services is critical to our core services and reputation, as well as attaining our financial results. The Committee also used divisional financial and quality goals for Mr. Causby given his primary responsibility for the operations of our Kindred at Home division. The strategic and operational goals used for 2016 include measurable goals that are related to our strategic plan and are more specifically described below.

Weighting of Goals—The following charts reflect the relative weighting of the consolidated financial and quality goals, strategic and operational goals, and divisional financial and quality goals (to the extent applicable) for 2016 assuming target performance. At the beginning of the performance period, the Committee may adjust the weighting between goals depending on our needs or strategic imperatives and the named executive officer’s areas of responsibility.

 

     Weighting of Target Award  
     Consolidated
Financial and Quality Goals
(see page 30)
    Strategic and
Operational Goals
(see page 32)
    Divisional
Financial and Quality
Goals (see page 31)
    Total Target
Percentage
 

Mr. Breier

     60     40     —         100

Mr. Farber

     70     30     —         100

Mr. Wallace

     70     30     —         100

Mr. Causby

     20     20     60     100

Mr. Landenwich

     70     30     —         100

Threshold Goals—The Committee established minimum consolidated and divisional financial performance thresholds that must be achieved in order for the financial and quality components of the short-term incentive awards to become payable, thereby ensuring sufficient financial performance by us to support the cash incentives. As such, the consolidated or divisional financial and quality components of the 2016 short-term incentive awards are forfeited in the following circumstances:

 

   

for each of the named executive officers, if we failed to satisfy 95% of the targeted Consolidated Adjusted EBITDAR (as defined below) goal of approximately $933.9 million; or

 

   

for Mr. Causby, if the Kindred at Home division failed to satisfy 92.5% of the targeted consolidated adjusted earnings before interest, income taxes, depreciation, amortization, rent and management fee (“KAH Adjusted EBITDARM”) goal of approximately $366.0 million(1).

These two threshold goals were achieved in 2016.

 

(1) Our performance goals include the non-GAAP financial measure KAH Adjusted EBITDARM. We believe that income (loss) from continuing operations is the most comparable GAAP measure to KAH Adjusted EBITDARM. Income (loss) from continuing operations is reported on a consolidated (rather than a segment) basis in our Annual Report on Form 10-K filed with the SEC on February 28, 2017 (the “2016 Audited Financials”). The actual performance achieved towards the KAH Adjusted EBITDARM performance goal is based upon earnings before interest, income taxes, depreciation, amortization, rent and management fee (“EBITDARM”) from continuing operations for the Kindred at Home segment. Our 2016 performance goals and the actual comparative results for purposes of the 2016 calculation of KAH Adjusted EBITDARM exclude the 2016 Adjustments (as defined below) but include the impact of non-controlling interests.

 

29


Financial and Quality Goal Performance—The following chart sets forth the minimum, target and maximum consolidated and divisional financial and quality goals under the short-term incentive plan for 2016, as well as the relative weight of each specific goal and the actual level achieved. Actual results between these goals are interpolated on a straight-line basis.

Short-Term Incentive Plan

Consolidated Financial and Quality Goals

(applicable for All Named Executive Officers)

 

    2016 Incentive Goals     Actual
Performance
Achieved
    % of
Target
Bonus
Achieved
 
  Minimum     Target     Maximum      
  Goal     % of
Bonus
    Goal     % of
Bonus
    Goal     % of
Bonus
     

Consolidated Adjusted EBIT ($ millions) (1)

  $ 408.2       12.0   $ 429.7       30.0   $ 451.2       95.0   $ 394.5       0.0

Accounts receivable—days outstanding—1 Q

    65.3       1.0     62.0       2.5     59.0       3.75     60.9       2.7

Accounts receivable—days outstanding—2 Q

    63.7       1.0     60.5       2.5     57.6       3.75     60.9       2.2

Accounts receivable—days outstanding—3 Q

    64.8       1.0     61.6       2.5     58.7       3.75     65.0       0.0

Accounts receivable—days outstanding—4 Q

    64.1       1.0     60.9       2.5     58.0       3.75     59.9       2.8

Consolidated revenues ($ millions)

  $ 6,818.7       4.0   $ 7,177.6       10.0   $ 7,536.5       15.0   $ 7,204.3       10.0

Continuous improvement savings ($ millions)

  $ 9.5       4.0   $ 10.0       10.0   $ 10.5       15.0   $ 10.5       15.0

Gentiva synergies ($ millions)

  $  21.9       4.0   $  23.0       10.0   $  24.2       15.0   $  25.9       15.0

Hospital division clinical quality mix

    2.28       2.0     2.17       5.0     2.07       7.5     2.07       7.5

Nursing center division five star quality results

    60.8     2.0     64.0     5.0     67.2     7.5     58.7     0.0

Rehabilitation customer satisfaction

    4.19       2.0     4.41       5.0     4.63       7.5     4.39       4.4

Kindred at Home CIA compliance

    5.3     2.0     5.0     5.0     4.8     7.5     16.5     0.0

Aggregate employee turnover

    29.6     2.0     28.1     5.0     26.8     7.5     25.8     7.5

Voluntary officer turnover

    5.3     2.0     5.0     5.0     4.8     7.5     3.6     7.5

Overall maximum limitation

      —         —         (31.2 %)        —  
   

 

 

     

 

 

     

 

 

     

 

 

 

Total

      40.0       100.0       168.8       74.6
   

 

 

     

 

 

     

 

 

     

 

 

 

 

30


Short-Term Incentive Plan

Kindred at Home Division Financial and Quality Goals

(applicable for Mr. Causby)

 

    2016 Incentive Goals     Actual
Performance
Achieved
    % of
Target
Bonus
Achieved
 
  Minimum     Target     Maximum      
  Goal     % of
Bonus
    Goal     % of
Bonus
    Goal     % of
Bonus
     

Kindred at Home Division Adjusted EBITM ($ millions) (2)

  $ 304.2       12.0   $ 320.2       30.0   $ 336.2       95.0   $ 320.8       30.0

Accounts receivable—days outstanding—1 Q

    49.6       0.5     47.1       1.25     44.9       1.88     50.3       0.0

Accounts receivable—days outstanding—2 Q

    48.2       0.5     45.8       1.25     43.6       1.88     50.9       0.0

Accounts receivable—days outstanding—3 Q

    47.5       0.5     45.1       1.25     43.0       1.87     53.4       0.0

Accounts receivable—days outstanding—4 Q

    48.3       0.5     45.9       1.25     43.7       1.87     53.7       0.0

Total net revenues ($ millions)

  $ 2,355.6       8.0   $ 2,479.6       20.0   $ 2,603.6       30.0   $ 2,467.5       17.6

Star rating – patient quality

    85.5     2.0     90.0     5.0     94.5     7.5     92.5     6.0

Star rating – patient experience

    85.5     2.0     90.0     5.0     94.5     7.5     94.8     7.5

CIA audit compliance

    5.3     6.0     5.0     15.0     4.8     22.5     16.5     0.0

Total gross margin %

    46.1     2.0     48.5     5.0     51.0     7.5     47.5     3.2

Total operating expense as % of revenue

    33.7     2.0     32.0     5.0     30.5     7.5     31.0     6.5

Employee turnover

    26.3     4.0     25.0     10.0     23.8     15.0     23.6     15.0

Overall maximum limitation

      —         —         (31.2 %)        (0.0 %) 
   

 

 

     

 

 

     

 

 

     

 

 

 

Total

      40.0       100.0       168.8       85.8
   

 

 

     

 

 

     

 

 

     

 

 

 

 

(1) Our performance goals include the non-GAAP financial measure earnings before interest, investment income and income taxes (“EBIT”) from continuing operations, as adjusted for certain items as described below (“Consolidated Adjusted EBIT”). We believe that income (loss) from continuing operations is the most comparable GAAP measure to Consolidated Adjusted EBIT. Consolidated Adjusted EBIT for the year ended December 31, 2016 is calculated by excluding from EBIT the following items: (1) items separately disclosed in our earnings release as non-core; (2) operating results of acquisitions that are not included in the original budget; (3) operating results of closures or divestitures after disposal data that are not included in the original budget; (4) unplanned or unbudgeted employee relations/severance costs; (5) asset impairment charges, and (6) impact of accounting policy changes (the “2016 Adjustments”).

 

(2) Our performance goals include the non-GAAP financial measure earnings before interest, investment income, income taxes and management fee (“EBITM”) from continuing operations, as adjusted for certain items as described below (“Adjusted EBITM”). We believe that income (loss) from continuing operations is the most comparable GAAP measure to Adjusted EBITM. Income (loss) from continuing operations is reported on a consolidated (rather than a segment) basis in the 2016 Audited Financials. The actual performance achieved towards the divisional 2016 EBITM performance goals is based upon segment EBITM from continuing operations. Our 2016 performance goals and the actual comparative results for purposes of the 2016 calculation of Adjusted EBITM excludes the 2016 Adjustments but includes the impact of non-controlling interests.

 

31


Strategic and Operational Goal Performance—As noted previously, a significant portion of the named executive officer’s short-term incentive award is based on the achievement of strategic and operational goals. The target award allocation varies among the named executive officers and also provides for the potential to earn up to 168% of the target award for maximum performance. The strategic and operational portion of the 2016 short-term incentive award was structured as follows:

 

   

we must achieve at least a pre-established and objective Consolidated Adjusted EBITDAR (as defined below) threshold goal of approximately $884.8 million (the “Threshold Goal”), which was achieved in 2016;

 

   

since the Threshold Goal for 2016 was achieved, the named executive officers are eligible for the maximum strategic and operational award potential of 168% of their individual target. If the Threshold Goal had not been achieved, then the corresponding strategic and operational portion of the award is zero; and

 

   

the Committee exercises its negative discretion to adjust the maximum award downward for any individual, depending on the achievement of the specified strategic and operational goals identified below.

The Committee established the following strategic and operational goals for 2016:

 

   

continue to develop our quality and service culture, including compliance with our corporate integrity agreements and enterprise-wide quality goals;

 

   

capture 2016 Gentiva Merger synergy goals and measurable continuity of care and continuous improvement performance goals;

 

   

implementation of the LTAC patient criteria mitigation strategy;

 

   

advance care management capabilities and network development initiatives to support integrated care and new payment models; and

 

   

continue our talent and human resources development efforts.

The Committee evaluated the performance of the named executive officers across all of the relevant strategic and operational goals within the context of our overall performance and noted the following:

 

   

we completed a uniform patient-experience platform, with improvements in the quality rating performance in home health operations and increased performance in nursing center operations, enterprise-wide quality improvement training efforts for clinical and medical leadership, and our efforts related to compliance under our corporate integrity agreements;

 

   

we exceeded our Gentiva synergy goals by $20 million and completion of payroll conversion, and electronic medical record installation;

 

   

we achieved 10% growth in our Continue the Care® strategy and achieved significant overhead savings;

 

   

we mitigated a substantial portion of the revenue impact under new LTAC patient criteria and developed a clinical, cost and pricing model for site-neutral patients;

 

   

we completed multiple LTAC repositioning efforts during 2016, including the sale of 12 TC hospitals and the swap of five TC hospitals in exchange for three hospitals in better markets;

 

   

we expanded our home-based primary care activities in Florida and Ohio and increased the number of bundled payment contracts with hospital systems and preferred provider arrangements with accountable care organizations nationwide;

 

32


   

we successful expanded the number of IRF joint ventures, as well as continued strong operating performance;

 

   

we made significant progress towards building a care management platform product offering and information technology capabilities; and

 

   

we achieved diversity hiring and promotion initiatives, retaining 95% of senior management, and conducting extensive talent reviews for all executive committee members, senior executives and market leaders.

Short-Term Incentive Payouts; Reductions to Earned Awards

Based on the actual performance achieved and the Committee’s evaluation of the named executive officers’ performance under our financial, quality, strategic and operational goals, the named executive officers earned aggregate short-term incentive bonuses for 2016 as set forth below under the column Total Award Earned. Upon the recommendation from our Chief Executive Officer, the Committee exercised its discretion to reduce the awards earned under our short-term incentive plan for 2016 by 20% to reflect our overall financial and stock price performance during 2016 and to better align interests with our shareholders.

 

    Percent Earned                                                  
    Consolidated
Financial/
Quality (a)
    Operational
(b)
    Divisional
Financial/
Quality (c)
    Total (a
+
b+c)
          Potential
Target
Bonus
          Base Salary           Total Award
Earned
    Less
Discretionary
Reduction
          Actual
Payout
 

Mr. Breier

    44.8%       45.0%       —         89.8%       x       125%       x     $ 1,049,901       =     $ 1,178,514       20%       =     $ 942,811  

Mr. Farber

    52.2%       33.8%       —         86.0%       x       80%       x     $ 606,029       =     $ 416,948       20%       =     $ 333,558  

Mr. Wallace

    52.2%       33.8%       —         86.0%       x       80%       x     $ 707,013       =     $ 486,425       20%       =     $ 389,140  

Mr. Causby

    14.9%       22.5%       51.5%       88.9%       x       60%       x     $ 574,954       =     $ 306,680       20%       =     $ 245,344  

Mr. Landenwich

    52.2%       33.8%       —         86.0%       x       50%       x     $ 414,398       =     $ 178,191       20%       =     $ 142,553  

LTIP

Beginning in 2014, the Committee modified the mechanics under the LTIP with the objective of creating three-year performance goals based on earnings, Consolidated Adjusted Free Cash Flows (as defined below) and total shareholder return. As part of this objective, the Committee established its initial three-year performance goals, along with one and two-year transitional performance goals so that the total potential incentive opportunity for participants would remain constant as we transitioned to the three-year goals. Since 2014, our business has been negatively impacted by expansive Medicare reimbursement cuts, a shift in patients away from higher-cost post-acute care settings such as TC hospitals and nursing centers, and the adoption of LTAC patient criteria, all of which have significantly reduced our profitability as well as the predictability of earnings. We have also completed several transformative acquisitions and strategic divestitures since 2014 that fundamentally altered our financial, capital, and organizational structure. Consequently, the two and three-year performance goals established in each of 2014 and 2015 were subsequently deemed unachievable by the Committee. The achievement of the one-year transition goals has also been negatively impacted by these recent events, with achievement of 29% and 60% of target in 2014 and 2015, respectively. In 2016, the Committee re-evaluated the plan mechanics since the challenge of establishing relevant three-year goals in the current business environment had made the LTIP an ineffective compensation plan for management.

2016 Performance Period Modifications—During 2016, the Committee took action in response to this volatility in performance. Following consultation with F.W. Cook and pursuant to its discretion under the LTIP, the Committee determined that the LTIP would be more effective if structured as a three-year award comprised of single-year performance periods (each of which comprises one-third of the total three-year award) with the total award subject to a three-year total shareholder return (“TSR”) modifier to align any payment earned with relative multi-year stock price performance. The Committee believes this change will address the challenge of

 

33


creating long-term performance targets until the full impact of LTAC patient criteria and other external factors can be better predicted. Moreover, the Committee believes that these changes will reduce the volatility of awards under the LTIP, and further enhance the LTIP’s ability to attract, retain and engage senior management. Accordingly, the Committee established its first three-year award during 2016 utilizing this newly-refined model, with the corresponding amount calculated under this methodology payable in a lump sum during the fourth quarter of 2019 (the “2016 Three-Year Award”).

Changing the mechanics of the LTIP to create the 2016 Three-Year Award and cancelling all outstanding awards under the LTIP, created a gap in potential payments to participants in 2017 and 2018. In response to this gap in payments, the Committee elected to approve a one-year award for 2016 comprised of a single-year performance period (2016), with the total award subject to a one-year TSR modifier (the “2016 Gap Award”). The 2016 Gap Award is payable in the fourth quarter of 2017, subject to continued service through the payment date.

The one-year performance goals established by the Committee for the 2016 performance period apply to the first year of the 2016 Three-Year Award as well as the 2016 Gap Award.

As part of its review, the Committee also elected to use Consolidated Adjusted EBITDAR (as defined below) and Consolidated Adjusted Free Cash Flows (as defined below) as the performance metrics used in the 2016 Three-Year Award and the 2016 Gap Award. The Committee elected to change to Consolidated Adjusted EBITDAR (from earnings per share) given the focus of investors and analysts on EBITDAR (as defined below) as an important measure and to align targets under the 2016 Three-Year Award and the 2016 Gap Award with our earnings guidance. The Committee also elected during 2016 to set the TSR modifier applicable to the 2016 Three-Year Award and the 2016 Gap Award to provide for a wider range of potential outcomes and reduce volatility in award amounts.

Award Percentages—Under the LTIP, participants are eligible to receive cash awards expressed as a percentage of their base salary. No awards are earned under the LTIP until certain minimum levels of performance are achieved. The following chart reflects the potential minimum, target and maximum award levels for the named executive officers as a percentage of base salary for awards granted in 2016:

 

     Long-Term Incentive Plan
(As a % of Base Salary)
 
     Minimum     Target     Maximum  

Mr. Breier

     18.75     75     187.5

Mr. Farber

     15.0     60     150

Mr. Wallace

     15.0     60     150

Mr. Causby

     12.5     50     125

Mr. Landenwich

     12.5     50     125

2016 Performance Goals and Actual Performance—For the 2016 awards, the Committee used two equally-weighted performance goals, Consolidated Adjusted EBITDAR and Consolidated Adjusted Free Cash Flows (each as defined below), to calculate the preliminary award due to a participant. The amounts achieved for these two performance goals is then multiplied by the relative TSR modifier described below to calculate the final amount awarded to the participant.

The chart below depicts the minimum, target and maximum goals for awards ending during the 2016 performance period, as well as the actual levels achieved for the named executive officers. The goals are the same for each participant in the LTIP, including each named executive officer, and reflect Company-wide measures. These goals were established with a view to be challenging but achievable with good operational focus and strong overall performance from our businesses.

 

34


LTIP Performance Goals for the 2016 Performance Period

 

    Minimum     Target     Maximum     Actual
Achieved
    % of Target
Bonus Achieved
Before TSR
Modifier (3)
 
    Goal     %
of Bonus
    Goal     %
of Bonus
    Goal     %
of Bonus
     

Consolidated Adjusted EBITDAR ($ millions) (1)

  $ 963.4       12.5   $ 983.1       50.0   $ 1002.8       125.0   $ 943.8       0

Consolidated Adjusted Free Cash Flows ($ millions) (2)

  $ 155.0       12.5   $ 172.2       50.0   $ 189.4       125.0   $ 160.0       31.3
   

 

 

     

 

 

     

 

 

     

 

 

 

Total

      25.0       100.0       250.0       31.3
   

 

 

     

 

 

     

 

 

     

 

 

 

 

(1) Our performance goals include the non-GAAP financial measure earnings before interest, investment income, income taxes, depreciation, amortization, and rent from continuing operations (“EBITDAR”), as adjusted for certain items as described below (“Consolidated Adjusted EBITDAR”). We believe that income (loss) from continuing operations is the most comparable GAAP measure to Consolidated Adjusted EBITDAR. Our 2016 performance goals and actual comparative results for purposes of the 2016 calculation of Consolidated Adjusted EBITDAR exclude the 2016 Adjustments.

 

(2) Our performance goals include the non-GAAP financial measure Consolidated Adjusted Free Cash Flows. We believe net cash flows provided by operating activities is the most comparable GAAP measure to Consolidated Adjusted Free Cash Flows. “Consolidated Adjusted Free Cash Flows” for the year ended December 31, 2016 is calculated by deducting routine capital spending from net income attributable to us, and further adjusted to exclude the impact of the 2016 Adjustments, net of income taxes and the following non-cash expenses: (1) depreciation, (2) amortization of intangible assets, (3) amortization of stock-based compensation and (4) amortization of deferred financing costs. See the 2016 Audited Financials for additional information about net cash flows provided by operating activities.

 

(3) The TSR modifier is discussed below for the 2016 Gap Award. For the 2016 Three-Year Award, the TSR modifier will not be known until the end of the three-year performance period.

TSR Modifier—The TSR modifier was based on our total shareholder return for 2016 compared to the results of the Russell 3000 Index. The TSR modifier scale and actual results achieved for 2016 are set forth below.

 

TSR Modifier Scale

Kindred TSR vs.    TSR Payout    2016 Actual
Russell 3000    Adjustment    Performance

0% - 24%

   20% reduction    20% reduction

25% - 74%

   No change   

75% - 100%

   20% increase   

A TSR modifier will also be used to decrease or increase the actual award under the 2016 Three-Year Award based on our relative stock performance compared to the Russell 3000 Index during the three-year period ending December 31, 2018.

 

35


LTIP Award Calculation—2016 Gap Awards—The Committee awarded the 2016 Gap Awards set forth below based upon the actual results against the pre-established goals then reduced by our TSR performance modifier:

 

     Base Salary            
Target
Bonus
           % of
Target
Achieved
    Less TSR
Performance
Modifier
           2016
Actual
Award
 

Mr. Breier

   $ 1,049,901        x        75.0     x        31.3     20     =      $ 197,171  

Mr. Farber

   $ 606,029        x        60.0     x        31.3     20     =      $ 91,050  

Mr. Wallace (1)

     —          x        —         x        —         —         =        —    

Mr. Causby (1)

     —          x        —         x        —         —         =        —    

Mr. Landenwich

   $ 414,398        x        50.0     x        31.3     20     =      $ 51,883  

 

(1) Messrs. Wallace and Causby did not participate in the 2016 Gap Award.

LTIP Award Calculation—2016 Three-Year Awards—No amounts have yet been earned under the 2016 Three-Year Award, as such award is comprised of three single-year performance periods, two of which have yet to be completed, all of which are collectively subject to a three-year TSR modifier, and generally require continued service with us through the payment date. The TSR modifier will be used to decrease or increase the actual award made under the 2016 Three-Year Award based on our relative stock performance compared to the Russell 3000 Index over the three-year performance period ending December 31, 2018. The amounts provided in the table below are intended to approximate that portion of the 2016 Three-Year Award that is based upon our performance during 2016. Actual amounts earned under the 2016 Three-Year Award cannot be calculated until after December 31, 2018, with such amounts paid in a lump sum in the fourth quarter of 2019. The estimate below reflects the actual 2016 results against pre-established goals then reduced by the TSR modifier and the award cap.

 

     Base Salary
(1)
           
Target
Bonus
           % of
Target
Achieved
    Less TSR
Performance
Modifier (2)
           Award Cap (3)            Estimated Award –
2016 Performance
Period (4)
 

Mr. Breier

   $ 1,049,901        x        75     x        31.3     20     x        33.3     =      $ 65,658  

Mr. Farber

   $ 606,029        x        60     x        31.3     20     x        33.3     =      $ 30,320  

Mr. Wallace

   $ 707,013        x        60     x        31.3     20     x        33.3     =      $ 35,372  

Mr. Causby

   $ 574,954        x        50     x        31.3     20     x        33.3     =      $ 23,971  

Mr. Landenwich

   $ 414,398        x        50     x        31.3     20     x        33.3     =      $ 17,277  

 

(1) Award amounts under the 2016 Three-Year Award are calculated based on a participant’s salary at the end of the three-year performance period. As such amounts are not currently known, the named executive officer’s base salaries for 2016 have been used for purposes of this disclosure.

 

(2) The TSR modifier for the 2016 Three-Year Award will decrease or increase the actual award made between 80%-120% based upon the three-year performance period ending December 31, 2018. As TSR for such period is not yet known, the TSR modifier for the 12 month period ending December 31, 2016 has been used for purposes of this disclosure.

 

(3) Because the 2016 Three-Year Award is comprised of three single-year performance periods, the amount earned for the 2016 performance period is reduced by an award cap of 33.3%.

 

(4) No amounts have yet been earned under the 2016 Three-Year Award, as such awards are comprised of three single-year performance periods, two of which have yet to be completed, all of which are collectively subject to a three-year TSR modifier, and generally require continued service with us through the payment date.

Equity-Based Compensation

We use equity-based compensation to provide a direct and long-term link between the results achieved for our shareholders and the total direct compensation provided to the named executive officers. In 2016, the

 

36


Committee granted performance-based restricted stock units and service-based restricted stock to our named executive officers. The performance-based restricted stock units reinforce our pay for performance strategies by linking the vesting of the performance-based restricted stock units to our financial performance during the applicable performance period. The Committee believes that service-based restricted stock promotes retention of the named executive officers, while building their ownership stake in the Company.

Policies and Practices Regarding Equity Awards

The named executive officers are generally awarded equity-based compensation below the median level of our peer group. The Committee considers the amount of total cash compensation earned by the named executive officers in the prior year when determining the amount of equity-based compensation to award. While the Committee does not have a set allocation between cash and equity compensation, the Committee generally provides for a greater percentage of cash compensation than members of our peer group since equity awards can have a significant dilutive impact on shareholders given our capital structure. When evaluating equity-based compensation, the Committee considers the limitations imposed by our capital structure as well as the accounting costs associated with the form of equity award and the perceived benefits by management of the awards.

While the Committee does not have a formal policy with respect to the timing of grants of equity-based awards in connection with the release of material non-public information, the Committee considers issues raised by the timing of grants when making such awards. We generally make broad-based equity grants at approximately the same time each year following the release of year-end financial information; however, we may choose to make equity awards outside of the annual broad-based grant for promotions, new hires, retention or outstanding performance.

The amount of equity awarded to each of the named executive officers is based upon a number of factors. First, the Committee assesses our overall performance, the equity granting practices of the companies in our peer group, and the costs related to such awards. The Committee also considers our annual share usage, burn rate and fair value transfer over a three-year period when sizing the equity pool. F.W. Cook assisted us during 2016 to confirm the equity grant processes of our peers, including the relative mix of performance and service based awards, as well as assisted in the calculation of our annual share usage, burn rate and fair value transfer. Based on this analysis, the Committee establishes an aggregate pool of potential equity awards. The Committee then considers benchmarks by position from the peer group in evaluating potential awards to the named executive officers. The Chief Executive Officer also provides an assessment to the Committee of the level of performance for the other named executive officers. The Committee then considers the individual performance of each named executive officer. The assessment of actual and potential contribution is based upon the Committee’s subjective evaluation of each named executive officer in light of various operational and strategic challenges and opportunities facing the named executive officer during the relevant year, and the retention benefits of such awards. The specific equity awards for each named executive officer are also compared to the benchmark analysis of long-term incentives prepared by F.W. Cook.

During 2016, following consultation with F.W. Cook, the Committee took the additional step of recalibrating the relative mix of performance and service based equity awards. Unlike several of its peers, our long-term incentive compensation opportunity consists of a performance-based cash plan (the LTIP) in addition to performance-based and service-based equity awards. The use of a performance-based cash plan, coupled with our prior practice of granting an equal number of performance and service-based equity awards, resulted in the disproportionate weighting of performance-based metrics. Thus, in 2016, the Committee elected to grant a smaller percentage of the annual equity grant in the form of performance-based restricted stock units (42% with respect to Mr. Breier and 40% with respect to the other named executive officers). By doing so, the Committee ensured that the named executive officer’s 2016 long-term incentive compensation opportunity was equally weighted between service and performance-based metrics, which the Committee determined to be the appropriate balance and more consistent with our peers.

 

37


2016 Equity Award Levels

In 2016, the Committee granted equity awards to the named executive officers from the aggregate pool as follows:

 

     2016 Equity Grant  
     Performance-Based
Restricted Stock Units
     Service-Based
Restricted Stock
 

Mr. Breier

     205,078        283,203  

Mr. Farber

     52,000        78,000  

Mr. Wallace

     40,000        60,000  

Mr. Causby

     40,000        60,000  

Mr. Landenwich

     20,000        30,000  

The performance-based restricted stock units are divided into three equal annual tranches relating to three consecutive annual performance periods. The service-based restricted stock vests in equal annual installments over three years.

The awards for Mr. Breier reflect his continuing strong performance leading our strategic and operational efforts and placed his total direct compensation opportunity for 2016 slightly below the 50th percentile of our peers (based on grant date fair value and target performance under the LTIP). The awards for Mr. Farber reflect his oversight and leadership of our financial matters, including our capital structure. The awards for Mr. Wallace reflect his operational oversight of each of our respective lines of business. The awards for Mr. Causby reflect his oversight and leadership of our Kindred at Home operations following the Gentiva Merger and his ongoing efforts to ensure a successful integration. The awards for Mr. Landenwich reflect his continuing leadership directing and supervising our legal matters.

Mr. Landenwich also received a grant of 20,000 shares of service-based restricted stock on January 4, 2016 in connection with his promotion to General Counsel and Corporate Secretary, which are not included in the table above.

Performance-Based Restricted Stock Units

During 2016, three tranches of performance-based restricted stock units were eligible for vesting and each was subject to the same 2016 annual performance goals. The following chart depicts the minimum, target and maximum goals established for these tranches, as well as the actual levels achieved. Any performance-based restricted stock units not earned based on actual performance are forfeited.

2016 Performance-Based Restricted Stock Unit Goals

 

    Minimum     Target     Maximum     Actual
Performance
Achieved
    % of
Award
Achieved
 
  Goal     % of
Award
    Goal     % of
Award
    Goal     % of
Award
     

Consolidated Adjusted EBITDAR ($ in millions)(1)

  $ 963.4       10.0   $ 983.1       50.0   $ 1,002.8       67.5   $ 943.8       0

Consolidated Adjusted Free Cash Flows ($ in millions)(2)

  $ 155.0       10.0   $ 172.2       50.0   $ 189.4       67.5   $ 160.0       20

Overall maximum limitation (3)

      —         —         (35.0 %)        —  
   

 

 

     

 

 

     

 

 

     

 

 

 

Total

      20.0       100.0       100.0       20
   

 

 

     

 

 

     

 

 

     

 

 

 

 

(1)

Our performance goals include the non-GAAP financial measure Consolidated Adjusted EBITDAR. We believe that income (loss) from continuing operations is the most comparable GAAP measure to

 

38


  Consolidated Adjusted EBITDAR. Our 2016 performance goals and actual comparative results for purposes of the 2016 calculation of Consolidated Adjusted EBITDAR exclude the 2016 Adjustments.

 

(2) Our performance goals include the non-GAAP financial measure Consolidated Adjusted Free Cash Flows. We believe net cash flows provided by operating activities is the most comparable GAAP measure to Consolidated Adjusted Free Cash Flows. Consolidated Adjusted Free Cash Flows for the year ended December 31, 2016 is calculated by deducting routine capital spending from net income attributable to us, and further adjusted to exclude the impact of the 2016 Adjustments, net of income taxes and the following non-cash expenses: (1) depreciation, (2) amortization of intangible assets, (3) amortization of stock-based compensation and (4) amortization of deferred financing costs. See the 2016 Audited Financials for additional information about net cash flows provided by operating activities.

 

(3) The maximum award level cannot exceed 100% of the target award.

The following chart reflects the performance-based restricted stock units earned based on the achievement of the 2016 performance goals set forth above:

Performance-Based Restricted Stock Units Earned in 2016

 

     Mr. Breier     Mr. Farber     Mr. Wallace     Mr. Causby     Mr. Landenwich  

Shares eligible from
2014 grant

     14,167       —       —       —       3,667  

Shares eligible from
2015 grant

     31,111       10,000       —       5,666       5,833  

Shares eligible from
2016 grant

     68,360       17,334       13,334     13,334       6,667  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total eligible shares (1)

     113,638       27,334       13,334     19,000       16,167  

Percent of award achieved

     20     20     20     20     20
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Shares earned

     22,727       5,467       2,667       3,800       3,233  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) Any shares that are not earned by the named executive officer are forfeited.

Employment Agreements

We maintain employment agreements with our executive officers, including the named executive officers. The Committee recognizes that the retention of highly qualified leadership talent is critical to our performance and to successful succession planning. The Board periodically considers succession candidates for the chief executive officer and other senior leadership positions. In connection with this process, the Board considers the potential retention risk regarding identified succession candidates, the competitive landscape for executive talent and the extent of disruption likely caused by an unplanned exit of a senior executive. Where the Committee believes it is necessary, it will take appropriate actions to support our succession plan and to remain competitive in the marketplace.

The Committee believes that employment agreements are typical in healthcare companies and our peer group, and are important factors in attracting and retaining executive talent. The Committee also believes, based on input from F.W. Cook, that the terms and benefits under the employment agreements with our named executive officers are competitive within the healthcare industry and our peer group.

Each of the employment agreements described below also provide for severance payments if employment is terminated under certain circumstances. The amounts and circumstances giving rise to these severance payments are discussed in further detail under the heading “Potential Payments upon Termination or Change in Control” beginning on page 52. These agreements do not provide for tax gross ups.

 

39


Mr. Breier

Since September 2012, we have had an employment agreement with Mr. Breier. In connection with his transition from President and Chief Operating Officer to our President and Chief Executive Officer in October 2014, we entered into a new employment agreement (the “CEO Agreement”) with Mr. Breier (which replaced and superseded his prior agreement), pursuant to which Mr. Breier has served as our President and Chief Executive Officer since March 31, 2015.

The CEO Agreement has a three-year term, which is extended daily by one day and which, in the event we notify Mr. Breier of our intent not to extend the term, would terminate three years after such notification. The CEO Agreement generally provides that Mr. Breier is entitled to an annual base salary, subject to annual review by the Committee for possible increases, and is eligible to participate in our short-term incentive plan, LTIP and other employee benefit plans. Mr. Breier may receive increases in his base salary and target incentive awards as approved by the Committee. Mr. Breier is also eligible to participate in our equity-based compensation plans, and received awards of service-based and performance-based restricted stock in connection with his promotion.

Employment Agreements with other Named Executive Officers

Our employment agreements with Mr. Farber, Mr. Wallace, Mr. Causby and Mr. Landenwich provide for a one-year term which is extended automatically each day by one day unless we notify the executive of our intent not to extend the term. Upon such notification, the employment agreement will terminate in one year. These employment agreements also provide that the executive is entitled to an annual base salary and participation in our short-term incentive plan, LTIP and other equity-based and employee benefit plans. The executive may receive increases in his base salary and target incentive awards as approved by the Committee.

The Committee also entered into an agreement with Mr. Farber in November 2015, pursuant to which Mr. Farber received a one-time payment of $250,000 to offset relocation and other costs incurred in connection with his relocation. Mr. Farber’s employment agreement stipulates that Mr. Farber must repay such amount along with any related attorney’s fees and expenses if he voluntarily terminates his employment with us on or before April 30, 2017.

In addition to the employment agreement terms described above, Mr. Causby’s employment agreement (the “Causby Agreement”) also provided for a $1,000,000 lump sum cash payment within 30 days following its effective date as partial consideration for a $2,035,000 change in control severance payment to which Mr. Causby otherwise was entitled following the Gentiva Merger, and for the confidentiality, non-competition, and non-solicitation covenants imposed on Mr. Causby during the term of his employment agreement and for a one-year period thereafter. His employment agreement also provided for the following performance-based cash bonus awards payable in 2016 based on the achievement of our Kindred at Home division over the 12-month period ending February 2, 2016 as follows: (1) $500,000 for leadership of a successful integration of Gentiva into us; (2) $250,000 for achievement of one-year synergies resulting from the Gentiva Merger; (3) $250,000 for attainment of budgeted targets; and (4) his continued employment in his current capacity through February 2, 2016.

In addition, pursuant to his employment agreement, Mr. Causby received a total of 135,940 service-based restricted stock units in connection with the Gentiva Merger and in satisfaction of certain legacy Gentiva equity and cash benefits to which he otherwise would have been entitled. Mr. Causby’s unvested, in-the money Gentiva stock options, which were scheduled to vest over three years, were exchanged for 25,812 restricted stock units which retained the original three-year vesting schedule; Mr. Causby’s change in control severance benefits with Gentiva were exchanged for 53,077 restricted stock units which vest over three years; and Mr. Causby’s outstanding and unvested Gentiva performance cash awards which were scheduled to vest over two years were exchanged for 57,051 restricted stock units which retain the original two-year vesting schedule.

 

40


Retention Agreement

Given his strong performance leading our Kindred at Home division, the increased importance of such division following recent reimbursement and regulatory changes impacting our other businesses, and the strategic need to retain his services to lead such operations, we entered into an Employee Retention Agreement with Mr. Causby in March 2016 pursuant to which Mr. Causby will receive a lump-sum cash payment of $1,000,000 if he remains employed by us in a similar capacity through August 31, 2017.

Change in Control Severance Agreements

For several years, we have been a party to change in control severance agreements with our executive officers, including the named executive officers. The agreements for the named executive officers generally contain substantially similar terms, and provide for the payment of severance benefits under certain circumstances. The amounts and circumstances giving rise to these severance benefits are discussed in further detail under the heading “Potential Payments upon Termination or Change in Control” beginning on page 52. None of these agreements provide for a tax gross up. The Committee has provided change in control severance agreements to its named executive officers because it believes that these arrangements are typical in healthcare companies, protect us and our shareholders by maintaining employee focus and alignment with shareholders during rumored or actual change in control activities and support the retention of key employees during periods of uncertainty.

Section 401(k) Plan and Other Perquisites and Benefits

We maintain a tax-qualified defined contribution retirement plan (the “401(k) Plan”) under which all eligible employees, including the named executive officers, are eligible to contribute the lesser of (1) 50% of their pay or (2) the limit prescribed by the Internal Revenue Service (“IRS”), on a pretax basis.

In addition, the named executive officers may participate in our Deferred Compensation Plan (the “DCP”), which is available to certain employees who are deemed “highly compensated” under the applicable IRS regulations. A participant in the DCP may elect to defer up to 25% of such participant’s base salary and up to 100% of such participant’s award under the short-term incentive plan into the DCP during each plan year. The DCP provides for us to contribute to such participant’s account balance an amount equal to (1) the 401(k) Plan contribution that would be calculated using the contribution formula in effect for such plan year, less (2) the amount such participant would receive during the plan year as a contribution under the 401(k) Plan if such participant had contributed the maximum amount of elective deferral contribution permissible under the administrative provisions of the 401(k) Plan for persons of such participant’s status. The DCP is discussed in further detail under the heading “Non-Qualified Deferred Compensation Table—Fiscal Year 2016” beginning on page 51.

We did not make matching contributions to the 401(k) plan or the DCP during 2016, except for a transitional match for legacy Gentiva employees, including Mr. Causby.

We and the Committee believe that, in order to attract and retain qualified executives and other key employees, the provision of certain perquisites and other personal benefits to such executives and other key employees is reasonable and consistent with our overall executive compensation program. Such benefits provided to the named executive officers include the payment of life insurance premiums, limited personal use of our aircraft and the ability to receive a discounted cash payment in lieu of accumulated paid time off benefits.

Recoupment Provisions

In order to further align management’s interests with the interest of shareholders and to support good governance practices, the Committee has implemented recoupment provisions or “clawbacks” into our short-term

 

41


incentive plan, the LTIP, and our 2011 Stock Incentive Plan, Amended and Restated (the “2011 Stock Incentive Plan”). These recoupment provisions generally provide that we have the authority to recoup, and a participant in these plans has the obligation to repay, all or any portion of any award paid under such plans that may be required to be recouped under federal or state laws, our policies or listing requirements of any applicable securities exchange.

Stock Ownership Guidelines

The Committee believes that our executive officers will more effectively pursue our long-term interests if their interests are strongly linked to those of our shareholders. Our stock ownership guidelines were developed after considering the stock ownership requirements of peer companies as well as our historic equity grant levels and our expected ability to grant equity in the future. The Committee believes that these guidelines ensure that the named executive officers hold a sufficient amount of our Common Stock to further strengthen the long-term link between the results achieved for our shareholders and the compensation provided to the named executive officers.

In 2016, the stock ownership guidelines for the named executive officers were determined as a multiple of such named executive officer’s base salary as follows:

 

     Multiple of Base Salary  

Mr. Breier

     3.0x  

Mr. Farber

     1.5x  

Mr. Wallace

     2.0x  

Mr. Causby

     1.5x  

Mr. Landenwich

     1.5x  

The minimum number of shares to be held by each named executive officer is calculated on June 30 of each year based upon the average of the high and low sales prices of our Common Stock on the NYSE on that date. Newly appointed executive officers have five years from the date of appointment to attain the appropriate ownership level. All of the named executive officers are in compliance with this policy.

The named executive officer is required to retain an amount equal to 50% of net shares received under any equity awards until the guideline is met. If the applicable guideline has not been achieved in the required time period, then the named executive officer is required to retain 100% of net shares received under any subsequent equity awards. Our Board of Directors may, at its discretion, waive the stock ownership guidelines if compliance would create a substantial hardship or prevent a named executive officer from complying with a court order.

In determining whether a named executive officer satisfies the required ownership requirement, the calculation includes stock held directly by the named executive officer or owned either jointly with, or separately by, his immediate family members residing in the same household, shares held in trust for the benefit of the named executive officer or his immediate family members and service-based restricted stock. Stock ownership does not include unexercised stock options, stock appreciation rights, or the non-vested portion of any performance-based restricted stock units.

Minimum Holding Period

Regardless of whether the applicable minimum ownership requirement has been met, each director and executive officer is prohibited from selling, assigning, or otherwise transferring all net shares received upon the exercise of any stock option or vesting of a service-based or performance-based restricted stock award for a one-year period beginning on the date the underlying stock option is exercised or the service-based or performance-based restricted stock award vests.

 

42


Stock Trading Restrictions

We maintain a securities trading policy which applies to all employees including the named executive officers. As part of the securities trading policy, our employees are prohibited from: (1) buying or selling our Common Stock at any time such employee is in possession of material non-public information; (2) short selling Common Stock; (3) purchasing Common Stock on margin; and (4) entering into hedging transactions involving Common Stock. Named executive officers who violate such prohibitions are subject to disciplinary proceedings, including dismissal.

Executive Compensation Tax Deductibility

Section 162(m) of the Code limits the tax deductibility of annual individual compensation in excess of $1 million paid to named executive officers (other than the chief financial officer) unless the compensation is “performance-based,” as defined in Section 162(m) of the Code. The Committee generally intends, to the extent practicable, to preserve deductibility of compensation paid to our named executive officers while maintaining compensation programs that effectively attract, motivate and retain our executives. However, we reserve the discretion to pay compensation that does not qualify as performance-based compensation under Section 162(m) of the Code in order to maintain the discretion and flexibility to design compensation plans and arrangements that appropriately achieve our objectives.

 

43


SUMMARY COMPENSATION TABLE

The following table sets forth certain information regarding compensation for fiscal years 2016, 2015, and 2014 for the Company’s named executive officers. The Company identified five individuals as its named executive officers for 2016, comprised of the President and Chief Executive Officer, the Executive Vice President and Chief Financial Officer, and its three other most highly compensated executive officers serving at the end of 2016. The principal position of each named executive officer is provided as of December 31, 2016.

 

Name and Principal Position

  Year     Salary     Bonus     Stock
Awards
(1)
    Non-Equity
Incentive
Plan
Compensation
(2)
    Change in
Pension
Value
and
Non-Qualified
Deferred
Compensation
Earnings
(3)
    All Other
Compensation
(4)
    Total  

Benjamin A. Breier

    2016     $ 1,045,098       —     $ 4,631,134 (5)    $ 1,139,982       —     $ 187,265     $ 7,003,479 (6) 

President and Chief

    2015     $ 880,299       —     $ 3,132,943     $ 1,227,624       —     $ 203,750     $ 5,444,616 (6) 

Executive Officer

    2014     $ 758,230       —     $ 2,224,916     $ 591,910       —     $ 130,141     $ 3,705,197  

Stephen D. Farber

    2016     $ 605,798       —     $ 1,229,248     $ 424,608       —     $ 68,209     $ 2,327,863  

Executive Vice President,

    2015     $ 596,171     $ 350,000 (8)    $ 841,680     $ 616,405       —     $ 329,332     $ 2,733,588  

Chief Financial Officer (7)

    2014     $ 442,318       —     $ 979,000     $ 309,566       —     $ 158,505     $ 1,889,389  

Kent H. Wallace

    2016     $ 706,743     $ 50,000 (10)    $ 855,808     $ 389,140       —     $ 30,414     $ 2,032,105  

Executive Vice President and

    2015     $ 619,234     $ 50,000 (10)    $ 1,000,005     $ 515,319       —     $ 37,666     $ 2,222,224  

Chief Operating Officer (9)

    2014       —       —       —       —       —       —       —  

David A. Causby

    2016     $ 563,417     $ 1,000,000 (12)    $ 921,930     $ 245,344     $ 424     $ 17.328     $ 2,748,443  

Executive Vice President and

    2015     $ 486,551     $ 1,000,000 (13)    $ 2,497,356 (14)    $ 480,162       —     $ 7,405     $ 4,471,474  

President, Kindred at Home (11)

    2014       —       —       —       —       —       —       —  

Joseph L. Landenwich

    2016     $ 413,845       —     $ 775,369     $ 194,436     $ 2,761     $ 13,883     $ 1,400,294  

General Counsel and Corporate

               

Secretary (15)

               

 

(1) Amounts in this column represent the aggregate grant date fair value for awards of service-based restricted stock and performance-based restricted stock units computed in accordance with FASB ASC Topic 718. The aggregate grant date fair value for awards of service-based restricted stock is calculated using the closing price of the Company’s Common Stock on the date of grant, without regard to when and how the service-based restricted stock vests. With respect to the performance-based restricted stock units granted in 2016, 2015 and 2014, each award consists of three tranches and performance goals are established annually at the beginning of each tranche’s respective single-year performance period. The aggregate grant date fair value for performance-based restricted stock unit awards is calculated for purposes of FASB ASC Topic 718 using the closing price of the Company’s Common Stock on the date of grant for the first tranche of an award and using the closing price of the Company’s Common Stock on the date performance goals are established for each remaining tranche. During 2016, performance goals were established for the first tranche of the 2016 award, the second tranche of the 2015 award and the third tranche of the 2014 award. Accordingly, the amount in this column for fiscal 2016 includes the aggregate grant date fair value of the first tranche of the 2016 award, the second tranche of the 2015 award and the third tranche of the 2014 award based on the probable outcome of the performance conditions at the time of grant, as follows:

 

Year/Tranche

   Mr. Breier      Mr. Farber      Mr. Wallace      Mr. Causby      Mr. Landenwich  

2016—Tranche 1

   $ 797,761      $ 202,288      $ 155,608      $ 155,608      $ 77,804  

2015—Tranche 2

   $ 363,065      $ 116,700        —      $ 66,122      $ 68,071  

2014—Tranche 3

   $ 165,329        —        —        —      $ 42,794  

 

44


The grant date fair value for all performance-based restricted stock units granted to the named executive officers during 2016, assuming for purposes of this disclosure that each of the three tranches could be valued under FASB ASC Topic 718 at the closing price of the Company’s Common Stock on the date of grant ($11.67), is as follows:

 

Year

   Mr. Breier      Mr. Farber      Mr. Wallace      Mr. Causby      Mr. Landenwich  

2016

   $ 2,393,260      $ 606,840      $ 466,800      $ 466,800      $ 233,400  

The aggregate grant date fair value for the third tranche of the 2015 award and the second and third tranches of the 2016 award will be calculable and reported in subsequent years, using the closing price of Common Stock on the date performance goals are established for each tranche. The assumptions used in calculating aggregate grant date fair value with respect to fiscal year 2016 are discussed in Note 17 of the 2016 Audited Financials.

 

(2) These amounts represent amounts earned under the Company’s short-term incentive plan and LTIP. The named executive officers earned the following amounts under the Company’s short-term incentive plan during 2016, 2015 and 2014:

 

Year

   Mr. Breier      Mr. Farber      Mr. Wallace      Mr. Causby      Mr. Landenwich  

2016

   $ 942,811      $ 333,558      $ 389,140      $ 245,344      $ 142,553  

2015

   $ 977,744      $ 484,335      $ 515,319      $ 480,162        —    

2014

   $ 547,497      $ 285,256        —        —        —    

The named executive officers earned the following amounts under the Company’s LTIP during 2016, 2015, and 2014:

 

Year

   Mr. Breier      Mr. Farber      Mr. Wallace      Mr. Causby      Mr. Landenwich  

2016

   $ 197,171      $ 91,050        —        —      $ 51,883  

2015

   $ 249,880      $ 132,070        —        —        —    

2014

   $ 44,413      $ 24,310        —        —        —    

For 2016, the amounts earned under the LTIP represent amounts earned under the 2016 Gap Award (payable in the fourth quarter of 2017). A participant generally must be employed at the time payments are due to receive the amount earned. No amounts have yet been earned under the 2016 Three-Year Award, as such award is comprised of three single-year performance periods, two of which have yet to be completed, all of which are collectively subject to a three-year TSR modifier, and generally require continued service with the Company through the payment date. See “LTIP” on page 33 for more information about these awards.

 

(3) These amounts represent the above-market interest earned in the DCP during the respective year. Above-market interest equals the amount of interest in excess of 120% of the federal long-term rate as of October 1 of the prior year. The federal long-term rate as of October 1, 2015, 2014, and 2013 was 2.58%, 2.89%, and 3.50%, respectively.

 

(4) The amounts in this column include (1) redistributed amounts for the benefit of the named executive officers in the Company’s 401(k) Plan, (2) the taxable value of life insurance premiums paid by the Company, (3) certain transportation-related benefits (“TRB”), and (4) for Mr. Causby, a contribution to his DCP account. These amounts for 2016 were as follows:

 

     401(k)      Life      TRB (a)      DCP      Total  

Mr. Breier

   $ 20      $ 1,663      $ 185,582        —        $ 187,265  

Mr. Farber

   $ 20      $ 969      $ 67,220        —        $ 68,209  

Mr. Wallace

     —        $ 5,039      $ 25,375        —        $ 30,414  

Mr. Causby

     —        $ 927      $ 12,426      $ 3,975      $ 17,328  

Mr. Landenwich

   $ 20      $ 974      $ 12,889        —        $ 13,883  

 

45


  (a) For purposes of determining the value of the TRB, the Company bases the calculation on the aggregate incremental cost to the Company for the use of the Company’s aircraft or chartered aircraft by each named executive officer and such named executive officer’s requested occupants. The aggregate incremental cost for the Company’s aircraft is based upon a cost-per-flight-hour charge developed from the annual direct costs to operate the Company’s aircraft. The incremental cost for any chartered aircraft is the actual cost of the chartered aircraft paid by the Company.

 

(5) Due to a decline in the Company’s stock price following the grant date, the amount realizable from Mr. Breier’s 2016 service-based restricted stock award declined from a grant date fair value of $3,304,979 to $2,223,144 by the end of 2016 (a reduction of $1,081,835). Due to a decline in the Company’s stock price between the grant and vesting dates, and the Company’s achievement of only 20% of the 2016 annual performance goals, the amount Mr. Breier earned from these performance-based restricted stock awards declined from a grant date fair value of $1,326,155 to $163,634 (a reduction of $1,162,521).

 

(6) Mr. Breier was promoted from President and Chief Operating Officer to President and Chief Executive Officer on March 31, 2015. Mr. Breier’s total compensation for the remaining nine months of 2015 and all of 2016 increased as a direct result of this promotion. Further, as set forth in footnote five above, Mr. Breier’s total compensation opportunity has been negatively impacted by over $2 million based on the Company’s 2016 performance and a decline in stock price.

 

(7) Mr. Farber began serving as the Company’s Executive Vice President, Chief Financial Officer on February 3, 2014.

 

(8) This amount represents a special cash bonus paid to Mr. Farber in 2015 for his efforts in connection with the Gentiva Merger.

 

(9) Mr. Wallace began serving as the Company’s Executive Vice President and Chief Operating Officer on February 2, 2015.

 

(10) These amounts represent a sign-on bonus paid to Mr. Wallace during 2016 and 2015 to secure his services as Chief Operating Officer.

 

(11) Mr. Causby began serving as the Company’s Executive Vice President and President, Kindred at Home on February 2, 2015.

 

(12) Represents a performance-based cash bonus paid in February 2016 to Mr. Causby pursuant to the terms of the Causby Agreement, based on the achievement of the Company’s Kindred at Home division over the 12-month period ending February 2, 2016 as follows: (1) $500,000 for leadership of a successful integration of Gentiva into Kindred, (2) $250,000 for achievement of one-year synergies resulting from the Gentiva Merger, (3) $250,000 for attainment of budgeted targets, and (4) his continued employment through February 2, 2016. See “Employment Agreements with other Named Executive Officers” on page 40 for more information about this payment.

 

(13) Represents a cash payment in February 2015 to Mr. Causby pursuant to the terms of the Causby Agreement, as partial consideration for a $2,035,000 change in control severance payment to which he was otherwise entitled following the Gentiva Merger, and for the confidentiality, non-competition, and non-solicitation covenants imposed on Mr. Causby during the term of the Causby Agreement and for a one-year period thereafter. See “Employment Agreements with other Named Executive Officers” on page 40 for more information about this payment.

 

(14) This amount includes the grant date fair value of 57,051 restricted stock units granted in lieu of outstanding Gentiva performance cash awards, and 53,077 restricted stock units granted as partial consideration for a $2,035,000 change in control severance payment to which Mr. Causby was otherwise entitled following the Gentiva Merger, both of which were granted pursuant to the Causby Agreement. This amount excludes the grant date fair value of 25,812 restricted stock units granted to Mr. Causby in exchange for outstanding and unvested in-the-money Gentiva options pursuant to the Causby Agreement. See “Employment Agreements with other Named Executive Officers” on page 40 for more information about these awards.

 

46


(15) Mr. Landenwich has not previously been identified as a named executive officer. Accordingly, disclosures for periods prior to 2016 have not been provided in the Summary Compensation Table or the accompanying footnotes.

Grants of Plan-Based Awards Table—Fiscal Year 2016

The following table sets forth information regarding grants of awards under incentive compensation programs to the Company’s named executive officers during fiscal year 2016.

 

Name

  Grant
Date
    Estimated Possible/Future
Payouts Under Non-Equity
Incentive Plan Awards
    Estimated
Future
Payouts
Under Equity
Incentive
Plan Awards
(#)(1)(2)
    All Other
Stock
Awards:
Number of
Shares of
Stock or Units
(#)(2)(3)
    Grant
Date Fair
Value of
Stock
Awards
($)(4)
 
    Minimum     Target     Maximum     Minimum     Target      

Benjamin A. Breier

               

Short-term incentive plan (5)

    N/A     $ 524,951     $ 1,312,376     $ 2,215,291          

Long-term incentive plan (6)

    N/A     $ 196,857     $ 787,426     $ 1,968,564          

Long-term incentive plan (7)

    N/A     $ 65,553     $ 262,213     $ 655,532          
    3/24/16             20,508       205,078       $ 797,761 (8) 
    3/24/16                 283,203     $ 3,304,979  

Stephen D. Farber

               

Short-term incentive plan (5)

    N/A     $ 193,929     $ 484,823     $ 818,382          

Long-term incentive plan (6)

    N/A     $ 90,904     $ 363,617     $ 909,044          

Long-term incentive plan (7)

    N/A     $ 30,271     $ 121,085     $ 302,711          
    3/24/16             5,200       52,000       $ 202,288 (8) 
    3/24/16                 78,000     $ 910,260  

Kent H. Wallace

               

Short-term incentive plan (5)

    N/A     $ 226,224     $ 565,610     $ 954,750          

Long-term incentive plan (7)

    N/A     $ 35,315     $ 141,261     $ 353,153          
    3/24/16             4,000       40,000       $ 155,608 (8) 
    3/24/16                 60,000     $ 700,200  

David A. Causby

               

Short-term incentive plan (5)

    N/A     $ 137,989     $ 344,972     $ 582,313          

Long-term incentive plan (7)

    N/A     $ 23,923     $ 95,730     $ 239,325          
    3/24/16             4,000       40,000       $ 155,608 (8) 
    3/24/16                 60,000     $ 700,200  

Joseph L. Landenwich

               

Short-term incentive plan (5)

    N/A     $ 82,880     $ 207,199     $ 349,752          

Long-term incentive plan (6)

    N/A     $ 51,800     $ 207,199     $ 517,998          

Long-term incentive plan (7)

    N/A     $ 17,249     $ 68,997     $ 172,943          
    1/4/16                 20,000     $ 236,600  
    3/24/16             2,000       20,000       $ 77,804 (8) 
    3/24/16                 30,000     $ 350,100  

 

(1)

These amounts reflect all performance-based restricted stock units granted during 2016 to the named executive officers, regardless of when, or if, such performance-based restricted stock units vest. These performance-based restricted stock unit grants are divided into three equal tranches corresponding to annual performance periods for 2016, 2017, and 2018. The Committee establishes performance goals annually for the current year’s tranche. If the performance goals are not satisfied in a given performance period, then some or all of the performance-based restricted stock units in the relevant performance period will be forfeited by the named executive officer. See the “Performance-Based Restricted Stock Units Earned in 2016” portion of the Compensation Discussion and Analysis section beginning on page 39 for a description of the minimum, target and maximum goals established for the 2016 performance period for the performance-based restricted stock units granted in 2016. With respect to the first and second tranches of the performance-based restricted stock units granted during 2016, performance above a minimum threshold

 

47


  in respect of one of either of the two relevant goals would result in an award percentage of 10% of such tranche. Further, because a 100% cap has been established as the maximum award level with respect to the first and second tranches of performance-based restricted stock units granted during 2016, the target award payout for the first and second tranches equals the maximum possible payout of 100%. In February 2017, based upon the Company’s performance with respect to the 2016 performance period, each named executive officer earned the following number of shares from the first tranche of the 2016 award: Mr. Breier – 13,672 shares; Mr. Farber – 3,467 shares; Mr. Wallace – 2,667 shares; Mr. Causby – 2,667 shares; and Mr. Landenwich – 1,333 shares. At December 31, 2016, threshold, target, and maximum performance criteria have not yet been established for the second and third tranches of the 2016 performance-based restricted stock units.

 

(2) These amounts reflect awards under the 2011 Stock Incentive Plan.

 

(3) These amounts reflect all shares of service-based restricted stock granted during 2016 to the named executive officers. All shares of service-based restricted stock granted to the named executive officers during 2016 vest in three equal annual installments, beginning on the first anniversary of the date of grant, provided the named executive officer is employed by the Company on each such date. These service-based restricted stock awards entitle each named executive officer to receive dividends if and when declared by the Board of Directors.

 

(4) These amounts represent the grant date fair value calculated in accordance with FASB ASC Topic 718, excluding forfeiture assumptions.

 

(5) These amounts reflect potential payouts under the Company’s short-term incentive plan. Actual awards for 2016 have been disclosed in the Summary Compensation Table beginning on page 44 under the column “Non-Equity Incentive Plan Compensation.”

 

(6) These amounts reflect potential payouts under the 2016 Gap Award. Messrs. Wallace and Causby did not participate in the 2016 Gap Award. The actual amounts of the 2016 Gap Award for Messrs. Breier, Farber, and Landenwich have been disclosed in the Summary Compensation Table beginning on page 44 under the column “Non-Equity Incentive Plan Compensation.” Amounts earned under the 2016 Gap Award are payable in the fourth quarter of 2017, provided generally that the named executive officer is employed by the Company at the time the payment is due.

 

(7) These amounts reflect potential payouts for the 2016 performance period under the 2016 Three-Year Award, prior to adjustment based upon a three-year TSR modifier. The 2016 Three-Year Award is comprised of three single-year performance periods (2016, 2017 and 2018), each of which comprises one-third of the total three-year award. No amounts have yet been earned under the 2016 Three-Year Award, as two of the three single-year performance periods have yet to be completed, all of which are collectively subject to a three-year TSR modifier, and generally require continued service with the Company through the payment date. See “LTIP Award Calculation—2016 Three-Year Awards” on page 36 for the estimated payouts of the 2016 Three-Year Award for the named executive officers. Amounts ultimately earned under the 2016 Three-Year Award are payable in a lump sum during the fourth quarter of 2019, provided generally that the named executive officer is employed by the Company at the time the payment is due.

 

(8)

These amounts represent the grant date fair value calculated in accordance with FASB ASC Topic 718 for the first tranche of performance-based restricted stock units granted in 2016. As previously disclosed, the 2016 grants of performance-based restricted stock units are divided into three equal tranches corresponding to annual performance periods for 2016, 2017, and 2018. Because performance goals for the second and third tranches of performance-based restricted stock units granted in 2016 were not established during 2016, the grant date fair value for these tranches is not included in these amounts. For purposes of FASB ASC Topic 718, a grant date fair value for the second and third tranches cannot be determined until the date performance goals are established for each tranche. The grant date fair value for all performance-based restricted stock units granted to the named executive officers during 2016, assuming for purposes of this

 

48


  disclosure that each of the three tranches could be valued under FASB ASC Topic 718 at the closing price of the Company’s Common Stock on the date of grant, is set forth in footnote 1 to the Summary Compensation Table beginning on page 44.

Outstanding Equity Awards at End of Fiscal Year 2016

The following table sets forth information regarding outstanding equity awards held by the Company’s named executive officers as of December 31, 2016.

 

    Option Awards     Stock Awards  

Name

  Number of
Securities
Underlying
Unexercised
Options
(#)
    Number of
Securities
Underlying
Unexercised
Options
(#)
    Option
Grant
Date
    Option
Exercise
Price
    Option
Expiration
Date
    Number of
Shares or
Units
of Stock
That  Have
Not
Vested
(#)(1)
    Market
Value of
Shares or
Units
of Stock
That
Have Not
Vested
($)(2)
    Equity
Incentive
Plan Awards:
Number of
Unearned
Shares, Units
or Other
Rights That
Have Not
Vested
(#)(3)
    Equity
Incentive
Plan Awards:
Market or
Payout Value
of Unearned
Shares, Units
or Other
Rights That
Have Not
Vested
($)(2)
 
  Exercisable     Unexercisable                

Benjamin A. Breier

    —       —       —       —       —         376,675     $ 2,956,899       281,467     $ 2,209,516  

Stephen D. Farber

    —       —       —       —       —         114,667     $ 900,136       72,000     $ 565,200  

Kent H. Wallace

    —       —       —       —       —         96,590     $ 758,232       40,000     $ 314,000  

David A. Causby

    8,110       —       1/5/07     $ 19.26       1/5/17 (4)      160,407     $ 1,259,195      
    25,344       —       2/3/09     $ 26.08       2/3/19 (4)          51,333     $ 402,964  
    9,833       —       1/6/10     $ 25.27       1/6/17 (4)         
    16,828       —       1/5/11     $ 26.22       1/5/18 (5)         

Joseph L. Landenwich

    —       —       —       —       —         67,166     $ 527,253       35,333     $ 277,364  

 

(1) These shares represent unvested service-based restricted stock or, as noted below, unvested service-based restricted stock units. The unvested service-based restricted stock and unvested service-based restricted stock units held by each of the named executive officers as of December 31, 2016 will vest as follows:

 

Vesting Date

   Mr. Breier
(# of shares)
     Mr. Farber
(# of shares)
     Mr. Wallace
(# of shares)
     Mr. Causby
(# of shares)
     Mr. Landenwich
(# of shares)
 

1/4/17

     —          —        —        —        6,667

2/2/17

     —        —        18,295        17,692      —  

2/18/17

     —        16,667        —        —        —  

2/19/17

     —        —        —        11,950        —  

2/19/17

     —        —        —        41,740      —  

3/24/17

     94,401        26,000        20,000      20,000      10,000

3/26/17

     41,736        10,000        —        —        8,583

4/7/17

     —        —        —        5,666        —  

7/29/17

     10,000        —        —        —        —  

1/4/18

     —          —        —        —        6,666

2/2/18

     —        —        18,295        17,692      —  

3/24/18

     94,401        26,000        20,000      20,000      10,000

3/26/18

     41,736        10,000        —        —        8,583

4/7/18

     —        —        —        5,667        —  

1/4/19

     —          —        —        —        6,667

3/24/19

     94,401        26,000        20,000      20,000      10,000
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     376,675        114,667        96,590        160,407        67,166
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

  * restricted stock units

 

(2) Market value is calculated by multiplying the total number of shares of Common Stock that have not vested as of December 30, 2016 by $7.85, which was the closing price of Common Stock on the NYSE on such date.

 

49


(3) These shares represent all unvested performance-based restricted stock units that may be earned under the third tranche of the 2014 performance-based restricted stock unit award, the second and third tranches of the 2015 performance-based restricted stock unit award, and all three tranches of the 2016 performance-based restricted stock unit award. Each award of performance-based restricted stock units is divided into three equal annual tranches relating to three consecutive annual performance periods. At the beginning of the relevant performance period, the Committee establishes the performance goals for the applicable tranche. If the performance goals are not satisfied in a given year, some or all of the performance-based restricted stock units in such year’s tranche will be forfeited by the named executive officer. In February 2017, based upon the Company’s performance with respect to the 2016 performance period, each named executive officer was awarded a portion of performance-based restricted stock units from the third tranche of the 2014 grant (other than Messrs. Farber, Wallace, and Causby), the second tranche of the 2015 grant (other than Mr. Wallace), and the first tranche of the 2016 grant. A description of these awards is set forth under the “Performance-Based Restricted Stock Units Earned in 2016” section of the Compensation Discussion and Analysis section beginning on page 39.

 

(4) These options vested 50% on the second anniversary of the date of grant and 25% per year on the third and fourth anniversaries of the date of grant.

 

(5) These options vested in three equal annual installments beginning on the first anniversary of the date of grant.

Options Exercised and Stock Vested Table—Fiscal Year 2016

The following table sets forth information regarding each exercise of stock options and vesting of service-based restricted stock and performance-based restricted stock units during the year ended December 31, 2016.

 

Name

   Option Awards      Stock Awards  
   Number of Shares
Acquired on Exercise
     Value Realized on
Exercise
     Number of Shares
Acquired on Vesting (1)
    Value Realized on
Vesting
 

Benjamin A. Breier

     —        —        141,284     $ 1,551,210  

Stephen D. Farber

     —        —        32,666     $ 320,421  

Kent H. Wallace

     —        —        18,295     $ 173,620  

David A. Causby

     —        —        65,235 (2)    $ 614,964  

Joseph L. Landenwich

     —        —        27,222     $ 295,714  

 

(1) Except as set forth in footnote 2 with respect to Mr. Causby, these amounts include the following performance-based restricted stock units awarded in February 2016 from the third tranche of the 2013 grant, the second tranche of the 2014 grant, and the first tranche of the 2015 grant based upon the Company’s performance with respect to the 2015 performance period:

 

     Mr. Breier      Mr. Farber      Mr. Wallace      Mr. Causby      Mr. Landenwich  

Shares awarded from 2013 grant

     13,500                       3,000  

Shares awarded from 2014 grant

     8,500                       2,200  

Shares awarded from 2015 grant

     18,667        6,000           3,400      3,500  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     40,667        6,000           3,400      8,700  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

See the “Performance-Based Restricted Stock Units Earned in 2016” portion of the Compensation Discussion and Analysis section beginning on page 39 for a description of the performance-based restricted stock units awarded in February 2017 based upon the Company’s performance with respect to the 2016 performance period.

 

(2) This amount includes 17,693 restricted stock units that vested on February 2, 2016 and 31,459 restricted stock units that vested on February 19, 2016.

 

50


Non-Qualified Deferred Compensation Table—Fiscal Year 2016

 

Name

   Executive
Contributions
in Last Fiscal
Year
    Registrant
Contributions
in Last Fiscal
Year
     Aggregate
Earnings in
Last Fiscal
Year (1)
     Aggregate
Withdrawals/
Distributions
     Aggregate Balance
at Last Fiscal
Year-End
 

Benjamin A. Breier (2)

                           

Stephen D. Farber (2)

                           

Kent H. Wallace (2)

                           

David A. Causby

   $ 39,439 (3)   $ 3,975    $ 1,011             $ 44,425 (4)

Joseph L. Landenwich

            $ 6,581             $ 126,843 (5)

 

(1) The amount reported in this column includes above-market interest earned in the DCP during 2016 as reported in the “Change in Pension Value and Non-Qualified Deferred Compensation Earnings” column of the Summary Compensation Table beginning on page 44 for Messrs. Causby and Landenwich.

 

(2) Messrs. Breier, Farber, and Wallace have elected not to participate in the DCP.

 

(3) These amounts are included in the 2016 “Salary” column of the Summary Compensation Table beginning on page 44 for Mr. Causby.

 

(4) Mr. Causby did not begin participating in the DCP until 2016. Accordingly, there have been no amounts previously disclosed in the Company’s Summary Compensation Table.

 

(5) Mr. Landenwich has not appeared as a named executive officer in any of the Company’s previous proxy statements. Accordingly, there have been no amounts previously disclosed in the Company’s Summary Compensation Table.

The Company maintains the DCP for certain highly compensated employees, including the named executive officers. A participant in the DCP may elect to defer up to 25% of such participant’s base salary and up to 100% of such participant’s award under the short-term incentive plan into the DCP during each plan year. The Company did not make matching contributions to the 401(k) plan or the DCP during 2016, except for a transitional match for legacy Gentiva employees, including Mr. Causby. Amounts credited to a participant’s account will accrue interest at a fixed rate equal to the interest rate published in Moody’s Bond Record under the heading “Moody’s Corporate Bond Yield Baa Average” for the month of October immediately preceding each plan year. The effective interest rate for 2016 was 5.34%.

A participant under the DCP is generally entitled to a distribution from such participant’s account upon (1) the participant’s retirement (defined as any termination of employment on or after a participant attains age 55) or termination of employment (other than as a result of death) prior to retirement, (2) the participant’s death, or (3) the occurrence of an unforeseen financial emergency (but only to the extent such distribution is necessary to relieve the unforeseen financial emergency). Upon retirement, or in the event a participant’s employment is terminated other than as a result of death, a participant will receive 100% of such participant’s account balance, payable in a lump sum or in equal monthly installments over a 5, 10 or 15 year period as selected by the participant when the participant initially enters the DCP. Messrs. Causby and Landenwich have each elected to receive a lump sum payment equal to his account balance upon retirement or termination of employment. In the event a participant dies before retirement or a termination of employment, such participant’s beneficiary will receive 100% of the participant’s account balance in a lump-sum payment.

 

51


Potential Payments upon Termination or Change in Control

As more fully described below, the following contracts generally provide for payments and other benefits to certain of the named executive officers upon the occurrence of various employment termination or change in control events:

 

   

Employment Agreements—in the event of death, Disability, or an Involuntary Termination;

 

   

Change in Control Severance Agreements—in connection with a termination of employment following a Change in Control;

 

   

Equity Plans—in the event of death, Disability, or a Change in Control; and

 

   

LTIP—in the event of death, Disability, Retirement, termination of employment without Cause, or following a Change in Control.

In addition to the foregoing, termination and change in control payments are payable under the DCP in certain circumstances. See the “Non-Qualified Deferred Compensation Table—Fiscal Year 2016” beginning on page 51 for details regarding the triggering events and amounts payable under the DCP.

In lieu of any payment each named executive officer would otherwise be entitled to under the terms and conditions of the short-term incentive plan, each named executive officer’s employment and change in control severance agreements expressly provide for a payment under the short-term incentive plan following an Involuntary Termination or Change in Control, respectively.

Definitions

Unless otherwise noted, the term “Disability” means the named executive officer shall be unable, or fail, to perform the essential functions of such named executive officer’s position for any period of 90 days or more.

Unless otherwise noted, the term “Cause” means such named executive officer’s: (1) conviction of or plea of nolo contendere to a crime involving moral turpitude, or (2) willful and material breach of such named executive officer’s duties and responsibilities, which is committed in bad faith or without reasonable belief that such conduct is in the best interests of the Company and its affiliates.

Unless otherwise noted, for purposes of each named executive officer’s employment agreement, “Good Reason” means, without the named executive officer’s written consent, (1) a material adverse change in the named executive officer’s authority, duties or responsibilities, (2) a material reduction in the base salary or the annual bonus opportunity of the named executive officer (materiality is set at 5% or greater for Mr. Breier), (3) the Company requiring the named executive officer to relocate such named executive officer’s principal business office more than 30 miles from its current location, or (4) a material breach of the Company’s obligation to (i) allow the named executive officer to participate in the Company’s employee benefit plans, (ii) require any successor to all or substantially all of the business and/or assets of the Company to assume the named executive officer’s employment agreement, and (iii) with respect to Mr. Breier, allow Mr. Breier to participate in the bonus, stock option or other compensation plans of the Company and provide liability, life and disability insurance.

Unless otherwise noted, for purposes of each named executive officer’s change in control severance agreement, “Good Reason” means (1) the named executive officer’s title, duties, responsibilities or authority is reduced or diminished without such named executive officer’s written consent, (2) the named executive officer’s compensation is reduced, (3) the named executive officer’s benefits are reduced, other than pursuant to a uniform reduction applicable to all managers of the Company, or (4) the named executive officer is asked to relocate such named executive officer’s office to a place more than 30 miles from its location on a change in control date.

 

52


Unless otherwise noted, the term “Involuntary Termination” means the Company terminates such named executive officer’s employment other than for Cause, and for each named executive officer, the named executive officer terminates such named executive officer’s employment for Good Reason.

Unless otherwise noted, the term “Retirement” means the voluntary termination of a named executive officer’s employment after the age of 55, or, solely with respect to the 2011 Stock Incentive Plan, the voluntary termination of a named executive officer’s employment (1) after the age of 55 and the completion of five year’s service, or (2) after the age of 65.

Unless otherwise noted, the term “Change in Control” means any of the following events:

(1) an acquisition (other than directly from the Company) of any voting securities of the Company by any person immediately after which such person has beneficial ownership of 20% or more of the combined voting power of the Company’s then outstanding voting securities (excluding acquisitions of voting securities by the Company or any of its subsidiaries, or an employee benefit plan maintained by the Company or any of its subsidiaries);

(2) the individuals who constituted the Board of Directors at the start date of such agreement cease for any reason to constitute over 50% of the Board of Directors; provided, however, that if the election, or nomination for election by the Company’s shareholders, of any new director was approved by a vote of over 50% of the Board of Directors, such new director shall be treated as a member of the original Board of Directors, unless such individual initially assumed office as a result of either an actual or threatened election or proxy contest;

(3) consummation of a merger, consolidation or reorganization involving the Company, unless (a) the shareholders of the Company, immediately before such merger, consolidation or reorganization, own, directly or indirectly immediately following such merger, consolidation or reorganization, over 50% of the combined voting power of all voting securities of the corporation resulting from such merger, consolidation or reorganization over which any person has beneficial ownership in substantially the same proportion as their ownership of the voting securities immediately before such merger, consolidation or reorganization; (b) the individuals who were members of the Board of Directors immediately prior to the execution of the agreement providing for such merger, consolidation or reorganization constitute over 50% of the members of the board of directors of the surviving company; and (c) no person (other than the Company, any of its subsidiaries, any employee benefit plan maintained by the Company, the surviving company or any person who, immediately prior to such merger, consolidation or reorganization had beneficial ownership of 20% or more of the then outstanding voting securities) has beneficial ownership of 20% or more of the combined voting power of the surviving company’s then outstanding voting securities;

(4) approval by the Company’s shareholders of a complete liquidation or dissolution of the Company;

(5) approval by the Company’s shareholders of an agreement for the sale or other disposition of all or substantially all of the assets of the Company to any person (other than a transfer to a subsidiary of the Company); or

(6) any other event that the Board of Directors shall determine constitutes an effective change in control of the Company.

Employment Agreement—Mr. Breier

On March 31, 2015, Mr. Breier became President and Chief Executive Officer in accordance with the CEO Agreement. Mr. Breier’s CEO Agreement provides for specified payments and benefits in the event of the termination of his employment under certain circumstances. If Mr. Breier’s employment is terminated by the Company other than for Cause, or by Mr. Breier for Good Reason, subject to his execution of a general release of claims, Mr. Breier will be eligible to receive (1) a cash severance payment equal to two and one-half times the sum of his base salary and short-term incentive target bonus for the year of termination, (2) prorated awards

 

53


under the Company’s short-term incentive plan and LTIP (based upon actual performance) and (3) continued coverage for him and his eligible dependents under the Company’s employee benefit plans for the 30-month period following his date of termination (such period, the “Benefit Continuation Period”). In addition, Mr. Breier’s outstanding equity awards (other than awards of service-based restricted stock) will continue to vest (and in the case of stock options, remain exercisable) in accordance with the terms of such awards (including the achievement of performance measures) for the Benefit Continuation Period, and any awards of service-based restricted stock that would have vested during the Benefit Continuation Period will vest on his date of termination. If his employment is terminated by reason of death or Disability, Mr. Breier is entitled to a prorated portion of his short-term incentive target award in the year of termination. If Mr. Breier’s employment is terminated by the Company for Cause, no additional payments are made under the CEO Agreement.

Employment Agreements—Other Named Executive Officers

Each of the other named executive officers’ employment agreements provides for severance payments under certain circumstances. Following termination for any reason, such other named executive officer is entitled to receive accrued wages through the date of termination, as well as any amounts owed to such named executive officer pursuant to the terms and conditions of the benefit plans and programs of the Company. In addition, subject to the execution of a general release of claims satisfactory to the Company (except in the event of death or Disability), such named executive officer is entitled to the following additional payments. If employment is terminated by reason of death or Disability, such named executive officer is entitled to a prorated portion of such named executive officer’s short-term incentive target award (based upon actual performance) in the year of termination. If such named executive officer’s employment is terminated for Good Reason, or other than for Cause, such named executive officer’s employment agreement provides for a cash severance payment equal to the prorated portion of the short-term incentive award earned (based upon actual performance) in the year of termination plus one and one-half times base salary and short-term incentive target award in the year of termination. In addition, for an 18-month period following such named executive officer’s termination date, such named executive officer would be entitled to continued coverage under the Company’s employee benefit plans, additional vesting of service-based restricted stock, service-based restricted stock units (in the case of Mr. Causby), and performance-based restricted stock units and stock options, and the opportunity to exercise the options within such time period (but in no event beyond the expiration of the original term of such options). If such named executive officer’s employment is terminated by the Company for Cause, no additional payments are made under such named executive officer’s employment agreement.

Change in Control Severance Agreements

As of December 31, 2016, the Company had a change in control severance agreement in place with each of its named executive officers. The change in control severance agreements provide for the payment of severance benefits under certain circumstances. These benefits become payable at any time within two years after a Change in Control of the Company if: (1) the Company terminates the executive’s employment without Cause; or (2) the executive terminates employment with the Company for Good Reason. The benefits to be afforded the named executive officers include: (i) a lump sum cash severance payment equal to three times (or 2.99 times with respect to Mr. Wallace and 2.9 times with respect to Mr. Causby) base salary and short-term incentive target award as of the termination of employment or Change in Control date, whichever is greater; (ii) continuation of health, dental, life and disability insurance coverage for three years; and (iii) for Messrs. Breier, Farber, and Landenwich, reimbursement of up to $5,000 for legal and accounting fees incurred as a result of the Change in Control.

The Company’s Corporate Governance Guidelines requires shareholder approval or ratification of amended or future change in control severance agreements that provide for payments in excess of 2.99 times base salary and target bonus under the Company’s short term incentive plan. All change in control severance agreements entered into after the date of this amendment expressly stipulate that all benefits payable thereunder will be reduced in order to comply with any executive severance policy the Company has adopted from time to time.

 

54


Non-Solicitation and Non-Competition Covenants

Each of the named executive officers is subject to a non-solicitation covenant set forth in such named executive officer’s employment agreement and change in control severance agreement. These non-solicitation covenants provide that during the term and for a one-year period thereafter, the named executive officer will not aid, endeavor to solicit or induce any of the Company’s or its affiliates’ employees to leave their employment with the Company or such affiliate in order to accept employment with the named executive officer or any other person or entity.

Messrs. Breier and Causby are also currently subject to non-compete covenants under their employment agreements. These non-compete covenants provide that during the term and for a one-year period thereafter, such named executive officer will not, without the prior written approval of the Board of Directors become an officer, employee, agent, partner or director of, or otherwise provide services to any other business in direct competition with the Company, or solicit or attempt to take away any customer of the Company.

2011 Stock Incentive Plan

Pursuant to the 2011 Stock Incentive Plan, upon death or Disability, any service-based restricted stock awards outstanding as of such date immediately vest, all outstanding options immediately become fully vested and exercisable (for a two-year period for non-qualified options and a one-year period for incentive options but not past their original expiration date), and all performance-based restricted stock units outstanding will be prorated for that portion of the performance period that such person was employed, assuming target performance was achieved. Upon Retirement, to the extent exercisable, all options will remain exercisable for a two-year period with respect to non-qualified options and a 90-day period with respect to incentive options (but not past their original expiration date). Regarding a Change in Control, the Company amended the 2011 Incentive Plan during 2014 to provide that outstanding equity awards accelerate only upon a qualifying termination of employment within 18 months of a Change in Control. Thus, following a Change in Control (1) all service-based restricted stock awards, performance-based restricted stock units and options granted before May 22, 2014 will immediately vest and, with respect to the options, become fully exercisable, and (2) all service-based restricted stock awards, performance-based restricted stock units and options granted after May 22, 2014 will also immediately vest and, with respect to the options, become fully exercisable, but only if employment is terminated by the employee for Good Reason or by the Company without Cause within an 18-month period following such Change in Control.

LTIP

Pursuant to the LTIP, if during a performance period a participating named executive officer is terminated without Cause, or upon Retirement, such named executive officer will receive an award for such performance period (which may be prorated) based upon actual achievement of performance goals, payable as if such named executive officer remained employed by the Company. Upon death or Disability during a performance period, such named executive officer (or such named executive officer’s beneficiary) shall be entitled to receive such named executive officer’s target award under the LTIP for such performance period, which award may be prorated and paid within thirty days of death or Disability. Also pursuant to the LTIP, in the event of a Change in Control, the Company or a successor will either assume or continue all outstanding awards, or, in lieu thereof, each participant, including any participating named executive officer, will receive a lump-sum payment equal to the target award available for such named executive officer for the performance period in which the Change in Control occurs, without proration.

 

55


Summary of Potential Payments upon Termination or Change in Control

The following table sets forth the dollar amount of payments and benefits that each named executive officer would receive in various circumstances triggering payments under such named executive officer’s employment agreement or change in control severance agreement, as well as the Company’s 2011 Stock Incentive Plan and LTIP as of December 31, 2016.

 

     Involuntary
Termination
    Change in
Control
    Death/
Disability
    Retirement  

Benjamin A. Breier

        

Cash payments

     $6,848,504 (1)      $7,086,831 (2)      $1,312,376 (3)      —  

Extended employee benefits

     32,745 (4)      39,294 (5)      —       —  

Equity awards

     5,166,415 (6)      5,166,415 (7)      3,848,957 (8)      —  

LTIP

     459,384 (9)      1,574,852 (10)      1,049,639 (11)      —   (12) 

Reimbursement of legal/accounting fees

     —       5,000       —       —  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

     $12,507,048       $13,872,392       $6,210,972       —  
  

 

 

   

 

 

   

 

 

   

 

 

 

Stephen D. Farber

        

Cash payments

     $1,969,837 (13)      $3,272,556 (2)      $484,823 (3)      —  

Extended employee benefits

     17,207 (14)      34,413 (5)      —       —  

Equity awards

     1,125,172 (15)      1,465,336 (7)      1,114,708 (8)      —  

LTIP

     212,135 (9)      727,234 (10)      484,702 (11)      —   (12) 

Reimbursement of legal/accounting fees

     —       5,000       —       —  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

     $3,324,351       $5,504,539       $2,084,233       —  
  

 

 

   

 

 

   

 

 

   

 

 

 

Kent H. Wallace

        

Cash payments

     $2,298,075 (13)      $3,805,143 (16)      $565,610 (3)      —  

Extended employee benefits

     15,057 (14)      30,114 (5)      —       —  

Equity awards

     810,568 (15)      1,072,232 (7)      862,904 (8)      —  

LTIP

     141,261 (9)      424,208 (10)      141,261 (11)      $35,372 (12) 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

     $3,264,961       $5,331,697       $1,569,775       $35,372
  

 

 

   

 

 

   

 

 

   

 

 

 

David A. Causby

        

Cash payments

     $1,625,233 (13)      $2,667,786 (17)      $344,972 (3)      —  

Extended employee benefits

     20,945 (14)      41,889 (5)      —       —  

Equity awards

     1,400,495 (15)      1,662,159 (7)      1,408,345 (8)      —  

LTIP

     95,730 (9)      287,477 (10)      95,730 (11)      —   (12) 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

     $3,142,403       $4,659,311       $1,849,047       —  
  

 

 

   

 

 

   

 

 

   

 

 

 

Joseph L. Landenwich

        

Cash payments

     $1,074,949 (13)      $1,864,791 (2)      $207,199 (3)      —  

Extended employee benefits

     18,549 (14)      37,098 (5)      —       —  

Equity awards

     621,445 (15)      804,617 (7)      654,164 (8)      —  

LTIP

     120,880 (9)      414,398 (10)      276,196 (11)      —   (12) 

Reimbursement of legal/accounting fees

     —       5,000       —       —  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

     $1,835,823       $3,125,904       $1,137,559       —  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) This amount represents (1) two and one-half times the sum of Mr. Breier’s base salary and target award under the short-term incentive plan in the year of termination, payable within 14 days of termination, and (2) the prorated award earned by Mr. Breier under the short-term incentive plan in the year of termination, payable on such date as if Mr. Breier was still employed by the Company.

 

(2) These amounts represent three times the sum of such named executive officer’s base salary and target award under the short-term incentive plan in the year of termination, payable upon the effective date of termination.

 

56


(3) These amounts represent a prorated portion of such named executive officer’s target award under the short-term incentive plan in the year of death or Disability, payable on the same date as if such named executive officer was still employed by the Company.

 

(4) This amount represents the Company’s cost to provide health, dental, life, and short-term and long-term disability benefits for a 30-month period based upon Mr. Breier’s coverage as of December 31, 2016.

 

(5) These amounts represent the Company’s cost to provide health, dental, life and short-term and long-term disability benefits for a three-year period based upon such named executive officer’s coverage as of December 31, 2016.

 

(6) This amount represents the fair value of 30 months of additional vesting of outstanding stock options, service-based restricted stock and performance-based restricted stock units calculated using the December 30, 2016 closing price of the Company’s Common Stock on the NYSE of $7.85.

 

(7) These amounts represent the fair value of full vesting for all outstanding stock options, service-based restricted stock and performance-based restricted stock units calculated using the December 30, 2016 closing price of the Company’s Common Stock on the NYSE of $7.85.

 

(8) These amounts represent the fair value of full vesting for all outstanding stock options and service-based restricted stock awards, and the prorated vesting of all performance-based restricted stock units outstanding (assuming target performance was achieved), calculated using the December 30, 2016 closing price of the Company’s Common Stock on the NYSE of $7.85.

 

(9) These amounts represent the prorated portion of the actual award such named executive officer would have received under the 2016 Gap Award and the 2016 Three-Year Award (assuming target performance) under the LTIP in the year of termination without Cause, payable on the same dates as if such named executive officer was still employed by the Company.

 

(10) These amounts, payable in a lump sum under the LTIP, represent such named executive officer’s target award under the LTIP in the year of termination, assuming that such named executive officer was terminated without Cause during the same performance period in which the Change in Control occurred. In lieu of paying these amounts following a Change in Control, the Company or a successor could instead elect to continue or assume all outstanding awards.

 

(11) These amounts represent the prorated portion of such named executive officer’s target 2016 Gap Award and the 2016 Three-Year Award under the LTIP in the year of death or Disability, payable in a lump sum within 30 days of such death or Disability.

 

(12) Retirement awards are not payable under the LTIP until age 55. As such, Messrs. Breier, Farber, Causby and Landenwich would not be eligible to receive a retirement benefit under the LTIP if they retired as of December 31, 2016. With respect to Mr. Wallace, this amount represents the prorated portion of the actual award he would have received under the 2016 Three-Year Award of the LTIP upon Retirement.

 

(13) These amounts represent (1) one and one-half times the sum of such named executive officer’s base salary and target award under the short-term incentive plan in the year of termination, payable within 14 days of termination, and (2) the prorated award earned by such named executive officer under the short-term incentive plan in the year of termination, payable on such date as if such named executive officer was still employed by the Company.

 

(14) These amounts represent the Company’s cost to provide health, dental, life and short-term and long-term disability benefits for an 18-month period based upon such named executive officer’s coverage on December 31, 2016.

 

(15) These amounts represent the fair value of 18 months of additional vesting of outstanding stock options, service-based restricted stock, performance-based restricted stock units, and, with respect to Mr. Causby, restricted stock units, calculated using the December 30, 2016 closing price of the Company’s Common Stock on the NYSE of $7.85.

 

57


(16) This amount represents 2.99 times the sum of Mr. Wallace’s base salary and target award under the short-term incentive plan in the year of termination, payable upon the effective date of termination.

 

(17) This amount represents 2.9 times the sum of Mr. Causby’s base salary and target award under the short-term incentive plan in the year of termination, payable upon the effective date of termination.

DIRECTOR COMPENSATION

For 2016, non-employee directors received: (1) a quarterly cash retainer of $25,000; (2) an additional $5,000 quarterly retainer for the Audit Committee chair; (3) an additional $3,750 retainer for the Executive Compensation Committee chair; and (4) an additional $2,500 quarterly retainer for the other committee chairs. In addition, the Chair of the Board received an additional quarterly retainer of $25,000 during 2016.

On May 25, 2016, the Company issued to each non-employee director (other than Dr. Simon) 12,356 shares of restricted Common Stock. The Company granted Dr. Simon 17,242 shares of restricted Common Stock on November 2, 2016 in connection with her appointment to the Board of Directors. All of these shares vest in full on the first anniversary of their grant date. All of these shares were issued under the 2012 Equity Plan for Non-Employee Directors (the “2012 Directors Plan”).

Under the 2012 Directors Plan, the Committee has the authority to grant stock options or restricted shares at its discretion to non-employee directors of the Company. Unless otherwise provided in the underlying award agreement (1) each stock option awarded under either plan will have an exercise price equal to the fair market value of the Common Stock on the date such option is granted, will vest in four equal annual installments beginning on the first anniversary of the date of grant, except in the event of a change in control, in which case all shares subject to the stock option shall immediately vest, and will have a ten-year term, and (2) each award of restricted shares will vest in four equal annual installments, beginning on the first anniversary of the date of grant, except in the event of a change in control, in which case all unvested restricted shares shall immediately vest. The 2012 Directors Plan expressly prohibits the Company from lowering the exercise price of previously awarded stock options, except as necessary to prevent dilution or enlargement of the rights of non-employee directors under such plan in the event of a merger, reorganization, consolidation, recapitalization, spin-off or similar change in corporate structure.

Pursuant to the Company’s stock ownership guidelines that apply to its non-employee directors, each non-employee director is required to own shares of the Company’s Common Stock valued at five times the annual cash retainer. The Company’s annual cash retainer for its non-employee directors was $100,000 in 2016. If the applicable ownership guideline is not achieved in any year following an annual calculation, the director is required to retain an amount equal to one hundred percent of net shares received under any equity award subsequently issued to such director until the ownership guideline is met. Each of the Company’s directors is in compliance with this policy.

 

58


DIRECTOR COMPENSATION TABLE

The following table sets forth information regarding the fiscal 2016 compensation for all persons who served as a director of the Company during 2016. Dr. Simon was appointed to the Board of Directors in November 2016.

 

Name

   Fees Earned or
Paid in Cash
     Stock
Awards (1)(2)
    Option
Awards (3)
     All Other
Compensation
    Total  

Joel Ackerman

   $ 110,000      $ 150,002       —          —       $ 260,002  

Jonathan D. Blum

   $ 100,000      $ 150,002       —          —       $ 250,502  

Benjamin A. Breier (4)

     —        —       —          —         —  

Thomas P. Cooper, M.D.

   $ 110,000      $ 150,002       —          —       $ 260,002  

Paul J. Diaz (5)

   $ 75,000      $ 674,067 (6)      —        $ 163,470 (7)   $ 912,537  

Heyward R. Donigan

   $ 100,000      $ 150,002       —          —       $ 250,002  

Richard Goodman

   $ 120,000      $ 150,002       —          —       $ 270,002  

Christopher T. Hjelm

   $ 100,000      $ 150,002