UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934 (Amendment
No. _________)
Filed by the Registrant [X]
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)) |
| [X] | Definitive Proxy Statement |
| [_] | Definitive Additional Materials |
| [_] | Soliciting Material Pursuant to §240.14a-12 |
HMS
HOLDINGS CORP.
(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):
| [_] | 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 is calculated and state how it was determined): |
| | |
| (4) | Proposed maximum aggregate value of transaction: |
| | |
| [_] | 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.: |
| | |
LETTER
TO OUR SHAREHOLDERS
![](http://www.sec.gov/Archives/edgar/data/1196501/000117184319002384/lucia.jpg) |
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Dear Fellow Shareholders: |
On behalf of the Board of Directors and management,
we cordially invite you to attend the HMS Holdings Corp. 2019 Annual Meeting of Shareholders to be held on Wednesday, May 22, 2019,
beginning at 10:00 a.m., Central Daylight Time, at the Four Seasons Resort and Club Dallas at Las Colinas, located at 4150 N. MacArthur
Boulevard, Irving, Texas 75038. The formal Notice of Annual Meeting is set forth in the enclosed materials. At the Annual Meeting,
you will be asked to (1) elect four Class II directors, (2) approve, on an advisory basis, the 2018 compensation of our named executive
officers, (3) approve the HMS Holdings Corp. 2019 Omnibus Incentive Plan, (4) ratify the selection of Grant Thornton LLP as our
independent registered public accounting firm for the fiscal year ending December 31, 2019 and (5) consider such other business
as may properly come before the Annual Meeting or any postponements or adjournments of the Annual Meeting.
It is important that your views be represented, whether
or not you are able to attend the Annual Meeting. You may vote in person at the Annual Meeting, by proxy over the Internet or by
telephone, or if you received a paper copy of the proxy materials by mail, you can also vote by mail by following the instructions
on the proxy card or voting instruction form. Voting over the Internet, by telephone or by written proxy or voting instruction
form will ensure your representation at the Annual Meeting regardless of whether you attend in person.
We appreciate your investment in HMS Holdings Corp.
and look forward to seeing you at the Annual Meeting.
Sincerely,
![](http://www.sec.gov/Archives/edgar/data/1196501/000117184319002384/lucia_sig.jpg)
William C. Lucia
Chairman, President and Chief Executive Officer |
April 12, 2019
Irving, Texas
![](http://www.sec.gov/Archives/edgar/data/1196501/000117184319002384/logo.jpg)
NOTICE
OF ANNUAL MEETING OF SHAREHOLDERS OF HMS HOLDINGS CORP.
Time and Date: |
10:00 a.m. Central Daylight Time on Wednesday, May 22, 2019 |
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Place: |
Four Seasons Resort and Club Dallas at Las Colinas, located at 4150 N. MacArthur Boulevard, Irving, Texas 75038 |
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Items of Business: |
1. |
To elect four Class II directors. |
2. |
To approve, on an advisory basis, the 2018 compensation of our named executive officers. |
3. |
To approve the HMS Holdings Corp. 2019 Omnibus Incentive Plan. |
4. |
To ratify the selection of Grant Thornton LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2019. |
5. |
To consider such other business as may properly come before the 2019 Annual Meeting of Shareholders (the “Annual Meeting”) or any postponement or adjournment thereof. |
Record Date.
Shareholders of record as of the close of business on March 28, 2019 (the “Record Date”) are entitled to notice of
and to vote at the Annual Meeting or any adjournment thereof.
Meeting Admission.
You are entitled to attend the Annual Meeting only if you were a shareholder of HMS as of the close of business on
the Record Date or hold a valid proxy for the Annual Meeting. You should be prepared to present photo identification for admission.
If you are not a shareholder of record, but hold shares through a broker, bank or other nominee (i.e., in street name),
you should provide proof of beneficial ownership as of the Record Date, such as your most recent account statement dated prior
to March 28, 2019, a copy of the voting instruction form provided by your broker, bank or other nominee, or other similar evidence
of ownership. If, upon request, you do not provide photo identification or comply with the other procedures outlined above, you
may not be admitted to the Annual Meeting. Directions to the Annual Meeting may be obtained on our website at http://investor.hms.com/shareholder-services/annual-meeting
or by sending an email to Investor Relations at robert.borchert@hms.com.
Your vote is important
to us. Whether or not you plan to attend the Annual Meeting, we encourage you to read the attached Proxy Statement and
vote as soon as possible. You may vote your shares via a toll-free telephone number or over the Internet. If you received a paper
copy of a proxy or voting instruction form by mail, you may submit your vote by completing, signing, dating and returning your
proxy card or voting instruction form in the pre-addressed envelope provided, or by following the instructions on your proxy card
or voting instruction form for voting over the Internet or by telephone. For specific instructions on how to vote, please refer
to the “General Information About the Annual Meeting” section beginning on page 1 of the Proxy Statement.
By the Order of the Board of Directors,
![](http://www.sec.gov/Archives/edgar/data/1196501/000117184319002384/bjorck_sig.jpg)
Meredith W. Bjorck
Executive Vice President, Chief Legal Officer
and Corporate Secretary
April 12, 2019
Irving, Texas
Important Notice Regarding the Availability of
Proxy Materials for the Annual Meeting of Shareholders to be Held on May 22, 2019: This Notice of Annual Meeting and Proxy Statement
and our 2018 Annual Report to Shareholders are available on our website at http://investor.hms.com/shareholder-services/annual-meeting.
The information contained on our website is not incorporated by reference into this Proxy Statement.
TABLE
OF CONTENTS
PROXY
STATEMENT FOR THE ANNUAL MEETING OF SHAREHOLDERS
TO
BE HELD ON MAY 22, 2019
HMS HOLDINGS
CORP.
5615 High Point
Drive
Irving, Texas
75038
The Board of Directors of HMS Holdings Corp., a Delaware
corporation (which may be referred to in this Proxy Statement as “we,” “us,” “our,” “HMS”
or the "Company"), has made this Proxy Statement and our 2018 Annual Report to Shareholders (the “Annual Report”)
available to you over the Internet or has delivered paper copies of these materials to you in connection with our 2019 Annual Meeting
of Shareholders, or the 2019 Annual Meeting, to be held at 10:00 a.m. Central Daylight Time on Wednesday, May 22, 2019 at the Four
Seasons Resort and Club Dallas at Las Colinas, located at 4150 N. MacArthur Boulevard, Irving, Texas 75038, and at which certain
items of business will be voted on. When we ask for your proxy with respect to these items of business, we must provide you with
a Proxy Statement that contains certain information specified by law.
As a shareholder, you are invited to attend the 2019
Annual Meeting and are entitled and requested to vote on the items of business described in this Proxy Statement.
This Proxy Statement and the notice about the Internet
availability of our proxy materials, as applicable, are being mailed on or about April 12, 2019 to shareholders entitled to vote
at the 2019 Annual Meeting.
GENERAL
INFORMATION ABOUT THE ANNUAL MEETING
Proxy
Materials
Q:
What information is contained in this Proxy Statement?
A: This Proxy Statement contains information
relating to the proposals to be voted on at the 2019 Annual Meeting, the voting process, our Board of Directors ("Board")
and Board committees, the compensation of our directors and executive officers, beneficial ownership of HMS and certain other
required information.
Q:
Why did I receive a notice in the mail regarding the Internet availability of the proxy materials instead of a paper copy of the
proxy materials?
A: We are pleased to be again using the U.S.
Securities and Exchange Commission (the “SEC”) rule that allows companies to furnish their proxy materials over the
Internet. We are mailing to many of our shareholders a notice about the Internet availability of the proxy materials instead of
a paper copy of the proxy materials. All shareholders receiving the notice will have the ability to access the proxy materials
over the Internet and to request to receive a paper copy of the proxy materials by mail. Instructions on how to access the proxy
materials over the Internet, how to request a paper copy of the materials or how to opt to receive future proxy materials in printed
form by mail are provided in the notice.
Q:
How can I access the proxy materials over the Internet?
A: This Proxy Statement and our Annual Report
are available at www.proxyvote.com. Your notice about the Internet availability of the proxy materials, proxy card or voting instruction
form will contain instructions on how to view our proxy materials over the Internet.
| 2019 Proxy Statement 1 |
GENERAL INFORMATION ABOUT THE ANNUAL MEETING
Q:
What should I do if I receive more than one notice about the Internet availability of the proxy materials or more than one paper
copy of the proxy materials?
A: You may receive more than one notice, paper
copy of the proxy materials, proxy card or voting instruction form. For example, if you hold your shares in more than one brokerage
account, you may receive a separate notice or a separate voting instruction form for each brokerage account in which you hold shares,
or, if you are a shareholder of record and your shares are registered in more than one name, you may receive more than one notice
or more than one paper copy of the proxy materials.
To vote all of your shares by proxy, you must vote
the shares represented by each notice that you receive, unless you have requested and received a proxy card or voting instruction
form for the shares represented by one or more of those notices, in which case, you must complete, sign, date and return each proxy
card and voting instruction form that you receive or follow the directions to vote these shares over the Internet or by telephone.
Q:
How may I obtain a paper copy of the proxy materials or a copy of HMS’s Annual Report and other financial information?
A: Instructions about how to obtain a paper
copy of the proxy materials are provided on the notice of Internet availability of the proxy materials. Shareholders may request
a free copy of our Annual Report by contacting us at the address/phone number listed in the answer to the next question. We also
will furnish any exhibits to the Annual Report if specifically requested. Alternatively, shareholders can access the Annual Report
and other financial information on our Investor Relations website at http://investor.hms.com/index.cfm.
Q:
I share an address with another shareholder, and we received only one notice of Internet availability of the proxy materials or
only one paper copy of the proxy materials. How may I obtain an additional copy of the proxy materials?
A: If you share an address with another shareholder,
you may receive only one notice of Internet availability of the proxy materials or only one paper copy of proxy materials, unless
you have provided contrary instructions.
If you wish to receive a separate set of proxy materials,
please submit your request to our transfer agent, Broadridge Corporate Issuer Solutions, Inc. (“Broadridge”), either
by calling Broadridge at the toll-free number below, or by writing to Broadridge at the address below:
Broadridge Corporate Issuer Solutions, Inc.
Householding Department
51 Mercedes Way
Edgewood, New York 11717
Telephone: 800.542.1061
All shareholders may also call us at the number below
or write to us at the address below to request a separate copy of these materials:
HMS Holdings Corp.
Attention: Investor Relations
5615 High Point Drive
Irving, Texas 75038
Email: robert.borchert@hms.com
Telephone: 214.453.3000
If you and other residents at your address have been
receiving multiple copies of our proxy materials and desire to receive only a single copy of these materials, you may contact Broadridge
or contact us at the above addresses or telephone numbers.
| 2019 Proxy Statement 2 |
GENERAL INFORMATION ABOUT THE ANNUAL MEETING
Annual
Meeting Information
Q:
How can I attend the 2019 Annual Meeting?
A: You are entitled to attend the 2019 Annual
Meeting if you were a shareholder of HMS as of the close of business on March 28, 2019 (the “Record Date”) or if you
hold a valid proxy for the 2019 Annual Meeting. You should be prepared to present photo identification for admission. A list of
shareholders eligible to vote at the 2019 Annual Meeting will be available for inspection at the 2019 Annual Meeting and for a
period of ten calendar days prior to the 2019 Annual Meeting at our principal place of business during regular office hours, which
is located at 5615 High Point Drive, Irving, Texas 75038.
If you are not a shareholder of record, but hold
shares through a broker, bank or other nominee (i.e., in street name), in addition to photo identification, you should provide
proof of beneficial ownership as of the Record Date, such as your most recent account statement dated prior to March 28, 2019,
a copy of the voting instruction form provided by your broker, bank or other nominee, or other similar evidence of ownership. If,
upon request, you do not provide photo identification or comply with the other procedures outlined above, you may not be admitted
to the 2019 Annual Meeting.
The 2019 Annual Meeting will begin promptly at 10:00
a.m., Central Daylight Time. Check-in will begin at 9:30 a.m., Central Daylight Time, and you should allow time for check-in
procedures.
Q:
How many shares must be present or represented to conduct business at the 2019 Annual Meeting?
A: Holders of a majority of our shares of
common stock entitled to vote at the 2019 Annual Meeting must be present in person or represented by proxy at the 2019 Annual Meeting
in order to hold the meeting and conduct business. This is called a quorum. You are part of the quorum if you have voted by proxy.
Both abstentions and broker non-votes are counted for the purpose of determining the presence of a quorum. Broker non-votes result
when shares are held in “street name” by brokers who are present in person or represented by proxy at a meeting, but
who have not received a voting instruction on a particular item or matter on behalf of the customers who actually own our shares
and the item or matter is not within the broker’s discretionary authority to vote. See “What if I am a beneficial shareholder
and I do not give my broker voting instructions?” on page 5 for more information.
Q:
What if a quorum is not present at the 2019 Annual Meeting?
A: If a quorum is not present in person or
represented by proxy at the 2019 Annual Meeting, the shareholders present or represented at the meeting and entitled to vote (although
less than a quorum) or any officer entitled to preside or to act as chairman of such meeting, may adjourn the 2019 Annual Meeting
until a quorum is present or represented. The time and place of the adjourned meeting will be announced at the time the adjournment
is taken and no other notice will be given, unless the adjournment is for more than 30 days from the date of the original meeting
or a new record date is set for the adjourned meeting, in which case, a notice of the adjourned meeting shall be given to each
shareholder entitled to vote at the meeting.
Voting
Information
Q:
Who is entitled to vote at the 2019 Annual Meeting?
A: Only shareholders of record at the close
of business on March 28, 2019 are entitled to vote at the 2019 Annual Meeting. We refer to the close of business on this date as
our Record Date.
Q:
What are the voting rights of HMS’s holders of common stock?
A: Each outstanding share of HMS common stock
on the Record Date will be entitled to one vote on each matter considered at the 2019 Annual Meeting.
You may vote all shares of HMS common stock owned
by you as of the Record Date, including (i) shares that are held directly in your name as the shareholder of record, and (ii) shares
held for you as the beneficial owner through a broker, bank or other nominee.
| 2019 Proxy Statement 3 |
GENERAL INFORMATION ABOUT THE ANNUAL MEETING
On the Record Date, we had 87,081,712 shares of common
stock issued and outstanding.
Q:
What items of business will be voted on at the 2019 Annual Meeting?
A: Shareholders are being asked to vote on
the following matters at the 2019 Annual Meeting:
Proposal
Number |
Matter |
Our Board of Directors
Recommends |
One |
To elect as Class II directors the four nominees named in this Proxy Statement for a term expiring on the date of our 2020 Annual Meeting of Shareholders, or at such time as their successors have been duly elected and qualified |
FOR EACH
DIRECTOR NOMINEE |
Two |
To approve, on an advisory basis, the 2018 compensation of our named executive officers, as described in this Proxy Statement |
FOR |
Three |
To approve the HMS Holdings Corp. 2019 Omnibus Incentive Plan |
FOR |
Four |
To ratify the selection of Grant Thornton LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2019 |
FOR |
We will also consider other business that properly
comes before the 2019 Annual Meeting or any postponement or adjournment thereof.
Q:
Assuming there is a proper quorum of shares represented at the meeting, how many shares are required to approve the proposals
being voted on in this Proxy Statement and how are shares counted?
A: The following table reflects the vote required
in accordance with the laws of the State of Delaware, our Certificate of Incorporation, our Bylaws and The Nasdaq Stock Market
LLC Marketplace Rules (the “Nasdaq Marketplace Rules”), as applicable:
Proposal
Number |
Matter |
|
Vote required |
Is broker
discretionary
voting allowed? |
One |
Elect four Class II directors |
|
Majority of votes cast |
No |
Two |
Approve, on an advisory basis, the 2018 compensation of our named executive officers* |
|
Majority of votes cast |
No |
Three |
Approve the HMS Holdings Corp. 2019 Omnibus Incentive Plan |
|
Majority of votes cast |
No |
Four |
Ratify the selection of Grant Thornton LLP |
|
Majority of votes cast |
Yes |
*Advisory and non-binding. Please see Proposal Two
on page 71 for more information regarding the effect of your vote.
With respect to Proposal One, you may vote "for"
or "against" each of the nominees, or you may "abstain" from voting for one or more nominees. Our Bylaws provide
that a nominee will be elected as a director if he or she receives a majority of the votes cast on his or her election at the 2019
Annual Meeting. A majority of the votes cast means that the number of shares voted “for” a nominee’s election
exceeds the number of votes cast “against” that nominee’s election (with abstentions and broker non-votes not
counted as a vote either “for” or “against” that nominee’s election).
With respect to Proposals Two, Three and Four, you
may vote "for," "against" or "abstain" from voting on these proposals. Adoption of Proposals Two,
Three and Four requires the affirmative vote of the majority of the votes cast by the holders of all of the shares of stock present
or represented at the 2019 Annual Meeting and voting affirmatively or negatively on such matters (meaning the number of shares
voted "for" a proposal must exceed the number of shares voted "against" such proposal). Neither abstentions
nor broker non-votes will have an effect on the outcome of such matters because approval is based solely on the number of votes
cast affirmatively or negatively.
| 2019 Proxy Statement 4 |
GENERAL INFORMATION ABOUT THE ANNUAL MEETING
Q:
What if a director nominee does not receive a majority of the votes cast?
A: If an incumbent director who has been nominated
for re-election fails to receive a majority of the votes cast in an uncontested election “for” his/her re-election,
Delaware law provides that the director continues to serve as a director in a hold-over capacity.
HMS has adopted a Board Resignation Policy that requires
each incumbent nominee to submit an irrevocable contingent resignation letter that will be effective upon (i) his/her failure to
receive the required vote at the next annual meeting at which he/she faces re-election and (ii) Board acceptance of such resignation.
Therefore, if a nominee fails to receive the required vote for re-election, our Nominating and Governance Committee will act on
an expedited basis to determine whether to accept the director’s resignation and will submit such recommendation for prompt
consideration by the Board. The Board expects the director whose resignation is under consideration to abstain from participating
in any decision regarding that resignation. The Nominating and Governance Committee and the Board may consider any factors they
deem relevant in deciding whether to accept a director’s resignation. The Board will publicly disclose its decision and rationale
within a reasonable time period following certification of the election results. If a director’s resignation is accepted
by the Board, the Board may fill the vacancy or decrease the size of the Board.
Q:
What happens if a nominee is unable to stand for election?
A: If a nominee is unable to stand for election,
the Board may either reduce the number of directors to be elected or designate a substitute nominee. If a substitute nominee is
selected, the persons named as proxy holders, William C. Lucia, our Chairman, President and Chief Executive Officer, Jeffrey S.
Sherman, our Executive Vice President, Chief Financial Officer and Treasurer, and Meredith W. Bjorck, our Executive Vice President,
Chief Legal Officer and Corporate Secretary, intend to vote your proxy for the substitute nominee and the remaining nominees, unless
otherwise instructed by you in the proxy.
Q:
What happens if additional matters are presented at the 2019 Annual Meeting?
A: Other than the four items of business described
in this Proxy Statement, we are not aware of any other business to be acted upon at the 2019 Annual Meeting. If you grant a proxy,
Messrs. Lucia and Sherman and Ms. Bjorck, the proxy holders, will have the discretion to vote your shares on any additional
matters properly presented for a vote at the 2019 Annual Meeting.
Q:
What if I sign and return my proxy without making any voting decisions?
A: If you sign and return your proxy without
making any voting decisions, your shares will be voted “FOR” each of the four nominees for Class II director, and “FOR”
Proposals Two, Three and Four. If other matters properly come before the 2019 Annual Meeting, the persons named as proxy holders,
Messrs. Lucia and Sherman and Ms. Bjorck, will have the authority to vote on those matters for you at their discretion. As of the
date of this Proxy Statement, we are not aware of any matters that will come before the 2019 Annual Meeting other than those disclosed
in this Proxy Statement.
Q:
What if I am a beneficial shareholder and I do not give my broker voting instructions?
A: If you are a beneficial shareholder and
your shares are held in the name of a broker, the broker is bound by the rules of the New York Stock Exchange (NYSE) regarding
whether or not it can exercise discretionary voting power for any particular proposal if the broker has not received voting instructions
from you. Brokers have the authority to vote shares for which their customers do not provide voting instructions on certain “routine”
matters. If the broker does not vote on a particular proposal because that broker does not have discretionary voting power, this
is referred to as a “broker non-vote.” Broker non-votes will be considered as present for purposes of determining a
quorum.
The election of Class II directors (Proposal One),
the advisory vote on executive compensation (Proposal Two) and the approval of the 2019 Omnibus Incentive Plan (Proposal Three)
are considered “non-routine” matters under the applicable rules of the NYSE, so your broker cannot vote on these matters
without your voting instructions. Your broker is permitted to vote your shares on the ratification of the selection of Grant Thornton
LLP as our independent registered public accounting firm for the year ending December 31, 2019 (Proposal Four), even if your broker
does not receive voting instructions from you because this matter is considered “routine” under the applicable rules
of the NYSE.
| 2019 Proxy Statement 5 |
GENERAL INFORMATION ABOUT THE ANNUAL MEETING
Q:
What is the difference between holding shares as a shareholder of record and holding shares as a beneficial owner?
A: Most of our shareholders hold their shares
through a broker, bank or other nominee rather than directly in their own name. We have summarized below some of the distinctions
between being a shareholder of record and being a beneficial owner.
Shareholder
of Record. If your shares are registered directly in your name, or as a joint holder, with our transfer agent, Broadridge,
you are considered, with respect to those shares, the shareholder of record. As a shareholder of record, you have the right to
grant your voting proxy directly to us or to vote in person at the 2019 Annual Meeting.
Beneficial
Owner. If your shares are held in a brokerage account or by another nominee, you are considered the beneficial owner
of shares held in street name. As a beneficial owner, you have the right to direct your broker, bank or other nominee how to vote
and are also invited to attend the 2019 Annual Meeting.
Since a beneficial owner is not the shareholder
of record, you may not vote these shares in person at the meeting unless you obtain a “legal proxy” from the broker,
bank or other nominee that holds your shares, giving you the right to vote the shares at the 2019 Annual Meeting. Your broker,
bank or other nominee has provided a voting instruction form for you to use in directing the broker, bank or other nominee how
to vote your shares.
Q:
How can I vote?
A: Whether you hold shares directly as a shareholder
of record or beneficially in street name, you may direct how your shares are voted without attending the 2019 Annual Meeting.
![](http://www.sec.gov/Archives/edgar/data/1196501/000117184319002384/p6a.jpg) |
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By Internet. Go to www.proxyvote.com and follow the
instructions there. You will need the 12-digit number included on your proxy card, voting instruction form or notice. Votes
submitted via the Internet must be received by 11:59 p.m. Eastern Daylight Time on May 21, 2019. |
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![](http://www.sec.gov/Archives/edgar/data/1196501/000117184319002384/p6b.jpg) |
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By telephone.
Dial the phone number on your proxy card. You will need the 12-digit number included on your proxy card, voting instruction
form or notice. Telephone voting for shareholders of record is available 24 hours a day. Votes submitted by telephone must be
received by 11:59 p.m. Eastern Daylight Time on May 21, 2019. |
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![](http://www.sec.gov/Archives/edgar/data/1196501/000117184319002384/p6c.jpg) |
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By mail.
If you received a paper copy of a proxy card or voting instruction form, you may submit your proxy by completing,
signing and dating the proxy card or voting instruction form and mailing it in the accompanying pre-addressed envelope. In order
to ensure they are voted at the 2019 Annual Meeting, proxies submitted by mail must be received at the address provided no later
than May 21, 2019, the last business day before the meeting. |
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![](http://www.sec.gov/Archives/edgar/data/1196501/000117184319002384/p6d.jpg) |
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In person.
Shares held in your name as the shareholder of record may be voted in person at the 2019 Annual Meeting. Shares held
beneficially in street name may be voted in person only if you obtain a legal proxy from the broker, bank or other nominee that
holds your shares, giving you the right to vote the shares. Even if you plan to attend the 2019 Annual Meeting, we recommend
that you use one of the methods described above to submit your proxy so that your vote will be counted if you later decide not
to attend the 2019 Annual Meeting. |
If your shares are held in street name in an account
at a bank or brokerage firm that offers telephone voting options, they will provide you with a voting instruction form that includes
instructions on how to vote your shares by telephone by the deadline specified on the voting instruction form.
| 2019 Proxy Statement 6 |
GENERAL INFORMATION ABOUT THE ANNUAL MEETING
Q:
Is my vote confidential?
A: Proxy cards, ballots and voting instructions
and tabulations that identify individual shareholders will be tabulated by Broadridge and will be handled in a manner that protects
your voting privacy.
Q:
How are my votes cast when I submit my proxy over the Internet, by telephone or by mail?
A: When you submit
your proxy over the Internet, by telephone or by signing and returning the proxy card, you appoint Messrs. Lucia and Sherman and
Ms. Bjorck, or any of them, as your representatives at the 2019 Annual Meeting. Messrs. Lucia and Sherman and Ms. Bjorck, or any
of them, will vote your shares at the 2019 Annual Meeting as you have instructed or as described above. They are also entitled
to appoint a substitute to act on their behalf.
Q:
May I change my vote?
A: Yes. If you
are the shareholder of record, you may change your vote by granting a new proxy bearing a later date (which automatically revokes
the earlier proxy) prior to the applicable deadline, by providing a written notice of revocation to our Corporate Secretary, or
by attending the 2019 Annual Meeting and voting in person. For your written notice of revocation to be effective, it must be received
by our Corporate Secretary at our principal place of business no later than May 21, 2019, the last business day before the meeting.
Attendance at the 2019 Annual Meeting will not cause your previously granted proxy to be revoked unless you specifically so request
or if you cast a new vote. For shares you hold beneficially in street name, you may change your vote by submitting new voting
instructions to your broker, bank or other nominee in accordance with the directions provided by your broker, bank or other nominee,
or, if you have obtained a legal proxy from your broker, bank or other nominee giving you the right to vote your shares, by attending
the 2019 Annual Meeting and voting in person. If you are a shareholder of record, you may also change your vote at any time prior
to 11:59 p.m. Eastern Daylight Time on May 21, 2019 by voting over the Internet or by telephone. If you change your vote prior
to the deadline, your latest telephone or Internet proxy is counted.
Q:
Who will bear the cost of soliciting votes for the 2019 Annual Meeting?
A: HMS is making
this solicitation and will pay the entire cost of preparing, assembling, printing, mailing and distributing these proxy materials
and soliciting votes. In addition to the mailing of these proxy materials, the solicitation of proxies or votes may be made in
person, by telephone or by electronic communication by our directors, officers and employees. These individuals will not receive
any additional compensation for such solicitation activities. HMS has also retained Georgeson LLC, a proxy solicitation firm,
to assist in the solicitation of proxies for a fee of approximately $18,500, plus administrative costs and any other reasonable
out-of-pocket disbursements. Upon request, we will reimburse brokerage houses and other custodians, nominees and fiduciaries for
their reasonable expenses incurred in forwarding proxy materials to shareholders.
Q:
Where can I find the voting results of the 2019 Annual Meeting?
A: We intend to
announce preliminary voting results at the 2019 Annual Meeting and publish final results, or the preliminary results if final
results are unavailable, on a Current Report on Form 8-K to be filed with the SEC within four business days of the 2019 Annual
Meeting.
Q:
Who will serve as inspector of elections?
A: Broadridge
will tabulate votes and a representative of Broadridge will act as inspector of elections.
Q:
Who can help answer my questions?
A: If you have
any other questions about the 2019 Annual Meeting, you should contact our Assistant Corporate Secretary, Kimberly Day, at 214.453.3000.
Q:
What if I have questions for HMS’s transfer agent?
A: Broadridge
serves as our transfer agent. Broadridge can be reached as follows:
| 2019 Proxy Statement 7 |
GENERAL INFORMATION ABOUT THE ANNUAL MEETING
HMS Holdings Corp.
c/o Broadridge Corporate Issuer Solutions
P.O. Box 1342
Brentwood, New York 11717
Telephone Inquiries: 855.418.5059 or TTY for hearing
impaired: 855.627.5080
Foreign Shareholders: 720.378.5654
Website: http://www.broadridge.com
shareholder@broadridge.com
| 2019 Proxy Statement 8 |
PROPOSAL ONE:
ELECTION OF CLASS II DIRECTORS
Our Board is currently composed of eight directors.
At the 2018 annual meeting of shareholders, our Board recommended, and our shareholders approved, an amendment to our Certificate
of Incorporation (as in effect at that time) to declassify the Board and provide for the annual election of all directors. Consequently,
directors who were elected for a two-year term prior to the effectiveness of the amendment (including directors elected at the
2018 annual meeting) will complete their two-year terms. Beginning with the 2019 Annual Meeting, directors whose previous terms
are expiring will be subject to election for a one-year term expiring at the next annual meeting. Thus, beginning with the 2020
annual meeting of shareholders, the entire Board will be elected annually as a single class.
At the 2019 Annual Meeting, shareholders will consider
and vote upon the proposed re-election, of four individuals nominated for election as a Class II director. Based on the recommendation
of our Nominating and Governance Committee, our Board has nominated William F. Miller III, Ellen A. Rudnick, Richard H. Stowe and
Cora M. Tellez for re-election as Class II directors at the 2019 Annual Meeting. Information regarding the experience, qualifications,
attributes and skills of each of the nominees that led our Board to nominate each of them as a Class II director, is included below
under the heading “Our Board of Directors.” Each of the nominees is currently serving as a director of HMS and was
last elected at the 2017 annual meeting of shareholders.
Each of the nominees has consented to being named
in this Proxy Statement and to serve as a director if elected. If elected, each of the nominees will hold office for a one-year
term expiring at the annual meeting of shareholders in 2020 and until his or her successor is elected and qualified or until his
or her earlier death, resignation or removal. In the event any nominee for director declines or is unable to serve, the proxies
may be voted for a substitute nominee selected by the Board. The Board expects that each nominee will be available for election.
HMS did not receive notice from any shareholder prior to the deadline for submitting notice of an intention to nominate any additional
persons for election as directors at the 2019 Annual Meeting.
Vote Required
The affirmative vote of a majority of the votes cast
with respect to his or her election at the 2019 Annual Meeting is required to elect each of the four Class II director nominees
to the Board.
The Board of Directors
recommends a vote “FOR” each of the four Class II director nominees named in Proposal One. |
| 2019 Proxy Statement 9 |
PROPOSAL ONE: ELECTION OF CLASS II DIRECTORS
Our Board of Directors
The following table sets forth information with respect
to each member of our Board as of the date of this Proxy Statement.
Name |
Independent |
Age |
Director
Since |
Term
Expires(1) |
Director
Class |
Principal
Occupation |
Outside
Boards(2) |
Robert Becker |
Yes |
64 |
2016 |
2020 |
I |
Retired President & CEO,
Wolters Kluwer Health |
|
Craig R. Callen |
Yes |
63 |
2013 |
2020 |
I |
Former Senior Advisor, Crestview
Partners |
§
Omega Healthcare Investors |
William C. Lucia |
No |
61 |
2009 |
2020 |
I |
Chairman, President & CEO,
HMS Holdings Corp. |
|
William F. Miller III |
Yes |
69 |
2000 |
2019 |
II |
Senior Executive Advisor,
Beecken Petty O’Keefe & Company |
|
Ellen A. Rudnick |
Yes |
68 |
1997 |
2019 |
II |
Senior Advisor for Entrepreneurship,
adjunct faculty, University of Chicago Booth School of Business |
§
First Midwest Bancorp, Inc.
§
Patterson Companies, Inc. |
Bart M. Schwartz |
Yes |
72 |
2010 |
2020 |
I |
Chairman & CEO, SolutionPoint
International, LLC |
|
Richard
H. Stowe |
Yes |
75 |
1989 |
2019 |
II |
General Partner, Health Enterprise
Partners, LP |
|
Cora M. Tellez |
Yes |
69 |
2012 |
2019 |
II |
President & CEO, Sterling
HSA |
§
Pacific Premier Bancorp, Inc. |
| (1) | Term expires at the annual meeting of shareholders in the year indicated. |
| (2) | Includes corporations subject to the registration or reporting requirements of the Securities Exchange
Act of 1934, as amended (the “Exchange Act”), or registered under the Investment Company Act of 1940 (as of the date
of this Proxy Statement). |
Biographical information of each nominee for Class
II director and each continuing director, including further information regarding his or her respective business experience and
service on other boards, is below. Also included below is a description of the specific experience, qualifications, attributes
or skills that led our Board to conclude that each director should serve as a member of our Board. The Board believes that the
combination of business skills and professional experience of our directors, as well as the gender, ethnicity and tenure diversity
among its members, have been contributing factors to its effectiveness and provide a valuable resource to management in overseeing
and developing strategy and long-term plans for HMS.
| 2019 Proxy Statement 10 |
PROPOSAL ONE: ELECTION OF CLASS II DIRECTORS
Class II Directors
(Nominees for Election at the 2019 Annual Meeting)
William F. Miller III |
![](http://www.sec.gov/Archives/edgar/data/1196501/000117184319002384/millerw.jpg)
Independent
Director since:
2000
Other public boards:
0
HMS Committees:
Compliance and Ethics
Committee |
Mr. Miller has served as one of our directors since
October 2000. Since 2017, Mr. Miller has served as a senior executive advisor at Beecken Petty O’Keefe & Company,
a private equity management firm. Mr. Miller also served as a healthcare industry advisor for KKR Advisors, a global investment
firm, from 2013 to 2018. From 2006 to 2013, Mr. Miller was a partner at Highlander Partners, a private equity group in Dallas,
Texas focused on investments in healthcare products, services and technology. Mr. Miller served as our Chief Executive Officer
from October 2000 to April 2005, and as our Chairman from December 2000 to April 2006. From 1983 to 1999, Mr. Miller served as
President and Chief Operating Officer of EmCare Holdings, Inc., a national healthcare services firm focused on the provision of
emergency physician medical services. Mr. Miller currently serves as a board member of Maxor National Pharmacy Services, a
private pharmacy benefits management company.
Mr. Miller brings to the Board both a thorough understanding
of our business and the healthcare industry and extensive experience in the financial markets. His significant operational experience,
both at HMS and at EmCare Holdings, makes him well-positioned to provide HMS with insight on financial, operational and strategic
issues and to serve as a member of the Compliance and Ethics Committee. |
|
Ellen A. Rudnick |
![](http://www.sec.gov/Archives/edgar/data/1196501/000117184319002384/rudnick.jpg)
Independent
Director since:
1997
Other public boards:
2
HMS Committees:
Audit Committee (Chair)
Compliance and Ethics
Committee
Nominating and Governance
Committee |
Ms. Rudnick has served as one of our directors since
1997. Since 1999, Ms. Rudnick has served in various roles at the University of Chicago Booth School of Business, including her
current role as Senior Advisor for Entrepreneurship, adjunct faculty, and her prior role as Executive Director and Clinical Professor,
Polsky Center for Entrepreneurship and Innovation, from 1999 through July 2016. From 1993 to 1999, Ms. Rudnick served as Chairman
of Pacific Biometrics, Inc., a publicly held healthcare biodiagnostics company and its predecessor, Bioquant, which she co-founded.
From 1990 to 1992, she served as President and Chief Executive Officer of Healthcare Knowledge Resources (HKR), a privately held
healthcare information technology corporation and subsequently served as President of HCIA, Inc. (HCIA) following the acquisition
of HKR by HCIA. From 1975 to 1990, Ms. Rudnick served in various positions at Baxter Health Care Corporation, including Corporate
Vice President and President of its Management Services Division. Ms. Rudnick also serves as a director of Patterson Companies,
Inc. and First Midwest Bancorp, Inc.
Ms. Rudnick brings to the Board extensive business
understanding and demonstrated management expertise, having served in key leadership positions at a number of healthcare companies.
Ms. Rudnick has a comprehensive understanding of the operational, financial and strategic challenges facing companies and knows
how to make businesses work effectively and efficiently. Her management experience and service on other public company boards has
provided her with a thorough understanding of the financial and other issues facing large companies, making her particularly valuable
as the Chair of our Audit Committee and as a member of our Compliance and Ethics Committee and Nominating and Governance Committee. |
|
| 2019 Proxy Statement 11 |
PROPOSAL ONE: ELECTION OF CLASS II DIRECTORS
Richard H. Stowe |
![](http://www.sec.gov/Archives/edgar/data/1196501/000117184319002384/stowe.jpg)
Independent
Director since:
1989
Other public boards:
0
Lead Independent
Director
HMS Committees:
Compensation Committee
(Chair)
Nominating and Governance
Committee
|
Mr. Stowe has served as one of our directors since
1989 and as Lead Independent Director of the Board since July 2015. Mr. Stowe has served as a general partner of funds managed
by Health Enterprise Partners, a private equity firm, since 2005. From 1999 to 2005, Mr. Stowe was a private investor, a senior
advisor to the predecessor funds to Health Enterprise Partners, and a senior advisor to Capital Counsel LLC, an asset management
firm. From 1979 until 1998, Mr. Stowe was a general partner of Welsh, Carson, Anderson & Stowe. Prior to 1979, he was a Vice
President in the venture capital and corporate finance groups of New Court Securities Corporation (now Rothschild, Inc.).
Mr. Stowe brings over 49 years of financial, capital
markets and investment experience to our Board. Mr. Stowe’s background and extensive experience make him well-positioned
to serve as the Chair of the Compensation Committee, a member of the Nominating and Governance Committee and as our Lead Independent
Director. Mr. Stowe has effectively carried out his responsibilities as a Chair for several of our Board committees and is
well-respected by the independent directors. The Board believes that Mr. Stowe is highly qualified and continues to be in the best
position to serve as Lead Independent Director. |
|
Cora M. Tellez |
![](http://www.sec.gov/Archives/edgar/data/1196501/000117184319002384/tellez.jpg)
Independent
Director since:
2012
Other public boards:
1
HMS Committees:
Audit Committee
Compensation Committee
Nominating and Governance
Committee (Chair)
|
Ms. Tellez has served as one of our directors since
October 2012. Ms. Tellez is the President and Chief Executive Officer of Sterling HSA, an independent health savings accounts administrator
which she founded in 2004. Prior to starting Sterling HSA, Ms. Tellez served as President of the health plans division of Health
Net, Inc., an insurance provider. She later served as President of Prudential’s western health care operations, CEO of Blue
Shield of California, Bay Region and Regional Manager for Kaiser Permanente of Hawaii. Ms. Tellez also served until 2018 as Chief
Executive Officer of Amazing CARE Network, Inc., a company she founded in January 2015 (now a part of Sterling HSA). Ms. Tellez
serves on the board of directors of Pacific Premier Bancorp, Inc., as well as on the boards of various nonprofit organizations
such as the Institute for Medical Quality and UC San Diego’s Center for Integrative Medicine. Ms. Tellez previously served
as Chair of the Board of CorMedix Inc.
Ms. Tellez brings over 25 years of healthcare policy
and operations experience to the Board. Her public company operational, financial and corporate governance experience is a valuable
resource for our Board and makes her well-positioned to serve as the Chair of the Nominating and Governance Committee, a member
of the Audit and Compensation Committees and as an audit committee financial expert. |
|
|
| 2019 Proxy Statement 12 |
PROPOSAL ONE: ELECTION OF CLASS II DIRECTORS
Class I Directors
(Continuing Members of the Board)
Robert Becker |
![](http://www.sec.gov/Archives/edgar/data/1196501/000117184319002384/becker.jpg)
Independent
Director since:
2016
Other public boards:
0
HMS Committees:
Audit Committee
Nominating and Governance
Committee
|
Mr. Becker has served as one of our directors since
January 2016. Mr. Becker most recently served as President and CEO of Wolters Kluwer Health, a provider of information and point
of care solutions to the healthcare industry, from December 2008 until his retirement in May 2015. In his role at Wolters Kluwer
Health, Mr. Becker reported to the Chairman of the Executive Board and had global responsibility for Wolters Kluwer’s $1.2
billion Health division. From August 2003 to November 2008, he served as CEO of Wolters Kluwer Law & Business. Mr. Becker led
the transformation of both the Health and Law & Business divisions from traditional publishers to world-class providers of
digital content and software solutions through a combination of organic growth and mergers and acquisitions. Prior to joining Wolters
Kluwer, Mr. Becker served as President and CEO of Jupiter Media Metrix, a provider of comprehensive research and measurement products
and services designed to assist companies in utilizing Internet technologies to more effectively operate their businesses. Mr.
Becker also spent 13 years with The Thomson Corporation, 10 years as a CEO and three as a CFO of several global businesses. Mr.
Becker, who is a CPA, began his career at PriceWaterhouse auditing numerous public and privately held companies. Mr. Becker previously
served on the board of directors of Symphony Health, a privately held portfolio company of Symphony Technology Group providing
pharmacy claims and patient longitudinal health records to the pharmaceutical industry.
Mr. Becker’s executive leadership experience
and strong background in technology and data analytics provide valuable insight into strategic planning and operations to the Board.
Among other qualifications, Mr. Becker brings to the Board extensive financial expertise, including budgeting, forecasting and
mergers and acquisitions, making him well-positioned to serve as a member of the Audit Committee and an audit committee financial
expert, as well as a member of the Nominating and Governance Committee. |
|
|
|
|
|
|
Craig R. Callen |
![](http://www.sec.gov/Archives/edgar/data/1196501/000117184319002384/callen.jpg)
Independent
Director since:
2013
Other public boards:
1
HMS Committees:
Compensation Committee
Nominating and Governance
Committee
|
Mr. Callen has served as one of our directors since
October 2013. Mr. Callen was a Senior Advisor at Crestview Partners, a private equity firm, from 2009 through 2016. From 2004 to
2007, Mr. Callen was Senior Vice President and Head of Strategic Planning and Business Development and a member of the Executive
Committee for Aetna, Inc. In his role at Aetna, Mr. Callen reported directly to the Chairman and CEO and was responsible for
oversight and development of Aetna’s corporate strategy, including mergers and acquisitions. During his tenure, Mr. Callen
and his team led the acquisitions of seven companies, investing over $2.0 billion, broadening Aetna’s revenue, global
presence, product line, targeted markets and participation in government programs. Prior to joining Aetna, Mr. Callen was a Managing
Director and Head of U.S. Healthcare Investment Banking at Credit Suisse First Boston and Co-Head of Healthcare Investment Banking
at Donaldson, Lufkin & Jenrette. Mr. Callen currently serves as Chairman of the Board of Directors of Omega Healthcare Investors,
Inc.
Mr. Callen brings over 20 years of healthcare investment
banking experience and corporate development expertise to our Board, which are invaluable to us as we evaluate, develop and implement
new solutions for clients. His extensive experience in a corporate setting and as an advisor to public/private healthcare companies
positions him well to serve on the Compensation and Nominating and Governance Committees. |
|
| 2019 Proxy Statement 13 |
PROPOSAL ONE: ELECTION OF CLASS II DIRECTORS
William C. Lucia |
|
|
![](http://www.sec.gov/Archives/edgar/data/1196501/000117184319002384/luciaprof.jpg)
Management
Director since:
2009
Other public boards:
0 |
Mr. Lucia has served as our
President and Chief Executive Officer since March 2009. He has been a member of our Board since May 2008 and was appointed Chairman
of the Board in July 2015. From May 2005 to March 2009, Mr. Lucia served as our President and Chief Operating Officer. Since joining
us in 1996, Mr. Lucia has held several positions with us, including: President of our subsidiary, Health Management Systems, Inc.,
from 2002 to 2009; President of our Payor Services Division from 2001 to 2002; Vice President and General Manager of our Payor
Services Division from 2000 to 2001; Vice President of our Business Office Services from 1999 to 2000; Chief Operating Officer
of our former subsidiary Quality Medical Adjudication, Incorporated (QMA) and Vice President of West Coast Operations from 1998
to 1999; Vice President and General Manager of QMA from 1997 to 1998; and Director of Information Systems for QMA from 1996 to
1997. Prior to joining us, Mr. Lucia served in various executive positions including Senior Vice President, Operations and
Chief Information Officer for Celtic Life Insurance Company, and Senior Vice President, Insurance Operations for North American
Company for Life and Health Insurance. Mr. Lucia is a Fellow of the Life Management Institute program through LOMA, an international
association through which insurance and financial services companies around the world engage in research and educational activities
to improve company operations.
With over 20 years of experience with HMS working across multiple divisions and his prior experience in
the insurance industry, Mr. Lucia brings to our Board in-depth knowledge of HMS and the healthcare and insurance industries, the
evolving healthcare landscape and the array of challenges to be faced and demonstrates an ability to formulate and implement key
strategic initiatives, making him well-positioned to lead our management team and provide essential insight and leadership to the
Board.
|
|
|
|
|
|
|
Bart M. Schwartz |
|
![](http://www.sec.gov/Archives/edgar/data/1196501/000117184319002384/schwartz.jpg)
Independent
Director since:
2010
Other public boards:
0
HMS Committees:
Audit Committee
Compliance and Ethics
Committee (Chair)
Nominating and Governance
Committee
|
Mr. Schwartz has served as one of our directors since
July 2010. Mr. Schwartz currently serves as the Chairman and Chief Executive Officer of SolutionPoint International, LLC, which
provides an integrated array of business intelligence, security and compliance, identity assurance and situational awareness through
the wholly-owned company Guidepost Solutions LLC. In 2003, Mr. Schwartz founded his own law firm, which specializes in, among other
areas, conducting independent investigations, monitoring and Independent Private Sector Inspector General engagements and developing,
auditing and implementing compliance programs. From 1991 to 2003, Mr. Schwartz served as the Chief Executive Officer of Decision
Strategies, an internationally recognized investigative and security firm, which was sold to SPX Corporation in 2001. Mr. Schwartz
has over 30 years’ experience managing domestic and international investigations, prosecutions and assessments for clients
in both the public and private sectors. He currently serves as the federally appointed Monitor of GM and as a court-appointed Receiver
to several large hedge funds. Mr. Schwartz previously served as Chairman of the Board of Kadmon Holdings, Inc.
Mr. Schwartz brings extensive legal and compliance
experience to our Board, which is particularly valuable as we continue to expand our business. Mr. Schwartz’s background
makes him well-positioned to serve as the Chair of the Compliance and Ethics Committee and as a member of the Audit and Nominating
and Governance Committees. |
| 2019 Proxy Statement 14 |
CORPORATE GOVERNANCE
Corporate Governance
Shareholder Engagement
In 2018, we
continued our shareholder outreach efforts to better understand our shareholders’ views regarding our corporate governance
and executive compensation practices. During the spring of 2018, our executives from Finance, Human Resources and Legal reached
out to the corporate governance representatives of our 25 largest institutional shareholders, representing approximately 74% of
our outstanding shares, to solicit their points of view on those topics. While our shareholder outreach program is primarily a
function of management, Mr. Stowe, as our Lead Independent Director and Chair of the Compensation Committee, as well as each of
the other committee Chairs, including Ms. Rudnick, Mr. Schwartz and Ms. Tellez, were available to participate in those conversations
at the invitation of our shareholders. The results of our conversations with the institutional shareholders who participated were
summarized and presented to the appropriate committee and the Board. As a result of our engagement with shareholders in 2018 and
2017 and to maintain leading corporate governance practices, we have taken the actions summarized below. A discussion of our shareholder
engagement efforts on executive compensation practices is included below under the heading “Compensation Discussion and Analysis.”
Key Corporate Governance Actions |
ü Obtained shareholder approval in 2018 of our proposal to declassify the Board from two classes to one class, and will complete the process of declassifying the Board in 2020, as described in more detail under the heading “Proposal One: Election of Class II Directors.” |
ü Began disclosing our corporate social responsibility highlights, as described in more detail under the heading “Corporate Responsibility and Sustainability.” |
ü Continued regular annual engagement with our shareholders on corporate governance and executive compensation practices. |
Corporate Governance
Highlights
We are committed to maintaining leading corporate
governance practices. Key highlights of our corporate governance profile and practices are summarized below.
Leading Corporate Governance Practices |
Size of Board |
Eight |
Majority Independent Board |
Seven of our eight current directors are independent |
Gender Diversity |
Two of our eight current directors are women |
Board Leadership Structure |
Combined Chairman and CEO |
Lead Independent Director |
Yes |
Board Self-Evaluation |
Annual |
Voting Standard for Directors |
Majority vote (in uncontested elections) |
Resignation Policy |
Yes |
Board Structure |
Currently classified into two classes until the process of declassifying the Board is completed in 2020, as described in “Proposal One: Election of Class II Directors.” |
Percentage of Directors Owning Stock |
100% |
Stock Ownership Guidelines |
Yes |
Independent Committees |
All board members who serve on a standing board committee are independent |
Related Person Transactions |
None (based on disclosure requirements under Regulation S-K) |
| 2019 Proxy Statement 15 |
Leading Corporate Governance Practices |
“Poison Pill” |
None |
Supermajority vote requirements |
None |
Board Leadership
Our governance
framework provides our Board with the flexibility to select the appropriate board leadership structure for HMS.
In making leadership structure determinations, the Board considers many factors, including the recommendation of the Nominating
and Governance Committee and the pros and cons of alternative leadership structures in light of the current needs of our Company
and the best interest of our shareholders.
Mr. Lucia has
served as our CEO since March 2009 and has served as both Chairman of the Board and CEO since July 2015. Given the complexity
of our business, the rapidly changing healthcare environment in which we operate and the unique opportunities and challenges that
we face, the Board believes that having a combined Chairman and CEO role serves the best interests of HMS and its shareholders
at this time. Mr. Lucia’s long history with HMS and extensive knowledge of all aspects of our business, the healthcare industry
and the macroeconomic environment in which we operate gives Mr. Lucia unique insight into both investor and customer viewpoints,
provides HMS with unified leadership internally and externally, and provides HMS with the vision to execute our strategic initiatives
and create shareholder value. Mr. Lucia’s service in both roles also enables HMS to speak with a unified voice to our shareholders,
customers and employees.
Our Board understands the importance that our investors
place on having a strong board leadership structure with independent oversight. To balance
the combined Chairman and CEO position and ensure good governance, appropriate oversight and independence, the independent directors
have appointed a Lead Independent Director with defined responsibilities. Our Board leadership structure is further strengthened
by the independent oversight function of the Board, which consists entirely of independent directors other than Mr. Lucia, and
our committees of the Board, which consist entirely of independent directors and chairs. The Board's oversight function includes
independent oversight of the performance of the CEO. Our Board leadership structure is also strengthened by the practices of our
Board and committees, including executive sessions of the independent directors, which generally occur at each regular Board and
committee meeting.
Lead Independent
Director
Our Corporate Governance Guidelines provide that
if the offices of Chairman and Chief Executive Officer are held by the same person, the independent directors will appoint a lead
director from among the independent directors to supplement the combined Chairman and Chief Executive Officer position and otherwise
provide leadership to the independent directors on the Board. Although elected annually, the lead independent director is generally
expected to serve for more than one year. A current copy of the Lead Independent Director Charter is available on our website under
the “Investors—Corporate Governance” tabs at http://investor.hms.com/corporate-governance.cfm.
Mr. Stowe has served as the Lead Independent Director
of the Board since July 2015. During his tenure as Lead Independent Director, Mr. Stowe has demonstrated strong leadership skills
and independent thinking, a deep understanding of the business and healthcare industry and a willingness to meet with investors.
The independent directors are confident in Mr. Stowe’s ability to continue to serve as Lead Independent Director and therefore
re-appointed him as Lead Independent Director in July 2018.
Active involvement of the independent directors who
work together and in tandem through their various functional areas of expertise, combined with the qualifications and significant
responsibilities of our Lead Independent Director, creates an environment for increased engagement of the Board as a whole and
further promotes strong, independent oversight of management and Company affairs. We believe this leadership structure—a
combined Chairman and Chief Executive Officer and a Lead Independent Director—strikes the right balance between effective
independent oversight and consistent corporate leadership and continues to be the appropriate leadership structure for HMS at this
time. The duties of the Lead Independent Director include those listed below.
| 2019 Proxy Statement 16 |
Lead Independent Director Responsibilities |
§ Preside at all meetings of the Board at which the Chairman is not present, including executive sessions of the independent directors |
§ Has authority to call meetings of the independent directors |
§ Serve as the principal liaison between the Chairman and the other directors |
§ Work with the Chairman to develop and approve meeting agendas and schedules, assuring sufficient time for discussion of all agenda items, and approve certain information sent to the Board |
§ Recommend directors for membership and chair positions for each Board committee |
§ Interview, together with the chair of the Nominating and Governance Committee, all director candidates and make recommendations to the Nominating and Governance Committee |
§ Be available for consultation and direct communication with our shareholders, when appropriate |
§ Authorized to retain outside advisors and consultants on certain Board issues |
§ Consult with the Chairman and CEO on matters relating to corporate governance and Board performance |
Director Independence
A majority of our Board must be comprised of “independent
directors” in accordance with the Nasdaq Marketplace Rules. Under Rule 5605(a)(2) of the Nasdaq Marketplace Rules, a director
will only qualify as an “independent director” if, in the opinion of our Board, that person does not have a relationship
which would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. Based on its
review of the applicable independence standards and answers to annual questionnaires completed by the directors, our Board has
determined that each of Messrs. Becker, Callen, Miller, Schwartz and Stowe and Mses. Rudnick and Tellez is an “independent
director” as defined under the Nasdaq Marketplace Rules.
Board of Directors
Meetings and Attendance
The Board convenes quarterly on a regular basis and
may hold additional meetings as necessary from time to time. Each incumbent director attended at least 75% of the aggregate of
the total number of meetings of the Board and the committees on which the director served during 2018 (or portion of 2018 during
which he or she served as a director or committee member). Directors are encouraged but not required to attend our annual meetings
of shareholders. Mr. Lucia attended our 2018 annual meeting of shareholders.
Executive Sessions
of Non-Employee Directors
Following each regularly scheduled quarterly Board
meeting (and following other meetings if necessary), our non-employee directors meet in an executive session to review key decisions,
discuss their observations and shape future Board meeting agendas, all in a manner that is independent of management and where
necessary, challenging management. The executive sessions are led by Mr. Stowe as Lead Independent Director.
Board Committees
and Related Matters
The Board has the following standing committees:
Audit Committee, Compensation Committee, Compliance and Ethics Committee and Nominating and Governance Committee, each of which
operates pursuant to a separate charter that has been approved by the Board. A current copy of each charter is available on our
website under the “Investors—Corporate Governance” tabs at http://investor.hms.com/corporate-governance.cfm.
Each committee reviews the appropriateness of its charter on an annual basis, as required by its charter, and recommends any changes
to the Board for approval.
| 2019 Proxy Statement 17 |
The Board makes committee and committee chair assignments
annually at its meeting following the annual meeting of shareholders, although further changes to committee assignments are made
from time to time as deemed appropriate by the Board. The membership of each standing committee as of the date of this Proxy Statement
and the number of meetings held by each standing committee during 2018 are summarized in the table below.
| (1) | The
Board has determined that the director is independent as defined in the Nasdaq Marketplace
Rules. |
| (2) | The
Board has determined that each member of the Audit Committee meets Nasdaq’s financial
knowledge and sophistication requirements and the additional, heightened independence
criteria applicable to members of the Audit Committee under SEC and Nasdaq Marketplace
Rules. In addition, the Board has determined that Mr. Becker and Ms. Tellez each qualify
as an “audit committee financial expert,” as such term is defined in Item
407(d)(5)(ii) of Regulation S-K. |
| (3) | The
Board has determined that each member of the Compensation Committee is an independent
director, as independence for compensation committee members is defined in the Nasdaq
Marketplace Rules. Each of Messrs. Callen and Stowe and Ms. Tellez also qualifies as
an “outside director” within the meaning of Section 162(m) of the Internal
Revenue Code of 1986 (the “Code”) and as a “non-employee” director
under Rule 16b-3 of the Exchange Act. |
Audit
Committee
As more fully described in its Charter, the Audit
Committee’s function is to assist the Board with its oversight of our accounting and financial processes and the audits of
our financial statements. The Audit Committee is responsible for oversight of our independent auditor, including sole and direct
responsibility to (i) appoint, evaluate and terminate, when necessary, the engagement of our independent auditor, (ii) set
the compensation of our independent auditor, (iii) pre-approve all audit and non-audit services to be provided by our independent
auditor and (iv) oversee the work of our independent auditor. The responsibilities of the Audit Committee also include, among other
things, review of our audited financial statements and quarterly unaudited financial statements that are prepared by management
and audited or reviewed by our independent auditor, and oversight of our internal control over financial reporting and disclosure
controls and procedures, oversight of the performance of our internal audit function and oversight of our Enterprise Risk Management
program.
Additional information regarding the Audit Committee
and its functions and responsibilities is included in this Proxy Statement under the headings “Proposal Four: Ratification
of the Selection of Independent Registered Public Accounting Firm” and “Audit Committee Report.”
Compensation
Committee
As more fully described in its Charter, the Compensation
Committee’s function is to discharge the Board’s responsibilities relating to the compensation of our Chief Executive
Officer and our other officers who are subject to Section 16 of the Exchange Act, with overall responsibility for approving and
evaluating all of our compensation plans, policies and programs as they affect the Chief Executive Officer and such other officers.
All of our independent directors as a group approve the compensation of our Chief Executive Officer, taking into account the recommendation
of the Compensation Committee. In addition, the Compensation Committee is responsible for (i) producing an annual report on executive
compensation for inclusion in our proxy statement or annual report on Form 10-K, as applicable, (ii) reviewing and making recommendations
to the Board with respect to compensation for directors, (iii) reviewing and making recommendations to the Board with respect to
incentive compensation and equity-based plans that are subject to the approval by the Board and (iv) administering our compensation
plans, to the extent authorized under the terms of such plans. The Compensation Committee may form and delegate authority to one
or more subcommittees as it deems appropriate from time to time.
| 2019 Proxy Statement 18 |
COMPENSATION
COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the persons who served on the Compensation
Committee during 2018 (Messrs. Stowe (Chair) and Callen and Ms. Tellez) were or are an officer or employee of HMS or had a related
person transaction involving HMS requiring disclosure under Item 404 of Regulation S-K. During 2018, none of our executive officers
(i) served as a member of the Board or compensation committee (or equivalent entity) of any other entity that had one or more of
its executive officers serving as a member of our Compensation Committee or (ii) served as a member of the compensation committee
(or equivalent entity) of any other entity that had one or more of its executive officers serving as a member of our Board.
Compliance
and Ethics Committee
As more fully described in its Charter, the Compliance
and Ethics Committee’s function is to oversee (i) compliance and ethics programs, policies and procedures, (ii) compliance
with federal and state laws and regulations applicable to the Company’s business, particularly those related to healthcare,
and all applicable Medicare and Medicaid program requirements, (iii) the activities of the Chief Compliance Officer and the operation
of the Compliance Department and (iv) compliance with our Code of Conduct and related policies and adherence to ethical standards.
Nominating
and Governance Committee
As more fully described in its Charter, the Nominating
and Governance Committee’s functions are (i) to identify individuals qualified to become board members and recommend director
nominees for election at the annual meeting of shareholders, (ii) to review and make recommendations to the Board on corporate
governance related matters, (iii) to oversee an annual self-evaluation of the Board and its standing committees and (iv) to recommend
the directors to serve on each Board committee and the chair of each committee. The processes and procedures followed by the Nominating
and Governance Committee in identifying and evaluating director candidates are described below under the heading “Director
Nomination Process.”
Succession Planning
The Nominating and Governance Committee oversees
succession planning for our CEO and other executive officers. The CEO succession plan is reviewed at least annually, or more often
if appropriate, with the full Board of Directors to ensure a smooth transition in the event of a planned or unplanned vacancy in
the office of the CEO. Succession planning for our executive officers other than the CEO is reviewed at least annually and more
often as necessary to identify potential successors and oversee their career development planning.
Board and Committee
Self-Evaluations
Pursuant to our Corporate Governance Guidelines,
the Board and each of its standing committees perform a rigorous self-evaluation annually, which may include an evaluation of individual
directors to assess the qualifications, attributes, skills and experience represented on the Board. The process is guided and overseen
by the Nominating and Governance Committee. The committee reviews the overall process annually to consider and determine the optimal
method for conducting the evaluations in order to achieve maximum effectiveness. For 2018, the Lead Independent Director conducted
guided one-on-one interviews with each member of the Board to solicit input regarding the performance and effectiveness of the
Board, the standing Board committees and individual directors and provide an opportunity for directors to identify areas for improvement.
The evaluation included an assessment of both board process and key performance areas, including but not limited to, corporate
strategy, risk oversight, the composition, conduct and culture of the Board and committees, the use of appropriate information
in performing relevant duties, follow-through and monitoring with respect to its recommendations and compliance with respective
charter requirements. The Lead Independent Director reviews the evaluation results and feedback for discussion with the Nominating
and Governance Committee to identify any opportunities for improvements, and the results of the discussion and any recommendations
are reviewed with the Board. Any matters requiring additional consideration are discussed at a subsequent Board or committee meeting,
as appropriate. The Board believes this process strengthens its effectiveness and facilitates continuous improvement.
| 2019 Proxy Statement 19 |
Director Nomination
Process
The Nominating and Governance Committee is responsible
for identifying individuals qualified to become members of the Board, consistent with criteria approved by the Board, and for recommending
to the Board the nominees for election as directors at any meeting of shareholders and the persons to be elected by the Board to
fill vacancies or newly created directorships. The Nominating and Governance Committee periodically reviews with the Board the
size and composition of the Board as a whole and the requisite skills and criteria for new directors.
Review
of Incumbent Directors
The Nominating and Governance Committee considers,
among other things, the performance, experience, tenure, qualifications and skills of incumbent directors, including their respective
attendance records and personal attributes as required under our Corporate Governance Guidelines, as well as the need for diversity
and financial or other specialized expertise, before making a determination to recommend incumbent directors for nomination for
election or re-election as directors. The Nominating and Governance Committee generally will nominate incumbent directors who continue
to qualify based upon the criteria considered by the committee and who are willing to continue to serve on the Board, in addition
to considering additional director candidates.
Shareholder
Recommendations of Director Candidates
The Nominating and Governance Committee will consider
director candidates suggested by you, our shareholders, provided that the recommendations are made in accordance with the procedures
described in this Proxy Statement in the Additional Information section under the heading “Shareholder Proposals and Director
Nominations for 2020 Annual Meeting.” As set forth in the Nominating and Governance Committee Charter, the Nominating and
Governance Committee will review and evaluate information available to it regarding candidates proposed by shareholders and will
apply substantially the same criteria and follow substantially the same process in considering them, as it does for other candidates.
Criteria
for Nomination to the Board
In evaluating prospective candidates, the Nominating
and Governance Committee takes into account all factors it considers appropriate, including but not limited to the characteristics
of independence, diversity, age, skills and experience, the needs and composition of the Board as a whole (including diversity
of skills, background and experience), the performance and continued tenure of incumbent directors, the balance of management and
independent directors and the need for financial or other specialized expertise. The Nominating and Governance Committee has not
established specific minimum qualifications for a candidate to be recommended for nomination to the Board. Rather, the Nominating
and Governance Committee recommends candidates that it believes will enhance our Board and benefit HMS and our shareholders based
on the factors discussed above.
Pursuant to our Corporate Governance Guidelines,
the Nominating and Governance Committee also will review director candidates’ personal attributes in accordance with the
following general criteria:
| § | nominees should have a reputation for integrity, honesty and adherence to high ethical standards; |
| 2019 Proxy Statement 20 |
| § | nominees should have demonstrated business acumen, experience and ability to exercise sound judgments
in matters that relate to the current and long-term objectives of HMS and should be willing and able to contribute positively to
the decision-making process of HMS; |
| § | nominees should have a commitment to understand HMS and its industry and to regularly attend and participate
in meetings of the Board and its committees; |
| § | nominees should have the interest and ability to understand the sometimes conflicting interests of
the various constituencies of HMS, which include shareholders, employees, customers, governmental units, creditors, and the general
public, and to act in the interests of all shareholders; |
| § | nominees should not have, nor appear to have, a conflict of interest that is not properly mitigated
that would impair the nominee’s ability to represent the interests of all HMS’s shareholders and to fulfill the responsibilities
of a director; and |
| § | nominees shall not be discriminated against on the basis of race, religion, national origin, sex,
sexual orientation, disability or any other category protected by law. |
Process
for Identifying and Evaluating Nominees
Candidates for director may come to the attention
of the Nominating and Governance Committee through current members of the Board, professional search firms, shareholders or industry
sources. The Nominating and Governance Committee first evaluates director candidates by reviewing their biographical information
and qualifications. Potentially qualified candidates are interviewed by the Chairman of the Board, the Lead Independent Director,
and the Chair of the Nominating and Governance Committee and then, if appropriate, by at least a majority of the Nominating and
Governance Committee, as well as other members of the Board. After completing the evaluation and interviews and checking the candidates’
references, the Nominating and Governance Committee determines which individuals are qualified to become board members and makes
a recommendation to the Board, taking into account the recommendation of the Lead Independent Director (if so designated) as to
the individuals who should be nominated for election by the shareholders at a meeting or elected by the Board to fill a vacancy
or newly created directorship. The Board makes the final determination whether to nominate or elect a candidate after considering
the Nominating and Governance Committee’s recommendation.
The Board of Directors’
Role in Risk Oversight
Our Board has overall responsibility for oversight
of HMS’s exposure to risk. The Board, itself and through its committees, regularly discusses our material risk exposures,
the potential impact on HMS and the efforts of management it deems appropriate to mitigate the risks that are identified.
HMS has established a formal Enterprise Risk Management
(“ERM”) program that assists management in identifying, assessing and managing risk, subject to oversight by the Board
and the Audit Committee. Under the ERM program, led by our Risk Management and Internal Audit department, each risk is assigned
to appropriate members of our senior leadership team who are responsible for the related operations or corporate function. Through
the ERM program, the senior leadership team conducts risk assessments at both the corporate level and across HMS’s business
units. The ERM program facilitates the ongoing development of the corporate risk appetite and risk mitigation strategies for key
areas of Company risk and is incorporated into strategic and operating decision-making by the Board and management, as appropriate.
The Audit Committee has direct responsibility for
overseeing the ERM program. The Audit Committee and the Board annually review the outputs of the ERM program, which is used as
a basis for the internal audit plan for the year.
The Board fulfills its oversight responsibility for
risk both directly and through its committees. The Board addresses certain risk areas directly through regular reports by the senior
leadership team and has delegated authority to its committees to oversee other risk areas that are within the scope of each committee’s
responsibility. The Board is routinely informed of each committee’s risk oversight activities through regular reports to
the Board.
| 2019 Proxy Statement 21 |
Board/Committee |
Risk Area |
Board |
§
Company Strategy
§
Cybersecurity
§
Capital Structure
§
Mergers & Acquisitions |
Audit Committee |
§
Quality and adequacy of processes and internal controls, with consultation from management and our independent registered
public accounting firm
§
Financial statements
§
Financial reporting and investor disclosure
§
Accounting and auditing
§
Significant financial exposure
§
ERM program |
Compensation Committee |
§
Elements of our compensation programs, policies and practices for executive officers, employees and non-employee directors,
with guidance from the Compensation Committee’s independent compensation consultant
§
Incentive-compensation and equity-based compensation plans |
Compliance and Ethics Committee |
§
Code of Conduct and Corporate Compliance Program, including compliance-related activities, audits and investigations
§
Healthcare policies and procedures
§
Non-financial compliance related to legal, regulatory and ethical requirements of our business operations |
Nominating and Governance Committee |
§
Corporate governance, with guidance from legal counsel
§
Board and committee membership
§
Succession planning
§
Overall Board effectiveness |
Company
Strategy
The Board oversees our corporate strategy, including
major business and organizational initiatives, capital allocation priorities and potential business development opportunities.
The Board engages in discussion regarding our corporate strategy at each regular meeting and receives a formal update on our operating
plan and budget at least annually.
Cybersecurity
The Board is responsible for the oversight of our
cybersecurity risk management, including cybersecurity preparedness, detection and response. The Board receives periodic updates
from management on the Company’s cybersecurity risk management program, which focus on the threat environment and vulnerability
assessments, cyber incidents, management’s efforts to monitor, detect and protect against cyber threats and disaster recovery
plans. If desired, the Board may have candid discussions with our Chief Technology Officer in executive session about our cybersecurity
preparedness and the resources and culture needed to maintain the program’s resiliency.
Compensation-Related
Risk
We regularly assess risks related to our compensation
programs for all employees, including executive and non-executive officers and employees. In February 2019, HMS’s management
and Compensation Committee, with the assistance of the Compensation Committee’s independent compensation consultant, Frederic
W. Cook & Co., Inc. (“FW Cook”), conducted a comprehensive assessment of the risks associated with our compensation
policies and practices as they relate to risk management practices and risk-taking incentives. The Compensation Committee took
into consideration our current compensation structure and the possible risks and mitigation factors associated with each compensation
element, including, among others, the mix of cash and equity, the balance of fixed compensation with short- and long-term incentives,
the use of multi-year vesting periods for equity awards, the use of multiple performance metrics between our equity awards and
short-term incentives, clawback provisions that apply to short- and long-term incentive awards, stock ownership guidelines for
executive officers and a cap on bonus pool funding and individual payouts for all short-term incentive awards. Based on the results
of this assessment, the Compensation Committee does not believe our compensation policies and practices for employees create risks
that are reasonably likely to have a material adverse effect on our Company.
| 2019 Proxy Statement 22 |
As discussed in more detail under the heading “Compensation
Discussion and Analysis” below, the Compensation Committee reviews and approves executive compensation programs that focus
on having the appropriate balance of features that mitigate compensation-related risk without diminishing the incentive nature
of the compensation.
Corporate Governance
Guidelines
The Board has adopted Corporate Governance Guidelines,
which govern the operations of the Board and its committees and address matters such as director responsibilities and qualifications,
committee membership and structure, board composition and structure, director compensation, communications with outside parties
and the annual self-evaluation of the Board and its standing committees. Our Corporate Governance Guidelines form an important
and flexible framework for the Board’s corporate governance practices and guide the Board in the execution of its responsibilities.
They provide, among other things, that:
| § | the directors shall have full and free access to HMS’s management in discharging their obligation
to oversee HMS management; |
| § | a majority of directors of the Board must be independent as defined by the standards established by
Nasdaq and the SEC; |
| § | a director must limit the number of company boards on which he or she serves and must advise the Chairman
and the Chair of the Nominating and Governance Committee in advance of joining another board; |
| § | a lead independent director shall be appointed annually by the independent directors to provide leadership
to independent directors if the offices of Chairman and Chief Executive Officer are held by the same person; |
| § | independent directors must promptly inform the Chairman and the Chair of the Nominating and Governance
Committee of any matter that may cause a change in their status as independent directors or of an activity that may rise to the
level of a material conflict of interest; and |
| § | the Nominating and Governance Committee will oversee an annual self-evaluation of the Board and its
standing committees, which may include an evaluation of individual directors. |
From time to time, the Nominating and Governance
Committee will review and reassess our Corporate Governance Guidelines, and, if necessary, recommend changes to the Board. Our
Corporate Governance Guidelines are available to view on our website under the “Investors—Corporate Governance”
tabs at http://investor.hms.com/corporate-governance.cfm.
Code of Conduct
Our Board has adopted a Code of Conduct applicable
to all of our directors, officers and employees, including all employees, officers, directors, contractors, contingent workers
and business affiliates of HMS subsidiaries. The Code of Conduct is publicly available on
our website under the “Investors—Corporate Governance” tabs at http://investor.hms.com/corporate-governance.cfm
and can also be obtained free of charge by sending a written request to our Corporate Secretary.
To the extent permissible under Nasdaq Marketplace Rules, we intend to disclose amendments to our Code of Conduct, as well as waivers
of the provisions thereof, that relate to our principal executive officer, principal financial officer, principal accounting officer,
controller or persons performing similar functions on the Company’s website under the “Investors—Corporate Governance”
tabs at http://investor.hms.com/corporate-governance.cfm.
| 2019 Proxy Statement 23 |
Certain Relationships
and Related Transactions
Related
Person Transaction Policy
The Audit Committee is responsible for reviewing
all transactions with related persons on an ongoing basis for potential conflict of interest situations, and all such transactions
must be approved by the Audit Committee. Our Board has adopted a written Related Person Transaction Policy to assist the Audit
Committee in reviewing proposed transactions between HMS and certain individuals deemed to be “related persons.” The
policy applies to our executive officers, directors, director nominees and 5% shareholders (and their immediate family members),
each of whom we refer to as a “related person,” and governs the review of any transaction, arrangement or relationship
in which we are a participant, the amount involved exceeds $120,000 and a related person has a direct or indirect material interest.
We refer to such a transaction, arrangement or relationship as a “related person transaction.”
Review
and Approval of Related Person Transactions
Pursuant to our Related Person Transaction Policy,
a related person must notify the Corporate Secretary of any plan to enter into, extend or modify any transaction with HMS or its
affiliates that could be a related person transaction. The proposed transaction is reviewed and, if deemed appropriate, approved
by the Audit Committee prior to entry into the transaction. Under the policy, any related person transactions that are ongoing
in nature and previously approved by the Audit Committee will be reviewed annually. A transaction with a related person reviewed
under the policy will be considered approved or ratified if it is authorized by the Audit Committee after full disclosure of the
related person’s interest in the transaction. The Audit Committee will review and consider all relevant information regarding
the transaction, including the impact on a director’s independence or a Board committee’s composition in the event
the related person is a director, as it deems appropriate under the circumstances.
The Audit Committee may approve or ratify the transaction
only if the Audit Committee determines that, under all of the circumstances, the transaction is in, or is not inconsistent with,
the best interests of HMS. In connection with approving a transaction with a related person, the Audit Committee may impose any
conditions on the transaction that it deems appropriate. All related person transactions will be disclosed in applicable SEC filings
to the extent required by the Securities Act of 1933, as amended, and the Exchange Act and related rules and regulations. There
have been no transactions with related persons since the beginning of fiscal 2018 reportable pursuant to applicable SEC rules.
| 2019 Proxy Statement 24 |
Corporate Responsibility
and Sustainability
At HMS, we are dedicated to operating responsibly and sustainably. We believe doing so creates long-term value
for our business, our shareholders and society.
Priorities |
Highlights |
People
![](http://www.sec.gov/Archives/edgar/data/1196501/000117184319002384/pplicon.jpg)
|
Culture, Training and Development
§
We provide our employees continuous, year-round development through e-learning and instructor-led training. We have a catalog of
more than 250 courses with programs that focus on leadership skills, emerging technologies, technical training, project management
and many more topics. In 2018, our people completed 25,000 hours of training, averaging 10 hours of training per employee.
§
We have a strong focus on ethics and compliance, promoting and upholding the highest standards of integrity in everything we do.
Each year, our employees are required to complete a robust compliance and ethics training program that reinforces our Code of Conduct.
We also have a program that encourages our people to step forward and self-report a mistake or compliance issue—and recognizes
them for doing so.
§
A unique aspect of our culture is that everybody has the opportunity to develop new competencies by collaborating with cross-functional
teams that advance key company initiatives. Our people take on leadership roles, use existing skills in new ways and acquire new
skills in the process.
§
We monitor employee engagement through annual employee surveys. In 2018, 87% of our employees completed the survey, and we achieved
an overall engagement score of 73%. We have seen continued increases in employee engagement every year since 2015.
Gender Equality
§
We are committed to gender equality. In fact, more than 50% of our workforce is comprised of women, and our women make up 50% of
all our leaders.
§
Our Women’s Opportunity Network helps every woman at HMS feel valued, connected and appreciated, opening new opportunities
for women to reach their desired level of personal and professional achievement. Our Women’s Opportunity Network offers monthly
webcasts that cover such topics as career development, career advancement and ways to increase the impact and contributions of
women leaders and influencers. We encourage both women and men to participate in these webcasts.
Supplier Diversity
§
We are committed to growing our supplier diversity program. We believe inclusive procurement practices help us create value for
our customers and communities. In 2018, 15% of our procurement spend was with diverse suppliers.
Human Rights and Labor Rights
§
Our Human Rights and Labor Rights policies underscore our commitment to the protection of human rights around the world and the
rights of our employees to work in a safe, healthy and productive workplace and applies to all our employees and contractors, as
well as all of our vendors, subcontractors, consultants and any others acting on our behalf, as applicable. |
Privacy and Information Security
![](http://www.sec.gov/Archives/edgar/data/1196501/000117184319002384/shieldicon.jpg)
|
Our clients trust us to keep their information—and
their customers' information—secure and private. Responsible for the healthcare data of one in three Americans, we undertake
or undergo rigorous security practices, processes and certifications to help ensure this data is safe. Our certifications, awards
and practices include:
§
HITRUST certification, the gold standard for managing security in the U.S. healthcare industry
§
2018 CSO50 Award winner for our Secure Cloud Infrastructure project, recognizing risk and security excellence
§
Proactive and mandatory workforce security training throughout the year, including computer-based, role-based, live and
event training
§
Robust threat and vulnerability management program aligned with our business
§
Business Continuity Management Solution to effectively prepare for and manage any business disruption |
| 2019 Proxy Statement 25 |
Priorities |
Highlights |
Community
![](http://www.sec.gov/Archives/edgar/data/1196501/000117184319002384/handicon.jpg)
|
HMS and our people have made a real difference in
the communities where we live and work. Through our HMS Cares program, our people use their talent and expertise to serve those
who are most vulnerable in our communities. We empower our people to create a positive impact and support their efforts by providing
paid time off to volunteer. In 2018, our employees volunteered more than 3,100 hours in their communities. Here are a few examples
of the organizations and causes we support.
§
Relieving Hunger
Hunger, poor nutrition and related health issues are realities for many families. That’s why we partner with Feeding America’s
nationwide network of food banks, which feeds 37 million Americans every year. Each November, our people volunteer at their local
food banks. We also make annual financial contributions to the North Texas Food Bank and support local food drives across the U.S.
§
Special Olympics
Each year, our team in Danvers, Massachusetts, helps host, sponsor and coordinate a number of events in partnership with Special
Olympics. For example, we host an annual Bocce Ball tournament, where we play alongside the athletes. Through the power of sports
and teamwork, our employees help people with intellectual disabilities achieve their full potential. We inspire their confidence
and help them discover new strengths and abilities.
§
Disaster Relief
When disaster strikes, we help the American Red Cross bring urgent relief to those who need it most. Through our partnership with
this organization, our employees’ generous donations—and company match—help operate shelters, deliver food, distribute
relief supplies and support disaster health.
§
Annual Toy Drive
Each December, our team in Irving, Texas, hosts an annual toy drive for the kids at Children’s Medical Center Dallas who
won’t be able to go home for the holidays. We collect hundreds of toys to do our small part to help lift the kids’
spirits, bringing smiles to those who are hospitalized. |
Environment
![](http://www.sec.gov/Archives/edgar/data/1196501/000117184319002384/envicon.jpg) |
We are committed to conducting business in an environmentally
responsible manner that complies with all applicable legal and regulatory requirements. Our goal is to create and maintain an environmental
management system (“EMS”) that will raise awareness at all levels of the Company and continually improve our environmental
performance. To implement this policy, HMS will:
§
Maintain an EMS that aligns with ISO 14001 and apply the EMS to all business operations
§
Ensure our business operations comply with all local, state and federal environmental regulations
§
Promote energy efficiency in all areas of business activity
§
Minimize pollution and waste by proactively promoting reduction, reuse, and recycling programs
§
Ensure our employees and business partners are aware of the environmental impacts of their work activities and inform them
of ways to minimize those impacts
§
Inform our suppliers and contractors of our environmental expectations and give preference to environmentally aware suppliers
whenever possible
§
Make efficient and environmentally responsible use of energy, water and other natural resources
§
Communicate our environmental performance within the company and to the external community |
For more information on our corporate responsibility
and sustainability initiatives, please visit our website at www.hms.com/about. Please note that the information presented on our
website is not part of our proxy solicitation materials.
| 2019 Proxy Statement 26 |
DIRECTOR COMPENSATION
The Compensation Committee has the responsibility
for recommending to the Board the form and amount of compensation for directors, which are subject to review and adjustment by
the Board from time to time. Directors who are employed by HMS do not receive compensation for their service on the Board. Directors
who are not our employees (non-employee directors) receive cash and equity-based compensation for their services as a director.
All of our directors are reimbursed for reasonable expenses incurred in connection with attendance at meetings of the Board or
its committees.
Standard Compensation
for Non-Employee Directors
Our standard compensation arrangements for non-employee
directors for fiscal 2018 are summarized in the table below. Amounts effective during the periods from January 1, 2018 through
October 31, 2018, and November 1, 2018 through December 31, 2018, are shown separately to illustrate certain changes approved by
the Board of Directors that became effective on November 1, 2018, as discussed in more detail below. Other than the meeting fees,
the amounts shown in the table below are per annum.
Type of Fee |
Board/Committee |
Amount Effective 1/1/18-10/31/18
($) |
Amount Effective 11/1/18-12/31/18
($) |
Board Cash Retainer(1) |
Board Member |
60,000 |
70,000 |
Committee Chair Cash Retainer(1)(2)(3) |
Audit |
20,000 |
22,500 |
|
Compensation |
15,000 |
20,000 |
|
Compliance and Ethics |
15,000 |
15,000 |
|
Nominating and Governance |
15,000 |
15,000 |
Committee Member Cash Retainer(1)(3) |
Audit |
7,000 |
7,500 |
|
Compensation |
5,000 |
7,000 |
|
Compliance and Ethics |
5,000 |
5,000 |
|
Nominating and Governance |
5,000 |
5,000 |
Additional Cash Retainer(1) |
Lead Independent Director |
25,000 |
25,000 |
Meeting Fees |
Per meeting fee for Board meetings in excess of eight during fiscal year; does not include committee meetings |
2,000 |
2,000 |
Board Equity Retainer(4) |
Board Member |
165,000 |
190,000 |
| (1) | All
cash retainer fees, unless deferred by a director pursuant to the Director Deferred Compensation
Plan, are paid in quarterly installments in arrears. Cash retainer fees are pro-rated
for partial periods of service. |
| (2) | Committee
chair cash retainers are paid in lieu of the respective committee member cash retainer. |
| (3) | Cash
retainers for service on any committee established by the Board from time to time other
than a standing committee are determined on a case-by-case basis by the Board. For 2018,
retainers approved and paid for service on such a committee utilized during a portion
of 2018 prior to its termination were $7,507 for the committee chair and $3,753 for each
committee member. |
| (4) | The
annual equity retainer to non-employee directors is in the form of a substantially equal
number of non-qualified stock options and restricted stock units. See “Equity-Based
Compensation” below for a discussion of the 2018 annual equity retainer awards. |
In October 2018, the Compensation Committee reviewed
the design and competitive positioning of our non-employee director compensation program in relation to our peer group. For a discussion
regarding our peer group, see “Competitive Pay Position and Peer Group Analyses” under the subsection entitled “Compensation
Discussion and Analysis.” The peer group analysis included benchmarking data on total director compensation (taking into
account our board and committee structure, board leadership structure, and number of meetings held during 2018), as well as pay
mix, cash compensation and equity compensation levels, and general practices such as committee chair and member retainers and stock
ownership guidelines. With guidance from FW Cook, the Compensation Committee recommended, and the Board approved, certain changes
to our non-employee director compensation, effective as of November 1, 2018, as reflected in the table above under the heading
“Standard Compensation for Non-Employee Directors.” These changes resulted in our total non-employee director compensation
approximating the median level of our peer group companies.
| 2019 Proxy Statement 27 |
Equity-Based
Compensation
Equity compensation provided to our non-employee
directors consists of a substantially equal number of stock options and restricted stock units granted pursuant to the 2016 Omnibus
Incentive Plan, or 2016 Omnibus Plan. Equity grants to our non-employee directors are effective on the date of the annual meeting
of shareholders and vest in full on the earlier of (i) the first anniversary of the date of grant or (ii) the date of the next
annual meeting of shareholders, provided that the non-employee director remains a member of our Board through the vesting date.
Equity grants for new directors joining the Board are approved by the Compensation Committee at its next meeting following the
director’s appointment or election, are effective three business days following the date of filing of our next quarterly
report on Form 10-Q or annual report on Form 10-K with the SEC, whichever is sooner, and are pro-rated for the director’s
partial year of service. For 2018, the Board authorized the annual grant for each non-employee director effective as of May 23,
2018, with an aggregate grant date fair value of $165,000. For additional information regarding the 2018 non-employee director
equity awards, see “2018 Director Compensation” below.
We are submitting the HMS Holdings Corp. 2019 Omnibus
Incentive Plan (the “2019 Omnibus Plan”) to the shareholders for approval at the 2019 Annual Meeting. If approved,
the 2019 Omnibus Plan will replace and supersede the 2016 Omnibus Plan. For a discussion of the material terms of the 2019 Omnibus
Plan, see “Proposal Three: Approval of the 2019 Omnibus Incentive Plan.”
Director
Compensation Limits
Under the terms of the 2016 Omnibus Plan, and the
2019 Omnibus Plan (if approved by our shareholders), the maximum number of shares subject to awards granted during a single fiscal
year to any non-employee director, taken together with any cash fees paid to such non-employee director during the fiscal year,
is limited to $500,000 in total value (calculating the value of any such awards based on the grant date fair value of such award
for financial reporting purposes). The Compensation Committee may make exceptions to this limit for a non-executive chair of the
Board or, in extraordinary circumstances, for other individual non-employee directors, as the Committee may determine in its discretion,
provided that the non-employee director receiving such additional compensation may not participate in the decision to award such
compensation.
Deferred
Compensation
Each of our non-employee directors is eligible to
participate in our Director Deferred Compensation Plan, under which the non-employee director may elect annually to defer payment
of all or a portion of his or her cash retainer fees and annual restricted stock unit grants until the termination of his or her
service as a member of the Board. The amount of any cash compensation deferred by a non-employee director is converted into a number
of deferred stock units, determined based upon the closing price of our common stock on the Nasdaq Global Select Market on the
date such fees would otherwise have been payable, and credited to a deferred compensation account maintained in his or her name.
Any restricted stock units that are deferred by a non-employee director are credited to the non-employee director’s account
in the form of deferred stock units on a share-for-share basis on the date such restricted stock units would otherwise have been
payable. The account will be credited with additional deferred stock units on the payment date for any dividends declared on our
common stock, calculated based on the closing price of our common stock on the payment date. On the tenth business day of January
of the year following a director’s termination of service for any reason, the amounts accumulated in the deferred compensation
account will be paid in a lump sum in shares of our common stock under the 2016 Omnibus Plan (or, for payment of deferred compensation
accounts after May 22, 2019, under the 2019 Omnibus Plan if approved by the shareholders at the 2019 Annual Meeting) equal to the
number of whole deferred stock units in the account and cash in lieu of any fractional shares.
The following table sets forth the number of deferred
stock units credited to the accounts of our non-employee directors as of December 31, 2018.
| 2019 Proxy Statement 28 |
Name |
Deferred Stock Units
(#) |
Mr. Becker |
23,112 |
Mr. Callen |
31,152 |
Mr. Miller |
4,058 |
Ms. Rudnick |
20,012 |
Mr. Schwartz |
34,300 |
Mr. Stowe |
73,806 |
Ms. Tellez |
57,379 |
Stock Ownership
Guidelines for Non-Employee Directors
The Board has established significant stock ownership
guidelines for our non-employee directors to encourage non-employee directors to own and hold a meaningful ownership stake in HMS
in order to further align their interests and actions with the interests of HMS and its shareholders. Our non-employee directors
are required to own shares of HMS common stock equal in value to at least five times their annual cash retainer. For purposes of
satisfying these guidelines, a non-employee director’s shares owned outright, directly or indirectly, restricted stock and
restricted stock units, whether or not vested, and deferred stock units are counted in determining the non-employee director’s
stock ownership. Each non-employee director is required to achieve his or her respective ownership guidelines within five years
after election to the Board, or in the case of non-employee directors serving at the time the guidelines were adopted (July 28,
2016), within five years of the date of adoption. To mitigate the impact of stock price fluctuation, the number of shares required
to be held by each non-employee director to satisfy the guidelines remains fixed through December 1, 2019, based on the annual
cash retainer in effect, and the closing price of our common stock, on December 1, 2016. The Compensation Committee monitors compliance
with these guidelines on an annual basis.
The following graph summarizes the stock ownership
of each of our non-employee directors as of December 1, 2018, as a multiple of the annual cash retainer in effect as of December
1, 2016, and the average closing price of our common stock for the month of November 2016, of $18.71 per share, pursuant to our
Stock Ownership Guidelines.
![](http://www.sec.gov/Archives/edgar/data/1196501/000117184319002384/stockown.jpg)
| 2019 Proxy Statement 29 |
2018 Director
Compensation
The following table sets forth compensation earned
by each of our non-employee directors for services as a director during fiscal 2018.
Name |
|
Fees Earned or Paid in Cash(1)
($) |
|
Stock Awards(2)(3)
($) |
|
Option Awards(2)(4)
($) |
|
Total
($) |
Robert Becker |
|
79,750 |
|
113,727 |
|
51,264 |
|
244,741 |
Craig R. Callen |
|
85,507 |
|
113,727 |
|
51,264 |
|
250,498 |
William F. Miller III |
|
76,420 |
|
113,727 |
|
51,264 |
|
241,411 |
Ellen A. Rudnick |
|
98,083 |
|
113,727 |
|
51,264 |
|
263,074 |
Bart M. Schwartz |
|
94,750 |
|
113,727 |
|
51,264 |
|
259,741 |
Richard H. Stowe |
|
117,253 |
|
113,727 |
|
51,264 |
|
282,244 |
Cora M. Tellez |
|
95,083 |
|
113,727 |
|
51,264 |
|
260,074 |
| (1) | The
amounts in this column include (a) fees paid in cash to each non-employee director and
(b) the value of fully vested deferred stock units received under our Director Deferred
Compensation Plan in lieu of all or a specified portion of the non-employee director’s
cash retainer fees, calculated based on the fair market value of the underlying shares
on the dates the cash retainer fees would otherwise have been paid. The aggregate number
of deferred stock units credited to non-employee directors in lieu of all or a specified
portion of the non-employee director’s cash retainer fees for 2018, pursuant to
each director’s election, and the aggregate fair market value (calculated as of
the date the units were credited to the non-employee director) of such deferred stock
units are shown in Figure 1 below. |
| (2) | The
number of outstanding stock options and unvested restricted stock units, whether or not
deferred under the Director Deferred Compensation Plan, held by the non-employee directors
as of December 31, 2018 is shown in Figure 2 below. |
| (3) | The
amounts in this column represent the grant date fair value of the restricted stock units
granted to the non-employee directors during fiscal 2018, whether or not deferred, computed
in accordance with FASB guidance on stock-based compensation. The relevant assumptions
made in the valuations may be found in Note 1 of the Notes to the Consolidated Financial
Statements in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018.
The number of restricted stock units granted to each non-employee director during fiscal
2018 and the number of such restricted stock units that were deferred under our Director
Deferred Compensation Plan, pursuant to each director’s election, are shown in
Figure 3 below. The restricted stock units granted on May 23, 2018, whether or not deferred,
vest in full on the earlier of (a) the first anniversary of the date of grant or (b)
the date of the Company’s 2019 Annual Meeting. Vesting is subject to continued
service on the Board through the vesting date. |
| (4) | The amounts
in this column represent the grant date fair value of the nonqualified stock options
granted to the non-employee directors during fiscal 2018, computed in accordance with
FASB guidance on stock-based compensation. The relevant assumptions made in the valuations
may be found in Note 1 of the Notes to the Consolidated Financial Statements in our Annual
Report on Form 10-K for the fiscal year ended December 31, 2018. The number of nonqualified
stock options granted to each non-employee director during fiscal 2018 is shown in Figure
3 below. The stock options granted on May 23, 2018 vest in full on the earlier of (a)
the first anniversary of the date of grant or (b) the date of the Company’s 2019
Annual Meeting. Vesting is subject to continued service on the Board through the vesting
date. |
| 2019 Proxy Statement 30 |
(Figure 1) Deferred
Stock Units Received in Lieu of Cash During Fiscal 2018
Name |
|
Deferred Stock Units Received in Lieu of 2018 Cash Compensation
(#)
|
|
Aggregate Grant Date
Fair Market Value
($)
|
Mr. Schwartz |
|
2,004 |
|
|
47,354 |
|
Mr. Stowe |
|
4,942 |
|
|
117,258 |
|
Ms. Tellez |
|
4,022 |
|
|
95,106 |
|
(Figure 2) Outstanding
Stock Options and Unvested Restricted Stock Units at December 31, 2018
Name |
|
Outstanding
Stock Options
(#)
|
|
Unvested Restricted Stock Units (#) |
Mr. Becker |
|
23,111 |
|
|
5,368 |
|
Mr. Callen |
|
31,151 |
|
|
5,368 |
|
Mr. Miller |
|
33,740 |
|
|
5,368 |
|
Ms. Rudnick |
|
16,784 |
|
|
5,368 |
|
Mr. Schwartz |
|
33,740 |
|
|
5,368 |
|
Mr. Stowe |
|
33,740 |
|
|
5,368 |
|
Ms. Tellez |
|
5,467 |
|
|
5,368 |
|
(Figure 3) Stock
Options and Restricted Stock Units Granted During Fiscal 2018
Name |
|
Nonqualified Stock Options Granted(1)
(#)
|
|
Restricted Stock Units Granted(2) (#) |
Mr. Becker |
|
5,367 |
|
|
5,368 |
|
Mr. Callen |
|
5,367 |
|
|
5,368 |
|
Mr. Miller |
|
5,367 |
|
|
5,368 |
|
Ms. Rudnick |
|
5,367 |
|
|
5,368 |
|
Mr. Schwartz |
|
5,367 |
|
|
5,368 |
|
Mr. Stowe |
|
5,367 |
|
|
5,368 |
|
Ms. Tellez |
|
5,367 |
|
|
5,368 |
|
| (1) | The
amounts shown represent the number of nonqualified stock options granted to each non-employee
director on May 23, 2018, the date of our 2018 annual meeting of shareholders. |
| (2) | The amounts
shown represent the number of restricted stock units granted to each non-employee director
on May 23, 2018. Messrs. Becker, Callen and Stowe and Ms. Tellez elected to defer 100%
of the restricted stock units granted, and Ms. Rudnick and Mr. Schwartz elected to defer
50% of the restricted stock units granted, pursuant to the Director Deferred Compensation
Plan. |
| 2019 Proxy Statement 31 |
EXECUTIVE OFFICERS
The following table sets forth certain information
with respect to each person who currently serves as one of our executive officers as of the date of this Proxy Statement. Our executive
officers are elected annually by our Board and generally serve at the discretion of our Board. There are no arrangements or understandings
between any of our executive officers and any other person pursuant to which they were selected as an officer. None of our directors
or executive officers are related to any other director or executive officer of HMS or any of its subsidiaries by blood, marriage
or adoption.
Name |
|
Age |
|
Position |
William C. Lucia |
|
61 |
|
Chairman, President and Chief Executive Officer |
David A. Alexander |
|
39 |
|
Senior Vice President, Chief Human Resources and Chief Compliance Officer |
Meredith W. Bjorck |
|
43 |
|
Executive Vice President, Chief Legal Officer and Corporate Secretary |
Emmet W. O’Gara |
|
50 |
|
Group President, Total Population Management |
Maria E. Perrin |
|
55 |
|
Senior Vice President, Chief Marketing and Strategy Officer |
Jeffrey S. Sherman |
|
53 |
|
Executive Vice President, Chief Financial Officer and Treasurer |
Jacob J. Sims |
|
38 |
|
Senior Vice President, Chief Technology Officer |
Tracy A. South |
|
60 |
|
Executive Vice President, Chief Administrative Officer |
Douglas M. Williams Jr. |
|
60 |
|
Executive Vice President, Chief Operating Officer |
The principal occupations for the last five years,
as well as certain other biographical information, for each of our current executive officers who are not directors are set forth
below. See “Class I Directors (Continuing Members of the Board)” above for biographical information for Mr. Lucia.
David A. Alexander |
![](http://www.sec.gov/Archives/edgar/data/1196501/000117184319002384/alexander.jpg) |
Mr. Alexander has served as our Senior Vice President, Chief Human Resources and Chief Compliance Officer, since January 2019, with responsibility for overseeing the Company’s human resources organization and all aspects of the Company’s corporate compliance and ethics program. From April 2016 to January 2019, he served as our Vice President, Chief Compliance and Ethics Officer. Prior to joining HMS, Mr. Alexander served in various roles at Alcon Labs Inc., a global eye care provider, including as head of compliance for the United States and Canada from September 2013 to April 2016, and as Director, Global Integrity & Compliance from November 2011 to September 2013. During his tenure at Alcon, Mr. Alexander supported Alcon’s pharmaceutical and medical device business units, as well as global research and development. Prior to joining Alcon, Mr. Alexander was an attorney at Pfizer, Inc. and the law firms of DLA Piper US LLP and Hughes & Luce, LLP. |
|
|
| 2019 Proxy Statement 32 |
Meredith W. Bjorck |
![](http://www.sec.gov/Archives/edgar/data/1196501/000117184319002384/bjorck.jpg) |
Ms. Bjorck has served as our Executive Vice President, Chief Legal Officer and Corporate Secretary since February 2019, and served as our Executive Vice President, General Counsel and Corporate Secretary from April 2016 until February 2019. Ms. Bjorck previously served as Senior Vice President, General Counsel and Corporate Secretary for Tuesday Morning Corporation, a national off-price retailer, from January 2013 to March 2016. From April 2008 until January 2013, Ms. Bjorck served in various capacities for CEC Entertainment, Inc., an international restaurant chain, including as Deputy General Counsel, Chief Compliance Officer and Corporate Secretary. Prior to joining CEC Entertainment, Ms. Bjorck was an attorney at Fulbright & Jaworski L.L.P. (now Norton Rose Fulbright) and Vinson & Elkins L.L.P., where she specialized in corporate securities and mergers and acquisitions. |
|
|
Emmet W. O’Gara |
![](http://www.sec.gov/Archives/edgar/data/1196501/000117184319002384/ogara.jpg) |
Mr. O’Gara has served as our Group President, Total Population Management (TPM) since February 2019, and served as our Executive Vice President, TPM, from January 2018 until February 2019, with responsibility for overseeing all aspects of the Company’s TPM business, including product innovation and growth, delivery, engineering and development. He brings more than 25 years of experience in the healthcare payer, provider, and employer markets. Prior to joining HMS, Mr. O’Gara served as Senior Vice President and Chief Revenue Officer of Cota Healthcare, a healthcare data and analytics company, from August 2017 to December 2017. From September 2009 through July 2017, he served as Senior Vice President and General Manager of Payer and Provider Solutions at MedeAnalytics, a leading healthcare analytics company. During his eight-year tenure, Mr. O’Gara drove new sales, expanded existing accounts, and accelerated revenue growth. Mr. O’Gara has also held key leadership roles at Blue Cross Blue Shield of Massachusetts, Accenture Consulting, and Cigna Healthcare. |
|
|
Maria E. Perrin |
![](http://www.sec.gov/Archives/edgar/data/1196501/000117184319002384/perrin.jpg) |
Ms. Perrin has served as our Senior Vice President, Chief Marketing and Strategy Officer since January 2019, with responsibility for the Company’s strategy and roadmap, and the vision and execution of our marketing and government relations functions. Ms. Perrin rejoined HMS in 2019, after serving in various executive leadership roles at HMS from 2007 through 2014. Prior to her current role, she was founding Principal at Gide Public Affairs from September 2014 to December 2018, where she served as a strategy consultant to companies and government agencies in the healthcare, technology and consumer products sectors. Ms. Perrin served as HMS’s Executive Vice President, Chief Marketing Officer from January 2013 to February 2014. From September 2011 to January 2013, she served as Chief Business Officer, and from March 2009 to September 2011, she served as Executive Vice President of Government Services. Prior to her previous tenure at HMS, Ms. Perrin held senior leadership roles at Performant Financial Corporation, Bestfoods and Nissan Motor Corporation. |
|
|
| 2019 Proxy Statement 33 |
Jeffrey S. Sherman |
![](http://www.sec.gov/Archives/edgar/data/1196501/000117184319002384/sherman.jpg) |
Mr. Sherman has served as our Executive Vice President, Chief Financial Officer and Treasurer since September 2014, and is also responsible for corporate development, investor relations and risk management. Mr. Sherman has over 25 years of experience in healthcare operations, strategic planning and financial performance in senior financial executive positions. Prior to joining HMS, Mr. Sherman served as Executive Vice President and Chief Financial Officer of AccentCare, a healthcare delivery organization, from September 2013 to August 2014. From April 2009 to September 2013, he served as Executive Vice President and Chief Financial Officer of Lifepoint Hospitals, Inc. From September 2005 until April 2009, Mr. Sherman served as Vice President and Treasurer of Tenet Healthcare, where he managed all aspects of corporate finance, including cash flow management and capital structure, and was also responsible for risk management. From 1990 to September 2005, Mr. Sherman served in various capacities for Tenet Healthcare and its predecessor company, including as a hospital chief financial officer and regional vice president. |
|
|
Jacob J. Sims |
![](http://www.sec.gov/Archives/edgar/data/1196501/000117184319002384/sims.jpg) |
Mr. Sims has served as our Senior Vice President, Chief Technology Officer, since April 2018, and is responsible for all aspects of our information technology and security, including IT infrastructure, development and execution of our technology strategy and roadmap, evolution of data science and advanced analytics, development of new product and capabilities, service platforms, and IT security. Mr. Sims has significant experience leading large-scale healthcare IT organizations and specializes in transformative initiatives and data-centric product cultivation. Prior to joining HMS, Mr. Sims served as Chief Technology Officer and Interim Head of Product for WebMD Health Services, a provider of health information services, from July 2016 to April 2018. From July 2014 to July 2016, Mr. Sims served as Vice President of Development and Technology of Premise Health, a direct healthcare access provider, and from April 2013 to July 2014, he served as Vice President of Development and Technology for CHS Onsite, a provider of medical management services. Prior to CHS Onsite, Mr. Sims held leadership positions at Xerox, Inc. and CredenceHealth, Inc. |
|
|
Tracy A. South |
![](http://www.sec.gov/Archives/edgar/data/1196501/000117184319002384/south.jpg) |
Ms. South has served as our Executive Vice President, Chief Administrative Officer since January 2019, with responsibility for facilities, real estate and mergers and acquisitions integration, a key part of our growth strategy, as well as leading the cultural transformation and sustainability. Ms. South served as our Executive Vice President, Human Resources and Chief Administrative Officer from May 2014 through January 2019, and as our Senior Vice President of Human Resources from December 2011 to May 2014. In her HR roles, Ms. South oversaw all aspects of HR, including talent acquisition and management, human resource information services, compensation and benefits, learning and development, HR business partnership and organizational development. From 2003 to 2011, Ms. South served as the Senior Vice President, Chief Human Resources Officer at Mosaic Sales Solutions, a privately-held full-service marketing agency in Irving, Texas. During her tenure at Mosaic, she built the company’s North America Human Resources department, focusing on attracting and training a dispersed workforce of over 10,000 employees hired to represent world class brands at retail, in the community and online. Ms. South has also served in HR leadership roles at Tenet Healthcare and Aetna US Healthcare. |
| 2019 Proxy Statement 34 |
Douglas M. Williams Jr. |
![](http://www.sec.gov/Archives/edgar/data/1196501/000117184319002384/williams.jpg) |
Mr. Williams has served as our Executive Vice President, Chief Operating Officer since February 2019, with responsibility for all aspects of our coordination of benefits and payment integrity businesses, including product innovation and growth, delivery and development, and enterprise operations, as well as leading sales, account management and advisory services for all of our markets. Mr. Williams served as our President, Markets and Product from December 2016 until February 2018. From January 2015 to December 2016, Mr. Williams served as our Division President of Markets with responsibility for leading the state and federal government and commercial markets, sales and marketing. From December 2013 to January 2015, he served as our Division President of Commercial Solutions, responsible for leading our commercial product and business development strategy. Mr. Williams has over 30 years of experience in healthcare information technology, sales, general management and operations with a strong focus in healthcare consulting. Prior to joining HMS, Mr. Williams served as Chief Information Officer of Aveta Inc. (now part of Optum, Inc.), a provider of managed healthcare services, from 2010 to 2013. |
| 2019 Proxy Statement 35 |
EXECUTIVE COMPENSATION
Compensation Discussion
and Analysis
This Compensation Discussion and Analysis (“CD&A”),
describes our 2018 executive compensation program and certain actions with respect to our 2018 executive compensation program and
should be read in conjunction with the compensation tables that follow this CD&A. In particular, this CD&A explains how
the Compensation Committee of the Board made its compensation decisions for our named executive officers for fiscal 2018.
For 2018, our named executive officers are:
§
William C. Lucia, Chairman, President and Chief Executive Officer (“CEO”)
§
Jeffrey S. Sherman, Executive Vice President, Chief Financial Officer and Treasurer
§
Emmet W. O’Gara, Group President, Total Population Management
§
Douglas M. Williams Jr., Executive Vice President, Chief Operating Officer
§
K. Semone Neuman, Former Executive Vice President, Coordination of Benefits
Ms. Neuman resigned from her position as Executive
Vice President, Coordination of Benefits, on January 9, 2019.
This CD&A is organized into the following sections:
Section |
Page |
Executive
Summary |
36 |
Shareholder
Outreach Regarding Executive Compensation |
39 |
2018
Say-on-Pay Vote |
40 |
Philosophy,
Objectives and Principles of Our Executive Compensation Program |
41 |
How
We Determine Executive Compensation |
42 |
2018
Executive Compensation Program |
45 |
Other
Pay Policies and Practices |
54 |
Early
2019 Compensation Actions |
56 |
Executive
Summary
2018
FINANCIAL PERFORMANCE OVERVIEW
Our full year 2018 financial performance included
record revenue and solid growth in net income, adjusted EBITDA and adjusted EPS.
The following is an overview of our financial performance
for the year ended December 31, 2018.
| § | Revenue. Our total revenue grew 14.8 percent to a record
$598.3 million from $521.2 million in 2017. 2018 revenue included $8.4 million in the first quarter related to a reversal of
our reserve liability for open or pending Medicare RAC appeals following expiration of the original Medicare RAC contract on January
31, 2018 (the “Reserve Release”). 2018 revenue also included $51.9 million in revenue from our Eliza subsidiary, compared
to $30.5 million in the prior year following our acquisition of Eliza in April 2017. We estimate that, from January 1, 2017 to
the acquisition date, the Eliza business generated approximately $12.6 million in revenue that has not been included in our operating
results. |
| § | Net income. Our net income grew 37.2 percent to $55.0
million or $0.64 per diluted share in 2018 from $40.1 million or $0.47 per diluted share in 2017. Net income
for 2018 included $0.05 per diluted share related to the Reserve Release in the first quarter of 2018 and discrete tax benefits
recorded in the third and fourth quarters totaling $0.19 per diluted share. Net income for 2017 included a non-cash tax benefit
of $0.40 per diluted share, due to the revaluation of the Company’s deferred tax balances pursuant to the corporate tax rate
deduction included in federal tax legislation enacted in December 2017. |
| 2019 Proxy Statement 36 |
| § | Adjusted EBITDA. Our earnings before interest, income
taxes, depreciation and amortization, stock-based compensation and non-recurring legal expense (“adjusted EBITDA”)
grew 30.2 percent to a record $162.3 million from $124.6 million in 2017. Adjusted EBITDA for 2018 included $6.3 million
related to the Reserve Release in the first quarter of 2018. |
| § | Adjusted EPS. Our adjusted earnings per diluted share (“adjusted
EPS”) grew to $1.28 per diluted share from $1.11 per diluted share in 2017. Excluding the discrete tax benefits in
both years referenced above under the heading “Net income” and the Reserve Release benefit in the first quarter of
2018, adjusted EPS for 2018 was $1.04 per diluted share compared to $0.71 per diluted share for 2017 (a 46.5 percent increase). |
| § | Stock Price. Our stock price increased by 66.0 percent
for the one-year period ended December 31, 2018, from $16.95 per share on December 29, 2017, the last trading day in 2017,
to $28.13 per share. |
A reconciliation of the non-GAAP financial measures
(adjusted EBITDA and adjusted EPS) to the most directly comparable GAAP measures is set forth on ANNEX A of this Proxy Statement.
2018
BUSINESS AND STRATEGY HIGHLIGHTS
In 2018, we executed on a number of strategic initiatives.
Our business and strategy highlights for 2018 include the following:
| § | Expanding
the scope of our relationship with existing customers and adding new ones.
As we develop new solutions, HMS’s expansive customer
base provides a large growth opportunity for our company. As well, there remain government
health agencies, commercial health plans and employers that are not current HMS customers
and could benefit from our services. In 2018, our sales and account management team sought
and secured opportunities to both expand our current customers’ scope of services
and provide services to new ones. In addition, HMS leveraged our 2017 acquisition of
Eliza to continue cross-selling HMS services to existing Eliza customers and vice versa.
|
| § | Exploring
expansion into additional market segments. In
2018, we identified the self-insured Employer market as one into which we could deliver
more value. We secured opportunities to scale many of HMS’s solutions so they could
benefit smaller groups represented by at-risk employers. In addition, our consumer outreach
and engagement solutions were adopted by pharmacy chains, and our Coordination of Benefits
technology was successfully deployed in health insurance marketplaces. |
| § | Introducing
new products and services. Our efforts to organically
expand the solutions available to existing and new market segments continued in 2018.
A key component technology within our Total Population Management solution, Elli is HMS’s
risk intelligence tool that delivers population analytics and individual member profiles
to manage rising risk members. Early customer adoption of Elli in 2018 included a state
Medicaid agency and a commercial health plan who use it to improve member health and
reduce costs. We also developed a Coordination of Benefits solution that provides member
coverage information in near real-time, moving cost avoidance further upstream. This
technology was successfully piloted with one stakeholder throughout 2018 and was deployed
to a variety of state and federal health insurance exchanges. |
| § | Utilizing
big data. We continued executing our multi-year
initiative to consolidate the various datasets that enter the HMS environment—including
client and carrier eligibility, paid claims, and member and provider demographic information.
Those efforts have increased our progress towards a more nimble data processing environment
in which one data feed can fuel multiple HMS products. |
| § | Promoting
automation and innovation to improve the efficiency and effectiveness of our services.
In 2018, we continued to deploy
technology and process improvements that increased efficiency, augmented results, bolstered
accuracy and reduced cost. Our use of machine learning, natural language processing
and other advanced technology applications has improved our claims selection process
and automated operational steps in our Coordination of Benefits and Payment Integrity
service lines. |
| 2019 Proxy Statement 37 |
| § | Prudent
deployment of capital. In
2018, we continued to focus on allocating capital resources to enhance our product capabilities
and IT infrastructure, while actively assessing potential acquisition targets to bolster
our market position, fill or augment product and technology gaps in our solution suites,
and expand access to existing and new market segments. In addition, we returned
approximately $6.0 million to our shareholders through share repurchases in 2018.
|
KEY
2018 COMPENSATION ACTIONS
The following highlights key actions taken by the
Compensation Committee with respect to our executive compensation program for 2018. These changes were made with the advice of
the Compensation Committee’s independent consultant, FW Cook (see “Role of the Independent Compensation Consultant”
below), based on a review of executive compensation trends and best practices, the results of our say-on-pay vote at our 2017 annual
meeting of shareholders and feedback from our shareholders during 2017.
Summary of Key
2018 Compensation Actions |
Annual
Base Salary |
In
February 2018 following its annual review of executive compensation, the Compensation Committee approved modest increases
of 3% in the annual base salaries of three of our named executive officers, excluding the CEO, effective February 26, 2018.
Each of the executives receiving increases for 2018 had not received any increase in the prior year. Additional information
regarding these actions is included below under the heading “2018 Annual Base Salary Changes.” |
NEO
Employment Agreements |
In February
2018, the Compensation Committee recommended that the Board approve an amendment to the employment agreement with Mr. Lucia
to extend the term for an additional three years. In addition, the Compensation Committee approved a new form of employment
agreement for our executive officers, including our named executive officers, to update the standardized terms of employment
consistent with best practices. Additional information regarding these actions is included below under the heading
“Executive Employment Agreements.” |
Short-Term
Incentive Plan Design and Target Opportunity |
In the first
quarter of 2018, the Compensation Committee established the 2018 Short-Term Incentive Plan (“2018 STIP”) for eligible
employees, including our named executive officers. The 2018 STIP is substantially similar to the 2017 short-term incentive
plan, except that the payout curves were modified to pay less for threshold performance, with a corresponding change to the
above target slope of the curve, and to eliminate the plateau for target level funding. The Committee believes that these
actions are aligned with our shareholders’ interests and enhance the pay-for-performance orientation of the program
by further encouraging target and above target performance. Additional information regarding
the 2018 STIP is included under the heading “Annual Short-Term Incentive Compensation.” |
Long-Term
Incentive Awards |
In
2018, based on the results of the say-on-pay vote at our 2017 annual meeting of shareholders and the feedback from our shareholders
during 2017, the Compensation Committee changed the design of our long-term incentive awards for 2018. The Compensation
Committee introduced premium-priced stock options as the performance-based component of the long-term incentive program for
2018, comprising 50% of the value of the annual long-term incentive awards granted to the named executive officers. The Committee
established the exercise price of the options at 15% above the closing price of our common stock on the date of grant, requiring
our executives to deliver a significant return to investors (greater than 15%) before the executives can benefit from their
stock options. The Committee believes that premium-priced stock options strongly support our objective of ensuring that pay
is aligned with increasing shareholder value and encouraging stock ownership, while also fostering retention. The options
vest ratably over three years, subject to continued employment with the Company. Additional
information regarding the 2018 long-term incentives is included under the heading “Annual Long-Term Incentive Compensation.” |
| 2019 Proxy Statement 38 |
KEY
COMPENSATION PRACTICES AND GOVERNANCE FEATURES
Our executive compensation program reflects a number
of best practices used by the Compensation Committee and the Board.
What We
Do |
|
What We
Don’t Do |
Pay-for-Performance.
Payment of a significant amount of our executives’ total direct compensation is contingent upon satisfaction
of certain pre-determined financial and non-financial objectives.
Annual
Say-on-Pay Votes. We have annual say-on-pay votes.
Independent
Compensation Consultant. The Compensation Committee retains a compensation consultant that is independent from management
to provide advice to the Committee on executive and director compensation, as well as other compensation and benefits
matters.
Robust
Stock Ownership Guidelines. Our CEO is required to hold five times his base salary in our common stock and all other
executive officers are required to hold two times their base salary in our common stock, aligning the executive officer’s
interests with those of our shareholders and mitigating the risk of focusing only on short-term goals.
Compensation
Recovery (Clawback Policy). We are permitted to recover from any of HMS’s current or former executive officers
any incentive bonus and equity compensation gains attributable to such executive officer’s misconduct occurring
after January 1, 2015, that causes a subsequent restatement of our financial statements.
Employment
Agreements. Each of our executive officers has entered into an employment agreement and restrictive covenant agreement
with HMS.
CEO Compensation.
All of our independent directors as a group approve the compensation of our CEO, taking into account the recommendation
of the Compensation Committee. |
|
No
Repricing. We have not reduced the exercise price, repriced or provided cash payment for underwater stock options.
No
Hedging or Pledging. We do not permit pledging of our securities as collateral for a loan or entering into hedging
and derivative transactions with respect to our securities by employees or directors.
No
Evergreen Equity Plans. Our equity plan does not permit evergreen share authorizations or liberal share recycling.
No
Pensions or Supplemental Executive Retirement Plans. We only provide retirement benefits to executives that are generally
available to all other employees.
No
Change-in-Control-Related Excise Tax Gross-ups. We do not include change-in-control excise tax gross-up provisions
in employment agreements.
No
Single Trigger Change-in-Control Compensation. We provide double trigger change-in-control compensation.
No Excessive
Perquisites. We offer limited executive perquisites in order to attract and retain top executive talent and to maintain
competitiveness. |
Shareholder
Outreach Regarding Executive Compensation
2017
Shareholder Outreach
At our 2017 annual meeting of shareholders, approximately
70% of the votes cast on the say-on-pay proposal were voted in favor of our 2016 executive compensation program described in our
2017 Proxy Statement, which was substantially lower than the favorable vote in the previous five years, in which more than 97%
of the votes cast were voted in favor of the say-on-pay proposal in each year. In order to understand the change in our shareholders’
views on our executive compensation program, in the early summer months of 2017, we reached out to a number of our largest institutional
shareholders to solicit their points of view on topics of importance to them, including executive compensation matters. The results
our conversations with the institutional shareholders who participated were summarized and presented to the Nominating and Governance
Committee and the Compensation Committee, as appropriate, and ultimately the Board. Our shareholders provided constructive feedback
related to our executive compensation program. We highly value the opinions of our shareholders, and the insight gained through
our engagement process regarding our shareholders’ views of our executive compensation program contributed to the Compensation
Committee’s decision-making process for 2018.
| 2019 Proxy Statement 39 |
Short-Term Incentive Program
With respect to our short-term incentive plan, we
heard from our shareholders that short-term incentive targets should be set rigorously, and we agree with this view. Our financial
performance targets under our 2017 and 2018 short-term incentive plans were set higher than our prior year actual results under
the 2016 and 2017 short term incentive plans, respectively, across all financial performance metrics. See “Annual Short-Term
Incentive Compensation” for a discussion of the financial performance metrics and targets under the 2018 STIP.
Long-Term Incentive Program
With respect to our long-term incentive program,
we received constructive feedback from some of our large shareholders related to the ability to achieve performance targets in
multiple years under our long-term incentive program. In consideration of the views expressed by our shareholders, to eliminate
the ability to achieve performance targets in multiple years, the Compensation Committee introduced premium-priced stock options
as the performance-based component of the long-term incentive program for 2018, comprising 50% of the value of the annual long-term
incentive awards granted to the named executive officers. The Committee established the exercise price of the options at 15% above
the closing price of our common stock on the date of grant, requiring our executives to deliver a significant return to investors
(greater than 15%) before the executives can benefit from their stock options. The Compensation Committee believes that premium-priced
stock options strongly support our objective of ensuring that pay is aligned with increasing shareholder value and encouraging
stock ownership, while also fostering retention. The options vest ratably over three years, subject to continued employment with
the Company, and have a ten-year term. Additional information regarding the 2018 long-term incentive awards is included under the
heading “2018 Annual Long-Term Incentive Compensation.”
2018
Shareholder Outreach
To continue our commitment to engage with our shareholders
annually to hear their views on our executive compensation program and other corporate governance topics, in the spring of 2018,
our executives from Finance, Human Resources and Legal reached out to the corporate governance
representatives of our 25 largest institutional shareholders, representing approximately 74% of our outstanding shares, to solicit
their points of view on these topics. While our shareholder outreach program is primarily a function of management, Mr. Stowe,
as our Lead Independent Director and Chair of the Compensation Committee, as well as each of the other committee Chairs, including
Ms. Rudnick, Mr. Schwartz and Ms. Tellez, were available to participate in those conversations at the invitation of our shareholders.
The results of our conversations on executive compensation with the institutional shareholders who participated were summarized
and presented to the Compensation Committee and the Board.
We believe that shareholder engagement is fundamental
to maintaining strong compensation and governance practices and highly value the variety of perspectives of our shareholders, which
strengthen our understanding of their interests. As our shareholders’ views and market practices on executive compensation
evolve, the Compensation Committee will continue to evaluate and, if needed, make changes to our executive compensation program,
ensuring that the program continues to reflect our pay-for-performance compensation philosophy and objectives. Shareholders can
communicate with us at any time throughout the year. See “Shareholder Communication with the Board of Directors” for
additional information.
2018
Say-on-Pay Vote
At our 2018 annual meeting of shareholders, approximately
87% of the votes cast on the say-on-pay proposal were voted in favor of our 2017 executive compensation program described in our
2018 Proxy Statement (the “2018 Say-on-Pay Vote”), up from 70% of the votes cast on the say-on-pay proposal in the
prior year. Because our executive compensation program for fiscal 2018 was established prior to our 2018 Say-on-Pay Vote, the Compensation
Committee made decisions for 2018 based in part on the results of our 2017 Say-on-Pay Vote and our shareholder outreach in 2017
as described above. The Compensation Committee will continue to consider the outcome of HMS’s say-on-pay votes when making
future compensation decisions for executive officers.
| 2019 Proxy Statement 40 |
Philosophy,
Objectives and Principles of our Executive Compensation Program
Our mission is to make the healthcare system work
better for everyone. In order to support that mission and Board-approved strategic objectives, while providing adequate returns
to our shareholders, we must compete for, attract, develop, motivate and retain top quality executive talent at the corporate and
operating business unit levels during periods of both favorable and unfavorable business conditions.
Our executive compensation program is a critical
management tool in achieving these objectives. “Pay-for-performance” is the underlying philosophy for our executive
compensation program. The program is designed and administered to:
| § | reward performance that drives the achievement of our short and long-term goals; |
| § | align the interests of our senior executives with the interests of our shareholders, thus rewarding
individual and team achievements that contribute to the attainment of our business goals; |
| § | attract, develop, motivate and retain high-performing senior executives by providing a balance of
total compensation opportunities, including salary and short and long-term incentives that are competitive with similarly situated
companies and reflective of our performance; and |
| § | motivate our senior executives to pursue objectives that create long-term shareholder value and discourage
behavior that could lead to excessive risk, by balancing our fixed and at-risk pay (both short and long-term incentives) and choosing
multiple financial metrics for our short and long-term incentives. |
PAY-FOR-PERFORMANCE
We design our compensation programs to make
a meaningful amount of target total direct compensation (salary, plus target annual incentive compensation, plus target annual
long-term incentive compensation) dependent on the achievement of performance objectives.
In the chart that follows,
we compare the aggregate target total direct compensation for our CEO for the last three fiscal years to the aggregate compensation
for the last three fiscal years that had been earned or that may be considered realizable (based on the methodology described below)
as of December 31, 2018. The chart illustrates that our annual and long-term incentive programs over the past three fiscal years
have been designed to make a meaningful amount of our CEO’s target total direct compensation dependent on the achievement
of corporate performance objectives and increasing shareholder return. This has resulted in realizable compensation over the three-year
period that is higher than the aggregate target level compensation, which is reflective of the alignment with shareholder value
creation over the same period. Our cumulative total shareholder return (“TSR”) for the three years ended December 31,
2018 was 128%.
| 2019 Proxy Statement 41 |
![](http://www.sec.gov/Archives/edgar/data/1196501/000117184319002384/targetlevel.jpg)
| (1) | “Target
Level Compensation” equals the sum of (i) annual base salary in effect on December
31 of each of the last three fiscal years, (ii) the target value of short-term cash
incentive awards for each of the last three fiscal years and (iii) stock awards and option
awards granted in each of the last three fiscal years valued at the grant date fair value,
the same value at which such awards are required to be reflected in the Summary Compensation
Table included in this Proxy Statement, under applicable SEC regulations. Target Level
Compensation does not include amounts under All Other Compensation in the Summary Compensation
Table. |
| (2) | “Realizable
Compensation” equals the sum of (i) annual base salary in effect on December 31
of each of the last three fiscal years, (ii) actual short-term cash incentive awards
earned in each of the last three fiscal years, as reflected in the Summary Compensation
Table included in this Proxy Statement, (iii) the value as of their vesting date of any
portion of stock awards granted in each of the last three fiscal years that vested prior
to December 31, 2018, (iv) an assumed realizable value for any portion of stock awards
granted in each of the last three fiscal years that remained unvested on December 31,
2018, based on the closing market price per share of our common stock on December 31,
2018, of $28.13 per share and (v) the intrinsic value of option awards granted during
fiscal 2016, 2017 and 2018 based on the difference between the option exercise prices
of $13.94 per share, $19.04 per share and $19.48 per share, respectively, and the closing
market price per share of our common stock on December 31, 2018 of $28.13 per share.
All performance-based stock awards and option awards granted during the relevant 3-year
period have met the respective performance criteria and are considered earned, subject
to continued vesting requirements as applicable. The value that may be realized by our
CEO on such stock awards and option awards in the future, if any, will depend on the
extent to which the stock awards and option awards vest, the market price of our common
stock on the vesting date for stock awards and the extent to which there is appreciation
in the market price of our common stock over the respective exercise price per share
of stock options at the time such options are exercised. |
How
We Determine Executive Compensation
ROLE
OF SHAREHOLDERS
As discussed above under "Shareholder Outreach
Regarding Executive Compensation," in 2017 and 2018 we reached out to a number of our
largest institutional shareholders to solicit their points of view on topics of importance to them, including executive compensation
matters. We are committed to continuing our engagement with our shareholders from time to time on matters of executive compensation
and corporate governance. As our shareholders’ views and market practices on executive compensation evolve, the Compensation
Committee will continue to evaluate and, if needed, make changes to our executive compensation program, ensuring that the program
continues to reflect our pay-for-performance compensation philosophy and objectives.
| 2019 Proxy Statement 42 |
ROLE
OF MANAGEMENT
Our CEO, together with our Chief Financial Officer
and head of Human Resources, develop recommendations regarding the design of our executive compensation program. In addition, they
are involved in setting the financial and strategic objectives that, subject to the approval of the Board and the Compensation
Committee, are used as the performance measures for the short and long-term incentive plans. Both the CEO and the Chief Financial
Officer provide the Compensation Committee with information relevant to determining the achievement of financial and non-financial
performance objectives and related funding levels under our short-term cash incentive plan. Also, as part of its review process
in determining executive compensation, the Compensation Committee receives from our CEO an assessment of each other executive officer’s
performance and compensation recommendations for such officer, including base salary and short and long-term incentives.
ROLE
OF THE COMPENSATION COMMITTEE
Our executive compensation program is administered
by the Compensation Committee, which is composed entirely of independent directors. The Compensation Committee is responsible for
designing our executive compensation program, including each element of the program, and determining and approving total executive
remuneration. Each year, the Compensation Committee reviews a competitive analysis and assessment of the compensation provided
to executive officers and approves executive compensation based on this review, as well as an evaluation of recommendations presented
by our CEO with respect to the other executive officers and the advice of FW Cook. Our CEO does not participate in the Compensation
Committee’s deliberations or decisions with regard to his own compensation, and the Compensation Committee’s decisions
with respect to our CEO’s compensation are reviewed and approved by the independent members of the Board as a group.
ROLE
OF THE INDEPENDENT COMPENSATION CONSULTANT
The Compensation Committee is authorized to engage
its own independent advisors to assist in carrying out its responsibilities. The Compensation Committee has retained FW Cook as
its independent compensation consultant. Representatives of FW Cook regularly attend Compensation Committee meetings and communicate
with the Chair of the Compensation Committee outside of meetings. FW Cook reports directly to the Compensation Committee and the
Compensation Committee oversees the fees paid for its services. FW Cook provides the Compensation Committee with independent and
objective guidance on a variety of matters related to our executive and director compensation programs and general compensation
and benefits matters. In addition, FW Cook provides objective guidance regarding management’s executive compensation recommendations,
with the instruction that FW Cook is to advise the Compensation Committee independent of management and to provide such advice
for the benefit of HMS and its shareholders. FW Cook does not provide any consulting services to HMS beyond its role as a consultant
to the Compensation Committee. The Compensation Committee conducts an assessment of the independence of its compensation consultant
annually, pursuant to SEC rules and, following its most recent assessment in February 2018, concluded that no conflict of interest
exists that would prevent FW Cook from serving as an independent consultant to the Compensation Committee.
During fiscal 2018, FW Cook provided the following
services to the Compensation Committee:
| § | assisted in the design and development of all elements of the 2018 executive and director compensation
programs; |
| § | consulted on executive compensation target levels and payouts; |
| § | consulted on the composition of the peer group and provided competitive benchmarking analyses based
on the peer group and third-party surveys; |
| § | evaluated management’s compensation recommendations and proposals; |
| § | reviewed and provided advice on the design of the 2018 short-term and long-term incentive programs; |
| § | reviewed agendas for and participated in the Compensation Committee meetings held in 2018; |
| § | provided updates regarding evolving regulatory requirements, proxy advisor policies, emerging trends
and best practices in executive compensation; |
| § | provided advice related to the 2018 Say-on-Pay Vote; and |
| § | reviewed and provided advice on HMS’s executive compensation-related disclosures in this Proxy
Statement. |
| 2019 Proxy Statement 43 |
COMPETITIVE
PAY POSITIONING AND PEER GROUP ANALYSES
The Compensation Committee believes that competitive
pay positioning is a key factor in helping to achieve our executive compensation program objectives. As part of our annual pay-setting
process, the Compensation Committee uses benchmarking data from a custom peer group and data from third-party technology surveys
to evaluate each executive officer’s target compensation levels compared to similarly situated executives.
Our peer group companies are selected by the Compensation
Committee based on their similarity to us in size, financial profile and scope of operations, as well as potential to compete for
executive talent. The Compensation Committee’s general practice is to select companies that position HMS at approximately
the peer group median across these metrics. The Compensation Committee reviews the peer group annually with guidance from FW Cook
and may make modifications from time to time to ensure that it continues to provide an appropriate benchmark for competitive pay
analyses.
In October 2017, the Compensation Committee, with
guidance from FW Cook, reviewed the peer group and determined not to make any changes for 2018. The peer group for 2018 consists
of the 14 companies listed below, grouped by sub-industry (the “2018 Peer Group”).
2018
Peer Group Companies |
Heath
Care Technology |
Application
Software |
Data Processing and
Outsourced Services |
Allscripts
Healthcare Solutions, Inc.
athenahealth,
Inc.
Computer
Programs & Systems, Inc.
HealthStream,
Inc.
Medidata
Solutions, Inc.
Omnicell,
Inc.
Quality
Systems, Inc. |
Blackbaud,
Inc.
Bottomline
Technologies (de), Inc.
RealPage,
Inc.
Tyler Technologies,
Inc.
|
ExlService
Holdings, Inc.
MAXIMUS,
Inc.
WEX Inc. |
The chart below compares our revenue, net income,
EBITDA (earnings before interest, income taxes, depreciation and amortization) and market capitalization to the median of those
four measures for our 2018 Peer Group at the time the 2018 Peer Group was reviewed in October 2017. In October 2017, our revenues
and market capitalization were below the 2018 Peer Group median, and our net income and EBITDA were within three percentage points
of the 2018 Peer Group median.
|
2018
Peer Group Analysis |
(in millions) |
HMS
($) |
2018
Peer Group Median
($) |
HMS
Percentile Rank
(%) |
Revenue(1) |
495 |
|
700 |
|
22 |
|
Net Income(1)(2) |
31 |
|
29 |
|
52 |
|
EBITDA(1) |
93 |
|
96 |
|
47 |
|
Market Capitalization(3) |
1,635 |
|
3,002 |
|
26 |
|
| (1) | Based on
most recently reported four quarter data, where available, as of October 23, 2017. |
| (2) | Before extraordinary
items and discontinued operations. |
| (3) | As of October
10, 2017. |
During the first quarter of 2018, with guidance from
FW Cook, the Compensation Committee evaluated the competitiveness of target compensation levels for our executive officers relative
to the compensation of similarly situated executives in the 2018 Peer Group and the technology industry based on data from a third-party
survey. The Committee also reviewed an analysis of aggregate costs and the dilutive implications associated with our long-term
incentive program.
| 2019 Proxy Statement 44 |
The Compensation Committee does not target the level
of total direct compensation (or any specific element of compensation) for our executive officers to a specific percentile of our
peer group. Instead, the Compensation Committee exercises its discretion in setting target compensation levels annually based on
a variety of factors to achieve our compensation objectives:
| § | each executive’s competitive pay positioning relative to similarly situated executives among
our peer companies; |
| § | each executive’s scope of responsibilities, individual performance and expected contributions
going forward; |
| § | each executive's tenure; |
| § | relative internal pay levels; |
| § | recommendations by the CEO for the other executive officers; and |
| § | prior year target and actual compensation levels. |
2018
Executive Compensation Program
The elements of our executive compensation program
for 2018 are summarized in the table below.
Element |
|
Type |
Objective |
Page
No. |
Annual
Base Salary |
|
Fixed
cash compensation for performing day-to-day responsibilities |
Helps
attract and retain executive talent and recognizes skills, experience, knowledge and responsibilities; balances performance-based
compensation risk |
46 |
Annual
Short-Term Incentive Compensation |
|
Performance-based
cash compensation awards based on the achievement of annual financial goals and strategic
objectives
Performance
measures for plan funding:
25% Revenue
25% Adjusted
EBITDA
25% Adjusted
EPS
25% Strategic |
Promotes
and rewards short-term corporate performance based on achievement of both financial and non-financial objectives and provides
incentive for individual and business unit performance |
47 |
Annual
Long-Term Incentive Compensation |
|
Restricted
stock units (time-based)
Premium-priced
nonqualified stock options (performance-based component) (115% of grant date stock price)
Performance
measure: Increased shareholder value |
Provides
alignment with shareholders by building executive stock ownership and tying compensation to the creation of shareholder value;
helps retain executive talent |
51 |
Limited
Executive Perquisites |
|
Executive
disability income insurance
Executive
financial consulting services
Preventative
health program benefits |
Maintains
competitiveness in the market among our peer companies for both retention and recruitment purposes; optimizes physical health |
53 |
| 2019 Proxy Statement 45 |
Element |
|
Type |
Objective |
Page
No. |
Other
Elements of Compensation |
|
Broad-based
benefits available to all employees
Severance,
and change-in-control benefits |
Attractive
benefits package attracts and retains talent
Supports executive
retention and encourages executive independence and objectivity in considering a potential change in control transaction |
54 |
COMPENSATION
MIX
The Compensation Committee does not have a formal
or informal policy or target for allocating target total direct compensation between short-term and long-term compensation, fixed
and variable compensation, cash and non-cash compensation, or among the different forms of non-cash compensation. In allocating
compensation between the different forms of compensation, the Compensation Committee, with guidance from FW Cook, determines what
it believes in its business judgment is the appropriate level with respect to each element of total direct compensation (annual
base salary plus target annual and long-term incentive compensation) to achieve the objectives of our executive compensation program.
The allocation of the primary elements of compensation for 2018 at target levels for both our CEO and the average of our other
named executive officers is shown below.
![](http://www.sec.gov/Archives/edgar/data/1196501/000117184319002384/compensation_mix.jpg)
ANNUAL
BASE SALARY
Base salary is used to recognize the experience,
skills, knowledge and responsibilities of our employees, including our named executive officers, and to provide a competitive level
of fixed compensation to balance performance-based risks. The key factors in determining base salary are individual and Company
performance, job responsibilities, the competitive rate among our peers for positions of like responsibility and internal pay equity
among our employees with similar responsibilities and tenure. As noted above, the Compensation Committee does not target the amount
of base salary or other components of compensation for our executive officers to a specific percentile of our peer group, but rather
considers the peer group analysis together with a variety of other factors in determining compensation.
| 2019 Proxy Statement 46 |
The Compensation Committee reviews base salaries
annually and, if appropriate, makes adjustments to reflect market levels after taking into account individual responsibilities,
performance and experience, the recommendations of the CEO and the benchmarking data provided by FW Cook. The Compensation Committee
also reviews salaries on an interim basis as it determines appropriate based on significant changes in an executive’s scope
of responsibilities.
2018 Annual Base
Salary Changes
In February 2018, the Compensation Committee approved
a modest increase of 3% in the annual base salaries of each of the named executive officers other than the CEO and Mr. O’Gara,
who joined HMS in January 2018. None of Mr. Sherman, Mr. Williams or Ms. Neuman had received an increase in annual base salary
for 2017. The table below shows the annual base salaries for 2017 and 2018 for our named executive officers.
Named
Executive Officer |
2017
Year
End Salary
($) |
Change(1)
(%) |
2018
Salary
($) |
Mr. Lucia |
700,000 |
0.0 |
700,000 |
Mr. Sherman |
515,000 |
3.0 |
530,450 |
Mr. O’Gara |
— |
— |
400,000 |
Mr. Williams |
500,000 |
3.0 |
515,000 |
Ms.
Neuman |
500,000 |
3.0 |
515,000 |
(1)
Effective February 26, 2018.
ANNUAL
SHORT-TERM INCENTIVE COMPENSATION
The Compensation Committee awards annual short-term
cash incentive compensation to our named executive officers that reflects financial and strategic achievements based on both objective
and subjective criteria, as well as individual performance. Our annual short-term incentive compensation is at-risk compensation.
The Compensation Committee believes that this element of our executive compensation program promotes our performance-based compensation
philosophy by providing named executive officers with direct financial incentives to achieve specific short-term performance goals
intended to increase shareholder value and rewards both overall short-term corporate performance and individual contributions to
attaining such performance. Our annual short-term cash incentive awards are paid in a lump sum during the first quarter following
the completion of the fiscal year.
Each of our named executive officers was eligible
to participate in the 2018 STIP. The target incentive opportunity for each of the named executive officers under the 2018 STIP,
as approved by the Compensation Committee, is shown in the table below, expressed as a percentage of base salary. The target incentive
opportunities were determined based upon a number of factors, including salary levels, job responsibilities and the appropriate
targeted level of short-term incentive opportunity for each named executive officer. In February 2018, the Compensation Committee
increased Mr. Sherman’s target bonus opportunity from 65% to 75% for 2018, after considering competitive positioning and
retentive value.
Named
Executive Officer |
Target
Incentive
Opportunity
(as
a % of base salary) |
Mr. Lucia |
100% |
Mr. Sherman |
75% |
Mr. O’Gara |
65% |
Mr. Williams |
65% |
Ms.
Neuman |
65% |
| 2019 Proxy Statement 47 |
Bonus payouts under the 2018 STIP were subject to
the achievement of pre-determined performance goals based on the following metrics and relative weights:
![](http://www.sec.gov/Archives/edgar/data/1196501/000117184319002384/bonus_payouts.jpg)
We chose revenue, adjusted EBITDA
and adjusted EPS as financial metrics under the 2018 STIP because we believe each is a strong indicator of our overall financial
performance, a key indicator used by industry analysts to evaluate our operating performance and motivates our executives to drive
company growth and profitability. Adjusted EBITDA and adjusted EPS are non-GAAP financial measures that are reported to our shareholders
in press releases, financial presentations and annual reports, and provide useful information to the Company's management, investors,
and other interested parties about the Company's operating performance because they allow them to understand and compare the Company's
operating results during the current periods to the prior year periods in a more consistent manner. In addition, when viewed with
GAAP results and the accompanying reconciliations to corresponding GAAP financial measures, these non-GAAP financial measures provide
a more complete understanding of the results of operations and trends affecting the Company’s business. Consistent with 2017,
the Committee determined that payout of 50% of the bonus pool should be based on performance against earnings targets in order
to drive profitability and long-term shareholder value. We also chose to include strategic objectives under the 2018 STIP, some
of which are directly tied to financial performance, which are designed to enhance profitability and create long-term shareholder
value.
We
define adjusted EBITDA, which is a non-GAAP measure, as earnings before interest, income taxes, depreciation and amortization,
stock-based compensation and non-recurring legal expense.
We
define adjusted EPS, which is a non-GAAP measure, as diluted earnings per share adjusted for stock-based compensation expense,
non-recurring legal expense, amortization of acquisition related software and intangible assets and for the related taxes.
Performance Targets.
Performance targets for the financial metrics are established based on the annual financial plan approved by the Board during the
first quarter of the year and are intended to be challenging. We take a bottom up approach to our annual budgeting process and
carefully evaluate all aspects of our expected financial performance. For 2018, the performance targets for revenue, adjusted EBITDA
and adjusted EPS were set higher than our actual performance level for 2017 under the 2017 short-term incentive plan, based on
a number of factors, including expectations of overall revenue growth and margin improvement in 2018 driven by a full year of Eliza
revenue versus partial 2017 revenue, yield improvement, planned implementations and a pipeline of potential sales. The 2018 performance
targets and actual results under the 2018 STIP are shown under “Results Under the 2018 Short-Term Incentive Plan”.
A threshold level of performance against each of
the financial performance targets is required in order for the respective portion of the plan to be funded. If the threshold level
is met, the actual payout amount is calculated based on the performance curves below. For 2018, the Committee determined to establish
new funding curves for adjusted EBITDA and adjusted EPS to more closely align with market practice and provide for increasing payout
opportunity for increasing levels of above-target performance, balanced by a lower payout opportunity for a threshold level of
performance. To ensure a minimum amount of earnings is achieved before bonuses are paid and to align the plan design with shareholder
interests, the Committee determined that if either the adjusted EBITDA or adjusted EPS results for fiscal 2018 did not meet the
minimum threshold for funding under the 2018 STIP, the Committee could use negative discretion to reduce the entire bonus plan
funding from the calculated amount.
| 2019 Proxy Statement 48 |
|
Adjusted
EBITDA and
Adjusted
EPS |
Revenue |
Performance Targets |
%
of Target
Achieved |
%
Funding
of Plan |
%
of Target
Achieved |
%
Funding
of Plan |
Threshold |
85% |
33% |
90% |
50% |
Target |
100% |
100% |
100% |
100% |
Maximum |
122.4% |
200% |
120% |
200% |
Strategic Objectives.
The Compensation Committee established the following strategic objectives under the 2018 STIP, along with specific measures by
which to determine the results: (i) achieve revenue growth by horizon and market; (ii) increase customer loyalty and retention;
(iii) leverage technology and data assets; (iv) improve margins and reduce costs; and (v) increase employee engagement. The level
of achievement of the strategic objectives is determined in the Compensation Committee’s sole discretion based on its review
of the measured results, subject to a limit of 200% of target.
Results Under
the 2018 Short-Term Incentive Plan
The chart below compares the results for 2018 compared
to 2017 under the financial performance metrics that are used in determining payouts under our 2018 STIP. These results may differ
from the comparable GAAP and non-GAAP measures reported above and in our financial statements, as the measures below are adjusted
to exclude the impact of extraordinary items or events that affected our financial results, as described in the footnotes to the
table below, in accordance with the terms of the 2018 STIP.
![](http://www.sec.gov/Archives/edgar/data/1196501/000117184319002384/stip_results.jpg)
For purposes of determining corporate performance under the 2018 STIP, and consistent with the terms of the plan,
the Committee excluded the impact of certain discrete tax benefits totaling $0.19 per diluted share, resulting in adjusted EPS
for purposes of the 2018 STIP of $1.09 per diluted share.
In addition, while the Company made notable progress
on the execution of its strategy as discussed under the heading “2018 Business and Strategy Highlights”, based on the
Compensation Committee’s evaluation of performance against the pre-established strategic objectives measures, the Committee
determined that a slightly below target score of 90.0% for achievement of strategic objectives was appropriate based on results
against the pre-established targets for increasing customer loyalty and retention.
The calculated funding level under the 2018 STIP
is set forth below.
| 2019 Proxy Statement 49 |
Measure |
Results under
2017 STIP |
Pre-Established
Performance Targets |
Results under
2018 STIP |
Percent Achieve-
ment |
Weight-
ing |
Weighted Funding Result(1) |
Threshold |
Target
|
Maximum |
Revenue |
$490.9M(2) |
|
$514.7M |
|
$571.9M |
|
$686.2M |
|
$598.3M |
|
104.6% |
|
25% |
|
30.8% |
|
Adjusted EBITDA |
$126.1M(3) |
|
$113.0M |
|
$132.9M |
|
$162.7M |
|
$162.3M |
|
122.1% |
|
25% |
|
49.7% |
|
Adjusted EPS |
$ 0.73(4) |
|
$0.70 |
|
$0.82 |
|
$1.00 |
|
$1.09(5) |
|
132.9% |
|
25% |
|
50.0% |
|
Strategic
Objectives |
34.3% |
|
— |
|
100% |
|
200% |
|
90% |
|
90% |
|
25% |
|
22.5% |
|
|
|
|
|
Total
Funding Percentage |
|
153.0% |
|
| (1) | Based
on performance curves shown under the heading “Performance Targets” and rounded. |
| (2) | Excludes
the results of Eliza, which was acquired in 2017. |
| (3) | Excludes
the results of Eliza and the impact of unbudgeted transaction costs related to the Eliza
acquisition and the termination of a Company office lease for a property located in New
York (the "New York Lease"). |
| (4) | Excludes
the results of Eliza and the impact of unbudgeted transaction costs related to the Eliza
acquisition, the New York Lease termination and the non-cash tax benefit of $0.40 per
diluted share associated with the enactment of the Tax Cuts and Jobs Act in 2017. |
| (5) | Excludes
$0.19 per diluted share associated with certain discrete tax benefits. |
2018 Bonus Payouts
Bonus payouts for 2018 reflect the Company’s
above target achievement of pre-established financial objectives and near target achievement of its strategic objectives for fiscal
2018 under the 2018 STIP, demonstrating the linkage between pay and performance.
Each of the named executive officers’ short-term
incentive awards for 2018 were determined by applying the formula set forth below, which, as provided under the 2018 STIP, includes
the Committee’s ability to use discretion to modify the calculated payout based on business unit and individual performance.
Base
Salary |
x |
Target
Incentive Opportunity |
x |
2018
STIP funding percentage of 153.0% based on achievement of:
• 25%
Adjusted EBITDA Target
• 25% Adjusted EPS Target
• 25% Revenue Target
• 25% Strategic Objectives
|
= |
Cash
Incentive Award
(may
be modified based on business unit and individual performance) |
The Compensation Committee considered the CEO’s
recommendations regarding individual bonus amounts for the named executive officers (other than himself) based on both corporate
performance (as determined by the level of achievement under the 2018 STIP) and the officers’ business unit and individual
performance and determined not to modify the awards for Ms. Neuman, Mr. O’Gara, Mr. Sherman or Mr. Williams. Mr. Lucia’s
bonus amount was determined solely based on corporate performance under the 2018 STIP, and all of the independent members of the
Board as a group approved and ratified the Compensation Committee’s decision with respect to the CEO’s bonus amount.
The table below compares target bonus amounts to actual bonus amounts paid to the named executive officers under the 2018 STIP.
Named Executive
Officer |
|
2018
Target Bonus
($) |
Actual
Percentage of 2018 Target Bonus Paid
(%) |
Actual
2018 Bonus
($) |
Mr.
Lucia |
|
700,000 |
153.0 |
1,071,000 |
|
Mr.
Sherman |
|
397,838 |
153.0 |
608,691 |
|
Mr.
O’Gara |
|
260,000 |
153.0 |
397,800 |
|
Mr.
Williams |
|
334,750 |
153.0 |
512,168 |
|
Ms.
Neuman |
|
334,750 |
153.0 |
512,168 |
|
| 2019 Proxy Statement 50 |
Other Considerations
The 2018 STIP operates as a sub-plan under our Annual
Incentive Compensation Plan as amended and restated (the “AIP”), which was adopted by the Board and approved by our
shareholders in order to qualify incentive awards as performance-based compensation intended to be deductible (to the extent possible)
for federal income tax purposes under the Code. Each of the named executive officers was a participant in the AIP for 2018 and
was eligible to receive a maximum bonus award of $5,000,000 for the 2018 performance period, subject to the Compensation Committee’s
authority to use negative discretion, if the predetermined objective goal for the fiscal year was met. This limit is in addition
to the limit on performance-based cash awards under the 2016 Omnibus Plan. EBITDA was selected as the performance metric under
the AIP for fiscal 2018 because it is one of the primary metrics used to measure our operating performance and although it is a
non-GAAP financial measure, its components are calculated based on generally accepted accounting principles (GAAP). EBITDA is defined
as income before interest, income taxes, depreciation and amortization. The Compensation Committee establishes an initial performance
requirement under the AIP, pursuant to which an executive may earn the initial right to receive the maximum bonus under the AIP.
The performance requirement for fiscal 2018 was established at $50 million in EBITDA. The 2018 STIP then establishes a second
performance requirement, consisting of the performance goals and objectives described above. The potentially achievable incentive
compensation under this second performance requirement is less than or equal to the maximum possible bonus specified in the AIP
which was approved by the shareholders.
ANNUAL
LONG-TERM INCENTIVE COMPENSATION
We believe that equity awards provide our named executive
officers with a strong link to our long-term performance in order to create an ownership culture and help to align their interests
with those of our shareholders. Beginning in June 2016, annual long-term incentive awards have been granted pursuant to our 2016
Omnibus Plan. The 2016 Omnibus Plan, which is administered by the Compensation Committee, is intended to furnish a material incentive
to employees by making available to them the benefits of a larger common stock ownership in HMS through stock options and other
awards. The Board and the Compensation Committee believe that these increased incentives align compensation with the achievement
of our long-term financial goal of creating shareholder value and our strategic objectives as measured over multi-year periods,
as well as assist in the retention of employees. We are submitting the 2019 Omnibus Plan to our shareholders for approval at the
2019 Annual Meeting. If approved, the 2019 Omnibus Plan will replace and supersede the 2016 Omnibus Plan (see “Proposal Three:
Approval of the 2019 Omnibus Incentive Plan”).
Types of Long-Term
Incentive Awards
In consideration of the views expressed by our shareholders
as discussed under “Shareholder Outreach Regarding Executive Compensation,” the Compensation Committee granted 50%
of the total annual long-term incentive award value for 2018 to our named executive officers in premium-priced stock options having
an exercise price of 115% of the closing price on the date of grant and 50% in time-based restricted stock units, pursuant to the
2016 Omnibus Plan. We believe that the mix of performance-based and non-performance-based long-term incentives is appropriate because
it represents a balanced approach that reinforces our emphasis on pay-for-performance while retaining, incentivizing and compensating
named executive officers for achievement of long-term goals intended to increase shareholder value.
Premium-Priced Stock
Options. We believe stock options strongly support our objective of ensuring that pay is aligned with changes in shareholder
value. We set the exercise price of all stock options at 115% of the closing price of our common stock on the Nasdaq Global Select
Market on the day of the grant. Accordingly, a stock option is intended to provide a return to the executive only if the market
price of our common stock appreciates from the exercise price of the stock option and the executive remains employed during the
vesting period. To foster retention and long-term performance, premium-priced stock options generally vest in one-third increments
on the first, second and third anniversaries of the date of grant, subject to continued employment with the Company, and have a
ten-year term. The Compensation Committee believes that premium-priced stock options strongly support our objective of ensuring
that pay is aligned with increasing shareholder value and encouraging stock ownership, while also fostering executive retention.
| 2019 Proxy Statement 51 |
Time-Based Restricted
Stock Units. We believe restricted stock unit grants support the goal of retaining our named executive officers and
further align the interests of our executives with shareholders by increasing their stock ownership. Because these restricted stock
units vest in installments over time, these awards will provide a return to the executive only if the executive remains employed
during the vesting period. The value of restricted stock unit awards increases or decreases as the market price of our common stock
increases or decreases, further supporting our objective of ensuring that pay is aligned with changes in shareholder value. In
addition, restricted stock units generally are perceived as more valuable than stock options during periods of stock price volatility.
The time-based restricted stock units generally vest in one-third increments on the first, second and third anniversaries of the
date of grant, subject to continued employment with the Company.
Status of 2017 Performance-Based
Awards. For 2017, the Compensation Committee granted 50% of the total annual long-term incentive award value to our
named executive officers in non-qualified stock options (50% of which were subject to stock price performance conditions) and 50%
in restricted stock units (50% of which are subject to stock price performance conditions), pursuant to the 2016 Omnibus Plan.
The 2017 performance-based awards are earned only to the extent pre-established performance goals are met, and, if earned, are
generally subject to the time-based vesting requirements described below, subject to continued employment with the Company. For
awards granted in 2017, both the performance-based stock options and performance-based restricted stock units would be earned only
if our average closing price per share during the applicable trading days in any consecutive 30 calendar day period preceding the
first, second and/or third anniversaries of March 3, 2017 was at least 25% higher than the closing price per share on the date
of grant. If the performance condition were met prior to the first anniversary of March 3, 2017, one-third of the performance-based
stock options and restricted stock units would vest in three equal installments on the first, second and third anniversaries of
March 3, 2017; if the performance condition were met after the first anniversary but prior to the second anniversary of March
3, 2017, two-thirds of the performance-based stock options and restricted stock units would vest on the second anniversary of March
3, 2017 and one-third would vest on the third anniversary of March 3, 2017; if the performance condition were met after the second
anniversary but prior to the third anniversary of March 3, 2017, 100% of the performance-based stock options and restricted stock
units would vest on the third anniversary of March 3, 2017. If the performance condition were not achieved before the third anniversary
of March 3, 2017, the performance-based stock options and restricted stock units would be forfeited.
In October 2018, the Compensation Committee determined
that the performance goal had been achieved prior to the second anniversary of March 3, 2017. Below is certain information related
to the performance-based awards that were earned by the named executive officers in 2018, subject to continued vesting requirements.
Name |
Award Type |
Grant Date |
Awards Earned
in 2018 (#) |
Exercise Price
of Options ($/Sh) |
Mr. Lucia |
Stock Options |
06/09/17 |
|
97,024 |
|
19.04 |
|
|
Restricted Stock Units |
06/09/17 |
|
39,391 |
|
— |
|
Mr. Sherman |
Stock Options |
06/09/17 |
|
54,980 |
|
19.04 |
|
|
Restricted Stock Units |
06/09/17 |
|
22,321 |
|
— |
|
Mr. O’Gara(1) |
Stock Options |
— |
|
— |
|
— |
|
|
Restricted Stock Units |
— |
|
— |
|
— |
|
Mr. Williams |
Stock Options |
06/09/17 |
|
38,810 |
|
19.04 |
|
|
Restricted Stock Units |
06/09/17 |
|
15,756 |
|
— |
|
Ms. Neuman |
Stock Options |
06/09/17 |
|
38,810 |
|
19.04 |
|
|
Restricted
Stock Units |
06/09/17 |
|
15,756 |
|
— |
|
| (1) | Mr.
O’Gara joined the Company on January 2, 2018, and therefore did not receive an
annual long-term incentive award in 2017. |
2018 Annual Long-Term
Incentive Compensation
The 2018 annual long-term incentive awards for the
named executive officers were determined based upon the Compensation Committee’s subjective evaluation of the factors set
forth below and guidance from FW Cook:
| § | competitive positioning among our peer group companies; |
| 2019 Proxy Statement 52 |
| § | relative shareholder return (for the CEO’s evaluation); |
| § | recommendations of the CEO, based on individual performance, expected contributions going forward
and appropriateness of the grant depending upon the level of responsibility (for executives other than the CEO); |
| § | perceived retention value of the award; |
| § | comparative share ownership and outstanding equity awards of HMS executives; |
| § | awards granted to each executive in prior years; and |
| § | potential wealth creation. |
In addition, the Compensation Committee considered
the approximately 17% decline in our stock price from February 2017 to February 2018 and determined to lower the long-term incentive
target levels for each of the named executive officers (other than Mr. O’Gara, who joined HMS in January 2018) compared to
their respective 2017 long-term incentive targets. All of the independent directors as a group approved and ratified the 2017 annual
long-term incentive award for the CEO.
The following long-term incentive awards were granted
to our named executive officers, effective March 2, 2018:
Named
Executive Officer |
Value
of
Premium-
Priced Options
Granted
($)
|
Number
of
Premium-
Priced
Options
Granted(1)(2)
(#)
|
Value
of
Restricted
Stock Units
Granted
($)
|
Number of
Restricted
Stock Units
Granted(1)(2) (#) |
Mr.
Lucia |
1,500,000
|
|
219,619 |
|
1,500,000
|
|
88,548 |
|
Mr. Sherman |
800,000 |
|
117,130 |
|
800,000 |
|
47,226 |
|
Mr. O’Gara(3) |
200,000 |
|
29,283 |
|
200,000 |
|
11,806 |
|
Mr. Williams |
550,000 |
|
80,527 |
|
550,000 |
|
32,468 |
|
Ms.
Neuman |
550,000
|
|
80,527 |
|
550,000
|
|
32,468 |
|
| (1) | See
“Grants of Plan Based Awards For the Year Ended December 31, 2018” for a
description of the vesting and other terms of the premium-priced option and restricted
stock unit awards. |
| (2) | The
options have an exercise price of $19.48 per share. |
| (3) | In
addition to the annual long-term incentive award granted to Mr. O’Gara for 2018,
the Compensation Committee granted a new hire equity award to Mr. O’Gara effective
March 2, 2018, with an aggregate grant date value of $400,000, to incentivize him to
join the Company. See “Grants of Plan Based Awards For the Year Ended December
31, 2018” for a description of the vesting and other terms of Mr. O’Gara’s
new hire equity award. |
LIMITED
EXECUTIVE PERQUISITES
In order to enhance our ability to recruit and retain
highly qualified executive talent, we offer Guaranteed Standard Issue, or individual disability income insurance, to employees
earning more than $300,000 in annualized base salary, and financial counseling services to the CEO and any officers who report
directly to the CEO. In addition, beginning in 2017, we also offer preventative health program benefits to our CEO and executives
who report directly to the CEO. The Compensation Committee believes these benefits are reasonable and comparable to benefits offered
by companies of a similar size to ours and better enable us to maintain competitiveness by providing high-performing executives
with benefits that will facilitate strong, focused performance, while optimizing physical health. The cost of these perquisites
constitutes a small percentage of each executive’s total compensation. Each of the named executive officers is eligible to
receive these benefits. Messrs. O’Gara and Williams and Ms. Neuman opted not to receive financial counseling services during
2018, and Messrs. Sherman and Williams and Ms. Neuman did not complete the preventative health program during 2018, as reflected
in the Fiscal 2018 All Other Compensation Table.
| 2019 Proxy Statement 53 |
OTHER
ELEMENTS OF COMPENSATION
Benefits and Other
Compensation
We maintain broad-based benefits that are provided
to all employees, including health and dental insurance, life and disability insurance and a 401(k) plan. Our named executive officers
are eligible to participate in all of our employee benefit plans, in each case on the same basis as other employees.
Severance and
Change-in-Control Benefits
To enable us to offer competitive total compensation
packages to our senior executives, as well as to ensure the ongoing retention of these individuals when considering transactions
that may create uncertainty as to their future employment with us, the Compensation Committee approved standardizing the terms
of employment of our senior executives, which included providing consistent separation and change-in-control protection.
Based on information provided by FW Cook, the Compensation
Committee believes that the protection afforded by the terms of employment described above provides a level of benefits that are
estimated to be within a reasonable range based on competitive practices with respect to comparable positions. We believe that
the benefits provided under these agreements are consistent with our objective of attracting and retaining highly qualified executives
and provide reasonable assurance so that our senior executives are not distracted from their duties during the uncertainty that
may accompany a possible change in control and as well as encourage executive independence and objectivity in considering any such
transaction. The agreements and equity plans provide a "double trigger" for the payment of benefits upon a change in
control, so that vesting occurs if a qualifying termination event occurs in connection with the change in control. The Compensation Committee
believes that a “double trigger” is more appropriate than a “single trigger” because a double trigger prevents
the unnecessary payment of benefits to an executive officer in the event that the change in control does not result in a qualifying
termination event with respect to the executive's employment.
We have provided detailed information about Mr. Lucia’s
employment agreement and our agreements with the other named executive officers and the benefits provided to Mr. Lucia and the
other named executive officers under their respective agreements, along with estimates of the value of such benefits under various
circumstances, under the heading “Potential Payments Upon Termination of Employment or Change in Control” below.
Other
Pay Policies and Practices
EQUITY
AWARD GRANT PRACTICES
Annual equity awards to eligible employees, including
the named executive officers, are generally considered by the Compensation Committee at its regularly scheduled meeting held in
the first quarter of each year. At this meeting, the Compensation Committee meets with management and FW Cook to discuss and consider
annual long-term incentive awards and to approve individual award amounts and terms for the executive officers and other employees
subject to Section 16 of the Exchange Act. The grant date for equity awards to employees is established as the third business day
after the date of filing of HMS’s next Form 10-K or 10-Q with the SEC, whichever is sooner.
The Compensation Committee also approves off-cycle
initial equity grants to attract and retain key new hires. Generally, the equity mix for new hire awards is consistent with the
equity mix for annual long-term incentive awards, which is pre-determined based on management level. If the Company is in a blackout
period when an individual is hired, then the grant date is established as the third business day after the date of filing of the
Company’s next Form 10-K or 10-Q with the SEC, whichever is sooner. If the Company is not in a blackout period when an individual
is hired, then the grant date is established on the date of the new hire’s commencement of employment. Equity grants to new
hires are subject to service-based vesting over four years. The Compensation Committee has delegated authority to the CEO to grant
new hire awards, subject to certain limitations, on terms pre-established by the Compensation Committee to employees who are not
subject to Section 16 of the Exchange Act. Grants approved by the CEO pursuant to this delegation are reviewed at the Compensation
Committee’s next regularly scheduled meeting.
| 2019 Proxy Statement 54 |
STOCK
OWNERSHIP GUIDELINES FOR EXECUTIVE OFFICERS
The Board has established significant stock ownership
guidelines for our executive officers to encourage them to own and hold a meaningful equity stake in HMS in order to further align
their interests and actions with the interests of HMS and its shareholders. The guidelines for executive officers are based on
a multiple of the executive’s base salary.
Title
|
Value
of Shares Required
to be Owned |
CEO |
5 X Annual Base Salary |
Other
Executive Officers |
2 X Annual
Base Salary |
For purposes of satisfying these guidelines, an executive
officer’s shares owned outright, directly or indirectly, and restricted stock and restricted stock units, whether or not
vested, are counted in determining the executive’s stock ownership. Each executive is required to meet his or her respective
ownership guideline within five years after election (or promotion to a covered position), or in the case of executives in office
at the time the guidelines were adopted, within five years of the date of adoption. To mitigate the impact of stock price fluctuation,
the number of shares required to be held by each executive to satisfy the guidelines remains fixed through December 1, 2019, based
on each executive’s annual base salary in effect, and the closing price of our common stock, on December 1, 2016. The Compensation
Committee monitors compliance with these guidelines on an annual basis.
The following graph summarizes the stock ownership
of each of our named executive officers as of December 1, 2018, as a multiple of base salary in effect as of December 1, 2016,
and the average closing price of our common stock for the month of November 2016, pursuant to our Stock Ownership Guidelines.
![](http://www.sec.gov/Archives/edgar/data/1196501/000117184319002384/stockown2.jpg)
PROHIBITION
ON HEDGING AND PLEDGING
Our Insider Trading Policy prohibits our employees
and directors from, among many other actions, purchasing our securities on margin, borrowing against our securities held in a margin
account, pledging our securities as collateral for a loan and entering into hedging and derivative transactions with respect to
our securities.
| 2019 Proxy Statement 55 |
CLAWBACK
POLICY
The Board has adopted a clawback policy that covers
each of our current and former executive officers and applies to all forms of executive incentive compensation. Our clawback policy
provides that the Board (or a Board committee) is authorized to recover from any current or former executive officer any bonus,
incentive compensation or equity-based compensation gains resulting from certain misconduct occurring after January 1, 2015 that
causes a restatement of our financial statements. The Board is required to review all circumstances and actions causing such restatement
and to take action as it deems appropriate. We are monitoring this policy to ensure that it is consistent with applicable laws,
and to the extent that the SEC adopts rules for clawback policies, we will revise our policy to reflect any necessary changes.
TAX
DEDUCTIBILITY
Section 162(m) of the Code prohibits us from deducting
from taxable income any compensation in excess of $1 million paid to "covered employees", which were previously
our CEO and the three other most highly compensated named executive officers employed at the end of the year (other than our Chief
Financial Officer). Prior to January 1, 2018, certain compensation paid pursuant to a shareholder-approved plan upon the attainment
of specified performance objectives was excluded from the deductibility limit as "performance based compensation." Pursuant
to the Tax Cuts and Jobs Act passed in December 2017, this "performance-based compensation" exception was eliminated,
effective for taxable years beginning after December 31, 2017, so that compensation paid to a public company's "covered employees"
in excess of $1 million will not be deductible unless it qualifies for transition relief applicable to certain arrangements in
place as of November 2, 2017. In addition, the Tax Cuts and Jobs Act amended the definition of "covered employees" to
include a company's chief financial officer. As such, effective January 1, 2018, "covered employees" include a company's
chief executive officer, chief financial officer and the next three other most highly compensated officers serving at the end of
the taxable year. Further, under the Tax Cuts and Jobs Act, once an officer is a "covered employee," his or her compensation
will remain subject to Section 162(m) indefinitely.
The Compensation Committee has historically believed
that tax deductibility is an important factor, but not the sole factor, to be considered in setting executive compensation policy.
Accordingly, the Compensation Committee has periodically reviewed the potential consequences of Section 162(m) of the Code in making
compensation decisions.
Early
2019 Compensation Actions
The following is a brief summary of certain changes
to the compensation of the named executive officers for fiscal 2019, which is intended to provide additional information to shareholders
in their review of our compensation program for fiscal 2018. A more detailed description of compensation for fiscal 2019 will be
included in the proxy statement for our 2020 annual meeting of shareholders.
2019
ANNUAL BASE SALARY
In February 2019, the Compensation Committee approved
increases ranging from 4%-7% in the annual base salaries of our then-serving named executive officers, effective February 25, 2019.
Named Executive
Officer |
2019 Base
Salary |
Mr. Lucia |
$725,000 |
Mr. Sherman |
$550,000 |
Mr. O’Gara |
$425,000 |
Mr. Williams |
$550,000 |
Ms.
Neuman |
— |
2019
SHORT-TERM INCENTIVE PLAN
In February 2019, the Compensation Committee established
the 2019 Short-Term Incentive Plan (“2019 STIP”) for eligible employees, including our then-serving named executive
officers. The 2019 STIP is substantially similar to the 2018 STIP. Payouts under the 2019 STIP will be determined in early 2020.
In addition, the Compensation Committee increased Mr. Williams’ target bonus opportunity for 2019 from 65% to 75% of his
annual base salary.
| 2019 Proxy Statement 56 |
2019
LONG-TERM INCENTIVE AWARDS
The Compensation Committee granted long-term incentive
awards for 2019 to the then-serving named executive officers effective on February 28, 2019, with 50% of the total annual long-term
incentive award value consisting of time-based restricted stock units and 50% consisting of premium-priced stock options having
an exercise price of 115% of the closing price on the date of grant, on a substantially equal value basis, pursuant to the 2016
Omnibus Plan.
Named Executive
Officer |
Grant
Date
Fair
Value of
Options
Granted(1)
($)
|
Grant
Date
Fair
Value of
RSUs
Granted(1)
($)
|
Mr. Lucia |
2,000,000 |
|
2,000,000 |
|
Mr. Sherman |
900,000 |
|
900,000 |
|
Mr. O’Gara |
550,000 |
|
550,000 |
|
Mr. Williams |
800,000 |
|
800,000 |
|
Ms.
Neuman |
— |
|
— |
|
| (1) | The restricted
stock units and premium-priced stock options generally vest in three equal installments
on the first, second and third anniversaries of the grant date, subject to continued
employment with the Company. |
Compensation
Committee Report |
|
|
The Compensation Committee of the Board of HMS Holdings
Corp. has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management.
Based on this review and discussion, the Compensation Committee recommended to the Board that the Compensation Discussion
and Analysis be included in the Proxy Statement for the Company’s 2019 Annual Shareholders’ Meeting. |
|
|
By the Compensation Committee of the Board of Directors
of HMS Holdings Corp. |
|
|
|
Richard H. Stowe, Chair |
|
Craig R. Callen |
|
Cora M. Tellez |
|
|
|
|
The information contained in the
Compensation Committee Report shall not be deemed to be “soliciting material” or to be “filed” with
the Securities and Exchange Commission, nor shall such information be incorporated by reference into any future filing under
the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that we specifically
incorporate it by reference in such filing. |
|
|
| 2019 Proxy Statement 57 |
Compensation
Tables
Summary
Compensation Table
The following table sets forth the cash and non-cash
compensation awarded to or earned by our named executive officers for the fiscal years ended December 31, 2018, 2017 and 2016.
Name
and Principal Position |
Year |
Salary(1)
($) |
Bonus(2)
($)
|
Stock Awards(3) ($) |
Option Awards(4) ($) |
Non-Equity Incentive Plan Compen- sation(5) ($) |
All Other Compen- sation(6) ($) |
Total Compen- sation ($) |
William
C. Lucia |
2018 |
700,000 |
— |
|
1,500,000 |
|
1,500,000 |
|
1,071,000 |
|
34,482 |
|
4,805,482 |
|
Chairman,
President |
2017 |
690,385 |
— |
|
1,500,000 |
|
1,500,000 |
|
459,200 |
|
33,993 |
|
4,183,578 |
|
and
CEO |
2016 |
650,000 |
— |
|
1,137,504 |
|
1,137,498 |
|
800,800 |
|
33,421 |
|
3,759,223 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jeffrey
S. Sherman |
2018 |
527,479 |
— |
|
800,000 |
|
800,000 |
|
608,691 |
|
31,714 |
|
2,767,884 |
|
EVP,
Chief Financial |
2017 |
515,000 |
— |
|
850,000 |
|
850,000 |
|
234,325 |
|
32,976 |
|
2,482,301 |
|
Officer
and Treasurer |
2016 |
512,115 |
— |
|
559,998 |
|
559,999 |
|
435,175 |
|
28,391 |
|
2,095,678 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Emmet
W. O’Gara(7) |
2018 |
383,077 |
50,000 |
|
400,000 |
|
400,000 |
|
397,800 |
|
17,022 |
|
1,647,899 |
|
Group
President, Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Population
Management |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Douglas
M. Williams Jr. |
2018 |
512,115 |
— |
|
550,000 |
|
550,000 |
|
512,168 |
|
10,069 |
|
2,134,352 |
|
EVP,
Chief Operating |
2017 |
500,000 |
— |
|
600,000 |
|
600,000 |
|
204,750 |
|
17,912 |
|
1,922,662 |
|
Officer |
2016 |
495,192 |
— |
|
500,000 |
|
500,000 |
|
390,000 |
|
13,595 |
|
1,898,787 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
K.
Semone Neuman |
2018 |
512,115 |
— |
|
550,000 |
|
550,000 |
|
512,168 |
|
15,964 |
|
2,140,247 |
|
Former
EVP, Coordination of |
2017 |
500,000 |
— |
|
600,000 |
|
600,000 |
|
227,500 |
|
34,773 |
|
1,962,273 |
|
Benefits
|
2016 |
495,192 |
— |
|
500,000 |
|
500,000 |
|
390,000 |
|
28,773 |
|
1,913,965 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) | The
amounts in this column consist of base salary earned for the fiscal year. |
| (2) | The
amount in this column consists of a sign-on bonus paid in 2018, pursuant to the terms
of Mr. O’Gara’s employment agreement. |
| (3) | The
amounts in this column represent the aggregate grant date fair value of the restricted
stock unit awards computed in accordance with FASB guidance on stock-based compensation.
The grant date fair value of restricted stock units is determined based on the number
of units awarded and the fair value of our common stock on the grant date, which is the
closing sales price per share of our common stock reported on the Nasdaq Global Select
Market on that date. |
| (4) | The
amounts in this column represent the aggregate grant date fair value of the stock option
awards computed in accordance with FASB guidance on stock-based compensation. The relevant
assumptions made in the valuations for the 2018, 2017 and 2016 stock option awards may
be found in (i) Note 1 of the Notes to the Consolidated Financial Statements in our Annual
Report on Form 10-K for the fiscal year ended December 31, 2018, (ii) Note 1 of the Notes
to the Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal
year ended December 31, 2017 and (iii) Note 1 of the Notes to the Consolidated Financial
Statements in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016,
respectively. The grant date fair value of stock options is determined based on the number
of options awarded and the fair value of the stock option on the grant date based upon
the Black Scholes pricing model. |
| (5) | The
amounts in this column consist of amounts earned pursuant to the short-term (cash) incentive
plan for the fiscal year reported, which are paid in the following fiscal year. |
| (6) | The
table below shows the components of “All Other Compensation” for the named
executive officers for 2018. |
| (7) | Mr.
O’Gara joined the Company on January 2, 2018. |
| 2019 Proxy Statement 58 |
Fiscal
2018 All Other Compensation Table
Name |
401(k) Savings Plan Employer Matching Contributions(1) ($) |
Executive Disability
Insurance(2)
($) |
Financial Counseling(3) ($) |
Preventative Health Program(4) ($) |
Total All Other Compensation ($) |
Mr. Lucia |
12,375 |
|
3,748 |
15,815 |
|
2,544 |
|
34,482 |
|
Mr. Sherman |
12,375 |
|
3,524 |
15,815 |
|
— |
|
31,714 |
|
Mr. O’Gara |
10,423 |
|
3,452 |
— |
|
3,147 |
|
17,022 |
|
Mr. Williams |
6,324 |
|
3,744 |
— |
|
— |
|
10,069 |
|
Ms.
Neuman |
12,375 |
|
3,589 |
— |
|
— |
|
15,964 |
|
| (1) | These
amounts represent Company matching contributions to our named executive officers in the
Company’s 401(k) savings plan. |
| (2) | These
amounts represent the premiums paid by the Company on behalf of our named executive officers
for executive disability insurance. |
| (3) | These
amounts represent the amounts paid on behalf of our named executive officers for financial
counseling services. |
| (4) | These
amounts represent the amounts paid on behalf of our named executive officers during 2019
for preventative health program benefits received in 2018. |
| 2019 Proxy Statement 59 |
Grants
of Plan-Based Awards for the Year Ended December 31, 2018
The following table provides information concerning
each grant of an award made to our named executive officers in fiscal 2018 under our AIP, 2018 STIP and 2016 Omnibus Plan.
|
|
|
|
Estimated
Possible
Payouts Under Non-
Equity Incentive
Plan Awards(1) |
All Other
Stock
Awards:
Number of
Shares of
Stock or
Units(2)
(#) |
All Other
Option
Awards:
Number of
Securities
Underlying
Options(3)
(#) |
Exercise
or Base
Price of
Options(4)
($/Sh) |
Grant Date
Fair
Value
of Stock
and Option
Awards(5)
($) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensa-
tion
Committee
Approval
Date |
|
|
|
|
|
|
|
Award Type |
Grant Date |
Target
($) |
Maximum
($) |
Name |
Mr.
Lucia |
AIP/2018
STIP |
— |
— |
700,000
|
5,000,000
|
— |
— |
— |
— |
|
Stock Options
(6) |
3/2/2018 |
2/15/2018 |
— |
— |
— |
219,619 |
19.48 |
1,500,000 |
|
RSUs (6) |
3/2/2018 |
2/15/2018 |
— |
— |
88,548 |
— |
— |
1,500,000 |
|
|
|
|
|
|
|
|
|
|
Mr. Sherman |
AIP/2018 STIP |
— |
— |
397,838 |
5,000,000
|
— |
— |
— |
— |
|
Stock Options
(6) |
3/2/2018 |
2/15/2018 |
— |
— |
— |
117,130 |
19.48 |
800,000 |
|
RSUs (6) |
3/2/2018 |
2/15/2018 |
— |
— |
47,226 |
— |
— |
800,000 |
|
|
|
|
|
|
|
|
|
|
Mr. O’Gara |
AIP/2018 STIP |
— |
— |
260,000 |
5,000,000 |
— |
— |
— |
— |
|
Stock
Options (6) |
3/2/2018 |
2/15/2018 |
— |
— |
— |
29,283 |
19.48 |
200,000 |
|
RSUs
(6) |
3/2/2018 |
2/15/2018 |
— |
— |
11,806 |
— |
— |
200,000 |
|
Stock
Options (7) |
3/2/2018 |
12/15/2017 |
— |
— |
— |
26,212 |
16.94 |
200,000 |
|
RSUs
(7) |
3/2/2018 |
12/15/2017 |
— |
— |
11,806 |
— |
— |
200,000 |
|
|
|
|
|
|
|
|
|
|
Mr. Williams |
AIP/2018 STIP |
— |
— |
334,750 |
5,000,000
|
— |
— |
— |
— |
|
Stock Options
(6) |
3/2/2018 |
2/15/2018 |
— |
— |
— |
80,527 |
19.48 |
550,000 |
|
RSUs (6) |
3/2/2018 |
2/15/2018 |
— |
— |
32,468 |
— |
— |
550,000 |
|
|
|
|
|
|
|
|
|
|
Ms.
Neuman |
AIP/2018 STIP |
— |
— |
334,750 |
5,000,000
|
— |
— |
— |
— |
|
Stock Options
(6) |
3/2/2018 |
2/15/2018 |
— |
— |
— |
80,527 |
19.48 |
550,000 |
|
RSUs (6) |
3/2/2018 |
2/15/2018 |
— |
— |
32,468 |
— |
— |
550,000 |
|
|
|
|
|
|
|
|
|
|
| (1) | Amounts
represent possible cash payouts for 2018 performance upon satisfaction of the pre-established
performance conditions under the 2018 STIP and the AIP. The target amount shown is 100%
of the individual’s target annual award opportunity. The maximum amount shown is
the shareholder-approved maximum payout under the AIP. There are no threshold amounts
under the 2018 STIP or the AIP. Actual cash payouts for 2018, as determined by the Compensation
Committee in the first quarter of 2019, are reflected in the Summary Compensation Table
under the Non-Equity Incentive Plan Compensation column. The 2018 STIP and the AIP are
described in the CD&A, under the heading “Annual Short-Term Incentive Compensation.”
For 2018, the target award opportunity, expressed as a percentage of base salary, for
each of Mr. Lucia, Mr. Sherman, Mr. O’Gara, Mr. Williams and Ms. Neuman was 100%,
75%, 65%, 65% and 65%, respectively. |
| (2) | Amounts
represent the restricted stock unit award made to each named executive officer in 2018
that is conditioned on continued service. These restricted stock unit awards are discussed
in the CD&A under the heading “Annual Long-Term Incentive Compensation.” |
| (3) | Amounts
represent the non-qualified stock option award made to each named executive officer in
2018 that is conditioned on continued service. These stock option awards are discussed
in the CD&A under the heading “Annual Long-Term Incentive Compensation.” |
| (4) | Represents
115% of the closing price of our common stock on the date of grant, except with respect
to the new hire awards granted to Mr. O’Gara on March 2, 2018, having an exercise
price of $16.94, which represents the closing price of our common stock on the date of
grant. |
| (5) | Amounts
in this column represent the grant date fair value of each stock option grant and each
restricted stock unit grant computed in accordance with FASB guidance on stock-based
compensation, and exclude the impact of estimated forfeitures related to service-based
vesting conditions. The relevant assumptions made in the valuations may be found in Note
1 of the Notes to the Consolidated Financial Statements in our Annual Report on Form
10-K for the fiscal year ended December 31, 2018. |
| (6) | The
non-qualified stock options and restricted stock units generally vest in three equal
annual installments beginning on the first anniversary of the date of grant, subject
to continued employment with the Company. The non-qualified stock options are premium-priced
stock options having an exercise price of 115% of the closing price on the date of grant
and are exercisable over a term of ten years. |
| 2019 Proxy Statement 60 |
| (7) | The
non-qualified stock options and restricted stock units vest in four equal annual installments
beginning on the first anniversary of the date of grant, subject to continued employment
with the Company. The non-qualified stock options are exercisable over a term of ten
years. |
| 2019 Proxy Statement 61 |
Outstanding
Equity Awards at December 31, 2018
|
|
|
Option
Awards |
|
Stock
Awards |
Name |
Grant
Date |
Award
Type |
Number
of
Securities
Underlying Unexercised
Options
(#)
Exercisable |
Number
of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable |
Option
Exercise Price
($) |
Option
Expiration
Date |
|
Number
of
Shares or
Units of
Stock That
Have Not
Vested
(#) |
Market
Value
of Shares or
Units of Stock
that Have Not
Vested(1)
($) |
Mr.
Lucia |
11/15/13 |
Stock Options |
7,599 |
— |
21.36 |
11/14/20 |
|
— |
— |
|
11/12/14 |
Stock Options |
48,615 |
— |
21.63 |
11/11/21 |
|
— |
— |
|
03/04/15 |
Stock Options |
192,976 |
— |
16.77 |
03/03/22 |
|
— |
— |
|
03/02/16 |
Stock Options |
138,889 |
69,444
(2) |
13.94 |
03/03/23 |
|
— |
— |
|
06/09/17 |
Stock Options |
32,342 |
161,707
(3) |
19.04 |
06/09/27 |
|
— |
— |
|
03/02/18 |
Stock Options |
— |
219,619
(4) |
19.48 |
03/02/28 |
|
— |
— |
|
03/02/16 |
RSUs |
— |
— |
— |
— |
|
27,200
(2) |
765,136 |
|
06/09/17 |
RSUs |
— |
— |
— |
— |
|
65,652
(3) |
1,846,791 |
|
03/02/18 |
RSUs |
— |
— |
— |
— |
|
88,548
(4) |
2,490,855 |
Mr.
Sherman |
09/08/14 |
Stock Options |
50,209 |
— |
20.71 |
09/08/21 |
|
— |
— |
|
11/12/14 |
Stock Options |
22,247 |
— |
21.63 |
11/11/21 |
|
— |
— |
|
03/04/15 |
Stock Options |
118,754 |
— |
16.77 |
03/03/22 |
|
— |
— |
|
05/13/15 |
Stock Options |
42,385 |
— |
16.64 |
05/13/22 |
|
— |
— |
|
11/11/15 |
Stock Options |
100,000 |
— |
11.20 |
11/10/22 |
|
— |
— |
|
11/11/15 |
Stock Options |
100,000 |
— |
14.00 |
11/10/22 |
|
— |
— |
|
03/02/16 |
Stock Options |
68,376 |
34,188
(2) |
13.94 |
03/03/23 |
|
— |
— |
|
06/09/17 |
Stock Options |
18,327 |
91,634
(3) |
19.04 |
06/09/27 |
|
— |
— |
|
03/02/18 |
Stock Options |
— |
117,130
(4) |
19.48 |
03/02/28 |
|
— |
— |
|
03/02/16 |
RSUs |
— |
— |
— |
— |
|
13,392
(2) |
376,717 |
|
06/09/17 |
RSUs |
— |
— |
— |
— |
|
37,203
(3) |
1,046,520 |
|
03/02/18 |
RSUs |
— |
— |
— |
— |
|
47,226
(4) |
1,328,467 |
Mr.
O’Gara |
03/02/18 |
Stock Options |
— |
29,283
(4) |
19.48 |
03/02/28 |
|
— |
— |
|
03/02/18 |
Stock Options |
— |
26,212
(5) |
16.94 |
03/02/28 |
|
— |
— |
|
03/02/18 |
RSUs |
— |
— |
— |
— |
|
11,806
(4) |
332,103 |
|
03/02/18 |
RSUs |
— |
— |
— |
— |
|
11,806
(5) |
332,103 |
Mr.
Williams |
05/13/15 |
Stock Options |
39,393 |
—
|
16.64 |
05/13/22 |
|
— |
— |
|
11/11/15 |
Stock Options |
100,000 |
—
|
11.20 |
11/10/22 |
|
— |
— |
|
11/11/15 |
Stock Options |
100,000 |
—
|
14.00 |
11/10/22 |
|
— |
— |
|
03/02/16 |
Stock Options |
61,049 |
30,526
(2) |
13.94 |
03/03/23 |
|
— |
— |
|
06/09/17 |
Stock Options |
12,936 |
64,684
(3) |
19.04 |
06/09/27 |
|
— |
— |
|
03/02/18 |
Stock Options |
— |
80,527
(4) |
19.48 |
03/02/28 |
|
— |
— |
|
03/02/16 |
RSUs |
— |
— |
— |
— |
|
11,956
(2) |
336,322 |
|
06/09/17 |
RSUs |
— |
— |
— |
— |
|
26,261
(3) |
738,722 |
|
03/02/18 |
RSUs |
— |
— |
— |
— |
|
32,468
(4) |
913,325 |
Ms.
Neuman |
11/11/15 |
Stock Options |
100,000 |
— |
11.20 |
11/10/22 |
|
— |
— |
|
03/02/16 |
Stock Options |
61,049 |
30,526
(2) |
13.94 |
03/03/23 |
|
— |
— |
|
06/09/17 |
Stock Options |
— |
64,684
(3) |
19.04 |
06/09/27 |
|
— |
— |
|
03/02/18 |
Stock Options |
— |
80,527
(4) |
19.48 |
03/02/28 |
|
— |
— |
|
03/02/16 |
RSUs |
— |
— |
— |
— |
|
11,956
(2) |
336,322 |
|
06/09/17 |
RSUs |
— |
— |
— |
— |
|
26,261
(3) |
738,722 |
|
03/02/18 |
RSUs |
— |
— |
— |
— |
|
32,468
(4) |
913,325 |
|
|
|
|
|
|
|
|
|
|
| (1) | The
market value of shares or units of stock that have not vested is calculated by multiplying
the closing market price per share of our common stock on December 31, 2018, of $28.13
per share by the number of shares or units of stock that have not vested. |
| (2) | Represents
stock options and restricted stock units granted on March 2, 2016. One-half of the stock
options and restricted stock units granted are subject to time-based vesting in one-third
annual increments. The remaining one-third of these time-based awards that were unexercisable
or that had not vested as of December 31, 2018, vested on March 2, 2019. The other
one-half of the stock options and restricted stock units granted were subject to performance
conditions that have been satisfied and are subject to time-based vesting conditions.
The remaining performance-based stock options and restricted stock units that had not
vested as of December 31, 2018, vested on March 2, 2019. |
| (3) | Represents
stock options and restricted stock units granted on June 9, 2017. One-half of the stock
options and restricted stock units granted are subject to time-based vesting in one-third
annual increments. Of the remaining two-thirds of these time-based awards that were unexercisable
or that had not vested as of December 31, 2018, one-third vested on March 3, 2019 and
one-third will vest on March 3, 2020. The other one-half of the stock options and restricted
stock units granted were subject to performance conditions have been satisfied and are
subject to time-based vesting conditions. Two-thirds of the performance-based stock options
and restricted stock units vested on March 3, 2019, and one-third will vest on March
3, 2020. |
| 2019 Proxy Statement 62 |
| (4) | Represents
stock options and restricted stock units granted on March 2, 2018. One-third of the stock
options and restricted stock units vested on March 2, 2019, and one-third will vest on
each of March 2, 2020 and March 2, 2021. |
| (5) | Represents
stock options and restricted stock units granted on March 2, 2018. One-fourth of the
stock options and restricted stock units vested on March 2, 2019, and one-fourth will
vest on each of March 2, 2020, March 2, 2021 and March 2, 2022. |
Option
Exercises and Stock Vested in 2018
The following table sets forth certain information
regarding the stock options exercised and stock awards that vested for our named executive officers during the year ended December
31, 2018.
|
|
Option Awards |
|
Stock Awards |
Name |
|
Number of Shares
Acquired on
Exercise
(#)
|
|
Value Realized
on Exercise(1)
($)
|
|
Number of Shares
Acquired on
Vesting
(#)
|
|
Value Realized
on Vesting(2)
($)
|
Mr. Lucia |
|
214,212 |
|
|
1,647,700
|
|
|
77,162
|
|
|
1,303,535
|
|
Mr. Sherman |
|
53,382 |
|
|
786,795 |
|
|
39,752
|
|
|
694,432
|
|
Mr. O’Gara |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Mr. Williams |
|
173,955 |
|
|
2,813,986
|
|
|
36,926
|
|
|
645,892
|
|
Ms.
Neuman |
|
308,342
|
|
|
5,443,591
|
|
|
40,327
|
|
|
702,689
|
|
| (1) | The
value realized on the exercise of stock options is based on the difference between the
exercise price of the options and the closing price of our common stock on the date of
exercise. |
| (2) | The
value realized on vesting represents the number of shares acquired on vesting multiplied
by the closing price of our common stock on the applicable vesting date. |
Potential
Payments Upon Termination of Employment or Change in Control
The information and table in this section summarize
the estimated compensation payable to each of our named executive officers in the event of termination of employment or a change
in control on December 31, 2018. This compensation is payable pursuant to (i) the terms of the employment agreement with each of
our named executive officers, and (ii) the terms of our equity incentive plans and related award agreements. Regardless of the
manner in which the named executive officer’s employment terminates, each executive is generally entitled to receive earned,
unpaid salary and accrued but unused paid time off through the date of termination under his or her employment agreement. Under
the employment agreement with the CEO, the CEO is also entitled to receive any earned, unpaid bonus for the calendar year preceding
the calendar year in which his employment ends unless such termination is for Cause. The definitions of “Cause,” Change
in Control,” “Disability,” and “Good Reason” appear at the end of the next section under the heading
“Key Definitions.”
In addition to the compensation discussed above,
the following table reflects the compensation and benefits that would have been paid to the named executive officers had their
employment terminated on December 31, 2018 under the termination scenarios shown below, and assumes a closing price of our common
stock as of December 31, 2018 ($28.13). The table also assumes that each named executive officer executes a separation agreement
and general release, as required under the terms of their employment agreements, and complies with certain restrictive covenants
and confidentiality provisions contained in their employment agreements and Restrictive Covenants Agreements (as defined and described
under the heading “Restrictive Covenants Agreements”). The table does not include any amounts due for unused paid time
off for 2018 or the value of immediately exercisable stock options at the date of termination (where vesting was not accelerated
as a result of the termination). Due to a number of factors that may affect the availability, nature and amount of compensation
upon termination, any actual amounts paid or distributed to named executive officers may be different from the amounts provided
in this section. In addition, in connection with any actual termination or change in control situation, we may determine to enter
into agreements or establish arrangements that alter the terms below. The table should be read in conjunction with the narrative
description of the potential payments upon a termination or change in control set forth in this section.
| 2019 Proxy Statement 63 |
Named
Executive Officer and Type of Payment |
Termination without Cause or Resignation for Good Reason(1)
($)
|
Termination without
Cause or Resignation
for Good Reason
following a Change
in Control(2) ($) |
Disability(3)
($)
|
Death(4)
($)
|
Retirement(5)
($)
|
Retirement
following a Change
in Control(12)
($)
|
Mr.
Lucia |
|
|
|
|
|
|
|
|
|
|
|
|
Cash
severance |
1,400,000 |
|
1,400,000 |
|
1,400,000 |
|
— |
|
— |
|
— |
|
Bonus
compensation(6) |
1,400,000 |
|
1,400,000 |
|
1,400,000 |
|
— |
|
— |
|
— |
|
Health
insurance |
25,103 |
|
25,103 |
|
25,103 |
|
— |
|
— |
|
— |
|
RSUs(7)(9)(11) |
5,102,782 |
|
5,102,782 |
|
5,102,782 |
|
5,102,782 |
|
4,272,497 |
|
5,102,782 |
|
Stock
Options(8)(10)(11) |
4,355,031 |
|
4,355,031 |
|
4,355,031 |
|
4,355,031 |
|
3,721,799 |
|
3,721,799 |
|
Total
|
12,282,916 |
|
12,282,916 |
|
12,282,916 |
|
9,457,813 |
|
7,994,296 |
|
8,824,581 |
|
Mr.
Sherman |
|
|
|
|
|
|
|
|
|
|
|
|
Cash
severance |
530,450 |
|
530,450 |
|
— |
|
— |
|
— |
|
— |
|
Health
insurance |
19,672 |
|
19,672 |
|
— |
|
— |
|
— |
|
— |
|
RSUs(7)(9) |
— |
|
2,751,704 |
|
2,751,704 |
|
2,751,704 |
|
— |
|
— |
|
Stock Options(8)(10) |
— |
|
2,331,255 |
|
2,331,255 |
|
2,331,255 |
|
— |
|
— |
|
Total |
550,122 |
|
5,633,082 |
|
5,082,959 |
|
5,082,959 |
|
— |
|
— |
|
Mr.
O’Gara |
|
|
|
|
|
|
|
|
|
|
|
|
Cash
severance |
400,000 |
|
400,000 |
|
— |
|
— |
|
— |
|
— |
|
Health
insurance |
21,940 |
|
21,940 |
|
— |
|
— |
|
— |
|
— |
|
RSUs(7)(9) |
— |
|
664,206 |
|
664,206 |
|
664,206 |
|
— |
|
— |
|
Stock
Options(8)(10) |
— |
|
546,610 |
|
546,610 |
|
546,610 |
|
— |
|
— |
|
Total |
421,940 |
|
1,632,756 |
|
1,210,816 |
|
1,210,816 |
|
— |
|
— |
|
Mr.
Williams |
|
|
|
|
|
|
|
|
|
|
|
|
Cash
severance |
515,000 |
|
515,000 |
|
— |
|
— |
|
— |
|
— |
|
Health
insurance |
12,881 |
|
12,881 |
|
— |
|
— |
|
— |
|
— |
|
RSUs(7)(9) |
— |
|
1,988,369 |
|
1,988,369 |
|
1,988,369 |
|
— |
|
— |
|
Stock
Options(8)(10) |
— |
|
1,717,700 |
|
1,717,700 |
|
1,717,700 |
|
— |
|
— |
|
Total |
527,881 |
|
4,233,950 |
|
3,706,069 |
|
3,706,069 |
|
— |
|
— |
|
Ms. Neuman |
|
|
|
|
|
|
|
|
|
|
|
|
Cash severance |
515,000 |
|
515,000 |
|
— |
|
— |
|
— |
|
— |
|
Health insurance |
12,881 |
|
12,881 |
|
— |
|
— |
|
— |
|
— |
|
RSUs(7)(9) |
— |
|
1,988,369 |
|
1,988,369 |
|
1,988,369 |
|
— |
|
— |
|
Stock Options(8)(10) |
— |
|
1,717,700 |
|
1,717,700 |
|
1,717,700 |
|
— |
|
— |
|
Total |
527,881 |
|
4,233,950 |
|
3,706,069 |
|
3,706,069 |
|
— |
|
— |
|
| (1) | The
amounts in this column represent the amounts payable to the named executive officer in
the event he or she were terminated without Cause or resigns for Good Reason, as defined
in his or her employment agreement, as described below. |
| (2) | The
amounts in this column represent the amounts payable to the named executive officer in
the event he or she were terminated without Cause or resigns for Good Reason within a
specified period after a Change of Control under his or her employment agreement and
equity award agreements, as described below. In addition, as described below, if Mr.
Lucia is terminated without Cause or resigns for Good Reason within six months prior
to a Change in Control, Mr. Lucia would receive a lump sum cash payment equal to the
excess of the amount he would have received for any equity awards outstanding or deemed
to be outstanding, or canceled or forfeited, as a result of termination or Change in
Control, over the amount he actually received. Since the employment agreements of named
executive officers and the equity awards have double-trigger Change in Control provisions
(except with respect to equity awards not assumed by the acquiring entity), the table
assumes that both a Change in Control and a subsequent termination of employment has
occurred. |
| (3) | In
the event the employment of Messrs. O’Gara, Sherman or Williams, or Ms. Neuman
is terminated due to the executive’s Disability, all outstanding stock awards will
immediately vest and all option awards will become vested and fully exercisable pursuant
to the terms of the applicable award agreements. A termination of Mr. Lucia’s employment
due to Disability would be treated as a termination without Cause pursuant to his employment
agreement. |
| (4) | The
amounts in this column represent the amounts payable to the named executive officer under
his or her equity award agreements if his or her employment is terminated upon death,
as described below. |
| (5) | The
amounts in this column represent the amounts payable to Mr. Lucia under his equity award
agreements if his employment is terminated upon Retirement, as described below. Mr. Lucia
is the only named executive officer who qualified for Retirement as of December 31, 2018. |
| (6) | Amounts
represent the target annual short-term (cash) incentive compensation that Mr. Lucia would
be entitled to receive under his employment agreement as of the date his employment ends,
and not the amount that the Compensation Committee determined to pay Mr. Lucia as set
forth in the Non-Equity Incentive Plan Compensation” column of the Summary Compensation
Table. |
| (7) | For
each named executive officer, the estimated market value the unvested restricted stock
units is calculated based on the aggregate number of his or her accelerated restricted
stock units multiplied by the closing market price per share of our common stock on December
31, 2018, of $28.13 per share. |
| 2019 Proxy Statement 64 |
| (8) | For
each named executive officer, the estimated market value of outstanding stock options
is calculated based on the difference between the aggregate exercise price of all of
his or her accelerated in-the-money options and the aggregate market value of the underlying
shares as of December 31, 2018, based on the closing market price per share of our common
stock on December 31, 2018, of $28.13 per share. |
| (9) | Except
for the amounts reported for Mr. Lucia in the columns entitled Termination Without Cause
or Resignation for Good Reason, the amounts reported represent the estimated market value
of unvested restricted stock units (including any performance-based restricted stock
units) that would have vested as of December 31, 2018 under the termination scenarios
in the table. |
| (10) | Except
for the amounts reported for Mr. Lucia in the columns entitled Termination Without Cause
or Resignation for Good Reason, the amounts reported represent the estimated market value
of outstanding stock options, which are not then exercisable (including any performance-based
stock options), that would have become exercisable as of December 31, 2018 under the
termination scenarios in the table. |
| (11) | The
amounts reported for Mr. Lucia in the columns entitled Termination Without Cause or Resignation
for Good Reason represent the estimated market value of his (i) unvested restricted stock
units (including any performance-based restricted stock units) as of December 31, 2018,
and (ii) outstanding stock options, which are not then exercisable (including any performance-based
stock options) as of December 31, 2018, which would continue to vest under these termination
scenarios pursuant to the terms of his employment agreement. The amounts reported assume
that these restricted stock units and stock options are earned, to the extent such awards
are performance-based, and fully vest. |
| (12) | The
amounts in this column represent the amounts payable to Mr. Lucia under his equity award
agreements if his employment is terminated upon Retirement within 24 months after a Change
in Control, as described below. Since the employment agreements of named executive officers
and the equity awards have double-trigger Change in Control provisions, the table assumes
that both a Change in Control and a subsequent Retirement has occurred. |
Executive
Employment Agreements
EMPLOYMENT
AGREEMENT WITH MR. LUCIA
HMS and Mr. Lucia entered into the third amendment
to his executive employment agreement, effective March 1, 2018, extending the term of his agreement to February 28, 2021.
Under his employment agreement, Mr. Lucia is entitled to a minimum annual base salary of $650,000, subject to increase from
time to time by the Board or the Compensation Committee, and a targeted annual short-term (cash) incentive award opportunity of
100% of his base salary. If we terminate Mr. Lucia’s employment without Cause, in connection with a Change in Control or
otherwise, or if his employment ceases because of his disability or if he terminates his employment with Good Reason, then provided
that Mr. Lucia executes and does not revoke a separation agreement and release, and complies with his Restrictive Covenants Agreement,
(i) he will be entitled to receive cash severance in an amount equal to (a) 24 times his monthly base salary paid ratably in equal
installments over a 24 month period (unless his termination/resignation is in connection with a Change in Control, in which case
the payment will be in a single lump sum), and (b) twice his bonus component that will vary depending upon whether the bonus for
the year of termination is intended to be “performance-based” compensation and performance is satisfied, in which case
it will be paid when bonuses are paid to our other senior executive officers, or whether the bonus is under a different program,
in which case it will be his target bonus and will be paid on the same schedule as (a) above (unless his termination/resignation
is in connection with a Change in Control, in which case the payment will be in a single lump sum), (ii) he will be entitled to
continued health coverage for 24 months or until he becomes eligible for health coverage from another employer, whichever is earlier,
and (iii) he will be treated as continuing in service for purposes of the vesting of any equity award until the earliest of: (x)
the end of the Noncompetition Period (as defined in Mr. Lucia’s Restrictive Covenants Agreement), (y) the last of the applicable
vesting dates under such awards, or (z) the termination or violation of the Restrictive Covenants Agreement.
In addition, if we terminate Mr. Lucia’s employment
without Cause or Mr. Lucia resigns for Good Reason, and such termination occurs within a six-month period before a Change in Control,
Mr. Lucia will receive a cash payment equal to the excess of the amount he would have received for such equity awards if he were
continuing in service as of the date of the Change in Control and terminated immediately thereafter over the amount actually received,
paid in a single lump sum payment at the time provided in the agreement. In the event that any payments and benefits, including
any benefits provided to Mr. Lucia or for Mr. Lucia’s benefit under the agreement or any other company plan or agreement,
become subject to the excise tax under Section 4999 of the Code, such payments and benefits will be “cut-back” to an
amount that is less than such amount that would cause the excise tax to the extent that such reduction would result in Mr. Lucia
retaining a larger amount on an after-tax basis.
| 2019 Proxy Statement 65 |
EMPLOYMENT
AGREEMENTS WITH OTHER NAMED EXECUTIVE OFFICERS
The employment agreements with Ms. Neuman, Mr. O’Gara,
Mr. Sherman and Mr. Williams are at-will, subject to certain notice and/or severance provisions. These employment agreements set
forth the annual base salary for each named executive officer as follows: (i) Ms. Neuman at $515,000, (ii) Mr. O’Gara at
400,000, (iii) Mr. Sherman at $530,450, and (iv) Mr. Williams at $515,000, subject to increase from time to time by the Board or
the Compensation Committee. In addition, under the terms of these agreements, the named executive officers are eligible to receive
bonus compensation from us in respect of each fiscal year (or portion thereof) during the term of their employment, in each case
as may be determined by our Compensation Committee in its sole discretion on the basis of such performance-based or other criteria
as it determines appropriate. The target bonus opportunity for each named executive officer other than the CEO for 2018, expressed
as a percentage of annual base salary, was as follows: (i) Ms. Neuman 65%, (ii) Mr. O’Gara 65%, (iii) Mr. Sherman 75%, and
(iv) Mr. Williams 65%.
In the event any of these named executive officers
is terminated without Cause or resigns for Good Reason, or if such termination without Cause or resignation for Good Reason occurs
within 24 months following a Change in Control, then provided that such named executive officer executes and does not revoke a
separation agreement and release and complies with the Restrictive Covenants Agreement, the executive would be entitled to receive
(i) cash severance in an amount equal to 12 times the executive’s monthly base salary paid ratably in equal installments
over a 12 month period (or, if the termination occurs within 24 months following a Change in Control, in a single lump sum payment)
and (ii) a lump sum amount equal to 12 times the difference between the monthly COBRA coverage premium for the same type of medical
and dental coverage (single, family, or other) in which the executive is enrolled as of the date employment ends and his or her
then-monthly employee contribution, which amount may be used for any purpose.
Restrictive
Covenants Agreements
We also have entered into a Noncompetition, Nonsolicitation,
Proprietary and Confidential Information and Developments Agreement (the “Restrictive Covenants Agreement”) with each
of our named executive officers. Under the terms of the Restrictive Covenants Agreements, in Mr. Lucia’s case, for the 24
months following the termination of his employment for any reason, and in the case of the other named executive officers, for the
12 months following the termination of employment for any reason, the named executive officer is generally prohibited from
(i) engaging or assisting others in engaging in any business or enterprise in the United States that competes with HMS’s
business, products or services, (ii) soliciting or diverting, or attempting to solicit or divert, the business of any of HMS’s
current or prospective clients, (iii) (a) soliciting, recruiting or inducing, or attempting to solicit, recruit or induce, any
company employee or independent contractor to leave HMS’s service or (b) soliciting, recruiting, hiring or engaging
as an employee or independent contractor, or attempting to solicit, recruit, hire or engage as an employee or independent contractor,
any company employee or independent contractor, and (iv) disclosing or utilizing for the benefit of any entity other than HMS,
any system or product development ideas discussed or explored, even if not implemented, during the named executive officer’s
employment with HMS. The Restrictive Covenants Agreements also set forth certain obligations with respect to proprietary and confidential
information and developments and inventions.
Equity
Incentive Plans
All named executive officers participated in the
Company’s equity plans in 2018.
With respect to stock awards and option awards under
the 2006 Stock Plan, the 2016 Omnibus Plan, and the related award agreements, such awards generally require that the named executive
officer remain employed by the Company (or continue to serve on the Board if no longer employed by the Company) during the period
designated by the Compensation Committee, subject to acceleration of vesting or continued vesting of equity awards in the termination
scenarios described in the table under “Potential Payments Upon Termination of Employment or Change in Control.” If
the named executive officer’s employment or Board membership ends before the designated period for any reason (other than
upon death, Disability, Retirement, termination without Cause or resignation for Good Reason following a Change in Control, or
as otherwise specified in the executive’s employment agreement), all unvested restricted stock units will be forfeited and
all unexercisable portions of option awards will expire immediately. If we terminate the named executive officer’s employment
or Board membership for Cause, all stock awards and option awards will immediately terminate without regard to whether such awards
are vested or exercisable, respectively.
| 2019 Proxy Statement 66 |
If the named executive officer’s employment
is terminated as a result of death, all outstanding stock awards will immediately vest and all option awards will become vested
and fully exercisable upon termination pursuant to the terms of the applicable award agreements. If the named executive officer’s
employment is terminated as a result of Retirement (except with respect to a termination upon Retirement within 24 months after
a Change in Control, in which case restricted stock units are treated as described below), the named executive officer will be
treated as continuing in service for vesting purposes and the vested portion of options shall remain exercisable until the second
anniversary of such executive’s Retirement, or until the last applicable vesting date or option expiration date under the
applicable award agreement, whichever is sooner. Under the award agreements, “Retirement” means cessation of employment
on or after attaining the age of 60 and having at least 5 years of continuous service with the Company.
Upon a Change in Control, and unless provided otherwise
in the terms of an award agreement or employment agreement, awards granted under the 2006 Stock Plan and the 2016 Omnibus Plan
vest on an accelerated basis only if a qualifying termination occurs during the 24-month period following the Change in Control.
In this case, (i) restricted stock unit awards will immediately vest and become free of restrictions, (ii) outstanding option awards
which are not then vested and exercisable will become immediately fully vested and exercisable and will remain exercisable for
12 months following the qualifying termination, but not beyond the option expiration date set forth in the applicable award
agreement, and (iii) performance-based awards will be considered to be earned and payable in full, based on the applicable performance
criteria or, if not determinable, at the target level, and any restriction will lapse and the performance based awards will be
immediately settled or distributed. To the extent an award under the 2016 Omnibus Plan is not assumed or substituted in a Change
in Control, accelerated vesting generally occurs immediately prior to the Change in Control and any performance-based award will
be deemed fully earned at the target amount as of the date on which the Change in Control occurs.
Key
Definitions
The capitalized terms used in the sections under
the headings “Potential Payments Upon Termination of Employment or Change in Control” and “Executive Employment
Agreements” are defined as below. These definitions are subject to further limitations if necessary to conform to Section
409A of the Code.
“Cause”
| § | Under the employment agreements for each of the named executive officers, “Cause” means:
(i) fraud with respect to HMS or any of its subsidiaries and affiliates; (ii) material misrepresentation to any regulatory agency,
governmental authority, outside or internal auditors, internal or external company counsel, or the Board concerning the operation
or financial status of HMS or of any of its subsidiaries and affiliates; (iii) theft or embezzlement of assets of HMS or any of
its subsidiaries or affiliates; (iv) conviction, or plea of guilty or nolo contendere to any felony (or to a felony charge reduced
to a misdemeanor), or, with respect to the named executive officer’s employment, to any misdemeanor (other than a traffic
violation); (v) material failure to follow HMS’s conduct and ethics policies that have been provided or made available to
the named executive officer; (vi) a material breach of the named executive officer’s employment agreement or Restrictive
Covenants Agreement; and/or (vii) continued failure to attempt in good faith to perform his/her duties as reasonably assigned by
the Board, in Mr. Lucia’s case, or by his/her supervisor in the case of the other named executive officers. Certain of the
foregoing definitions permit the named executive officer to attempt to cure the grounds for Cause prior to termination. |
| 2019 Proxy Statement 67 |
| § | Under the 2006 Stock Plan and the related award agreements, “Cause” is equated with “gross
misconduct,” and is determined by the Compensation Committee or our Board. |
| § | Under the related award agreements to the 2016 Omnibus Plan, “Gross Misconduct” is equated
with “Cause” as defined in the employment agreements for the named executive officers. For participants that have not
entered into employment agreements with HMS, “Gross Misconduct” means, for purposes of these awards, a conviction of
any felony, or a misdemeanor with respect to the participant’s employment, or the entering of a plea guilty or nolo contendere
to such charge, the embezzlement or theft of HMS property, or a violation of a restrictive covenants or similar agreement with
HMS. |
“Change
in Control”
| § | Under the employment agreements and the terms of the 2006 Stock Plan and the 2016 Omnibus Plan, a
“Change in Control” generally occurs, subject to specific exceptions, when: |
| - | a person or group beneficially owns 50.01% or more of our outstanding shares of common stock or the
combined voting power of outstanding company securities entitled to vote in the election of directors; |
| - | there is a merger, consolidation, reorganization, recapitalization or share exchange involving HMS
or a sale or other disposition of all or substantially all of HMS’s assets, unless, immediately after the transaction (i)
all or substantially all of the beneficial owners of HMS’s outstanding common stock and outstanding voting securities prior
to the transaction own, directly or indirectly, more than 50% of such securities after the transaction in substantially the same
proportions as their initial ownership and (ii) no person beneficially owns 50.01%, or more of the outstanding shares of common
stock or voting securities of the acquiring corporation (unless such ownership level existed prior to the transaction); or |
| - | during any one year-period, the individuals who are the continuing directors (as determined under
the 2016 Omnibus Plan) cease for any reason to constitute a majority of the Board or the Board of a successor corporation. |
“Disability”
| § | Under the employment agreements, “Disability” exists when the Company determines that
based upon appropriate medical evidence, the named executive officer has become physically or mentally incapacitated so as to render
such executive incapable of performing the executive’s usual and customary duties, with or without a reasonable accommodation,
for at least 180 days , whether or not consecutive, during any 12-month period, or if the named executive officer is found to be
disabled within the Company’s long-term disability insurance as then in effect. |
| § | Under the related award agreements to the 2006 Stock Plan and the 2016 Omnibus Plan, “Disability”
means permanent and total disability as defined by Section 22(e)(3) of the Code. |
“Good
Reason”
| § | Under the employment agreements, “Good Reason” means, the occurrence, without the named
executive officer’s prior written consent, of any of the following events: (i) a material diminution in his/her authority,
duties or responsibilities (in Mr. Lucia’s case, other than in connection with a portion of his authority, duties or responsibilities
being assigned to or carried out by a President); (ii) a requirement that, in Mr. Lucia’s case, he report to an officer rather
than to the Board, and in the case of the other named executive officers, that they report to a new supervisor who has materially
diminished authority, duties or responsibilities in comparison to his/her previous supervisor; (iii) a material reduction in the
named executive officer’s base salary; (iv) HMS’s requiring, (a) in the case of Messrs. Lucia, Sherman and Williams
and Ms. Neuman, that they perform their principal services in a geographic area more than 50 miles from HMS’s offices in
Irving, Texas, or such other place at which they have agreed to provide such services, and (b) in the case of Mr. O’Gara,
that he performs his principal services primarily in a geographic area more than 50 miles from HMS’s offices in Danvers,
Massachusetts, or such other place of primary employment at which they have agreed to provide such services; or (v) a material
breach by HMS of any material provision of the named executive officer’s employment agreement. Good Reason is also subject
to certain timing restrictions and our ability to cure the proposed Good Reason. |
| 2019 Proxy Statement 68 |
CEO
Pay Ratio
As required by Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and Item 402(u)
of Regulation S-K, we are providing the following information about the relationship of the annual total compensation of our employees
and the annual total compensation of Mr. Lucia, our CEO. There has been no change in our employee population or employee compensation
arrangements since 2017 that we believe would significantly impact the pay ratio disclosure for 2018; therefore, the same median
employee was used to calculate the pay ratio for 2017 and 2018. |
![](http://www.sec.gov/Archives/edgar/data/1196501/000117184319002384/ceo_ratio.jpg) |
We estimate that for 2018, our last completed fiscal
year:
| § | the median of the annual total compensation of all employees of our Company (other than our CEO) was
$85,829;
|
| § | the annual total compensation of our CEO, as reported in the Summary Compensation Table included elsewhere
in this Proxy Statement, was $4,805,482; and |
| § | the ratio of the annual total compensation of Mr. Lucia, our Chief Executive Officer, to the median
of the annual total compensation of all employees was 56 to 1. |
In 2017, to identify the median of the annual total
compensation of all our employees, we compared the total gross wages, calculated as described below, for all individuals (other
than the CEO) who were employed by us and our subsidiaries on December 17, 2017, the last day of our payroll year. We selected
December 17, 2017 as the date upon which we would identify the “median employee” because it enabled us to make such
identification based on payroll records as reported to the Internal Revenue Service on Form W-2 for 2017. We included all active
employees, including full-time, part-time and temporary employees, all of whom are located in the United States.
We used total gross wages, less certain immaterial
adjustments, as a compensation measure because we believe it reasonably reflects the total annual compensation of our employees
and can be consistently applied to all of our employees included in the calculation in an efficient and economical manner. For
purposes of identifying the median employee, we annualized the base salaries of the permanent employees (full-time and part-time)
who were employed by us on December 17, 2017 but did not work for us for the entire fiscal year. The resulting total gross wages
calculated for all employees (other than the CEO) were sorted from high to low, and the median employee was identified.
Once we identified our median employee, we calculated
annual total compensation for such employee using the same methodology we use for our named executive officers as set forth in
the Summary Compensation Table. This calculation revealed certain anomalies in the compensation of the median employee that would
have had a significant impact on the pay ratio since the median employee worked for us for approximately seven months during 2017.
Therefore, we substituted another employee with substantially similar compensation to the original median employee based on total
gross wages calculated as discussed above, the same compensation measure we used to identify the original median employee. For
the substituted median employee, we calculated annual total compensation for such employee for 2018 using the same methodology
we use for our named executive officers as set forth in the Summary Compensation Table. With respect to the annual total compensation
of our CEO, we used the amount reported in the “Total” column of our 2018 Summary Compensation Table included in this
Proxy Statement.
| 2019 Proxy Statement 69 |
The
pay ratio included in this information is a reasonable estimate calculated in a manner consistent with Item 402(u) of Regulation
S-K. SEC rules for identifying the median compensated employee and calculating the pay ratio allow companies to adopt a variety
of methodologies and apply various assumptions. As a result, the pay ratio reported by other companies may not be comparable with
the pay ratio that we have reported. A multitude of factors that could cause ratios to be less meaningful for company-to-company
comparisons include the following, among others:
| § | Differences
in industry and business type; |
| § | Variations
in the way companies organize their workforces to accomplish similar tasks; |
| § | Differences
in the geographical distribution of employees; |
| § | Degree
of vertical integration; |
| § | Reliance
on contract and outsourced workers; and |
| 2019 Proxy Statement 70 |
PROPOSAL
TWO: ADVISORY APPROVAL OF EXECUTIVE COMPENSATION
We are providing our shareholders the opportunity
to vote to approve, on an advisory basis, the compensation of Messrs. Lucia, O’Gara, Sherman and Williams and Ms. Neuman,
whom we refer to as our named executive officers and whose compensation is disclosed in this Proxy Statement in accordance with
the SEC’s rules, for fiscal 2018. This proposal, which is commonly referred to as “say-on-pay,” is required by
the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which added Section 14A to the Exchange Act.
Our Board is asking shareholders for advisory approval
of our 2018 executive compensation as described in this Proxy Statement:
RESOLVED, that the compensation paid to the
Company’s named executive officers, as disclosed pursuant to the compensation disclosure rules of the Securities and Exchange
Commission, including the Compensation Discussion and Analysis, the compensation tables and any related material disclosed in the
proxy statement for the Company’s 2019 Annual Meeting of Shareholders, is hereby approved.
Our executive compensation program is designed to
attract, develop, motivate, and retain talented executives to lead our business. Under this program, our executive officers are
rewarded for the achievement of our near-term and longer-term financial and strategic goals and for driving corporate financial
performance and stability. The program contains elements of cash and equity-based compensation and is designed to align the interests
of our executives with those of our shareholders.
As we describe in the CD&A, “pay-for-performance”
is the underlying philosophy for our executive compensation program. The program is designed and administered to align the interests
of our senior executives with the interests of our shareholders, thus rewarding individual and team achievements that contribute
to the attainment of our business goals; and to provide a balance of total compensation opportunities, including salary and short-term
and long-term cash and equity incentives that are competitive with similarly situated companies and reflective of our performance.
The Board believes this link between compensation and the achievement of our near- and long-term business goals has helped
drive our performance over time. At the same time, we believe our program does not encourage excessive risk-taking by management.
Shareholder
Outreach
As discussed above under "Shareholder Outreach
Regarding Executive Compensation," in 2017, we reached out to a number of our largest institutional shareholders to solicit
their points of view on topics of importance to them, including executive compensation matters, and received constructive feedback
related to our executive compensation program. We highly value the opinions of our shareholders, and the insight gained through
our engagement process regarding our shareholders’ views of our executive compensation program contributed to the Compensation
Committee’s decision-making process for 2018.
We are committed to continuing our engagement with
our shareholders from time to time on matters of executive compensation and corporate governance. As discussed above under "Shareholder
Outreach Regarding Executive Compensation", we continued our shareholder outreach efforts in 2018. As our shareholders’
views and market practices on executive compensation evolve, the Compensation Committee will continue to evaluate and, if needed,
make changes to our executive compensation program, ensuring that the program continues to reflect our pay-for-performance compensation
philosophy and objectives.
Effect
of Your Vote on This Proposal
As an advisory vote, the results of the vote on this
proposal are not binding and thus do not overrule any decision by HMS or the Board (or any committee thereof), or create or imply
any change or addition to the fiduciary duties of HMS or the Board (or any committee thereof). However, our Compensation Committee
and Board of Directors value the opinions expressed by our shareholders in their vote on this proposal and will consider the outcome
of the vote when making future executive compensation decisions.
| 2019 Proxy Statement 71 |
PROPOSAL TWO: ADVISORY APPROVAL OF EXECUTIVE COMPENSATION |
Vote
Required
The affirmative vote of a majority of the votes cast
at the 2019 Annual Meeting on such matter (and voting affirmatively or negatively) is required to approve, on an advisory basis,
our 2018 executive compensation as reported in this Proxy Statement.
The Board of Directors recommends
a vote “FOR” the proposal to approve, on an advisory basis, the 2018 compensation for our named executive officers.
| 2019 Proxy Statement 72 |
PROPOSAL
THREE: APPROVAL OF THE 2019 OMNIBUS INCENTIVE PLAN
In April 2019, our Board of Directors voted unanimously
to approve, and to recommend to our shareholders that they approve, the 2019 Omnibus Incentive Plan (as amended from time to time,
the “2019 Omnibus Plan”).
Rationale
for the 2019 Omnibus Plan
The Compensation Committee of the Board of Directors
reviewed our 2016 Omnibus Plan, which is the only plan under which equity-based compensation may currently be awarded to our employees
and non-employee directors. Based on this review, the Compensation Committee determined that it is in the best interest of the
Company and our shareholders to increase the number of shares available for equity awards to provide the Company with the flexibility
to execute on its strategic and growth priorities. If the 2019 Omnibus Plan is approved by our shareholders, the 2019 Omnibus Plan
will become effective on May 22, 2019, and no further awards will be made under the 2016 Omnibus Plan. If our shareholders do not
approve the 2019 Omnibus Plan, the 2016 Omnibus Plan will remain in effect in its current form, subject to its expiration date
and with its current share reserve.
The Board believes that the adoption of the 2019
Omnibus Plan would provide HMS with additional flexibility to continue to attract, retain and motivate employees, to utilize equity
awards, including performance awards, and to further align the interests of our employees and non-employee directors with those
of our shareholders.
The 2019 Omnibus Plan contains key features to protect
the interests of our shareholders, which include the following:
| § | No Evergreen Share Increases: There is no annual increase
in the number of shares available for issuance under the 2019 Omnibus Plan. |
| § | No Liberal Share Recycling of Options or Stock Appreciation Rights:
The 2019 Omnibus Plan does not allow, with respect to options and stock appreciation rights, the reuse of shares withheld or delivered
to satisfy the exercise price or tax obligations. |
| § | Individual Participant Limits: Limitations apply to the
number of awards an individual participant may receive in a given fiscal year under the 2019 Omnibus Plan. |
| § | No Discount Options or Stock Appreciation Rights: The exercise
price of options and stock appreciation rights must equal at least 100% of the fair market value of the underlying common shares
on the date of grant, except in the case of substitute awards granted to employees of an acquired company. |
| § | Double-trigger vesting upon a Change in Control; No “liberal”
Change in Control definition. Awards granted under the 2019 Omnibus Plan are subject to double-trigger vesting provisions
upon a change in control. This means that rather than vesting automatically upon a change in control, such awards will be subject
to accelerated vesting only in the event of a qualifying termination following a change in control or in the event the acquiring
company does not assume the award. The change in control definition in the 2019 Omnibus Plan is not “liberal” and,
for example, would not occur merely upon shareholder approval of a transaction. A change in control must actually occur in order
for the change in control provisions in the 2019 Omnibus Plan to be triggered. |
| § | No Repricing: Except in connection with equitable adjustments
or upon a change in control, we are not permitted to reduce the exercise price, reprice or provide cash payment for underwater
stock options or stock appreciation rights without shareholder approval. |
Immediately following this proposal is a summary
of the material provisions of the 2019 Omnibus Plan. This description is qualified in its entirety by the full text of the 2019
Omnibus Plan, which is included as ANNEX B to this Proxy Statement. Shareholders may request a copy of the 2019 Omnibus
Plan by sending a written request to our Corporate Secretary.
| 2019 Proxy Statement 73 |
PROPOSAL THREE: APPROVAL OF THE 2019 OMNIBUS INCENTIVE PLAN |
Summary
of Key Stock Plan Data
In its determination to recommend that the Board
approve the 2019 Omnibus Plan, the Compensation Committee reviewed the analysis prepared by FW Cook, its independent compensation
consultant, which included a summary of the plan terms and the share usage, overhang and dilution metrics set forth below, as well
as market practices and trends and the cost of the 2019 Omnibus Plan. FW Cook's analysis, which is based on generally accepted
evaluation methodologies used by proxy advisory firms, concluded that the number of shares under the 2019 Omnibus Plan is well
within generally accepted standards as measured by an analysis of the plan cost relative to industry standards. The Board reviewed
the analysis prepared by FW Cook as well as the proposed plan terms and the description provided herein in approving the 2019 Omnibus
Plan.
In light of the factors described above, and the
importance of the ability to continue to grant equity compensation in order to attract, retain and motivate employees, the Board
has determined that the size of the share reserve under the 2019 Omnibus Plan is reasonable and appropriate.
Share
Usage
The following table sets forth information regarding
the number of common shares subject to stock-settled, time-vested equity awards granted, and the number of common shares subject
to performance-based equity awards granted and earned, over each of the last three fiscal years:
|
2018 |
2017 |
2016 |
3-Year Average |
Stock Options/Stock Appreciation
Rights (SARs) Granted |
1,010,000 |
|
1,003,000 |
|
1,078,000 |
|
Stock-Settled Full-Value
Shares/Units Granted |
766,000 |
|
612,000 |
|
637,000 |
|
Weighted-Average Basic Common Shares Outstanding |
83,625,464 |
|
83,821,000 |
|
84,221,000 |
|
Share Usage
Rate |
2.1% |
|
1.9% |
|
2.0% |
|
2.0% |
|
|
|
|
|
|
Overhang
as of March 5, 2019
The following table sets forth certain information
as of March 5, 2019, unless otherwise noted, with respect to the Company’s equity compensation plans:
Stock
Options/SARs Outstanding |
3,926,621 |
|
Weighted-Average Exercise
Price of Outstanding Stock Options/SARs |
$23.05 |
|
Weighted-Average Remaining
Term of Outstanding Stock Options/SARs |
4.72 years |
|
Total Stock-Settled Full-Value
Awards Outstanding |
1,332,778 |
|
Proposed share reserve under the 2019 Omnibus
Plan(1) |
9,100,000 |
|
Basic
common shares outstanding as of the Record Date (March 28, 2019) |
87,081,712 |
|
| (1) | The
proposed share reserve is subject to reduction for any awards granted under the 2016
Omnibus Plan after March 5, 2019. Upon shareholder approval of the 2019 Omnibus Plan,
no further awards will be made under the 2016 Omnibus Plan. As of March 5, 2019, there
were 3,863,114 shares available for issuance under the 2016 Omnibus Plan that were not
subject to outstanding awards. |
Dilution
and Expected Duration
Our Board recognizes the impact of dilution on our
shareholders and has evaluated this share request carefully in the context of the need to attract, motivate, retain and ensure
that our leadership team and key employees are focused on our strategic priorities. The total fully-diluted overhang as of March
5, 2019, assuming that the entire share reserve is granted in stock options or SARs, would be 14.2% and the total fully-diluted
overhang, assuming the share reserve is granted in full-value awards only, would be 11.5%. The Company’s historical practice,
has been to grant a combination of stock options and full-value awards, resulting in potential overhang between these two levels.
In this context, fully-diluted overhang is calculated as the sum of grants outstanding and shares available for future awards (numerator)
divided by the sum of the numerator and basic common shares outstanding, with all data effective as of March 5, 2019. Our Board
believes that the proposed share reserve represents a reasonable amount of potential equity dilution to accommodate our long-term
strategic and growth priorities.
| 2019 Proxy Statement 74 |
PROPOSAL THREE: APPROVAL OF THE 2019 OMNIBUS INCENTIVE PLAN |
We expect that the share reserve under the 2019 Omnibus
Plan, if this proposal is approved by our shareholders, will be sufficient for awards for approximately five years. Expectations
regarding future share usage could be impacted by a number of factors such as award type mix; hiring and promotion activity at
the executive level; the rate at which shares are returned to the 2019 Omnibus Plan's reserve under permitted addbacks; the future
performance of our stock price; the consequences of acquiring other companies; and other factors. While we believe that the assumptions
we used are reasonable, future share usage may differ from current expectations.
Implementing
the 2019 Omnibus Plan
If this proposal is approved at the 2019 Annual Meeting,
the 2019 Omnibus Plan, in the form attached hereto as ANNEX B, will become effective and will supersede and replace the
2016 Omnibus Plan. If the proposal is not approved at the 2019 Annual Meeting, then the 2016 Omnibus Plan will continue as currently
in effect.
The Board of Directors unanimously
recommends a vote “FOR” the proposal to approve the 2019 Omnibus Incentive Plan.
| 2019 Proxy Statement 75 |
PROPOSAL THREE: APPROVAL OF THE 2019 OMNIBUS INCENTIVE PLAN |
Summary
of the 2019 Omnibus Plan
Term |
Description |
Defined Terms |
All terms used in this summary and not otherwise defined herein shall have the meanings ascribed to them in the 2019 Omnibus Plan, included as ANNEX B to this Proxy Statement. |
Plan Term |
The 2019 Omnibus Plan, if approved by our shareholders, will expire on May 22, 2029. However, the 2019 Omnibus Plan may be terminated earlier by the Board. |
Eligibility for Grants |
All employees of HMS and its affiliates, as well as HMS’s non-employee directors, are eligible to participate in the 2019 Omnibus Plan and are referred to as Participants. As of April 1, 2019, there were 2,453 employees and 7 non-employee directors eligible to participate in the 2019 Omnibus Plan. |
Awards Available |
§ Incentive and Nonqualified Stock Options (Options);
§ Stock Appreciation Rights (SARs);
§ Restricted Stock Awards and Restricted Stock Unit Awards;
§ Performance Shares and Performance Units (Performance Awards);
§ Other Share-Based Awards; and
§ Cash Awards |
Shares Authorized |
9,100,000 common shares, less one share for every share subject to an Option or SAR granted under the 2016 Omnibus Plan after March 5, 2019, and 1.5 shares for every one share subject to Awards other than Options and SARs granted under the 2016 Omnibus Plan after March 5, 2019. Authorized Shares are counted and subject to adjustments, as described below. |
Share Counting Method |
§ Stock Options and SARs count as one share.
§ Restricted Stock Awards, Restricted Stock Unit Awards, Performance Shares and Other Share-Based Awards count as 1.5
shares.
§ The following shares shall not be added to the number of shares authorized: shares tendered or withheld in payment
of the exercise price of an Option; shares withheld to satisfy tax withholding obligations with respect to Options and SARs; shares
subject to SARs that are not issued in connection with its stock settlement on exercise thereof; and shares reacquired by HMS on
the open market (or otherwise) using the cash proceeds of Option exercises.
§ All shares covered by a stock-settled SAR, proportionate to the extent exercised, are counted against the number
of shares authorized, not just the net shares issued upon exercise.
§ Shares not purchased or awarded under a terminated, lapsed or forfeited Award and shares not issued under an Award
that is settled in cash may be used for further Awards under the 2019 Omnibus Plan; the shares will be added back for each such
share as one share if they were subject to an Option or a SAR, and as 1.5 shares if they were subject to a Restricted Stock Award,
Restricted Stock Unit Award, Performance Share or Other Share-Based Award. |
| 2019 Proxy Statement 76 |
PROPOSAL THREE: APPROVAL OF THE 2019 OMNIBUS INCENTIVE PLAN |
Term |
Description |
|
§ Shares withheld to satisfy tax withholding obligations with respect to Awards other than Options and SARs will be
added back as 1.5 shares for each share tendered or withheld.
§ The add backs contemplated under the immediately preceding two bullets shall also apply to awards that are outstanding
after March 5, 2019 under the 2016 Omnibus Plan and any other predecessor plans.
§ Substitute awards issued in connection with acquiring other companies shall neither increase nor decrease the shares
authorized under the 2019 Omnibus Plan. |
Individual Limitations |
The following limits will apply to awards of the
specified type granted to any one Participant in any single fiscal year:
(x) Appreciation Awards – Options
and SARs: 1,500,000 shares;
(y) Full Value Awards – Restricted
Stock Awards, Restricted Stock Unit Awards, Performance Shares and Dividend Equivalents: 1,000,000 shares; and
(z) Cash Awards – Performance Units:
$5,000,000.
In applying the foregoing limits, (a) all Awards
of the specified type granted to the same Participant in the same fiscal year will be aggregated and made subject to the applicable
limit; (b) the limits applicable to Options and SARs refer to the number of Shares subject to those Awards; (c) the Share limit
under clause (y) refers to the maximum number of Shares that may be delivered under an Award or Awards of the type specified in
clause (y) assuming a maximum payout; (d) the dollar limit under clause (z) refers to the maximum dollar amount payable under an
Award or Awards of the type specified in clause (z) assuming a maximum payout. The limit specified for Cash Awards is in addition
to, and not in replacement of or counted into, the dollar value limit on awards made to any Participant in a 12-month period under
the AIP, as may be amended from time to time. |
Non-Employee Director Awards |
The maximum number of Shares subject to Awards granted during a single fiscal year to any non-employee Director, taken together with any cash fees paid to such non-employee Director during the fiscal year in respect of the non-employee Director’s service as a member of the Board during such year (including, without limitation, service as a member or chair of any committee of the Board), shall not exceed $500,000 in total value (calculating the value of any such Awards based on the grant date fair value of such Awards for financial reporting purposes). The Compensation Committee may make exceptions to this limit for a non-executive chair of the Board or, in extraordinary circumstances, for other individual non-employee directors, as the Committee may determine in its discretion, provided that the non-employee director receiving such additional compensation may not participate in the decision to award such compensation. |
Repricing Prohibited |
Unless approved by our shareholders or otherwise
specifically provided under the 2019 Omnibus Plan, HMS may not, with respect to any outstanding Option or SAR granted, take any
of the following actions:
§ amend the Option or SAR to provide an exercise or measurement price per share that is lower than the then-current
exercise or measurement price per share; |
| 2019 Proxy Statement 77 |
PROPOSAL THREE: APPROVAL OF THE 2019 OMNIBUS INCENTIVE PLAN |
Term |
Description |
|
§ cancel the Option or SAR and grant in substitution new Awards under the 2019 Omnibus Plan covering the same or a
different number of shares having an exercise or measurement price per share that is lower than the then-current exercise price
or measurement price per share of the cancelled Option or SAR;
§ cancel for cash any Options or SARs that have exercise or measurement prices per share above the then-current fair
market value; or
§ take any other action that constitutes “repricing” within the meaning of the Nasdaq rules. |
Special Provisions for Options |
|
Number Granted |
As determined by the Compensation Committee. |
Exercise Price |
Not less than fair market value of a share of
stock on grant date (other than in the case of substitute awards).
§ The fair market value is closing price of our common stock as reported on the Nasdaq Global Select Market on the
grant date, provided that the 2019 Omnibus Plan also permits the use of other times of day to the extent appropriate because of
exchange or market procedures or the use of weighted averages either on a daily basis or such longer period as complies with Section
409A of the Code. |
Vesting and Exercise Periods |
As determined by the Compensation Committee. However:
§ If a Participant’s employment or Board service is terminated for gross misconduct, as determined by HMS, all
rights under the Option expire immediately.
§ The term of Options generally may not exceed ten years, except at the discretion of the Compensation Committee for
a limited period (not more than 30 days) following the lifting of a black-out period or lock-up agreement. |
Limits on Incentive Stock Options (ISOs) |
The maximum number of shares of stock that may be
granted in the form of ISOs is 9,100,000 shares. In general, ISOs must satisfy requirements prescribed by the Code to qualify for
special tax treatment. Therefore, among other requirements,
§ No employee may receive a grant of ISOs for stock that would have an aggregate fair market value in excess of $100,000
(or such other amount as the Internal Revenue Service may decide from time to time), determined when the ISO is granted, that would
be exercisable for the first time during any calendar year.
§ If any grant is made in excess of the limits provided in the Code, the grant automatically becomes a Nonqualified
Stock Option. |
Dividends/Dividend Equivalents |
Dividends and dividend equivalents may not be paid on Options. |
| 2019 Proxy Statement 78 |
PROPOSAL THREE: APPROVAL OF THE 2019 OMNIBUS INCENTIVE PLAN |
Term |
Description |
Special Provisions for SARs |
SARs may be paid in shares, cash or a combination
of shares and cash, as determined by the Compensation Committee.
Upon exercise of a SAR, the SAR grantee will receive
an amount equal to the excess of the fair market value of the shares on the date the election to surrender is received by HMS,
over the fair market value of the shares on the date of grant multiplied by the number of shares covered by the grant of the SAR. |
Number Granted |
Determined by the Compensation Committee. |
Dividends and Dividend Equivalents |
Dividends and dividend equivalents may not be paid on SARs. |
Vesting and Exercise Periods |
As determined by the Compensation Committee. However, the term of SARs generally may not exceed ten years, except at the discretion of the Compensation Committee for a limited period (not more than 30 days) following the lifting of a black-out period or lock-up agreement. |
Special Provisions for Restricted Stock Awards and Restricted Stock Unit Awards |
Restricted Stock Awards: actual shares of common
stock may be granted subject to the terms and conditions as the Compensation Committee prescribes.
Restricted Stock Unit Awards: units valued by reference
to shares of common stock may be granted subject to the terms and conditions as the Compensation Committee prescribes. |
Number Granted |
As determined by the Compensation Committee. |
Employment or Board Membership Required |
Grantees generally must remain employed or serve
as Board members during a period designated by the Compensation Committee (the Restricted Period) to vest in or receive the shares,
cash or combination thereof under the Restricted Stock Award or Restricted Stock Unit Award.
If employment or Board membership ends before the
Restricted Period ends, the Restricted Stock Award or Restricted Stock Unit Award will terminate.
However, the Compensation Committee may, at the time
of the grant, provide for the employment or Board membership restriction to lapse with respect to a portion or portions of the
Restricted Stock Award or Restricted Stock Unit Award at different times during the Restricted Period. The Compensation Committee
may, in its discretion, also provide for complete or partial exceptions to the employment or Board membership restriction as it
deems equitable. |
Lapse of Restrictions |
All restrictions imposed under the Restricted Stock Award or Restricted Stock Unit Award lapse upon the expiration of the Restricted Period if the conditions described above have been met. |
Form of Grant |
Restricted Stock Awards are shares of common stock.
Restricted Stock Unit Awards are units valued by reference to shares of common stock.
Restricted Stock Awards will be settled in shares
of common stock. Payouts of Restricted Stock Unit Awards may be in the form of shares of common stock, cash or any combination
of shares and cash as determined by the Compensation Committee. |
| 2019 Proxy Statement 79 |
PROPOSAL THREE: APPROVAL OF THE 2019 OMNIBUS INCENTIVE PLAN |
Term |
Description |
Dividends and Dividend Equivalents |
Restricted Stock Awards will accrue cash dividends and Restricted Stock Unit Awards may accrue dividend equivalents, with payment in each case subject to the vesting of the underlying awards. Notwithstanding any other provision of the Plan to the contrary, with respect to any Restricted Stock Award or Restricted Stock Unit Award that provides for or includes a right to dividends or Dividend Equivalents, if dividends are declared during the period that such Restricted Stock Award or Restricted Stock Unit Award is outstanding, such dividends or Dividend Equivalents shall not be paid to a Participant unless and until the Restricted Stock Award or Restricted Stock Unit Award to which they relate has vested. |
Special Provisions for Performance Awards |
The Compensation Committee will determine the period for which a Performance Award is made, which is referred to as the Award Period, and the Performance Goals. Recipients of Performance Awards must remain employees throughout the Award Period. |
Number Granted |
As determined by the Compensation Committee. |
Performance Goals |
Performance Goals shall be based on attainment of one or any combination of the following performance criteria, which may include, without limitation: net sales; revenue; revenue growth or product revenue growth; operating income (before or after taxes); pre- or after-tax income (before or after allocation of corporate overhead and bonuses); earnings per share; net income (before or after taxes); return on equity; total shareholder return; return on assets or net assets; appreciation in and/or maintenance of the price of the shares or any other publicly-traded securities of HMS; market share; gross profits; earnings (including earnings or losses before taxes, before interest and taxes, or before interest, taxes, depreciation and amortization); economic value-added models or equivalent metrics; comparisons with various stock market indices; reductions in costs; cash flow or cash flow per share (before or after dividends); return on capital (including return on total capital or return on invested capital); cash flow return on investment; improvement in or attainment of expense levels or working capital levels, including cash, and accounts receivable; operating margin; gross margin; year-end cash; cash margin; debt reduction; shareholders equity; operating efficiencies; and, client growth. Performance Goals that are financial metrics, may be determined in accordance with GAAP or may be adjusted when established to include or exclude any items otherwise includable or excludable under GAAP. Performance Goals may include any other financial or other criteria established by the Compensation Committee. |
Performance Share Award Payouts |
The Compensation Committee will establish the method
of calculating the amount of payment to be made under a Performance Award if Performance Goals are met, including any maximum payment.
After the completion of an Award Period, the relevant
performance will be measured against the Performance Goals, and the Compensation Committee will determine whether all, none or
a portion of Performance Award is paid.
The Compensation Committee may elect to make payment
in shares, cash or a combination of cash and shares. |
| 2019 Proxy Statement 80 |
PROPOSAL THREE: APPROVAL OF THE 2019 OMNIBUS INCENTIVE PLAN |
Term |
Description |
Dividends/Dividend Equivalents |
The Compensation Committee may at the time of the grant, provide that any dividends declared during the Award Period, which would have been paid had the shares underlying the Performance Award been owned by the grantee, be (i) paid to the extent that the Performance Award is earned, (ii) accumulated and used to increase the number of shares underlying the Performance Award or (iii) not paid or accumulated. In no event will dividends or dividend equivalents be paid on unearned Performance Awards. |
Other Share-Based Awards and Cash Awards |
Actual shares of common stock, phantom shares of common stock and awards that are solely payable in cash may be granted in the amounts and on the terms and conditions as the Compensation Committee determines. |
Other
Information
Administration of
the 2019 Omnibus Plan. The 2019 Omnibus Plan is administered by the Compensation Committee of our Board of Directors.
To the extent permitted by law, the Compensation Committee may delegate certain of its authority in accordance with the 2019 Omnibus
Plan, except in the case of Awards intended to be qualified under Rule 16b-3 of the Exchange Act. The Compensation Committee has
the authority to, among other things, determine eligibility for and grant awards; determine, modify or waive the terms and conditions
of any award; and prescribe forms, rules and procedures for awards. Determinations of the Compensation Committee under the 2019
Omnibus Plan will be conclusive and bind all parties.
Change in Control.
Unless provided otherwise in the terms of a particular Award, in the event a Participant is involuntarily terminated without cause
within 24 months following a change in control of HMS (as defined in the 2019 Omnibus Plan), Options and SARs will become fully
vested and immediately exercisable, Restricted Stock Awards and Restricted Stock Unit Awards will immediately vest and become free
of restrictions, all Performance Awards will be considered to be earned and payable in full, based on the applicable performance
criteria or, if not determinable, at the target level and any deferral or other restriction will lapse and the Performance Awards
will be immediately settled or distributed, and the restrictions and other conditions applicable to other Awards shall lapse, and
such Awards will become fully vested and transferable, to the extent of the original grant.
Unless provided otherwise in the terms of a particular
Award, in the event the successor company does not assume or substitute an Award, then immediately prior to the change in control
of HMS, Options and SARs will become fully vested and immediately exercisable, Restricted Stock Awards and Restricted Stock Unit
Awards will immediately vest and become free of restrictions, any Other Share-Based Awards or such other Awards shall become fully
vested and become free of restrictions, and all Performance Awards will be considered to be fully earned at the target amount as
of the date of the change in control.
Notwithstanding any other provision of the 2019 Omnibus
Plan, in the event of a change in control, the Compensation Committee or Board may provide that each Option or SAR shall be cancelled
in exchange for a cash payment in an amount equal to the amount by which the price paid to our shareholders in the change in control
transaction exceeds the exercise price of the Option or SAR multiplied by the number of shares granted thereunder.
Adjustments. In
the event of a stock dividend, stock split or combination of shares (including a reverse stock split), recapitalization or other
change in our capital structure, the Compensation Committee will make appropriate adjustments as it deems necessary, including,
without limitation, adjustments to performance criteria, the maximum number of shares that may be delivered under the 2019 Omnibus
Plan, the individual award maximums and maximum share limits described in the 2019 Omnibus Plan, the number and exercise price
of outstanding Stock Options and SARs, and the number and kind of shares subject to other awards granted under the 2019 Omnibus
Plan.
| 2019 Proxy Statement 81 |
PROPOSAL THREE: APPROVAL OF THE 2019 OMNIBUS INCENTIVE PLAN |
Plan
Amendment and Termination
The Board may amend, suspend or terminate the 2019
Omnibus Plan or any portion thereof at any time provided that (i) no amendment that would require shareholder approval under Nasdaq
Marketplace Rules may be made effective until so approved by HMS’s shareholders and (ii) if Nasdaq amends its corporate governance
rules so that such rules no longer require shareholder approval of material amendments to equity compensation plans, then, from
and after the effective date of such amendment to the Nasdaq Marketplace Rules, no amendment to the 2019 Omnibus Plan that materially
increases the number of authorized shares under the 2019 Omnibus Plan (except as permitted by the 2019 Omnibus Plan), expands the
types of Awards that may be granted thereunder, or materially expands the class of eligible Participants shall be effective, until
HMS’s shareholders approve such amendment. In addition, if at any time the approval of HMS’s shareholders is required
as to any other modification or amendment of Incentive Stock Options under the Code, the Board may not effect such modification
or amendment without such approval. Unless otherwise specified in the amendment, any amendment to the 2019 Omnibus Plan shall apply
to, and be binding on the holders of, all outstanding Awards at the time the amendment is adopted, provided the Board determines
that such amendment, taking into account any related action, does not materially and adversely affect the rights of Participants
under the 2019 Omnibus Plan.
Non-transferability
of Awards
No Award under the 2019 Omnibus Plan is transferable
other than by will or by the laws of descent and distribution, except that the Compensation Committee may permit transfers of Options
(other than ISOs) solely as gifts during the grantee’s lifetime, to members of the Participant’s immediate family (i.e.,
spouse, parent, child, stepchild, grandchild and their spouses) or to trusts, family partnerships or similar entities for the benefit
of immediate family members.
Federal
Income Tax Consequences
The United States federal income tax consequences
that will arise with respect to participation in the 2019 Omnibus Plan and with respect to the sale of common stock acquired under
the 2019 Omnibus Plan are summarized in the following discussion. This summary is based on the tax laws in effect as of the date
of this Proxy Statement. In addition, this summary assumes that all awards are exempt from, or comply with, the rules under Section
409A of the Code regarding nonqualified deferred compensation. The summary deals with general tax principles applicable to the
2019 Omnibus Plan and does not purport to be a complete description of the federal income tax consequences of awards made under
the 2019 Omnibus Plan. The summary also does not cover federal employment tax or other federal tax consequences that may be associated
with the 2019 Omnibus Plan, or state, local or non-U.S. taxes. Changes to these laws could alter the tax consequences described
below.
Incentive Stock Options
(ISOs). A Participant will not recognize income upon the grant of an ISO. Also, except as described below, a Participant
will not recognize income upon exercise of an ISO if the Participant has been employed by HMS or its corporate parent or 50% or
more-owned corporate subsidiary at all times beginning with the option grant date and ending three months before the date the Participant
exercises the option. If the Participant has not been so employed during that time, then the Participant will be taxed as described
below under “Nonqualified Stock Options.” In addition, if the fair market value of the common shares received upon
exercise of an incentive stock option exceeds the exercise price, then the excess may be deemed a tax preference adjustment for
purposes of the federal alternative minimum tax calculation. The federal alternative minimum tax may produce significant tax repercussions
depending upon the Participant’s particular tax status.
A Participant will recognize income upon the sale
of the stock acquired under an ISO at a profit (if sales proceeds exceed the exercise price). The type of income will depend on
when the Participant sells the stock. If a Participant sells the stock more than two years after the option was granted and more
than one year after the option was exercised, then all of the profit will be long-term capital gain. If a Participant sells the
stock prior to satisfying these waiting periods, then the Participant will have engaged in a disqualifying disposition and a portion
of the profit will be ordinary income and a portion may be capital gain. This capital gain will be long-term if the Participant
has held the stock for more than one year and otherwise will be short-term. If a Participant sells the stock at a loss (sales proceeds
are less than the exercise price), then the loss will be a capital loss. This capital loss will be long-term if the Participant
held the stock for more than one year and otherwise will be short-term.
| 2019 Proxy Statement 82 |
PROPOSAL THREE: APPROVAL OF THE 2019 OMNIBUS INCENTIVE PLAN |
Nonqualified Stock
Options (NSOs). A Participant will not recognize income upon the grant of a NSO. A Participant will recognize compensation
income upon the exercise of a NSO equal to the value of the stock on the day the Participant exercised the option less the exercise
price. Upon sale of the stock, the Participant will have capital gain or loss equal to the difference between the sales proceeds
and the value of the stock on the day the option was exercised. This capital gain or loss will be long-term if the Participant
has held the stock for more than one year and otherwise will be short-term.
Restricted Stock.
A Participant will not recognize income upon the grant of restricted stock unless the Participant makes an election under Section
83(b) of the Code within 30 days of the date of grant. If the Participant makes a timely 83(b) election, then the Participant will
recognize compensation income equal to the fair market value of the stock on the date of grant less the purchase price. When the
stock is sold, the Participant will have capital gain or loss equal to the difference between the sales proceeds and the fair market
value of the stock on the date of grant. If the Participant does not timely make an 83(b) election, then when the stock vests the
Participant will have compensation income equal to the value of the stock on the vesting date less the purchase price. When the
stock is sold, the Participant will have capital gain or loss equal to the sales proceeds less the value of the stock on the vesting
date. Any capital gain or loss will be long-term if the Participant held the stock for more than one year and otherwise will be
short-term.
Restricted Stock
Units. A Participant will not recognize income upon the grant of a restricted stock unit award. A Participant is not
permitted to make a Section 83(b) election with respect to a restricted stock unit award. When the restricted stock unit vests,
the Participant will recognize compensation income on the date payment is made or shares are issued under the restricted stock
unit in an amount equal to the fair market value of the stock on such date (or the amount of the cash paid). When the stock, if
any, is sold, the Participant will have capital gain or loss equal to the sales proceeds less the fair market value of the stock
already taken into income. Any capital gain or loss will be long-term if the Participant held the stock for more than one year
and otherwise will be short-term.
Stock Appreciation Rights. A
Participant will not recognize income upon the grant of a stock appreciation right. If the Participant receives the appreciation
inherent in the stock appreciation right in cash, the cash will be taxed as ordinary income to the Participant at the time it
is received. If a Participant receives the appreciation inherent in the stock appreciation right in common shares, the spread
between the then current fair market value and the grant price, if any will be taxed as ordinary income to the Participant at
the time it is received.
Awards That Are Settled
in Cash or in Shares That Are Not Subject to a Substantial Risk of Forfeiture. With respect to other awards that are
settled either in cash or in shares that are not subject to a substantial risk of forfeiture, the Participant will recognize ordinary
income equal to the excess of (a) the cash or the fair market value of any shares received (determined as of the date of settlement)
over (b) the amount, if any, paid for the shares by the Participant.
Federal Tax Withholding. Any
ordinary income realized by a Participant other than a non-employee director with respect to an award granted under the 2019 Omnibus
Plan is subject to withholding of federal, state, and local income tax and to withholding of the Participant’s share of
tax under the Federal Insurance Contribution Act. To satisfy tax withholding requirements, the Company will have the right to
require that, as a condition to delivery of any certificate for common shares, the Participant remit to the Company an amount
sufficient to satisfy the withholding requirements. The Company may decide to satisfy the withholding obligations through additional
withholding on salary or wages. If the Company elects not to or cannot withhold from other compensation, the Participant must
pay the Company the full amount, if any, required for withholding or have a broker tender to the Company cash equal to the withholding
obligations.
Withholding
does not represent an increase in the Participant’s total income tax obligation, since it is fully credited toward his or
her tax liability for the year. Additionally, withholding does not affect the Participant’s tax basis in the common shares.
Compensation income realized and tax withheld will be reflected on Forms W-2 supplied by the Company to employees by January 31
of the succeeding year. Deferred compensation that is subject to Section 409A of the Code will be subject to certain federal income
tax withholding and reporting requirements.
| 2019 Proxy Statement 83 |
PROPOSAL THREE: APPROVAL OF THE 2019 OMNIBUS INCENTIVE PLAN |
Tax Consequences
to Us. There will be no tax consequences to us except that we will be entitled to a deduction when a Participant has
compensation income, provided that the income meets the test of reasonableness, is an ordinary and necessary business expense,
is not an “excess parachute payment” within the meaning of Section 280G of the Code and is not disallowed by the limitations
of Section 162(m) of the Code.
Million Dollar Deduction
Limit and Other Tax Matters. The Company may not deduct compensation of more than $1,000,000 that is paid to “covered
employees” (as defined in Section 162(m) of the Code), which include an individual (or, in certain circumstances, his or
her beneficiaries) who, at any time during the taxable year, is the Company’s principal executive officer, principal financial
officer, an individual who is among the three highest compensated officers for the taxable year (other than an individual who was
either the Company’s principal executive officer or its principal financial officer at any time during the taxable year),
or anyone who was a covered employee for purposes of Section 162(m) of the Code for any tax year beginning on or after January
1, 2017.
If an individual’s rights under the 2019 Omnibus
Plan are accelerated as a result of a change in control and the individual is a “disqualified individual” under Section
280G of the Code, the value of any such accelerated rights received by such individual may be included in determining whether or
not such individual has received an “excess parachute payment” under Section 280G of the Code, which could result in
(i) the imposition of a 20% federal excise tax (in addition to federal income tax) payable by the individual on the value of such
accelerated rights, and (ii) the loss by the Company of a compensation deduction.
Stock
Price
On April 1, 2019, the closing price of our common
stock on The Nasdaq Global Select Market was $30.05.
Interest
of Directors and Executive Officers
All members of our Board and all of our executive
officers are eligible for awards under the 2019 Omnibus Plan and, thus, have a personal interest in the approval of the 2019 Omnibus
Plan.
New
Plan Benefits
The benefits and amounts that may be received in
the future by persons eligible to participate in the 2019 Omnibus Plan are not currently determinable because the granting of awards
under the 2019 Omnibus Plan is subject to the discretion of the Compensation Committee.
Equity
Compensation Plan Information
The following table summarizes information about
our equity compensation plans as of December 31, 2018. The table does not reflect any amounts under the 2019 Omnibus Plan to be
approved at the 2019 Annual Meeting.
| 2019 Proxy Statement 84 |
PROPOSAL THREE: APPROVAL OF THE 2019 OMNIBUS INCENTIVE PLAN |
|
Number of securities to be issued upon exercise of outstanding options,
warrants and rights
|
Weighted-average
exercise price of
outstanding options,
warrants and
rights
($)
|
Number of
securities
remaining
available for
future issuance
under equity
compensation
plans (excluding
securities
reflected in
column (a))
|
Plan
Category |
(a) |
(b) |
(c) |
Equity compensation plans approved
by shareholders |
5,825,734 |
(1) |
17.07 |
|
4,758,398 |
|
Equity compensation plans not
approved by shareholders |
19,004 |
(2) |
12.00 |
|
— |
|
Total |
5,844,738 |
|
|
|
|
|
| (1) | This
includes stock options and restricted stock units granted under our HMS Holdings Corp.
Fourth Amended and Restated 2006 Stock Plan, as amended, and 2016 Omnibus Plan. |
| (2) | This
includes stock options granted under the HDI Holdings, Inc. Amended 2011 Stock Option
and Stock Issuance Plan, which was assumed in connection with our acquisition of HDI
and approved by the Compensation Committee of our Board. |
Registration
with the SEC
If the proposal is approved, we intend to file a
Registration Statement on Form S-8 relating to the issuance of common shares under the 2019 Omnibus Plan with the SEC pursuant
to the Securities Act of 1933, as amended, as soon as practicable after approval of the 2019 Omnibus Plan by the shareholders.
| 2019 Proxy Statement 85 |
PROPOSAL
FOUR: RATIFICATION OF THE SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee has selected Grant Thornton LLP
(“Grant Thornton”) as our independent registered public accounting firm for the fiscal year ending December 31, 2019,
and our shareholders are asked to ratify this selection. The Audit Committee first engaged Grant Thornton as our new independent
registered public accounting firm and dismissed KPMG LLP (“KPMG”) on August 24, 2017. Additional information regarding
this change is included under the heading “Changes in Registrant’s Certifying Accountant.” The Company expects
representatives of Grant Thornton to be present at the 2019 Annual Meeting, where they will be available to respond to appropriate
questions from shareholders and make a statement if they desire to do so.
Audit
and Non-Audit Fees
The aggregate fees for professional services rendered
by Grant Thornton during fiscal 2018 and 2017 are set forth in the table below. A description of these services follows the table.
All audit and non-audit services disclosed in the table were pre-approved by the Audit Committee prior to the provision of the
services, except the continuing engagements described under the heading “All Other Fees” that were approved at the
time of the appointment of Grant Thornton as our independent registered public accounting firm and the other engagements under
the heading “All Other Fees” that were completed by Grant Thornton prior to its appointment.
Type
of Fee |
|
2018
($) |
|
2017
($) |
Audit Fees |
|
1,044,574 |
|
|
952,733 |
|
Audit-Related Fees |
|
281,015 |
|
|
— |
|
Tax Fees |
|
— |
|
|
— |
|
All Other Fees |
|
— |
|
|
381,631(1) |
|
Total |
|
1,325,589 |
|
|
1,334,364 |
|
| (1) | For fiscal
2017, Grant Thornton was engaged to provide the non-audit services prior to its appointment
as independent auditor for 2017. |
Audit
Fees
The aggregate audit fees billed for professional
services rendered by Grant Thornton for 2018 include fees for the integrated audit of our 2018 consolidated financial statements
and internal control over financial reporting and reviews of our consolidated financial statements included in our 2018 quarterly
reports on Form 10-Q.
The aggregate audit fees billed for professional
services rendered by Grant Thornton for 2017 include fees for the integrated audit of our 2017 consolidated financial statements
and internal control over financial reporting, reviews of our consolidated financial statements included in our 2017 quarterly
reports on Form 10-Q (which, for the quarterly periods ended March 31, 2017 and June 30, 2017 were limited) and procedures related
to the audit of the Eliza acquisition.
Audit-Related
Fees
Audit-Related
Fees consist of fees related to the performance of the audit or review of our consolidated financial statements that are not reported
under “Audit Fees.” The aggregate fees billed for audit-related services rendered by Grant Thornton for
2018 include fees for (i) service organization controls testing and reporting and (ii) service organization controls readiness
assessments.
Fees for similar services billed by Grant Thornton
for 2017 are included under "All Other Fees" below because Grant Thornton was retained to perform such services and substantially
performed such services prior to its appointment as our independent registered public accounting firm for 2017.
| 2019 Proxy Statement 86 |
PROPOSAL FOUR: RATIFICATION OF THE SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM |
All
Other Fees
The aggregate fees billed for all other professional
services rendered by Grant Thornton for 2017 include fees for (i) service organization controls testing and reporting, which services
were continuing on August 24, 2017, the date Grant Thornton was appointed as our independent registered public accounting firm
for 2017, and approved by the Audit Committee on the date of such appointment and (ii) service organization controls readiness
assessments, which services were completed prior to August 24, 2017, except that the final report was issued on September 18, 2017.
Audit
Committee Pre-Approval Policies and Procedures
In accordance with its Charter, the Audit Committee
pre-approves all audit and permissible non-audit services provided by our independent registered public accounting firm. At the
time of the annual engagement of our independent registered public accounting firm or as soon as practicable thereafter, the Audit
Committee pre-approves specific services and/or categories of services that may be provided during the year by the independent
registered public accounting firm and the estimated fees for such services. During the year, circumstances may arise when it may
become necessary or appropriate to engage the independent registered public accounting firm for additional services not contemplated
in the original pre-approval. In such circumstances, our senior management seeks approval from the Audit Committee to engage the
independent registered public accounting firm for such additional services. A description of any proposed non-audit services is
provided to the Audit Committee along with the estimated fees for its pre-approval. For each proposed service, the independent
registered public accounting firm is required to provide detailed supporting documentation at the time of approval to permit the
Audit Committee to make a determination whether the performance of such services would impair the auditor’s independence.
The Audit Committee is regularly informed of any non-audit services provided by the independent auditor pursuant to this pre-approval
process. In connection with the engagement of a new independent registered public accounting firm, the Audit Committee approves
the continuation of any permissible non-audit services being performed by that firm that commenced prior to the engagement.
Effect
of Your Vote on This Proposal
The submission of this matter for approval by shareholders
is not required by law and the results of the vote on this proposal are not binding. If this proposal is not approved at the 2019
Annual Meeting, the Audit Committee may reconsider its selection of Grant Thornton. Even if the proposal is approved, the Audit
Committee, in its discretion, may direct the appointment of a new independent registered public accounting firm at any time if
the Audit Committee determines that such a change would be in the best interests of the Company and its shareholders.
Vote
Required
The affirmative vote of a majority of the votes cast
at the 2019 Annual Meeting on such matter (and voting affirmatively or negatively) is required to ratify the selection of Grant
Thornton as our independent registered public accounting firm for the fiscal year ending December 31, 2019.
The
Board of Directors recommends a vote “FOR” the proposal to ratify the selection of Grant Thornton LLP as our independent
registered public accounting firm for the fiscal year ending December 31, 2019.
| 2019 Proxy Statement 87 |
AUDIT
COMMITTEE REPORT
In
accordance with its Charter, the Audit Committee of the Board of Directors of HMS Holdings Corp., among its other duties, assists
the Board in fulfilling its responsibility for oversight of the quality and integrity of our accounting, auditing and financial
reporting practices. The Audit Committee consists of four non-employee directors who meet the independence and financial literacy
requirements of Nasdaq and the additional, heightened independence criteria applicable to members of the Audit Committee under
SEC and Nasdaq Marketplace Rules. During 2018, the Audit Committee met five times.
In
discharging its oversight responsibility as to our financial reporting process, the Audit Committee reviewed and discussed our
audited financial statements as of and for the fiscal year ended December 31, 2018 with management. Management has the responsibility
for the preparation of our financial statements and HMS’s independent registered public accounting firm, Grant Thornton,
has the responsibility for the examination of those statements.
The
Audit Committee discussed with Grant Thornton the matters required to be discussed by Auditing Standard No. 1301, "Communications
with Audit Committees," as adopted by the Public Company Accounting Oversight Board, or PCAOB.
The
Audit Committee has received from Grant Thornton a formal written statement describing all relationships between Grant Thornton
and HMS that might bear on Grant Thornton’s independence, as required by applicable requirements of the PCAOB, and has discussed
with Grant Thornton any relationships that may impact its objectivity and independence. The Audit Committee has also considered
whether the provision of non-audit services by Grant Thornton is compatible with its independence. Based on the foregoing, the
Audit Committee has concluded that Grant Thornton is independent from HMS and its management.
Based
on the above-mentioned review and discussions with management and Grant Thornton, the Audit Committee recommended to the Board
that the audited financial statements be included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2018,
for filing with the SEC.
By
the Audit Committee of the Board of Directors of HMS Holdings Corp.
|
Ellen
A. Rudnick, Chair |
|
Robert
Becker |
|
Bart
M. Schwartz |
|
Cora
M. Tellez |
The
information contained in the Audit Committee Report shall not be deemed to be “soliciting material” or to be “filed”
with the Securities and Exchange Commission, nor shall such information be incorporated by reference into any future filing under
the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that we specifically
incorporate it by reference in such filing.
| 2019 Proxy Statement 88 |
CHANGES
IN REGISTRANT’S CERTIFYING ACCOUNTANT
The Audit Committee conducted a competitive process
to determine the Company’s independent registered public accounting firm for the Company’s fiscal year ended December
31, 2017. As a result of the process, on August 24, 2017, the Audit Committee approved the engagement of Grant Thornton as the
Company’s independent registered public accounting firm for the fiscal year ended December 31, 2017 and the dismissal of
KPMG, effective immediately. KPMG continues to provide non-audit services to the Company.
The reports of KPMG on the Company’s consolidated
financial statements as of and for the fiscal years ended December 31, 2016 and 2015 did not contain any adverse opinion or disclaimer
of opinion, nor were they qualified or modified as to uncertainty, audit scope or accounting principles. The reports of KPMG on
the effectiveness of internal control over financial reporting as of December 31, 2016 and December 31, 2015 did not contain any
adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope or accounting principles,
except that KPMG’s report indicates that the Company did not maintain effective internal control over financial reporting
as of December 31, 2016 because of the effect of material weaknesses on the achievement of the objectives of the control criteria
and contains an explanatory paragraph that states the material weaknesses related to the estimated liability of appeals and the
accounts receivable allowance have been identified and included in management’s assessment in Item 9A of Form 10-K filed
with the SEC on June 6, 2017.
During the Company’s fiscal years ended December
31, 2016 and 2015, and the subsequent interim period through August 24, 2017, there were no: (i) disagreements (as that term is
defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions) between the Company and KPMG on any matter of
accounting principles or practices, financial statement disclosure or auditing scope or procedure, which, if not resolved to the
satisfaction of KPMG, would have caused KPMG to make reference to the subject matter of the disagreement in their reports
to the Company’s consolidated financial statements for such years, or (ii) reportable events as that term is defined in Item
304(a)(1)(v) of Regulation S-K.
During the Company’s fiscal years ended December
31, 2016 and December 31, 2015, and the subsequent interim period through August 24, 2017, neither the Company nor anyone acting
on its behalf consulted with Grant Thornton regarding either: (i) the application of accounting principles to a specified transaction,
either completed or proposed, or the type of audit opinion that might be rendered on the Company’s consolidated financial
statements, or the effectiveness of internal control over financial reporting, where either a written report or oral advice
was provided to the Company that Grant Thornton concluded was an important factor considered by the Company in reaching a decision
as to any accounting, auditing or financial reporting issue; or (ii) any matter that was either the subject of a disagreement (as
defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions) or a reportable event (as defined in Item 304(a)(1)(v)
of Regulation S-K).
In accordance with Instruction 2 of Item 304 of Regulation
S-K, the Company furnished Grant Thornton and KPMG a copy of the disclosures in this Proxy Statement required by Item 304(a) of
Regulation S-K prior to the time the Proxy Statement was filed with the SEC. In the event that Grant Thornton or KPMG believed
the disclosures were incorrect or incomplete, they were permitted to express their views in a brief statement to be included in
this Proxy Statement. Neither Grant Thornton nor KPMG submitted such a statement.
| 2019 Proxy Statement 89 |
OWNERSHIP
OF HMS COMMON STOCK
The following tables set forth information known
to us with respect to the beneficial ownership of our common stock as of April 1, 2019 by (i) each of our directors and nominees
for Class II director, (ii) Messrs. Lucia, O’Gara, Sherman and Williams and Ms. Neuman, whom we refer to in this Proxy Statement
as our named executive officers, (iii) all of our directors and current executive officers as a group and (iv) each person (or
group of affiliated persons) known by us to be the beneficial owner of more than 5% of our common stock.
The tables are based upon information supplied to
us by directors, executive officers and principal shareholders and filings under the Exchange Act, as amended. We have based our
calculation of the percentage of beneficial ownership on 87,083,776 shares of our common stock outstanding as of April 1, 2019,
unless otherwise noted. The beneficial ownership reported in the following tables is determined in accordance with the applicable
rules of the SEC and does not necessarily indicate beneficial ownership for any other purpose. For purposes of the following tables,
an entity or individual is considered the beneficial owner of shares of common stock if the entity or individual directly or indirectly
has or shares voting power or investment power, as defined in the rules of the SEC, with respect to such shares or has the right
to acquire beneficial ownership of such shares within 60 days of April 1, 2019.
Unless otherwise noted and subject to applicable
community property laws, to our knowledge each shareholder named in the following table possesses sole voting and investment power
over the shares listed. The address of each person listed in the table is c/o HMS Holdings Corp., 5615 High Point Drive, Irving,
Texas 75038. To our knowledge, as of April 1, 2019, none of our officers or directors has pledged any of the shares that they respectively
beneficially own as security.
Security
Ownership of Directors and Executive Officers
Name of Beneficial Owner |
Number of Outstanding
Shares of Common Stock |
Number of Shares
Underlying Options Exercisable Within 60 Days(1) |
Number of Shares
Underlying Restricted Stock Units that will Vest Within 60 Days(2)(3) |
Percent of Class |
Directors
and Nominees for Class II Director (who are not officers): |
|
|
|
|
|
|
Robert
Becker |
5,000 |
|
5,367 |
|
— |
|
* |
|
Craig R. Callen |
19,000 |
|
31,151 |
|
— |
|
* |
|
William F.
Miller III |
133,439 |
(4) |
33,740 |
|
5,368 |
|
* |
|
Ellen A. Rudnick |
50,308 |
|
16,784 |
|
2,684 |
|
* |
|
Bart M. Schwartz |
29,718 |
|
13,740 |
|
2,684 |
|
* |
|
Richard H.
Stowe |
— |
|
33,740 |
|
— |
|
* |
|
Cora M. Tellez |
630 |
|
5,467 |
|
— |
|
* |
|
Named
Executive Officers: |
|
|
|
|
|
|
|
|
William C.
Lucia |
636,191 |
(5) |
477,394 |
|
— |
|
1.27% |
|
Emmet W. O’Gara |
3,747 |
|
16,314 |
|
— |
|
* |
|
Jeffrey S.
Sherman |
116,042 |
(6) |
376,054 |
|
— |
|
* |
|
Douglas M.
Williams Jr. |
27,454 |
(7) |
370,163 |
|
— |
|
* |
|
K. Semone Neuman |
— |
|
— |
|
— |
|
* |
|
All
current directors and executive officers as a group (16 persons)(8) |
1,047,131 |
(9) |
1,482,284 |
|
17,308 |
|
2.87% |
|
* Less
than 1% of outstanding shares
| 2019 Proxy Statement 90 |
OWNERSHIP OF HMS COMMON STOCK |
| (1) | Includes
the number of shares that could be purchased by exercise of options exercisable at April
1, 2019 or within 60 days thereafter. The amounts reported in this column are excluded
from the amounts reported in the column “Number of Outstanding Shares of Common
Stock.” |
| (2) | Includes
the number of shares underlying restricted stock units that are not subject to outstanding
performance conditions and vest within 60 days of April 1, 2019, and excludes vested
and unvested deferred stock units acquired pursuant to the Director Deferred Compensation
Plan. Restricted stock units do not have voting power and are payable solely in shares
of HMS common stock. The amounts reported in this column are excluded from the amounts
reported in the column “Number of Outstanding Shares of Common Stock.” |
| (3) | Excludes
deferred stock units (whether or not vested) held by non-employee directors pursuant
to the Director Deferred Compensation Plan as follows: Mr. Becker (23,112), Mr. Callen
(31,152), Mr. Miller (4,058), Ms. Rudnick (20,012), Mr. Schwartz (34,300), Mr. Stowe
(73,806), and Ms. Tellez (57,379). |
| (4) | Includes
3,900 shares of common stock held in trusts for the benefit of Mr. Miller’s family.
Mr. Miller disclaims beneficial ownership of the shares of common stock held by the trusts. |
| (5) | Includes
581,734 shares of common stock held by the William C. Lucia Family Trust, a revocable
trust for which Mr. Lucia serves as trustee. |
| (6) | Includes
10,760 shares of common stock held by a revocable family trust for the benefit of Mr.
Sherman’s children and for which Mr. Sherman and his spouse serve as trustees. |
| (7) | Includes
2,500 shares held jointly with Mr. William’s spouse. |
| (8) | Includes
the named executive officers (other than Ms. Neuman), the current directors, Mses. Bjorck,
Perrin and South and Messrs. Alexander and Sims. |
| (9) | Includes
the shares reported in footnotes (4), (5), (6) and (7). |
Based on a review of filings with the SEC, the following
entities hold more than 5% of our outstanding shares of common stock as of the date indicated on the respective filing.
Security
Ownership of Certain Beneficial Owners
Name
and Address of Beneficial Owner |
|
Number
of Outstanding
Shares of Common Stock
(#) |
Percent
of Class
(%) |
BlackRock,
Inc. |
|
12,449,568
(1) |
|
14.3 |
|
The Vanguard
Group |
|
8,611,554
(2) |
|
9.9 |
|
Wellington
Management Group LLP and affiliated entities |
|
8,671,555
(3) |
|
10.0 |
|
| (1) | Represents
shares of HMS common stock beneficially owned as of December 31, 2018 based solely
on a Schedule 13G/A filed with the SEC on January 28, 2019. According to the Schedule
13G/A, BlackRock, Inc., in its capacity as a parent holding company or control person
of subsidiaries that acquired the reported securities, has sole voting power over 12,262,795
shares and sole dispositive power over 12,449,568 shares. The Schedule 13G/A was filed
on BlackRock’s behalf and on behalf of its subsidiaries BlackRock (Netherlands)
B.V.; BlackRock Advisors, LLC; BlackRock Asset Management Canada Limited; BlackRock Asset
Management Ireland Limited; BlackRock Asset Management Schweiz AG; BlackRock Financial
Management, Inc.; BlackRock Fund Advisors; BlackRock Institutional Trust Company, N.A.;
Blackrock International Limited; BlackRock Investment Management (Australia) Limited;
BlackRock Investment Management (UK) Limited; BlackRock Investment Management, LLC; BlackRock
Japan Co., Ltd. and BlackRock (Luxembourg) S.A. BlackRock Fund Advisors beneficially
owns 5% or greater of the outstanding shares of the class. BlackRock’s principal
business address is 55 East 52nd Street, New York, NY 10055. |
| (2) | Represents
shares of HMS common stock beneficially owned as of December 31, 2018 based solely
on a Schedule 13G/A filed with the SEC on February 12, 2019. According to the Schedule
13G/A, The Vanguard Group, a registered investment advisor, has sole voting power over
160,398 shares, shared voting power over 13,978 shares, sole dispositive power over 8,445,365
shares and shared dispositive power over 166,189 shares. Vanguard Fiduciary Trust Company,
a wholly-owned subsidiary of The Vanguard Group, Inc., is the beneficial owner of 152,211
shares as a result of its serving as investment manager of collective trust accounts.
Vanguard Investments Australia, Ltd., a wholly-owned subsidiary of The Vanguard Group,
Inc., is the beneficial owner of 22,165 shares as a result of its serving as investment
manager of Australian investment offerings. The Vanguard Group’s principal business
address is 100 Vanguard Boulevard, Malvern, PA 19355. |
| (3) | Represents
shares of HMS common stock beneficially owned as of February 28, 2019 based solely on
a Schedule 13G/A filed with the SEC on March 11, 2019. According to the Schedule 13G/A,
Wellington Management Group LLP (“Wellington Management”), Wellington Group
Holdings LLP (“Wellington Holdings”) and Wellington Investment Advisors Holdings
LLP (“Wellington Advisors”) have shared voting power over 6,766,374 shares
and shared dispositive power over 8,671,555 shares and Wellington Management Company
LLP (“Wellington Company”) has shared voting power over 6,571,954 shares
and shared dispositive power over 7,722,189 shares. These shares are owned of record
by clients of one or more of the following investment advisors directly or indirectly
owned by Wellington Management: Wellington Management Company LLP, Wellington Management
Canada LLC, Wellington Management Singapore Pte Ltd, Wellington Management Hong Kong
Ltd, Wellington Management International Ltd, Wellington Management Japan Pte Ltd and
Wellington Management Australia Pty Ltd (collectively, the “Wellington Investment
Advisors”). Wellington Advisors controls directly or indirectly through Wellington
Management Global Holdings Ltd. the Wellington Investment Advisors. Those clients have
the right to receive, or the power to direct the receipt of, dividends from, or the proceeds
from the sale of, such shares. No such client is known to have such right or power with
respect to more than 5% of this class of securities. Wellington Management's principal
business address is 280 Congress Street, Boston, MA 02210. |
| 2019 Proxy Statement 91 |
OWNERSHIP OF HMS COMMON STOCK |
Section
16(a) Beneficial Ownership Reporting Compliance
Pursuant to Section 16(a) of the Exchange Act our
executive officers, directors and persons owning more than 10% of a registered class of our equity securities are required to file
reports of ownership and changes in ownership of common stock with the SEC. Copies of such reports are required to be furnished
to us.
Based solely on a review of the copies of such reports
furnished to us, or written representations that no other reports were required, we believe that during fiscal 2018, all of the
reporting persons complied with the requirements of Section 16(a), except that Mr. Miller was late in filing one report involving
one transaction due to an administrative oversight.
| 2019 Proxy Statement 92 |
ADDITIONAL
INFORMATION
Shareholder
Proposals and Director Nominations for 2020 Annual Meeting
Pursuant to Rule 14a-8 under the Exchange Act, shareholders
may present proper proposals for inclusion in our proxy statement relating to, and for consideration at, the 2020 Annual Meeting
of Shareholders, or the 2020 Annual Meeting, by submitting their proposals to us in a timely manner. Such proposals will be so
included if they are received in writing at our principal executive office no later than December 14, 2019 and if they otherwise
comply with the requirements of Rule 14a-8. Proposals should be addressed to: Meredith W. Bjorck, Corporate Secretary, HMS Holdings
Corp., 5615 High Point Drive, Irving, Texas 75038.
With regard to any proposal by a shareholder not
seeking to have such proposal included in the proxy statement, but seeking to have such proposal considered at the 2020 Annual
Meeting or seeking to nominate a candidate for director at the 2020 Annual Meeting, in order for such proposal/nomination to be
considered timely it must be received in writing by the Corporate Secretary at our principal executive office between January 23,
2020 and February 22, 2020. If a shareholder fails to timely notify us of such proposal/nomination, the chairman of the meeting
may determine that the proposal/nomination may not be brought before the annual meeting. Any proposals submitted by shareholders
must comply in all respects with (i) the rules and regulations of the SEC, (ii) the provisions of our Certificate of Incorporation
and our Bylaws and (iii) applicable Delaware law.
You may contact the Corporate Secretary at our principal
place of business for a copy of the relevant Bylaw provisions regarding the requirements for making shareholder proposals and nominating
director candidates. Our Amended and Restated Bylaws are also available on our website under the “Investors—Corporate
Governance” tabs at http://investor.hms.com/corporate-governance.cfm.
Shareholder
Communication with the Board of Directors
Shareholders and other outside parties who wish to
communicate with a director should address their correspondence to such director in care of the Corporate Secretary at the address
specified on our website at http://investor.hms.com/corporate-governance/contact-the-board. The Board has instructed the Corporate
Secretary to review and determine whether to forward all such correspondence in her discretion. Generally, correspondence will
not be forwarded if it is deemed to be irrelevant to or inconsistent with HMS’s operations or policies, or of a commercial
nature.
Annual
Report
Our 2018 Annual Report is concurrently being provided
or mailed to shareholders. The Annual Report is not incorporated into this Proxy Statement and is not considered proxy solicitation
material.
| 2019 Proxy Statement 93 |
OTHER
BUSINESS
As of the date of this Proxy Statement, the Board
knows of no business to be presented at the 2019 Annual Meeting other than as set forth herein. If other matters properly come
before the 2019 Annual Meeting, the persons named as proxies will vote on such matters in their discretion.
|
BY ORDER OF THE BOARD OF DIRECTORS |
|
![](http://www.sec.gov/Archives/edgar/data/1196501/000117184319002384/bjorck_sig.jpg) |
|
Meredith W. Bjorck |
|
Executive Vice President, |
|
Chief Legal Officer and Corporate Secretary |
Dated: April 12, 2019
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY.
THEREFORE, SHAREHOLDERS ARE URGED TO SUBMIT THEIR VOTE AS SOON AS POSSIBLE BY FOLLOWING THE INSTRUCTIONS ON THEIR PROXY CARD
OR VOTING INSTRUCTION FORM FOR VOTING OVER THE INTERNET OR BY TELEPHONE, OR IF YOU RECEIVED A PAPER COPY OF THE PROXY OR VOTING
INSTRUCTION FORM BY MAIL, BY COMPLETING, SIGNING, DATING AND RETURNING THE ACCOMPANYING FORM OF PROXY IN THE ENCLOSED ENVELOPE.
| 2019 Proxy Statement 94 |
ANNEX
A
The Company believes that the non-GAAP financial
measures presented in the CD&A provide useful information to the Company's management, investors, and other interested parties
about the Company's operating performance because they allow them to understand and compare the Company's operating results during
the current periods to the prior year periods in a more consistent manner. The non-GAAP measures presented in the CD&A may
not be comparable to similarly titled measures used by other companies. These non-GAAP financial measures are used in addition
to and in conjunction with results presented in accordance with GAAP and reflect an additional way of viewing aspects of the Company's
operations that, when viewed with GAAP results and the accompanying reconciliations to corresponding GAAP financial measures, provides
a more complete understanding of the results of operations and trends affecting the Company's business. These non-GAAP financial
measures should be considered as a supplement to, and not as a substitute for, or superior to financial measures calculated in
accordance with GAAP.
HMS
HOLDINGS CORP. AND SUBSIDIARIES
(unaudited)
Reconciliation
of Net Income to EBITDA and Adjusted EBITDA
| |
Twelve Months Ended |
(in thousands, except percentages) | |
December 31, 2018 | |
December 31, 2017 |
Net Income | |
$ | 54,989 | | |
$ | 40,054 | |
| |
| | | |
| | |
Net interest expense | |
| 10,221 | | |
| 10,576 | |
Income taxes | |
| (1,972 | ) | |
| (199 | ) |
Depreciation and amortization of property and equipment and intangible assets | |
| 57,596 | | |
| 50,070 | |
| |
| | | |
| | |
Earnings before interest, taxes, depreciation and amortization (EBITDA) | |
| 120,834 | | |
| 100,501 | |
Stock-based compensation expense | |
| 21,507 | | |
| 24,143 | |
Settlement expense | |
| 20,000 | | |
| – | |
Adjusted EBITDA | |
$ | 162,341 | | |
$ | 124,644 | |
% of Revenue | |
| 27.1 | % | |
| 23.9 | % |
Adjusted EBITDA, excluding Medicare RAC reserve release | |
$ | 156,041 | | |
$ | 124,644 | |
% of Revenue | |
| 26.5 | % | |
| 23.9 | % |
| 2019 Proxy Statement A-1 |
Reconciliation
of Net Income to GAAP EPS (Diluted) and Adjusted EPS (Diluted)
| |
Twelve
Months Ended |
(in thousands, except per share
amounts) | |
December
31, 2018 | |
December
31, 2017 |
Net
Income | |
$ | 54,989 | | |
$ | 40,054 | |
| |
| | | |
| | |
Stock-based compensation
expense | |
| 21,507 | | |
| 24,143 | |
Settlement expense | |
| 20,000 | | |
| – | |
Amortization of acquisition
related software and intangible assets | |
| 32,975 | | |
| 30,393 | |
Income tax related to adjustments
(1) | |
| (19,216 | ) | |
| 273 | |
| |
| | | |
| | |
Adjusted
net income | |
$ | 110,255 | | |
$ | 94,863 | |
| |
| | | |
| | |
Weighted
average common shares, diluted | |
| 86,144 | | |
| 85,088 | |
| |
| | | |
| | |
Diluted
GAAP EPS (2) | |
$ | 0.64 | | |
$ | 0.47 | |
Diluted
adjusted EPS | |
$ | 1.28 | | |
$ | 1.11 | |
| |
| | | |
| | |
Discrete
tax benefits | |
$ | 0.19 | | |
$ | 0.40 | |
Medicare
RAC reserve release benefit | |
$ | 0.05 | | |
$ | – | |
| |
| | | |
| | |
Diluted
adjusted EPS after Medicare RAC reserve release and discrete tax benefits | |
$ | 1.04 | | |
$ | 0.71 | |
(1) | Tax
effect of adjustments is computed as the pre-tax effect of the adjustments multiplied
by the adjusted annual effective tax rate at period end. |
(2) | Diluted
GAAP EPS for the year ended December 31, 2018 included discrete tax benefits of $0.19
per diluted share, primarily related to state tax apportionments, the closure of routine
outstanding prior year tax audits, the exercise of employee stock options, the abandonment
of subsidiary stock related to a 2010 acquisition, and year-end federal and state tax
adjustments or provision true ups. Diluted GAAP EPS for the year ended December 31, 2017
included a non-cash tax benefit of $0.40 per diluted share, primarily related to federal
tax legislation enacted in December 2017. |
| 2019 Proxy Statement A-2 |
ANNEX
B
HMS
Holdings Corp. 2019 Omnibus Incentive Plan
HMS HOLDINGS CORP.
2019 OMNIBUS INCENTIVE PLAN
The purpose of the HMS
Holdings Corp. 2019 Omnibus Incentive Plan (as amended from time to time, the “Plan”) is to furnish a material incentive
to employees and non-employee Directors (defined below) of the Company (defined below) and its subsidiaries by making available
to them the benefits of a larger common stock ownership in the Company through stock options and other awards. It is believed that
these increased incentives stimulate the efforts of employees and non-employee Directors towards the continued success of the Company
and its affiliates, as well as assist in the recruitment of new employees and non-employee Directors.
As used in the Plan,
the following terms shall have the meanings set forth below:
(a)
“Affiliate” shall mean any Person that directly, or through one or more intermediaries, controls, or
is controlled by, or is under common control with, the Company.
(b)
“Award” shall mean any Option, Stock Appreciation Right, Restricted Stock Award, Restricted Stock Unit
Award, Performance Share, Performance Unit, Cash Award, Dividend Equivalent or any other right, interest or option relating to
Shares granted pursuant to the provisions of the Plan.
(c)
“Award Agreement” shall mean any written or electronic agreement, contract or other instrument or document
evidencing any Award granted by the Committee hereunder, which in the sole and absolute discretion of the Committee may, but need
not, be signed or acknowledged by the Company and the Participant.
(d)
“Award Period” shall have the meaning set forth in Section 9 of the Plan.
(e)
“Board” shall mean the Board of Directors of the Company.
(f)
“Cash Award” shall mean any incentive award granted under Section 10 that is payable only in cash.
(g)
“Change in Control” shall mean the occurrence of any of the following events:
(i) the
acquisition by a Person or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act of beneficial ownership
of any capital stock of the Company if, after such acquisition, such Person or group beneficially owns (within the meaning of Rule
13d-3 under the Exchange Act) 50.01% or more of either (x) the then-outstanding shares of common stock of the Company (the “Outstanding
Company Common Stock”) or (y) the combined voting power of the then-outstanding securities of the Company entitled to vote
generally in the election of directors (the “Outstanding Company Voting Securities”); provided, however, that for purposes
of this subsection any acquisition directly from the Company will not be a Change in Control, nor will any acquisition by any individual,
entity, or group pursuant to a Business Combination (as defined below) that complies with subclauses (x) and (y) of clause (ii)
of this definition;
| 2019 Proxy Statement B-1 |
(ii) the
consummation of a merger, consolidation, reorganization, recapitalization or share exchange involving the Company or a sale or
other disposition of all or substantially all (i.e., in excess of 85%) of the assets of the Company (a “Business Combination”),
unless, immediately following such Business Combination, each of the following two conditions is satisfied: (x) all or substantially
all of the individuals and entities who were the beneficial owners of the Outstanding Company Common Stock and Outstanding Company
Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of the
then-outstanding shares of common stock and the combined voting power of the then-outstanding securities entitled to vote generally
in the election of directors, respectively, of the resulting or acquiring corporation in such Business Combination (which shall
include a corporation that as a result of such transaction owns the Company or substantially all of the Company’s assets
either directly or through one or more subsidiaries) (such resulting or acquiring corporation is referred to herein as the “Acquiring
Corporation”) in substantially the same proportions as their ownership of the Outstanding Company Common Stock and Outstanding
Company Voting Securities, respectively, immediately prior to such Business Combination and (y) no Person beneficially owns, directly
or indirectly, 50.01% or more of the then-outstanding shares of common stock of the Acquiring Corporation, or of the combined voting
power of the then-outstanding securities of such corporation entitled to vote generally in the election of directors (except to
the extent that such ownership existed prior to the Business Combination); or
(iii) a
change in the composition of the Board that results, during any one year period, in the Continuing Directors (as defined below)
no longer constituting a majority of the Board (or, if applicable, the Board of Directors of a successor corporation to the Company),
where the term “Continuing Director” means at any date a member of the Board (x) who was a member of the Board on the
Effective Date or (y) who was nominated or elected subsequent to such date by at least a majority of the directors who were Continuing
Directors at the time of such nomination or election or whose election to the Board was recommended or endorsed by at least a majority
of the directors who were Continuing Directors at the time of such nomination or election; provided, however, that there shall
be excluded from this clause (y) any individual whose initial assumption of office after the Effective Date occurred as a result
of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened
solicitation of proxies or consents, by or on behalf of a person other than the Board;
provided that,
solely with respect to an Award that constitutes “deferred compensation” subject to Section 409A of the Code (“Section
409A”) and that is payable on account of a Change in Control (including any installments or stream of payments that are accelerated
on account of a Change in Control), a Change in Control shall occur only if such event also constitutes a “change in the
ownership”, “change in effective control”, and/or a “change in the ownership of a substantial portion of
assets” of the Company as those terms are defined under Treasury Regulation §1.409A-3(i)(5), but only to the extent
necessary to establish a time or form of payment that complies with Section 409A, without altering the definition of Change in
Control for purposes of determining whether a Participant’s rights to such Award become vested or otherwise unconditional
upon the Change in Control.
(h)
“Change in Control Price” means, with respect to a Share, (i) if the Change in Control is the result
of a tender or exchange offer or a corporate transaction, the price per such Share paid in such tender or exchange offer or corporate
transaction; or (ii) if the Change in Control is not the result of a tender or exchange offer or a corporate transaction,
the Fair Market Value per Share on the date of the Change in Control. To the extent the consideration paid in any such transaction
described above consists in full or in part of securities or other noncash consideration, the value of such securities or other
noncash consideration shall be determined in the sole discretion of the Committee.
(i)
“Code” shall mean the Internal Revenue Code of 1986, as amended from time to time, and any successor
thereto.
(j)
“Committee” shall mean the Compensation Committee of the Board or such other persons or committee or
subcommittee to which it has delegated any authority, as may be appropriate.
| 2019 Proxy Statement B-2 |
(k)
“Company” shall mean HMS Holdings Corp., a Delaware corporation.
(l)
“Director” shall mean a member of the Board.
(m)
“Dividend Equivalent” shall mean an amount equal to any dividends or other distributions declared and
paid on an equal number of outstanding Shares.
(n)
“Effective Date” shall mean May 22, 2019, the date this Plan is effective.
(o)
“Employee” shall mean any employee of the Company or any Affiliate. For any and all purposes under this
Plan, the term “Employee” shall not include a person hired as an independent contractor, leased employee, consultant
or a person otherwise designated by the Committee, the Company or an Affiliate at the time of hire as not eligible to participate
in or receive benefits under the Plan or not on the payroll, even if such ineligible person is subsequently determined to be a
common law employee of the Company or an Affiliate or otherwise an employee by any governmental or judicial authority. Unless otherwise
determined by the Committee in its sole discretion, for purposes of the Plan, an Employee shall be considered to have terminated
employment or services and to have ceased to be an Employee if his or her employer ceases to be an Affiliate, even if he or she
continues to be employed by such employer.
(p)
“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.
(q)
“Fair Market Value” shall mean, with respect to Shares, as of any date, the closing price of the Shares
as reported on the Nasdaq Global Select Market (“Nasdaq”) for that date or, if no such prices are reported for that
date, the closing price on the next preceding date for which such prices were reported, unless otherwise determined by the Committee.
The Board or the Committee can substitute a particular time of day or other measure of “closing sale price” if appropriate
because of exchange or market procedures or can, in its sole discretion, use weighted averages either on a daily basis or such
longer period as complies with Section 409A.
(r)
“Incentive Stock Option” shall mean an Option granted under Section 6 that is intended to meet
the requirements of Section 422 of the Code or any successor provision thereto.
(s)
“Nonqualified Stock Option” shall mean either an Option granted under Section 6 that is not intended
to be an Incentive Stock Option or an Incentive Stock Option that has been disqualified.
(t)
“Option” shall mean any right granted to a Participant under the Plan allowing such Participant to purchase
Shares at such price or prices and during such period or periods as the Committee shall determine.
(u)
“Participant” shall mean an Employee or a non-employee Director who is selected by the Committee or
the Board from time to time in their sole discretion to receive an Award under the Plan.
(v)
“Performance Award” shall have the meaning set forth in Section 9 of the Plan.
(w)
“Performance Goals” shall have the meaning set forth in Section 9 of the Plan.
(x)
“Performance Period” shall mean that period established by the Committee at the time any Performance
Award is granted or at any time thereafter during which any performance goals specified by the Committee with respect to such Award
are to be measured.
(y)
“Performance Shares” shall have the meaning set forth in Section 9 of the Plan.
(z)
“Performance Units” shall have the meaning set forth in Section 9 of the Plan.
(aa) “Person”
shall mean any individual, corporation, partnership, association, limited liability company, joint-stock company, trust, unincorporated
organization or government or political subdivision thereof.
| 2019 Proxy Statement B-3 |
(bb) “Prior Plan”
shall mean the HMS Holdings Corp. Fourth Amended and Restated 2006 Stock Plan, as amended, the HDI Holdings, Inc. Amended 2011
Stock Option and Stock Issuance Plan and the HMS Holdings Corp. 2016 Omnibus Incentive Plan.
(cc) “Restricted
Period” shall have the meaning set forth in Section 8 of the Plan.
(dd) “Restricted
Stock” shall mean any Share issued with the restriction that the holder may not sell, transfer, pledge or assign such
Share and with such other restrictions as the Committee, in its sole discretion, may impose (including, without limitation, any
restriction on the right to vote such Share and the right to receive any cash dividends), which restrictions may lapse separately
or in combination at such time or times, in installments or otherwise, as the Committee may deem appropriate.
(ee) “Restricted
Stock Award” shall mean an award of Restricted Stock under Section 8 of the Plan.
(ff)
“Restricted Stock Unit” shall mean a unit that is valued by reference to a Share, which value may be
paid to the Participant by delivery of cash, Shares or such other property as the Committee shall determine and with such restrictions
as the Committee, in its sole discretion, may impose and which may lapse separately or in combination at such time or times, in
installments or otherwise, as the Committee may deem appropriate.
(gg) “Restricted
Stock Unit Award” shall mean an award of Restricted Stock Units under Section 8 of the Plan.
(hh) “Section 16
Participant” shall have the meaning set forth in Section 16 of the Plan.
(ii)
“Shares” shall mean the shares of common stock of the Company.
(jj)
“Spread” shall have the meaning set forth in Section 7 of the Plan.
(kk) “Stock Appreciation
Right” shall have the meaning set forth in Section 7 of the Plan.
(ll) “Substitute
Award” shall mean Awards granted or Shares issued by the Company in assumption of, or in substitution or exchange for,
awards previously granted, in each case by a company acquired by the Company or any Subsidiary or with which the Company or any
Affiliate combines.
The Plan shall be administered
by the Committee. The Committee shall have full power and authority, subject to such orders or resolutions not inconsistent with
the provisions of the Plan as may from time to time be adopted by the Board or the Committee, to (a) select the Employees
and directors of the Company and its Affiliates to whom Awards may from time to time be granted hereunder; (b) determine the
type or types of Award to be granted to each Participant hereunder; (c) determine the number of Shares to be covered by or
relating to each Award granted hereunder; (d) determine the terms and conditions, not inconsistent with the provisions of
the Plan, of any Award granted hereunder including, but not limited to, the exercise price, grant price, or purchase price, any
performance goals, any restrictions or limitations on the Award, any schedule for vesting that complies with the terms of the Plan,
lapse of forfeiture restrictions or restrictions on the exercisability of an Award, and accelerations or waivers thereof, and any
provisions related to clawback or recoupment with respect to an Award, based in each case on such considerations as the Committee
in its sole discretion determines; (e) determine whether, to what extent and under what circumstances Awards may be settled
in cash, Shares or other property or canceled or suspended; (f) determine whether, to what extent, and under what circumstances
payment of cash, Shares, other property and other amounts payable with respect to an Award made under the Plan shall be deferred
either automatically or at the election of the Participant in a manner consistent with Section 409A; (g) interpret and administer
the Plan and any instrument or agreement entered into under the Plan; (h) establish such rules and regulations and appoint
such agents as it shall deem appropriate for the proper administration of the Plan; and (i) make any other determination and
take any other action that the Committee deems necessary or desirable for administration of the Plan. The Committee may, in its
sole and absolute discretion, and subject to the provisions of the Plan, from time to time delegate any or all of its authority
to administer the Plan to any other persons or committee as it deems necessary or appropriate for the proper administration of
the Plan, except that no such delegation shall be made in the case of Awards intended to be qualified under Rule 16b-3 of the Exchange
Act. The decisions of the Committee shall be final, conclusive and binding with respect to the interpretation and administration
of the Plan and any grant made under it. The Committee shall make, in its sole discretion, all determinations arising in the administration,
construction or interpretation of the Plan and Awards under the Plan, including the right to construe disputed or doubtful Plan
or Award terms and provisions, and any such determination shall be conclusive and binding on all persons, except as otherwise provided
by law. A majority of the members of the Committee may determine its actions and fix the time and place of its meetings.
| 2019 Proxy Statement B-4 |
Except as provided in
Section 12, the Committee shall be authorized to make adjustments in Performance Award criteria or in the terms and conditions
of other Awards in recognition of unusual or nonrecurring events affecting the Company or its financial statements or changes in
applicable laws, regulations or accounting principles. The Committee may correct any defect, supply any omission or reconcile any
inconsistency in the Plan or any Award in the manner and to the extent it shall deem desirable to carry it into effect. In the
event that the Company shall assume outstanding employee benefit awards or the right or obligation to make future such awards in
connection with the acquisition of or combination with another corporation or business entity, the Committee may, in its discretion,
make such adjustments in the terms of Awards under the Plan as it shall deem appropriate.
SECTION 4. | Shares Subject
to the Plan |
(a)
Subject to adjustment as provided in Section 4(c), a total of 9,100,000 Shares shall be authorized for Awards granted
under the Plan, less one (1) Share for every one (1) Share subject to an option or stock appreciation right granted under the Prior
Plan after March 5, 2019 and 1.5 Shares for every one (1) Share subject to Awards other than options and stock appreciation rights
granted under the Prior Plan after March 5, 2019. Any Shares that are subject to Options or Stock Appreciation Rights shall be
counted against this limit as one (1) Share for every one (1) Share granted, and any Shares that are subject to Awards other than
Options or Stock Appreciation Rights shall be counted against this limit as 1.5 Shares for every one (1) Share granted. After the
Effective Date of the Plan, no awards may be granted under the Prior Plan.
(b)
Any Shares issued hereunder may consist, in whole or in part, of authorized and unissued Shares, treasury Shares or Shares
purchased in the open market or otherwise.
(c)
In the event of any merger, reorganization, consolidation, recapitalization, stock dividend, special cash dividend, stock
split, reverse stock split, spin-off or similar transaction or other change in corporate structure affecting the Shares, the equitable
adjustments and other substitutions shall be made to the Plan and to Awards as the Committee, in its sole discretion, deems necessary,
including, without limitation, such adjustments to performance criteria and in the aggregate number, class and kind of securities
that may be delivered under the Plan, in the aggregate or to any one Participant, in the number, class, kind and option or exercise
price of securities subject to outstanding Awards granted under the Plan (including, if the Committee deems appropriate, the substitution
of similar options to purchase the shares of, or other awards denominated in the shares of, another company) as the Committee may
determine to be appropriate in its sole discretion; provided, however, that the number of Shares subject to any Award shall always
be a whole number and further provided that in no event may any change be made to an Incentive Stock Option which would constitute
a modification within the meaning of Section 424(h)(3) of the Code.
(d)
Any Shares that are not purchased or awarded under an Award that has terminated or lapsed or has been forfeited, either
by its terms or pursuant to the exercise, in whole or in part, of an Award granted under the Plan and any Shares that are withheld
by the Company to satisfy the tax withholding obligation for Awards other than Options or Stock Appreciation Rights may be used
for the further grant of Awards. In addition, if Shares under an Award are not issued because the Award is settled in cash, the
Shares may be used for the further grant of Awards. Shares under this subsection that may be used for the further grant of Awards
shall be added back as one (1) Share if the Shares were subject to Options or Stock Appreciation Rights, and (ii) as
1.5 Shares if the Shares were subject to Awards other than Options or Stock Appreciation Rights. For purposes of determining the
number of Shares that are again available for further grants of Awards under this subsection, the term “Award” includes
any Prior Plan awards that are outstanding after March 5, 2019, and the term “Options or Stock Appreciation Rights”
includes any Prior Plan options and stock appreciation rights that are outstanding after March 5, 2019.
| 2019 Proxy Statement B-5 |
(e)
Notwithstanding anything to the contrary, the following Shares shall not be added to the maximum share limitations described
above: (i) Shares tendered or withheld by the Company in payment of the exercise price of an Option; (ii) Shares withheld
by the Company to satisfy the tax withholding obligations for Options or Stock Appreciation Rights; (iii) Shares subject to a Stock
Appreciation Right that are not issued in connection with its stock settlement on exercise thereof; and (iv) Shares reacquired
by the Company on the open market or otherwise using cash proceeds from the exercise of an Option. Stock Appreciation Rights that
may only be settled in cash will not reduce the number of Shares available for award under the Plan. For purposes of determining
the number of Shares that will not again be available for further grants of Awards under this subsection, the term “Options
or Stock Appreciation Rights” includes any Prior Plan options and stock appreciation rights that are outstanding after March
5, 2019.
(f)
To the extent consistent with the requirements of Section 422 of the Code and regulations thereunder with respect to
Shares available for Incentive Stock Options, and with other applicable legal requirements (including applicable stock exchange
requirements), Shares issued under awards of an acquired company that are converted, replaced, or adjusted in connection with the
acquisition will not reduce the number of Shares available for Awards under the Plan.
(g)
The maximum number of Shares subject to Awards granted during a single fiscal year to any non-employee Director, taken together
with any cash fees paid to such non-employee Director during the fiscal year, in respect of the Director’s service as a member
of the Board during such year (including, without limitation, service as a member or chair of any committees of the Board), shall
not exceed $500,000 in total value (calculating the value of any such Awards based on the grant date fair value of such Awards
for financial reporting purposes). The Committee may make exceptions to this limit for a non-executive chair of the Board or, in
extraordinary circumstances, for other individual non-employee Directors, as the Committee may determine in its discretion, provided
that the non-employee Director receiving such additional compensation may not participate in the decision to award such compensation.
(h)
Substitute Awards shall not reduce the Shares authorized for grant under the Plan, nor shall Shares subject to a Substitute
Award be added to the Shares available for Awards under the Plan as provided in Section 4(a) above. Additionally, in the event
that a company acquired by the Company or any subsidiary or with which the Company or any subsidiary combines has shares available
under a pre-existing plan approved by shareholders and not adopted in contemplation of such acquisition or combination, the shares
available for grant pursuant to the terms of such pre-existing plan (as adjusted, to the extent appropriate, using the exchange
ratio or other adjustment or valuation ratio or formula used in such acquisition or combination to determine the consideration
payable to the holders of common stock of the entities party to such acquisition or combination) may be used for Awards under the
Plan and shall not reduce the Shares authorized for grant under the Plan (and Shares subject to such Awards shall not be added
to the Shares available for Awards under the Plan as provided in Section 4(a) above), provided that Awards using such available
shares shall not be made after the date awards or grants could have been made under the terms of the pre-existing plan, absent
the acquisition or combination, and shall only be made to individuals who were not Employees or non-employee Directors of the Company
prior to such acquisition or combination.
Any Employee or non-employee
Director shall be eligible to be selected as a Participant; provided, however, that Incentive Stock Options shall only be awarded
to Employees of the Company, or a parent or subsidiary, within the meaning of Section 422 of the Code.
The Committee may grant
Options to any Participant, either alone or in addition to other Awards granted under the Plan and shall be subject to the following
terms and conditions and such other terms and conditions as the Committee may prescribe:
| 2019 Proxy Statement B-6 |
(a)
Option Price. Other than in connection with Substitute Awards, the option price per Share shall be not
less than the Fair Market Value of the Shares on the date the Option is granted.
(b)
Period of Stock Option. The period of each Option shall be fixed by the Committee, provided that the period
for all Options shall not exceed ten years from the grant date. The Committee may, subsequent to the granting of any Option, extend
the term thereof, but in no event shall the extended term exceed ten years from the original grant date. Notwithstanding the foregoing,
in the event that on the last business day of the term of an Option (other than an Incentive Stock Option) (i) the exercise of
the Option is prohibited by applicable law or (ii) Shares may not be purchased or sold by certain employees or directors of the
Company due to the “black-out period” of a Company policy or a “lock-up” agreement undertaken in connection
with an issuance of securities by the Company, the Committee may provide that the term of the Option shall be extended but not
beyond a period of thirty (30) days following the end of the legal prohibition, black-out period or lock-up agreement and provided
further that no extension will be made if the option price of such Option at the date the initial term would otherwise expire is
below the Fair Market Value unless such extension is permitted by Section 409A.
(c)
Exercise of Option and Payment Therefore. No Shares shall be issued until full payment of the option price
has been made. The option price may be paid in cash or, if the Committee determines, by the Participant tendering Shares or by
the Company withholding Shares otherwise issuable in connection with the exercise of the Option, a combination of cash and Shares,
or through a cashless exercise procedure that allows Participants to sell immediately some or all of the Shares underlying the
exercised portion of the Option in order to generate sufficient cash to pay the option price. If the Committee approves the use
of Shares as a payment method, the Committee shall establish such conditions as it deems appropriate for the use of common stock
to exercise an Option. Options awarded under the Plan shall be exercised through such procedure or program as the Committee may
establish or define from time to time, which may include a designated broker that must be used in exercising such Options.
(d)
First Exercisable Date. The Committee shall determine how and when Shares covered by an Option may be
purchased, provided that such terms shall not be inconsistent with the terms of the Plan. The Committee may establish waiting periods,
the dates on which Options become exercisable or “vested” and, subject to subsection (b) of this section, exercise
periods, subject to the terms of the Plan. The Committee may accelerate the exercisability of any Option or portion thereof, subject
to the terms of the Plan.
(e)
Termination of Participant’s Employment or Service. Unless determined otherwise by the Committee,
upon the termination of a Participant’s employment or service (for any reason other than gross misconduct), Option exercise
privileges shall be limited to the Options that were immediately exercisable at the date of such termination. The Committee, however,
in its discretion, may provide that any Options outstanding but not yet exercisable upon the termination of a Participant’s
employment or service may become exercisable in accordance with a schedule determined by the Committee. Such Option exercise privileges
shall expire unless exercised within such period of time after the date of termination of employment or service as may be established
by the Committee, but in no event later than the expiration date of the Option.
(f)
Termination Due to Gross Misconduct. If a Participant’s employment or Board service is terminated
for gross misconduct, as determined by the Company, all rights under his or her Options shall expire upon the date of such termination.
(g)
Limits on Incentive Stock Options. Except as may otherwise be permitted by the Code, an Employee may not
receive a grant of Incentive Stock Options for Shares that would have an aggregate Fair Market Value in excess of $100,000 (or
such other amount as the Internal Revenue Service may decide from time to time), determined as of the time that the Incentive Stock
Option is granted, that would be exercisable for the first time by such person during any calendar year. If any grant is made in
excess of the limits provided in the Code, such grant shall automatically become a Nonqualified Stock Option. In no event will
Incentive Stock Options be granted to any Participant who owns more than ten percent of the stock of the Company within the meaning
of Section 422 of the Code. Solely for purposes of determining whether Shares are available for the grant of Incentive Stock
Options under the Plan, the maximum aggregate number of Shares that may be issued pursuant to Incentive Stock Options granted under
the Plan shall be 9,100,000 Shares as of the Effective Date, subject to adjustment as provided in Section 4(c) and (f) (and
shareholder approval of the Plan) to the extent consistent with the requirements of Section 422 of the Code and regulations
thereunder, and reduced by Shares subject to any Awards granted under the Prior Plan after March 5, 2019.
| 2019 Proxy Statement B-7 |
(h)
No Dividend Equivalents. Anything in the Plan to the contrary notwithstanding, no dividends or Dividend
Equivalents may be paid on Options.
SECTION 7. | Stock
Appreciation Rights |
The Committee may grant
a right to receive the appreciation in the Fair Market Value of Shares (“Stock Appreciation Right”) to any Participant.
A Stock Appreciation Right may be granted without any related Option, or may be granted in tandem with an Option, either on the
date of grant of the Option or at any time thereafter during the term of the Option. Stock Appreciation Rights shall
be subject to the following terms and conditions and such other terms and conditions as the Committee may prescribe:
(a)
Period of Stock Appreciation Right. The period for exercise of the Stock Appreciation Right shall be
set by the Committee, provided that the period for all Stock Appreciation Rights shall not exceed ten years from the grant date.
Notwithstanding the foregoing, in the event that on the last business day of the term of a Stock Appreciation Right (x) the exercise
of the Stock Appreciation Right is prohibited by applicable law or (y) Shares may not be purchased or sold by certain employees
or directors of the Company due to the “black-out period” of a Company policy or a “lock-up” agreement
undertaken in connection with an issuance of securities by the Company, the Committee may provide that the term of the Stock Appreciation
Right shall be extended but not beyond a period of thirty (30) days following the end of the legal prohibition, black-out period
or lock-up agreement and provided further that no extension will be made if the grant price of such Stock Appreciation Right at
the date the initial term would otherwise expire is below the Fair Market Value unless such extension is permitted by Section 409A.
(b)
Value of Stock Appreciation Right. Other than in connection with a Substitute Award, a Stock Appreciation
Right shall have a grant price per Share of not less than the Fair Market Value of one Share on the date of grant or, if applicable,
on the date of grant of an Option with respect to a Stock Appreciation Right granted in exchange for or in tandem with, but subsequent
to, the Option (subject to the requirements of Section 409A). A Participant who is granted a Stock Appreciation Right will receive
upon exercise of the Stock Appreciation Right an amount equal to the excess of the Fair Market Value of the Shares on the date
the election to surrender such Stock Appreciation Right is received by the Company, in accordance with exercise procedures established
by the Company, over the Fair Market Value of the Shares on the date of grant multiplied by the number of Shares covered by the
grant of the Stock Appreciation Right (the “Spread”). Notwithstanding the foregoing, in its sole discretion the Committee
at the time it grants a Stock Appreciation Right may provide that the Spread covered by such Stock Appreciation Right may not exceed
a specified amount.
(c)
Payment of Stock Appreciation Right. Payment of a Stock Appreciation Right shall be in the form of Shares,
cash or any combination of Shares and cash. The form of payment upon exercise of such a right shall be determined by the Committee
either at the time of grant of the Stock Appreciation Right or at the time of exercise of the Stock Appreciation Right.
(d)
No Dividend Equivalents. Anything in the Plan to the contrary notwithstanding, no dividends or Dividend
Equivalents may be paid on Stock Appreciation Rights.
SECTION 8. | Restricted
Stock Awards and Restricted Stock Unit Awards |
The Committee may grant
Restricted Stock Awards and Restricted Stock Unit Awards to any Participant, which Awards shall be subject to the following terms
and conditions and such other terms and conditions as the Committee may prescribe:
(a)
Requirement of Employment or Board Membership. A Participant who is granted a Restricted Stock Award or
Restricted Stock Unit Award must remain an Employee or a Director of the Company during a period designated by the Committee (“Restricted
Period”) in order to vest in or receive the Shares, cash or combination thereof under the Restricted Stock Award or Restricted
Stock Unit Award. If the Participant ceases being an Employee or a Director of the Company prior to the end of the Restricted Period,
the Restricted Stock Award or Restricted Stock Unit Award shall terminate and any Shares subject to a Restricted Stock Award shall
be returned immediately to the Company, provided that the Committee may, at the time of the grant, provide for the employment or
Board membership restriction to lapse with respect to a portion or portions of the Restricted Stock Award or Restricted Stock Unit
Award at different times during the Restricted Period. The Committee may, in its discretion, also provide for such complete or
partial exceptions to the employment or Board membership restriction as it deems equitable.
| 2019 Proxy Statement B-8 |
(b)
Restrictions on Transfer and Legend on Stock Certificates. During the Restricted Period, the Participant
may not sell, assign, transfer, pledge or otherwise dispose of the Restricted Stock Award or Restricted Stock Unit Award, including
but not limited to any Shares. Any certificate for Shares issued hereunder shall contain a legend giving appropriate notice of
the restrictions in the Award.
(c)
Escrow Agreement. The Committee may require the Participant to enter into an escrow agreement providing
that any certificates representing the Restricted Stock Award will remain in the physical custody of an escrow holder until all
restrictions are removed or expire.
(d)
Lapse of Restrictions. All restrictions imposed under the Restricted Stock Award or Restricted Stock Unit
Award shall lapse upon the expiration of the Restricted Period if the conditions as to employment or Board membership set forth
above have been met. The Participant shall then be entitled to have the legend removed from any certificates for Restricted Stock.
Restricted Stock Awards and Restricted Stock Unit Awards may be paid in the form of Shares, cash or any combination of Shares and
cash as determined by the Committee. The Committee may establish rules and procedures to permit a Participant to defer recognition
of income upon the expiration of the Restricted Period.
(e)
Dividends and Dividend Equivalents.
(i)
Restricted Stock will accrue ordinary cash dividends, unless the Board or the Committee determines otherwise and applicable
law permits such nonaccrual. Participants holding shares of Restricted Stock will only be entitled to such cash dividends if specifically
provided in the applicable Award Agreement, will only receive the dividends if the Restricted Stock vests, and will then receive
dividends only prospectively unless the Board, the Committee or the applicable Award Agreement provides for the payment of prior
dividends upon or after vesting. Any dividend payment will be made no later than the latest of the end of the calendar year in
which the dividends are paid to shareholders of that class of stock, the 15th day of the third month following the date the dividends
are paid to shareholders of that class of stock, or the 15th day of the third month following the date on which the Restricted
Stock to which the dividends pertain vests. If any dividends or distributions are paid in shares, or consist of a dividend or distribution
to holders of Shares other than an ordinary cash dividend, the Shares, cash or other property will be subject to the same restrictions
on transferability and forfeitability as the shares of Restricted Stock with respect to which they were paid.
(ii)
To the extent provided by the Board or the Committee, a Restricted Stock Unit Award may include the right to Dividend Equivalents.
Dividend Equivalents may be settled in cash and/or Shares and will be subject to the same vesting conditions and restrictions on
transfer and forfeitability as the Restricted Stock Units with respect to which they are paid, as determined by the Board or the
Committee in its sole discretion. Any Dividend Equivalent payments will be made no later than the latest of the end of the calendar
year in which the dividends are paid to shareholders of the class of stock underlying the Restricted Stock Units, the 15th day
of the third month following the date the dividends are paid to shareholders of that class of stock, or the 15th day of the third
month following the date on which the Restricted Stock Unit to which the dividends pertain vests, absent a further deferral that
complies with Section 409A.
(iii)
Notwithstanding any other provision of the Plan to the contrary, with respect to any Restricted Stock Award or Restricted
Stock Unit Award that provides for or includes a right to dividends or Dividend Equivalents, if dividends are declared during the
period that such Restricted Stock Award or Restricted Stock Unit Award is outstanding, such dividends or Dividend Equivalents shall
not be paid to a Participant unless and until the Restricted Stock Award or Restricted Stock Unit Award to which they relate has
vested.
| 2019 Proxy Statement B-9 |
(f)
Performance Goals. The Committee may, but is not required to, issue Restricted Stock Awards or Restricted
Stock Unit Awards under Section 9 conditioned on the achievement of one or more Performance Goals (as defined in Section 9(a)).
(g)
Vesting. The restrictions on each Restricted Stock Award or Restricted Stock Unit Award will lapse at
such time or times, and on such conditions, as the Committee may specify.
SECTION 9. | Performance
Awards |
The Committee may grant
Awards denominated in Shares (“Performance Shares”) or denominated in dollars (“Performance Units”) if
the performance of the Company or its subsidiaries during one or more Performance Periods contained within the Award Period (as
defined below) meets certain goals established by the Committee (“Performance Awards”). Subject to adjustment as provided
in Section 4(c), the following limits will apply to Awards of the specified type granted to any one Participant in any single fiscal
year:
(x) Appreciation
Awards – Options and Stock Appreciation Rights: 1,500,000 Shares;
(y) Full
Value Awards – Restricted Stock Award, Restricted Stock Unit Award, Performance Shares, and Dividend Equivalents: 1,000,000
Shares; and
(z) Cash Awards
– Performance Units: $5,000,000.
In applying the foregoing
limits, (a) all Awards of the specified type granted to the same Participant in the same fiscal year will be aggregated and made
subject to the applicable limit; (b) the limits applicable to Options and Stock Appreciation Rights refer to the number of Shares
subject to those Awards; (c) the Share limit under clause (y) refers to the maximum number of Shares that may be delivered under
an Award or Awards of the type specified in clause (y) assuming a maximum payout; and (d) the dollar limit under clause (z) refers
to the maximum dollar amount payable under an Award or Awards of the type specified in clause (z) assuming a maximum payout. The
limit specified for Cash Awards is in addition to, and not in replacement of or counted into, the dollar value limit on awards
made to any Participant in a 12-month period under the Company’s Annual Incentive Compensation Plan, as may be amended from
time to time. Performance Awards shall be subject to the following terms and conditions and such other terms and conditions as
the Committee may prescribe:
(a)
Award Period and Performance Goals. The Committee shall determine and include in a Performance Award grant
the period of time for which a Performance Award is made (“Award Period”). The Committee also shall establish performance
objectives (“Performance Goals”) to be met during any one or more Performance Periods contained within the Award Period
as a condition to payment of the Performance Award. The Performance Goals shall be based on attainment of one or any combination
of the following performance criteria, as determined under generally accepted accounting principles (“GAAP”) (where
applicable for matters subject to GAAP) or as otherwise adjusted and reported by the Company as non-GAAP measures, which may include,
without limitation: net sales; revenue; revenue growth or product revenue growth; operating income (before or after taxes); pre-
or after-tax income (before or after allocation of corporate overhead and bonuses); earnings per share; net income (before or after
taxes); return on equity; total shareholder return; return on assets or net assets; appreciation in and/or maintenance of the price
of the Shares or any other publicly-traded securities of the Company; market share; gross profits; earnings (including earnings
or losses before taxes, before interest and taxes, or before interest, taxes, depreciation and amortization); economic value-added
models or equivalent metrics; comparisons with various stock market indices; reductions in costs; cash flow or cash flow per share
(before or after dividends); return on capital (including return on total capital or return on invested capital); cash flow return
on investment; improvement in or attainment of expense levels or working capital levels, including cash, and accounts receivable;
operating margin; gross margin; year-end cash; cash margin; debt reduction; shareholders equity; operating efficiencies; and client
growth.
| 2019 Proxy Statement B-10 |
The Performance Goals
designated by the Committee may be based solely by reference to the Company’s performance or the performance of an Affiliate,
division, business segment or business unit of the Company, or based upon the relative performance of other companies or upon comparisons
of any of the indicators of performance relative to other companies. The Committee may provide that any evaluation of performance
may include or exclude charges or adjustments related to an event or occurrence that the Committee determines should appropriately
be included or excluded because it involves (i) restructurings, discontinued operations, or items that are unusual in nature or
infrequently occurring, (ii) the cumulative effects of tax or accounting changes in accordance with GAAP, or (iii) foreign exchange
gains and losses. Performance Goals may include any other financial or other criteria established by the Committee.
(b)
Payment of Performance Awards. The Committee shall establish the method of calculating the amount of payment
to be made under a Performance Award if the Performance Goals are met, including the fixing of a maximum payment. After the completion
of each Performance Period within an Award Period, the performance of the Company or its subsidiary shall be measured against the
Performance Goals, and the Committee shall determine, in accordance with the terms of such Performance Award, whether all, none
or any portion of a Performance Award shall be paid. The Committee, in its discretion, may elect to make payment in Shares, cash
or a combination of Shares and cash. Any cash payment with respect to an Award denominated in Shares shall be based on the Fair
Market Value of Shares on, or as soon as practicable prior to, the date of payment. The Committee may establish rules and procedures
to permit a Participant to defer recognition of income upon the attainment of a Performance Award.
(c)
Revision of Performance Goals. The Committee may revise the Performance Goals and the computation of payment
if unforeseen events occur which have a substantial effect on the performance of the Company or its subsidiary and which, in the
judgment of the Committee, make the application of the Performance Goals unfair unless a revision is made.
(d)
Requirement of Employment. A Participant who is granted a Performance Award must remain an Employee of
the Company or its subsidiaries until the completion of the Award Period in order to be entitled to payment under the Performance
Award; provided that the Committee may, in its discretion, provide for a full or partial payment where such an exception is deemed
equitable or where multiple Performance Periods are contained within an Award Period.
(e)
Dividends. The Committee may, in its discretion, at the time of the granting of a Performance Award, provide
that any dividends declared on the Shares during the Award Period, and which would have been paid with respect to Performance Shares
had they been owned by a Participant, be (i) paid to the Participant to the extent that the Performance Shares are earned,
(ii) accumulated for the benefit of the Participant and used to increase the number of Performance Shares of the Participant
or (iii) not paid or accumulated. In no event will dividends or Dividend Equivalents be paid on unearned Performance Awards.
SECTION 10. | Other
Share-Based Awards and Cash Awards |
(a) Other
Share-Based Awards. Other Awards of Shares, and other Awards that are valued in whole or in part by reference to, or are otherwise
based on, Shares, may be granted hereunder to Participants (“Other Share-Based-Awards”), including without limitation
Awards entitling recipients to receive Shares to be delivered in the future. Such Other Share-Based Awards shall also be available
as a form of payment in the settlement of other Awards granted under the Plan or as payment in lieu of compensation to which a
Participant is otherwise entitled. Other Share-Based Awards may be paid in Shares or cash, as the Board or the Committee shall
determine. Subject to the provisions of the Plan, the Board or the Committee shall determine the terms and conditions of each Other
Share-Based Award, including any conditions for vesting and repurchase (or forfeiture) and purchase price applicable thereto (applying
principles like those set forth in Section 8(g) above and with the same carve outs).
| 2019 Proxy Statement B-11 |
(b) Cash
Awards. The Board or the Committee may grant Awards hereunder to Participants that are solely payable in cash (“Cash
Awards”), that are valued in whole or in part by reference to, or otherwise based on, Shares or that are based on such other
criteria or measures as determined by the Committee in its sole discretion. The terms and conditions of any such Cash Award shall
be specified in the applicable Award Agreement.
SECTION 11. | Change
in Control Provisions |
(a)
Unless provided otherwise in the terms of a particular Award, and notwithstanding any other provision of the Plan to the
contrary, in the event a Participant’s employment or service is involuntarily terminated without cause (as determined by
the Committee or Board in its sole discretion) during the 24-month period following a Change in Control:
(i) any
Options and Stock Appreciation Rights outstanding, which are not then exercisable and vested, shall become immediately fully vested
and exercisable;
(ii) the
restrictions and deferral limitations applicable to any Restricted Stock Award or Restricted Stock Unit Award shall lapse, and
such Restricted Stock and Restricted Stock Units shall immediately become free of all restrictions and limitations and become fully
vested and transferable to the full extent of the original grant;
(iii) all
Performance Awards shall be considered to be earned and payable in full, based on the applicable performance criteria or, if not
determinable, at the target level and any deferral or other restriction shall lapse and such Performance Awards shall be immediately
settled or distributed;
(iv) the
restrictions and deferral limitations and other conditions applicable to any Other Share-Based Awards or any other Awards shall
immediately lapse, and any such other Awards shall become free of all restrictions, limitations or conditions and become fully
vested and transferable to the full extent of the original grant.
(b) Unless
provided otherwise in the terms of a particular Award, to the extent the successor company does not assume or substitute an Award,
then immediately prior to the Change in Control:
(i) those
Options and Stock Appreciation Rights outstanding as of the date of the Change in Control that are not assumed or substituted for
(or continued) shall immediately vest and become fully exercisable;
(ii) restrictions,
limitations and other conditions applicable to Restricted Stock and Restricted Stock Units that are not assumed or substituted
for (or continued) shall lapse and the Restricted Stock and Restricted Stock Units shall become free of all restrictions, limitations
and conditions and become fully vested;
(iii) the
restrictions, other limitations and other conditions applicable to any Other Share-Based Awards or any other Awards that are not
assumed or substituted for (or continued) shall lapse, and such Other Share-Based Awards or such other Awards shall become free
of all restrictions, limitations and conditions and become fully vested and transferable to the fullest extent of the original
grant; and
(iv) any
performance based Award shall be deemed fully earned at the target amount as of the date on which the Change of Control occurs.
(c) Change
in Control Cash Out. Notwithstanding any other provision of the Plan, in the event of a Change in Control the Committee
or Board may, in its discretion, provide that each Option or Stock Appreciation Right shall, upon the occurrence of a Change in
Control, be cancelled in exchange for a cash payment to be made within 60 days of the Change in Control in an amount equal
to the amount by which the Change in Control Price per Share exceeds the purchase price per Share under the Option or Stock Appreciation
Right multiplied by the number of Shares granted under the Option or Stock Appreciation Right. Any Option or Stock Appreciation
Rights whose purchase price per Share exceeds the Change in Control Price per Share may be cancelled without payment of consideration.
| 2019 Proxy Statement B-12 |
(d) Compliance
with Section 409A. In the case of an Award providing for the payment of deferred compensation subject to Section 409A,
any payment of such deferred compensation by reason of a Change in Control shall be made only if the Change in Control is one described
in subsection (a)(2)(A)(v) of Section 409A and the guidance thereunder and shall be paid consistent with the requirements
of Section 409A. If any deferred compensation that would otherwise be payable by reason of a Change in Control cannot be paid
by reason of the immediately preceding sentence, it shall be paid as soon as practicable thereafter consistent with the requirements
of Section 409A, as determined by the Committee.
SECTION 12. | Amendments
and Termination |
(a) The
Board may amend, suspend or terminate the Plan or any portion thereof at any time provided that (i) no amendment that would require
shareholder approval under the rules of Nasdaq may be made effective unless and until the Company’s shareholders approve
such amendment; and (ii) if Nasdaq amends its corporate governance rules so that such rules no longer require shareholder approval
of material amendments to equity compensation plans, then, from and after the effective date of such amendment to the Nasdaq rules,
no amendment to the Plan (A) materially increasing the number of shares authorized under the Plan (other than pursuant to Section
4 or 11), (B) expanding the types of Awards that may be granted under the Plan, or (C) materially expanding the class of Participants
eligible to participate in the Plan shall be effective unless and until the Company’s shareholders approve such amendment.
In addition, if at any time the approval of the Company’s shareholders is required as to any other modification or amendment
under Section 422 of the Code or any successor provision with respect to Incentive Stock Options, the Board may not effect such
modification or amendment without such approval. Unless otherwise specified in the amendment, any amendment to the Plan adopted
in accordance with this Section 12 shall apply to, and be binding on the holders of, all Awards outstanding under the Plan at the
time the amendment is adopted, provided the Board determines that such amendment, taking into account any related action, does
not materially and adversely affect the rights of Participants under the Plan. Notwithstanding the foregoing, without consent of
affected Participants, Awards may be amended, revised or revoked when necessary to avoid penalties under Section 409A.
(b) Unless
such action is approved by the Company’s shareholders, the Company may not, with respect to any outstanding Option or Stock
Appreciation Right granted under the Plan (except as provided for under Section 4(c) or Section 11): (i) amend any Option or Stock
Appreciation Right to provide an exercise price or measurement price per share that is lower than the then-current exercise price
or measurement price per share of such outstanding Option or Stock Appreciation Right, (ii) cancel any Option or Stock Appreciation
Right and grant in substitution therefor new Awards under the Plan covering the same or a different number of Shares and having
an exercise price or measurement price per share lower than the then-current exercise price or measurement price per share of the
cancelled option or stock appreciation right, (iii) cancel for cash any Options or Stock Appreciation Rights that have exercise
prices or measurement prices per share above the then-current Fair Market Value, other than under Section 12, or (iv) take any
other action that constitutes a “repricing” within the meaning of the rules of Nasdaq, provided that nothing in this
Section 12(b) shall prevent the Board or the Committee from making adjustments pursuant to Section 4(c), exchanging or cancelling
Awards pursuant to a Change in Control as provided in Section 11 or substituting Awards in accordance with Section 4(h).
SECTION 13. | Transferability |
Each Incentive Stock Option
granted under the Plan shall not be transferable other than by will or the laws of descent and distribution; each other Award granted
under the Plan will not be transferable or assignable by the recipient, and may not be made subject to execution, attachment or
similar procedures, other than by will or the laws of descent and distribution or as determined by the Committee in accordance
with the Exchange Act or any other applicable law or regulation. Notwithstanding the foregoing, the Committee, in its discretion,
may adopt rules permitting the transfer, solely as gifts during the grantee’s lifetime, of Options (other than Incentive
Stock Options) to members of a Participant’s immediate family or to trusts, family partnerships or similar entities for the
benefit of such immediate family members. For this purpose, immediate family member means the Participant’s spouse, parent,
child, stepchild, grandchild and the spouses of such family members. The terms of an Option shall be final, binding and conclusive
upon the beneficiaries, executors, administrators, heirs and successors of the grantee.
| 2019 Proxy Statement B-13 |
SECTION 14. | General
Provisions |
(a)
Nothing in the Plan shall be construed to limit the right of the Company to establish other plans or to pay compensation
to its employees, in cash or property, in a manner that is not expressly authorized under the Plan.
(b)
Nothing in the Plan shall be construed (i) to limit, impair or otherwise affect the Company’s right or power
to make adjustments, reclassifications, reorganizations or changes of its capital or business structure, or to merge or consolidate,
or dissolve, liquidate, sell or transfer all or any part of its business or assets, or (ii) except as provided in Section 12,
to limit the right or power of the Company or its subsidiaries to take any action which such entity deems to be necessary or appropriate.
(c)
The Participant must satisfy all applicable federal, state, and local or other income and employment tax withholding obligations
before the Company will deliver stock certificates or otherwise recognize ownership of Shares under an Award. The Company may decide
to satisfy the withholding obligations through additional withholding on salary or wages. If the Company elects not to or cannot
withhold from other compensation, the Participant must pay the Company the full amount, if any, required for withholding or have
a broker tender to the Company cash equal to the withholding obligations. Payment of withholding obligations is due before the
Company will issue any Shares on exercise, vesting or release from forfeiture of an Award or, if the Company so requires, at the
same time as payment of the exercise or purchase price, unless the Company determines otherwise. If provided for in an Award or
approved by the Board or the Committee in its sole discretion, a Participant may satisfy such tax obligations in whole or in part
by delivery (either by actual delivery or attestation) of Shares, including Shares retained from the Award creating the tax obligation,
valued at their Fair Market Value; provided, however, except as otherwise provided by the Board or the Committee, that the total
tax withholding where stock is being used to satisfy such tax obligations cannot exceed the Company’s minimum statutory withholding
obligations (based on minimum statutory withholding rates for federal and state tax purposes, including payroll taxes, that are
applicable to such supplemental taxable income) or, if permitted by the Company, such other rate as will not cause adverse accounting
consequences and is permitted under applicable IRS withholding rules. Shares used to satisfy tax withholding requirements cannot
be subject to any repurchase, forfeiture, unfulfilled vesting or other similar requirements.
(d)
Any proceeds received by the Company under the Plan shall be added to the general funds of the Company and shall be used
for such corporate purposes as the Board or the Committee shall direct.
(e)
Nothing in the Plan or any Award granted under the Plan shall be deemed to constitute an employment or service contract
or confer or be deemed to confer on any Employee or Participant any right to continue in the employ or service of, or to continue
any other relationship with, the Company or any Affiliate or limit in any way the right of the Company or any Affiliate to terminate
an Employee’s employment or a Participant’s service at any time, with or without cause.
(f)
All certificates for Shares delivered under the Plan pursuant to any Award shall be subject to such stock-transfer orders
and other restrictions as the Committee may deem advisable under the rules, regulations and other requirements of the Securities
and Exchange Commission, any stock exchange upon which the Shares are then listed, and any applicable federal or state securities
law, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions.
(g)
No Award granted hereunder shall be construed as an offer to sell securities of the Company, and no such offer shall be
outstanding, unless and until the Committee in its sole discretion has determined that any such offer, if made, would comply with
all applicable requirements of the U.S. federal securities laws and any other laws to which such offer, if made, would be
subject.
| 2019 Proxy Statement B-14 |
(h)
Any Award shall contain a provision that it may not be exercised at a time when the exercise thereof or the issuance of
shares thereunder would constitute a violation of any federal or state law or listing requirements of Nasdaq for such shares or
a violation of any foreign jurisdiction where Awards are or will be granted under the Plan.
(i)
The Board may from time to time establish one or more sub-plans under the Plan for purposes of satisfying applicable securities,
tax or other laws of various jurisdictions. The Board shall establish such sub-plans by adopting supplements to the Plan containing
(i) such limitations on the Board’s discretion under the Plan as the Board deems necessary or desirable or (ii) such additional
terms and conditions not otherwise inconsistent with the Plan as the Board shall deem necessary or desirable. All supplements adopted
by the Board shall be deemed part of the Plan, but each supplement shall apply only to Participants within the affected jurisdiction
and the Company shall not be required to provide copies of any supplement to Participants in any jurisdiction that is not the subject
of such supplement.
(j)
The provisions of the Plan shall be construed, regulated and administered according to the laws of the State of Delaware
without giving effect to principles of conflicts of law, except to the extent superseded by any controlling federal statute.
(k)
If any provision of the Plan is or becomes or is deemed invalid, illegal or unenforceable in any jurisdiction, or would
disqualify the Plan or any Award under any law deemed applicable by the Committee, such provision shall be construed or deemed
amended to conform to applicable laws or if it cannot be construed or deemed amended without, in the determination of the Committee,
materially altering the intent of the Plan, it shall be stricken and the remainder of the Plan shall remain in full force and effect.
(l)
If approved by the Committee in its sole discretion, an Employee’s absence or leave because of military or governmental
service, disability or other reason shall not be considered an interruption of employment for any purpose under the Plan.
(m)
Anything to the contrary in the Plan notwithstanding, the Committee may (i) offset any Award by amounts reasonably
believed to be owed to the Company by the Participant and (ii) disallow an Award to be exercised or otherwise payable during
a time when the Company is investigating reasonably reliable allegations of gross misconduct by the Participant.
(n)
Awards under the Plan are intended either to be exempt from the rules of Section 409A or to satisfy those rules and
shall be construed accordingly. However, the Company shall not be liable to any Participant or other holder of an Award with respect
to any Award-related adverse tax consequences arising under Section 409A or other provision of the Code.
The Plan shall terminate
on the tenth anniversary of the Effective Date, unless sooner terminated by the Board pursuant to Section 12.
SECTION 16. | Compliance
with Section 16 of the Exchange Act |
With respect to Participants
subject to Section 16 of the Exchange Act (“Section 16 Participants”), transactions under the Plan are intended
to comply with all applicable conditions of Rule 16b-3 or its successors under the Exchange Act. To the extent that compliance
with any Plan provision applicable solely to such Section 16 Participants that is included solely for purposes of complying
with Rule 16b-3 is not required in order to bring a transaction by such Section 16 Participant in compliance with Rule 16b-3,
it shall be deemed null and void as to such transaction, to the extent permitted by law and deemed advisable by the Committee.
To the extent any provision in the Plan or action by the Committee involving such Section 16 Participants is deemed not to
comply with an applicable condition of Rule 16b-3, it shall be deemed null and void as to such Section 16 Participants,
to the extent permitted by law and deemed advisable by the Committee.
| 2019 Proxy Statement B-15 |
SECTION 17. | Limitations on Liability |
Notwithstanding any other
provisions of the Plan, no individual acting as a Director, officer, Employee or agent of the Company will be liable to any Participant,
former Participant, spouse, beneficiary, or any other person for any claim, loss, liability, or expense incurred in connection
with the Plan (“Claim”), nor will such individual be personally liable with respect to the Plan because of any contract
or other instrument he or she executes in his or her capacity as a Director, officer, Employee or agent of the Company. The Company
will fully indemnify and hold harmless each Director, officer, Employee or agent of the Company to whom any duty or power relating
to the administration or interpretation of the Plan has been or will be delegated, against any cost or expense (including attorneys’
fees) or liability (including any sum paid in settlement of a claim with the Board’s or the Committee’s approval) arising
out of any act or omission to act concerning the Plan unless arising out of such person’s own fraud or bad faith. Except
to the extent required by any unwaiveable requirement under applicable law, no member of the Board or the Committee (and no Affiliate)
shall have any duties or liabilities, including without limitation any fiduciary duties, to any Participant (or any Person claiming
by and through any Participant) as a result of this Plan, any Award Agreement or any Claim arising hereunder.
Notwithstanding anything
to the contrary, an Award Agreement may provide that the Committee may cancel such Award if the Participant has engaged in or engages
in activity that is in conflict with or adverse to the interest of the Company while employed by or providing services to the Company
or any subsidiary, including fraud or conduct contributing to any financial restatements or irregularities. The Committee may also
provide in an Award Agreement that, in such event, the Participant will forfeit any compensation, gain or other value realized
thereafter on the vesting, exercise or settlement of such Award, the sale or other transfer of such Award, or the sale of Shares
acquired in respect of such Award, and must promptly repay such amounts to the Company. The Committee may also provide in an Award
Agreement that if the Participant receives any amount in excess of what the Participant should have received under the terms of
the Award for any reason (including without limitation by reason of a financial restatement, mistake in calculations or other administrative
error), then the Participant shall be required to promptly repay any such excess amount to the Company. Furthermore, to the extent
required by applicable law (including, without limitation, Section 304 of the Sarbanes-Oxley Act and Section 954 of the Dodd-Frank
Wall Street Reform and Consumer Protection Act) and/or the rules and regulations of Nasdaq or any other securities exchange or
inter-dealer quotation service on which the Shares are listed or quoted, or if so required pursuant to a written policy adopted
by the Company, Awards shall be subject (including on a retroactive basis) to clawback, forfeiture or similar requirements.
| 2019 Proxy Statement B-16 |
![](http://www.sec.gov/Archives/edgar/data/1196501/000117184319002384/proxy_1.jpg)
![](http://www.sec.gov/Archives/edgar/data/1196501/000117184319002384/proxy_2.jpg)
This regulatory filing also includes additional resources:
def14a_courtesy.pdf
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