UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
PROXY STATEMENT PURSUANT
TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant
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Filed by a Party other than the Registrant
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Check the appropriate box:
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Preliminary Proxy Statement
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Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
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Definitive Proxy Statement
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Definitive Additional Materials
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Soliciting Material Under
§240.14a-12
COMMUNITY HEALTH SYSTEMS, INC.
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
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No fee required
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Fee computed on table below per Exchange Act
Rules 14a-6(i)(1) and
0-11.
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Title of each class of securities to which transaction applies:
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Aggregate number of securities to which transaction applies:
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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):
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Proposed maximum aggregate value of transaction:
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Total fee paid:
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Fee paid previously with preliminary materials.
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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.
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Amount previously paid:
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Form, Schedule or Registration Statement No.:
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Date Filed:
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April 6, 2017
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DEAR FELLOW STOCKHOLDERS,
I am pleased to announce the Community Health Systems, Inc. 2017 Annual Meeting. The attached Notice of Annual Meeting of
Stockholders and Proxy Statement describe the business to be considered and voted on during that meeting. I encourage you to read the Proxy Statement carefully for more information.
It is important that your shares be represented at the Annual Meeting. Whether or not you plan on attending the meeting, the
Company would appreciate your efforts to vote your shares. Additional information on this process can be found in the Proxy Statement.
I do not believe that communication begins and ends with the Annual Meeting. We look forward to a continuing dialogue with
our stockholders in the future. Thank you for your investment in Community Health Systems, Inc. and your support.
Sincerely,
Wayne T. Smith
Chairman and Chief Executive Officer
COMMUNITY HEALTH SYSTEMS, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
Tuesday, May 16, 2017
8:00 a.m. (Central Time)
Franklin Marriott Cool Springs, 700 Cool Springs Blvd., Franklin, Tennessee 37067
The Annual Meeting of Stockholders of Community Health Systems, Inc. will be held on Tuesday, May 16, 2017 at
8:00 a.m. (Central Time) at the Franklin Marriott Cool Springs, 700 Cool Springs Blvd., Franklin, Tennessee 37067, to consider and act upon the following matters:
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To elect eight (8) directors, each to serve for a term of one year to expire at the 2018 Annual Meeting of Stockholders;
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To hold an advisory vote on executive compensation;
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To hold an advisory vote on the frequency with which stockholders are provided an advisory vote on the compensation of our Named Executive Officers;
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To ratify the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2017;
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To consider a stockholder proposal described in the accompanying proxy statement if the stockholder proposal is properly presented for consideration at the Annual Meeting; and
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To transact such other business as may properly come before the meeting and any adjournment or postponement thereof.
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The close of business on March 20, 2017, has been fixed as the record date for
the determination of stockholders entitled to notice of and to vote at the meeting and any adjournment or postponement thereof.
YOU ARE REQUESTED, WHETHER OR NOT YOU PLAN TO BE PRESENT AT THE MEETING, TO VOTE OVER THE INTERNET, BY TELEPHONE, OR
COMPLETE, DATE, SIGN AND RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED ENVELOPE. IF YOU ATTEND THE MEETING AND WISH TO VOTE YOUR SHARES PERSONALLY, YOU MAY DO SO AT ANY TIME BEFORE THE PROXY IS EXERCISED. IF YOU HOLD YOUR SHARES THROUGH A BANK,
BROKER OR OTHER NOMINEE, YOU MAY VOTE YOUR SHARES BY THE METHODS SPECIFIED ON THE VOTING INSTRUCTION FORM THAT THEY PROVIDE. WE ENCOURAGE YOU TO VOTE YOUR SHARES AS SOON AS POSSIBLE.
By Order of the Board of Directors,
Christopher G. Cobb
Corporate Secretary
Franklin, Tennessee
April 6, 2017
ANNUAL MEETING OF STOCKHOLDERS OF
COMMUNITY HEALTH SYSTEMS, INC.
PROXY
STATEMENT
Table of Contents
FORWARD-LOOKING STATEMENTS
This Proxy Statement contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended,
Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995 that involve risk and uncertainties. All statements in this Proxy Statement other than statements of historical fact, including
statements regarding projections, expected operating results, and other events that depend upon or refer to future events or conditions or that include words such as expects, anticipates, intends,
plans, believes, estimates, thinks, and similar expressions, are forward-looking statements. Although the Company believes that these forward-looking statements are based on reasonable assumptions,
these assumptions are inherently subject to significant economic and competitive uncertainties and contingencies, which are difficult or impossible to predict accurately and may be beyond the control of the Company. Accordingly, the Company cannot
give any assurance that its expectations will in fact occur and cautions that actual results may differ materially from those in the forward-looking statements. A number of factors could affect the future results of the Company or the healthcare
industry generally and could cause the Companys expected results to differ materially from those expressed in this Proxy Statement. These factors including, without limitation, the risks and uncertainties disclosed in our public filings with
the Securities and Exchange Commission, including in our Annual Report on Form
10-K
for the year ended December 31, 2016, filed with the SEC on February 21, 2017. We undertake no obligation to update
or revise publicly any forward-looking statements, whether because of new information, future events, or otherwise.
SUMMARY
This summary highlights information about Community Health Systems, Inc. (the Company, we,
our, or us) and certain information contained elsewhere in this Proxy Statement. Our stockholders will be asked to consider and vote on the matters listed below at our 2017 Annual Meeting of Stockholders. This summary does
not contain all of the information that you should consider, and you should read the entire Proxy Statement before voting. In addition, for more complete information about the Companys business and details about the Companys 2016
performance highlights and the financial measures mentioned in this Proxy Statement, please review the Companys Annual Report on Form
10-K
filed with the Securities and Exchange Commission on
February 21, 2017.
FINANCIAL PERFORMANCE HIGHLIGHTS
As we look back, 2016 was a transitional year for the Company, during which we made a number of changes to our business with a
focus on improving our performance and efficiency. The good news is that we exited 2016 as a stronger company than when we began the year, and we expect to be an even stronger company one year from today. The Company began to reshape our
portfolio through the
spin-off
of Quorum Health Corporation and other divestitures, the
re-alignment
of our divisions, the consolidation of many of our back office
functions, and the promotion and addition of a number of new leaders all with a focus on improving our execution and performance.
We believe that reshaping our portfolio will enable us to have a sharper focus on our most attractive and sustainable markets
moving forward. In April 2016, we completed the
spin-off
of 38 affiliated hospitals to create Quorum Health Corporation. These were predominantly smaller hospitals operating in rural communities. In addition,
we sold our portion of a joint venture in Las Vegas, Nevada in May, and a majority interest in our home care business in December. For the last half of the year, we began work on a series of transactions that would further reduce the number of
hospitals and
non-hospital
businesses we operate and refine our portfolio to core markets where we see the best opportunity for future growth. We believe this will reduce our debt, improve our debt leverage
ratios, improve our performance, and increase shareholder value.
Our performance highlights during 2016 and 2015 are
reflected in the chart below.
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Performance
Highlights
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For the Years Ended December 31, 2016 and 2015
(dollars in millions, except per share
amounts)
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Key Metrics
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2016
Results
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2015
Results
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% Increase/
(Decrease)
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Net Operating Revenues
(1)
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$18,438
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$19,437
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(5.1)%
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Net (loss) income attributable to Community Health Systems Inc. stockholders
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$(1,721)
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$158
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(1189.2)%
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Net (loss) income attributable to
Community Health Systems Inc. stockholders as a % of net operating revenues
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(9.3)%
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0.8%
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(1262.5)%
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Adjusted EBITDA
(1)(2)
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$2,225
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$2,670
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(16.7)%
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Adjusted EBITDA as a percentage of net operating revenues
(1)(2)
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12.1%
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13.7%
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(11.7)%
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Cash Flow from Operations
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$1,137
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$921
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23.5%
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(Loss) income per Diluted Share from Continuing Operations, as reported
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$(15.41)
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$1.68
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(1017.3)%
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Income per Diluted Share from Continuing Operations, excluding Adjustments
(1)(2)
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$0.46
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$2.29
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(79.9)%
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Stock Price as of December 31
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$5.59
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$21.84
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(74.4)%
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(1) Includes a $169 million increase in the Companys allowance for doubtful accounts on the December 31, 2015 consolidated balance sheet and
a corresponding $169 million increase to the provision for bad debts related to a change in estimate recorded during the three months ended December 31, 2015. This adjustment reduced net operating revenues and adjusted EBITDA by
$169 million and income from continuing operations by $108 million, or $0.94 per share (diluted), for the year ended December 31, 2015.
(2) Adjusted EBITDA and Income per Diluted Share from Continuing Operations, excluding adjustments, are
non-GAAP
financial measures. For a definition of these
non-GAAP
financial measures and why we believe these
non-GAAP
financial measures present useful information to investors,
as well as a reconciliation of these
non-GAAP
financial measures to the most comparable GAAP measures, see Annex A.
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S-1
During the period from 2012 through 2016, our revenues
grew approximately 66%, while our adjusted EBITDA grew approximately 44%. In 2016, we began to reshape our portfolio through a number of divestitures. As part of these efforts, we have been focused on our most attractive and sustainable markets
where we believe we can invest capital, improve access, expand outpatient services, build our acute care service lines and earn greater market share. We believe these efforts will help to position the company for long-term success as well as produce
enhanced long-term shareholder value.
(1) Includes a $169 million increase in the Companys allowance for doubtful accounts on the
December 31, 2015 consolidated balance sheet and a corresponding $169 million increase to the provision for bad debts related to a change in estimate recorded during the three months ended December 31, 2015. This adjustment reduced
net operating revenues and adjusted EBITDA by $169 million and income from continuing operations by $108 million, or $0.94 per share (diluted) for the year ended December 31, 2015.
(2) Income (Loss) per Diluted Share from Continuing Operations, as adjusted, reflects our reported Income (Loss) per Diluted Share from
Continuing Operations for the periods presented adjusted for certain items as reflected on Annex A. For a definition and reconciliation of Adjusted EBITDA and Income per Diluted Share from Continuing Operations excluding adjustments, and why we
believe these
non-GAAP
financial measures present useful information to investors, see Annex A.
S-2
BOARD OF DIRECTORS NOMINEES
Upon the recommendation of our Governance and Nominating Committee, our Board of Directors has nominated eight (8) people
for election at this Annual Meeting to hold office until the next annual meeting and the election of their successors. A more detailed biography of each director can be found on pages 16 to 20 of the Proxy Statement.
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Name/Experience/Occupation
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Director
Since
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Committee
Memberships
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John A. Clerico
Mr. Clerico brings executive leadership experience to the Board. He has held positions
of Chairman of the Board, CEO,
Co-COO,
CFO and Treasurer during various points in his career working for such notable companies as Praxair and Union Carbide. He is currently Chairman and registered financial
advisor of ChartMark Investments.
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2003
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Audit and Compliance*, Compensation
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James S. Ely III
Mr. Ely founded PriCap Advisors LLC (formerly known as Priority Capital Management
LLC) in 2008 and has served as its Chief Executive Officer since inception. He has extensive banking experience having worked as senior banker and managing director in JP Morgans syndicated and leveraged finance group.
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2009
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Audit and Compliance
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John A. Fry
Mr. Fry currently serves as President of Drexel University in Philadelphia,
Pennsylvania. Prior to that, he served as President of Franklin & Marshall College in Lancaster, Pennsylvania. Mr. Fry has unique experience as the president of an academic institution along with prior experience with the University of
Pennsylvania health system.
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2004
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Audit and
Compliance,
Governance and Nominating
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William Norris Jennings, M.D.
Dr. Jennings is currently retired after more than 43 years as a practicing family
medicine physician, most recently with KentuckyOne Health in Louisville, Kentucky. He brings a recently-practicing physicians perspective to the Board and has hands on experience managing large physician practices.
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2008
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Governance and Nominating
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Julia B. North
Ms. North is the Lead Director. She is currently retired. Ms. North has served in
many senior executive positions including President of Consumer Services for Bellsouth Telecommunications. She currently serves on the boards of directors of Acuity Brands, Inc. and Lumos Networks Corp.
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2004
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Governance and Nominating*, Compensation
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Wayne T. Smith
Mr. Smith is Chairman and Chief Executive Officer. Mr. Smith joined the company
in 1997 and was subsequently elected to the Board. He has over 30 years of experience in the hospital and managed care industry. He serves on the board of Praxair and on the Board of Trustees of Auburn University.
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1997
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Chairman
of the Board
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H. James Williams, Ph.D.
Dr. Williams currently serves at the President of Mount St. Joseph University in
Cincinnati, Ohio. Prior to that, he served as president of Fisk University in Nashville, Tennessee. He brings diverse experience in finance, law and higher education to the Board.
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2015
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Audit and Compliance
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Tim L. Hingtgen
Mr. Hingtgen is President and Chief Operating Officer and joined the company in 2008.
Mr. Hingtgen has over 20 years of healthcare management experience and is a highly accomplished hospital operator with a track record of successfully optimizing hospital operations and developing regional healthcare networks.
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Nominee
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* Chairman of Committee
S-3
CORPORATE GOVERNANCE HIGHLIGHTS
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Annual election of directors
Directors elected by
majority vote
Independent directors comprise super-majority of the Board
Comprehensive Code of Conduct and Corporate Governance Guidelines
Written charters for all
Board Committees which
are reviewed
annually
Limits on the number of
other public company
boards on which our directors may serve
Risk oversight by full Board and Board Committees
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Ownership
guidelines for directors and executive officers aligned with industry standards
Policy prohibiting pledging and hedging of our stock
Strong compliance program
Resignation policy for directors in failed elections
All Board Committees consist solely of independent directors
New independent Lead Director of the Board of Directors, who presides
at regularly scheduled executive sessions of our Board
98% average Board and Committee meeting attendance in 2016
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Annual Board and Board Committee Self-Evaluations
Board participation in executive succession planning sessions
Compensation clawback policy
Strong pay-for-
performance philosophy
One class of voting shares outstanding
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STOCKHOLDER ENGAGEMENT
We value our stockholders perspective on our business and each year interact with stockholders through a variety of
stockholder engagement activities. In 2016, our key stockholder engagement activities included one investor road show, attendance at 13 investor conferences, nine large group investor and prospective investor meetings held at our corporate offices,
and our 2016 Annual Meeting of Stockholders. Our Investor Relations department is the contact point for stockholder interaction with the Company. Stockholders may also access investor information about the Company through our website
www.chs.net/investor-relations
. For questions concerning Investor Relations, you may call (615)
465-7000
or email us from the Contact Us section on our website
(
www.chs.net/contact-us/
).
S-4
ALIGNING PAY AND PERFORMANCE
2016 Executive Compensation
In 2016, the Company was focused on its portfolio rationalization and deleveraging plan as well as expense reduction efforts.
Further, the Company was focused on the expansion of service lines that the Company believes have the greatest growth potential, including orthopedics, neuroscience, cardiovascular care, womens health and cancer care. The Company believes that
these efforts will ultimately result in a stronger Company. Despite the progress made in these areas, the Company did not meet several of its financial expectations in 2016, as initially set forth in the Companys earnings release issued in
February 2016 and as subsequently adjusted to reflect the removal from the 2016 operating results of 38 hospitals and Quorum Health Resources as a result of the
spin-off
of Quorum Health Corporation as well as
the sale of the Companys minority equity interests in five hospitals located in Las Vegas, Nevada, all of which occurred during the second quarter of 2016. Consistent with the Companys
pay-for-performance
philosophy, this resulted in the annual cash incentive compensation and total compensation paid to our named executive officers for 2016 being significantly less than the target cash
incentive award that could have been earned if the Company had achieved all of its financial goals. In addition, as a result of the Companys practice of granting executives approximately the same number of restricted shares each year (absent
any change in responsibility, competitive positioning as compared to the peers, etc.), each of our named executive officers experienced a significant reduction in the value of equity awards granted to them in 2016 as the result of the decline in our
stock price in late 2015 and 2016.
During 2015, we spoke with and received feedback regarding executive compensation and
other matters from stockholders that held approximately 78% of our shares outstanding at that time. In response to this feedback, we revised the performance criteria used for 2016 performance-based restricted stock awards, to increase the level of
achievement required to earn the performance-based restricted stock awards replacing 75% of the
low-end
target range of projected earnings per share (as had been used in prior years) with the attainment
of 90% of the
low-end
target range of Adjusted EBITDA. As a result, the performance criteria for 2016 performance-based restricted stock awards required the satisfaction of one of two performance measures, the
attainment of 90% of the
low-end
target range of 2016 Adjusted EBITDA; or the attainment of 90% of the
low-end
target range of 2016 net operating revenue, both as based
on the Adjusted 2016 Performance Objectives.
We remain committed to a continuing dialogue between stockholders and the
Company to fully understand and consider stockholder concerns on executive compensation and other topics that are important to our stockholders. Following the advisory vote on our executive compensation at our 2016 Annual Meeting of Stockholders,
our Compensation Committee and management, in consultation with Mercer, responded by undertaking a thorough
re-evaluation
of our executive compensation program in light of current trends in public company pay
practices. As a result of that
re-evaluation
following our 2016 Annual Meeting, our Compensation Committee proposed several changes to our executive compensation program for 2017. We consulted with
stockholders that held a majority of our shares outstanding at that time and solicited their feedback on our existing executive compensation program as well as the proposed changes. The members of our independent Compensation Committee and our other
outside directors were available to speak directly with these stockholders if desired. These stockholders generally supported the proposed changes to our executive compensation plan.
Our Compensation Committee considered the feedback and suggestions we received in light of both market best practices and
what we believe to be necessary to execute a
best-in-class
compensation program that successfully addresses our senior executive talent attraction and retention needs.
After considering all of these factors, our Compensation Committee made several changes to our executive compensation program for 2017. For 2017, the total cash incentive compensation bonus opportunity for
S-5
each of our named executive officers has been revised to provide for a lower incentive compensation bonus opportunity for fully achieving the Companys financial goals. The Compensation
Committee also revised the long-term incentive methodology for our named executive officers to provide for three-year, rather than
one-year,
performance targets. In addition, our Chief Executive Officer and
Chief Financial Officer did not receive any increase in their base salary for 2017.
Going forward, we will continue to
evaluate our executive compensation program in light of stockholder feedback, governance best practices, regulatory requirements, economic and industry factors, and competitive considerations. We intend to continue to make changes, as applicable,
that both ensure the alignment between the interests of our stockholders and our executives and reflect industry-leading executive compensation practices.
KEY FEATURES OF OUR COMPENSATION SYSTEM
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What We Do
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What We Dont
Do
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Pay for Performance A significant portion of the compensation for our NEOs is in the form of
at-risk
variable compensation.
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Excessive Perquisites Perquisites represent less than 1% of our NEOs compensation.
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Multiple Performance Metrics Cash incentive compensation is based on multiple measures to encourage balanced initiatives.
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Employment Agreements All of our NEOs are employed on an
at-will
basis.
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Total Shareholder Return is a factor in the Chief Executive Officers and Chief Financial Officers incentive compensation.
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Excise Tax
Gross-ups
are not offered for any new executives covered under the Companys
Change-in-Control
Severance Agreements.
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Stock Ownership Guidelines All NEOs are subject to our stock ownership requirements.
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Single-trigger
change-of-control
severance payments Companys Plan documents prohibit
single-trigger change in control severance payments.
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Clawback Provisions Our policy provides for the adjustment or recovery of compensation in certain circumstances.
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Pledging or Hedging Company policy prohibits directors, executives, and certain other employees from pledging or hedging their stock in the Company.
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Award Caps All of our annual cash incentive compensation plans have caps on plan formulas.
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Repricing of underwater stock options Companys Plan documents prohibit any repricing.
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Risk Assessment The Compensation Committee regularly assesses the risk levels of the Companys executive compensation program.
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Use a representative and relevant peer group.
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Use an independent compensation consultant.
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S-6
2016 COMPENSATION PROGRAM
The Companys executive compensation philosophy is to develop and utilize a combination of compensation elements that
reward current period performance, continued service, and attainment of future goals, and is designed to encourage the retention of executive talent. The key elements of executive compensation are linked either directly or indirectly to enhancing
stockholder value. Attainment of annual incentive compensation requires achievement of targets with challenging thresholds and incentive compensation for above-target performance is capped. The Company continues to develop its compensation policies,
programs, and disclosures to provide transparency and accountability to all of its stakeholders.
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ELEMENT
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PURPOSE
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KEY CHARACTERISTICS
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BASE SALARY
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Reflects responsibility, leadership, tenure, qualifications and contribution to the Company and the competitive marketplace for our industry.
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Fixed compensation that is reviewed annually and adjusted if and when appropriate.
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EMPLOYEE
PERFORMANCE
INCENTIVE PLAN
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Motivates executives to achieve our short-term business objectives that drive long-term benefit.
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At Risk annual cash awards based on corporate performance compared to multiple
pre-established
short-term performance goals.
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RESTRICTED STOCK AWARDS
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Motivates executives to achieve our business objectives by tying incentives to the performance of our common stock over the long term; links the interest of our executives and stockholders;
serves as a retention tool by mitigating swings in incentive values.
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Long-term restricted stock award with a ratable vesting period over three years. The same number of restricted stock awards is typically
granted every year. The ultimate value realized varies with our common stock price. NEO restricted stock awards are performance based.
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RETIREMENT AND DEFERRED COMPENSATION
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Motivates executives to encourage and reward their continued service through their most productive years.
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Supplemental benefit after retirement that is based on years of service and annual retirement benefit.
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OTHER BENEFITS
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Provides benefits that promote employee health and work-life balance, which assist in attracting and retaining our executives.
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Other benefits consist of health and welfare plans and minimal perquisites.
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Our Compensation Pay Mix
We believe that at risk compensation focuses our management on achieving our key financial, strategic and business goals. For fiscal 2016, approximately 82% of
the Chief Executive Officers target direct compensation value, and more than 75% of our other named executive officers average target direct compensation value, was at risk in the form of short-term cash incentive awards and
performance-based restricted stock awards. Actual amounts realized for these programs are dependent upon our annual or longer-term performance and in the case of such stock awards subject to fluctuations in our stock price. The graphs below
regarding target total direct compensation reflect the base salary, target short-term cash incentive opportunity and grant date fair value of our annual equity grants made in 2016. In addition, the graphs below regarding actual total direct
compensation reflect 2016 base salary, actual 2016 cash incentive actually paid and grant date fair value of our annual equity grants made in 2016 (in addition, both the actual and the target graphs exclude benefits, and elements included in the
All Other Compensation column of the Summary Compensation Table). Our financial results for 2016 did not meet several of the financial thresholds set forth in the employee performance incentive plan which resulted in meaningfully lower
cash incentive compensation for the year.
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S-7
ROAD MAP OF VOTING ITEMS
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VOTING ITEM
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BOARD
RECOMMENDATION
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PAGE
REFERENCE
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PROPOSAL 1.
ELECTION OF DIRECTORS
We are asking stockholders to vote on each director nominee to our Board. The Board and the Governance and Nominating Committee believe that the director
nominees have the qualifications, experience and skills necessary to represent our stockholders interests through service on the Board.
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FOR
each nominee
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PROPOSAL 2.
ADVISORY VOTE ON EXECUTIVE COMPENSATION
The Company has designed its executive compensation program with a mix of compensation elements with the purpose of generating a compensation package that is
competitive with an appropriate peer group, provides for the attainment of performance and growth objectives through annual target incentive cash compensation and long-term incentive awards of stock-based compensation, aligns the interests of
executive management with stockholders, and retains and attracts valuable executive talent. We are submitting to our stockholders a nonbinding advisory vote to enable them to express their views with respect to the compensation of our named
executive officers as described in this proxy statement. The Board values stockholders opinions and the Compensation Committee will take into account the outcome of the advisory vote when considering future executive compensation
decisions.
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FOR
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PROPOSAL
3.
ADVISORY VOTE ON THE FREQUENCY OF AN ADVISORY VOTE ON EXECUTIVE COMPENSATION
The Company is providing stockholders with an advisory vote on
whether the advisory vote on executive compensation should be held every one, two or three years. The Board believes that a frequency of every one year for the advisory vote on executive compensation continues to be the optimal interval
for holding a say on pay vote.
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FOR
every one year
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PROPOSAL
4.
RATIFICATION OF THE APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Audit and Compliance Committee has appointed
Deloitte & Touche to serve as the Companys independent registered public accounting firm for the fiscal year ending December 31, 2017. The Audit and Compliance Committee believes that the continued retention of
Deloitte & Touche to serve as the independent auditor is in the best interests of the Company and its stockholders. Stockholders are being asked to ratify the Audit and Compliance Committees selection of Deloitte &
Touche.
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FOR
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60
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PROPOSAL
5.
STOCKHOLDER PROPOSAL REGARDING VESTING OF EQUITY AWARDS IN A CHANGE IN CONTROL
The Board is recommending that stockholders vote
against this stockholder proposal for the reasons described in the opposition statement beginning on page 63 of this Proxy Statement, including because implementing the proposal would cause our change in control provisions with respect to
future equity grants to significantly deviate from market standards and would disrupt the alignment between executive and stockholder interests, resulting in a loss of flexibility during a time of uncertainty which would be associated with any
potential change in control event. We believe that the Compensation Committee should continue to retain the flexibility to design and administer competitive compensation programs which reflect market conditions, taking into account ongoing
feedback we receive from our stockholders.
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AGAINST
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62
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S-8
ANNUAL MEETING OF STOCKHOLDERS
OF
COMMUNITY HEALTH SYSTEMS, INC.
4000 Meridian Boulevard
Franklin, Tennessee
37067
PROXY STATEMENT
April 6,
2017
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE STOCKHOLDERS MEETING TO BE HELD ON MAY 16, 2017: THIS PROXY
STATEMENT, THE FORM OF PROXY CARD AND THE 2016 ANNUAL REPORT TO STOCKHOLDERS ARE AVAILABLE AT WWW.CHS.NET. ADDITIONALLY, AND IN ACCORDANCE WITH SECURITIES AND EXCHANGE COMMISSION (SEC) RULES, YOU MAY ACCESS OUR PROXY MATERIALS AT
WWW.PROXYVOTE.COM
INTRODUCTION
Solicitation
This Proxy Statement, the form of proxy
card and the 2016 Annual Report to Stockholders (with
Form 10-K
for the year ended December 31, 2016) of Community Health Systems, Inc. (the Company) are being mailed or made
available to stockholders beginning on or about April 6, 2017. The Board of Directors of the Company (the Board or the Board of Directors) is soliciting your proxy to vote your shares at the Companys 2017 Annual
Meeting of Stockholders (the Meeting). The Board is soliciting your proxy to give all stockholders the opportunity to vote on matters that will be presented at the Meeting. This Proxy Statement provides you with information on these
matters to assist you in voting your shares.
For simplicity of presentation throughout this Proxy Statement, we refer to employees of our indirect
subsidiaries as employees of the Company, our employees or similar language. Notwithstanding this presentation style, the Company itself does not have any employees. Similarly, the healthcare operations and businesses
described in this Proxy Statement are owned and operated and management services provided by distinct and indirect subsidiaries of the Company.
When and where will the Meeting be held?
The Meeting will be held on Tuesday, May 16, 2017 at 8:00 a.m. (Central Daylight Time) at the Franklin Marriott Cool Springs, 700 Cool Springs
Boulevard, Franklin, Tennessee 37067.
Why did I receive a
one-page
notice in the mail regarding the
internet availability of proxy materials instead of a full set of proxy materials?
Pursuant to SEC rules, the Company has elected to
provide access to our proxy materials over the internet. Accordingly, we are sending to many of our stockholders a Notice of Internet Availability of Proxy Materials (a Notice) instead of sending a paper copy of the proxy materials. All
stockholders receiving a Notice will have the ability to access the proxy materials on a website referenced in the Notice or to request a printed set of proxy materials. Instructions on how to access the proxy materials over the internet or to
request printed copies may be found in the Notice and in this proxy statement. In addition, the Notice contains instructions on how you may request to access proxy materials in printed form by mail or electronically on an ongoing basis. We encourage
stockholders to take advantage of the availability of the proxy materials on the internet to help reduce the environmental impact of our annual meetings, and reduce the cost to the Company associated with the printing and mailing of proxy materials.
What is a proxy?
A proxy is
your legal designation of another person (the proxy) to vote on your behalf. By completing and returning the enclosed proxy card, you are giving the Chief Executive Officer or the Secretary of the Company the authority to vote your
shares in the manner you indicate on your proxy card.
1
Why did I receive more than one proxy card?
You will receive multiple proxy cards if you hold your shares in different ways (e.g., joint tenancy, trusts, and custodial accounts) or in multiple
accounts. You should vote on and sign each proxy card you receive. If your shares are held by a broker, bank, trustee or other nominee (i.e., in street name), you will receive voting instructions from your broker, bank, trustee or other
nominee regarding how you may vote such shares.
Voting Information
Who is qualified to vote?
You are
qualified to receive notice of and to vote on the matters described in this Proxy Statement if you owned shares of common stock of the Company (Common Stock) at the close of business on our record date of Monday, March 20, 2017.
How many shares of Common Stock may vote at the Meeting?
As of March 20, 2017, there were 114,686,164 shares of Common Stock outstanding and entitled to vote. Each share of Common Stock is entitled to one
vote on each matter presented.
What is the difference between a stockholder of record and a street name holder?
These terms describe how your shares are held. If your shares are registered directly in your name with American Stock Transfer &
Trust Company, LLC, the Companys transfer agent, you are a stockholder of record. If your shares are held in the name of a brokerage, bank, trust or other nominee as a custodian, you are a street name holder.
How do I vote my shares?
If you are
a stockholder of record, you can vote your proxy by mailing in the enclosed proxy card or you can use one of the alternatives below:
To vote by telephone:
1-800-690-6903
To
vote by internet: www.proxyvote.com
Please refer to the specific instructions set forth on the enclosed proxy card. In addition, please have
the 16 digit control number, located on the proxy card, available when voting your shares. If you choose to vote your shares by telephone or through the internet, there is no need for you to mail back your proxy card.
If you received a Notice instead of printed copies of the proxy materials, you should follow the voting instructions set forth in the Notice.
If you hold your shares in street name, your broker, bank, trustee or other nominee will provide you with materials and instructions for
voting your shares, which may allow you to use the internet or a toll free telephone number to vote your shares.
Can I vote my shares in
person at the Meeting?
If you are a stockholder of record, you may vote your shares in person at the Meeting. If you hold your
shares in street name, you must obtain a proxy from your broker, bank, trustee or other nominee, giving you the right to vote the shares at the Meeting. In order to be admitted to the Meeting, you must present valid government-issued
photo identification and proof of ownership of the Companys stock as of the record date. This can be a brokerage statement or letter from a bank indicating ownership on the record date, a proxy card, or a legal proxy provided by your broker,
bank, trustee or other nominee.
2
What are the Boards recommendations on how I should vote my shares?
The Board recommends that you vote your shares as follows:
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Proposal 1
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FOR
the election of each of the eight (8) nominees for director: John A. Clerico, James S. Ely III, John A. Fry, Tim L. Hingtgen, William Norris Jennings, M.D., Julia B. North, Wayne T. Smith, and H. James Williams,
Ph.D., to
one-year
terms expiring at the 2018 Annual Meeting of Stockholders.
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Proposal 2
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FOR
the approval, on an advisory basis, of the compensation of our named executive officers, as disclosed in this Proxy Statement.
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Proposal 3
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FOR
the option of every one year, on an advisory basis, as to the frequency with which stockholders are provided future advisory votes on the compensation of our named executive officers.
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Proposal 4
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FOR
the ratification of the appointment of Deloitte & Touche LLP as the Companys independent registered public accounting firm (independent auditors) for the fiscal year ending December 31, 2017.
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Proposal 5
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AGAINST
the stockholder proposal regarding vesting of equity awards in a change in control.
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How would my shares be voted if I do not specify how they should be voted?
If you are a stockholder of record and you sign and return your proxy card without indicating how you want your shares to be voted, your shares will be
voted in accordance with the Boards recommendations for the proposals listed above and in the discretion of the named proxies regarding any other matters properly presented for a vote at the Meeting.
If you are a beneficial owner of shares held in street name and do not provide the broker, bank, trustee or other nominee that holds your shares with
specific voting instructions, under the rules of the New York Stock Exchange (NYSE), the broker, bank, trustee or other nominee that holds your shares may generally vote on routine matters without instructions from you. We
expect the ratification of the appointment of Deloitte & Touche LLP as the Companys independent registered public accounting firm for the fiscal year ending December 31, 2017 (Proposal 4) to be the only proposal that is
considered a routine matter. Accordingly, if your shares are held through a broker, bank, trust or other nominee, that person will have discretion to vote your shares on only that matter if you fail to provide instructions.
On the other hand, under NYSE rules, your broker, bank, trustee or other nominee is not entitled to vote your shares on any
non-routine
matters if it does not receive instructions from you on how to vote. The election of directors (Proposal 1), the approval, on an advisory basis, of named executive officer compensation
(Proposal 2), the vote on the frequency of future advisory votes on named executive officer compensation (Proposal 3), and the stockholder proposal regarding vesting of equity awards in a change in control (Proposal 5) will be considered
non-routine
matters. Thus, if you do not give your broker, bank, trustee or other nominee specific instructions on how to vote your shares with respect to those proposals, your broker, bank, trustee or
other nominee will inform the Inspectors of Election that it does not have the authority to vote on those matters with respect to your shares. This is generally referred to as a broker
non-vote.
A
broker
non-vote
may also occur if your broker, bank, trustee or other nominee fails to vote your shares for any reason.
Therefore, if you hold your shares through a broker, bank, trustee or other
nominee,
please instruct that person regarding how to vote your shares on at least Proposals 1, 2, 3, and 5.
How many votes must
be present to hold the Meeting?
The presence, in person or represented by proxy, of the holders of a majority of the shares of Common Stock
issued and outstanding on the record date for the Meeting will constitute a quorum for the transaction of business at the Meeting.
3
How are abstentions and broker
non-votes
treated?
Abstentions are deemed to be present at the Meeting, are counted for quorum purposes and, other than for the election of
directors (Proposal 1) and the frequency of when we will hold advisory votes on named executive officer compensation (Proposal 3), will have the same effect as a vote against the matter. In the case of Proposal 1, an abstention will not be
deemed to be a vote cast either for or against any nominee. In the case of Proposal 3, an abstention will have no impact on the outcome of the vote. Broker
non-votes,
if any, while counted for general
quorum purposes, will have no effect on the voting results for any
non-routine
matter in respect of which there may be broker
non-votes.
Can I change my vote?
If you are a
stockholder of record, you may revoke your proxy by doing one of the following:
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By sending a written notice of revocation to the Secretary of the Company that must be received prior to the Meeting, stating that you revoke your proxy;
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By signing a later-dated proxy card and submitting it so that it is received prior to the Meeting in accordance with the instructions included in the proxy card;
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By submitting another vote by telephone or over the internet; or
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By attending the Meeting and voting your shares in person before your proxy is exercised at the Meeting.
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If you hold your shares in street name, your broker, bank, trustee or other nominee will provide you with instructions on how to revoke your
proxy.
What vote is required to approve each proposal?
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Proposal
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Vote Required
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Broker
Discretionary
Voting Allowed
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Proposal 1
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Election of
eight (8) directors
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Votes Cast for the Election of that Nominee Must Exceed Votes Cast Against the Election of that Nominee
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No
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Proposal 2
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Advisory vote on executive compensation
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Majority of the Shares Entitled to Vote and Present in Person or Represented by Proxy
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No
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Proposal 3
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Advisory vote on frequency of future advisory votes on executive compensation
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Plurality of Votes Cast
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No
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Proposal 4
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Ratification of auditors for 2017
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Majority of the Shares Entitled to Vote and Present in Person or Represented by Proxy
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Yes
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Proposal 5
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Stockholder proposal regarding vesting of equity awards in a change in control
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Majority of the Shares Entitled to Vote and Present in Person or Represented by Proxy
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No
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With respect to Proposal 1, you may vote FOR, AGAINST or ABSTAIN with respect to each nominee. If you ABSTAIN
from voting on Proposal 1 with respect to any nominee, the abstention will not have any effect on the outcome of the vote with respect to such nominee.
With respect to Proposals 2, 4, and 5, you may vote FOR, AGAINST or ABSTAIN. If you ABSTAIN from voting on any of Proposals 2, 4, or 5,
the abstention will have the same effect as an AGAINST vote.
With respect to Proposal 3, you may vote FOR Every One Year, FOR Every Two
Years, FOR Every Three Years or ABSTAIN. If you ABSTAIN from voting on Proposal 3, the abstention will not have any effect on the outcome of the vote.
4
Who will count the votes?
Representatives from Broadridge Financial Solutions, Inc. will count the votes and serve as our Inspectors of Election. The Inspectors of Election will
be present at the Meeting.
Who pays the cost of proxy solicitation?
The Company pays the costs of soliciting proxies. The Company has engaged Georgeson Inc. to aid in the solicitation of proxies for a fee of
approximately $14,000, plus reimbursement of reasonable expenses. Upon request, the Company will reimburse brokers, banks, trustees or their other nominees for reasonable expenses incurred by them in forwarding proxy materials to beneficial owners
of shares of the Companys Common Stock. In addition, certain of our directors and officers, as well as employees of our management company, will aid in the solicitation of proxies. These individuals will receive no compensation in addition to
their regular compensation.
Is this Proxy Statement the only way that proxies are being solicited?
No. As stated above, in addition to mailing these proxy materials, our proxy solicitor, Georgeson Inc., and certain of our directors and officers, as
well as employees of our management company, may solicit proxies by telephone,
e-mail
or personal contact. These directors, officers and employees will not be specifically compensated for doing so.
If you have any further questions about voting your shares or attending the Meeting, including information regarding directions to the Meeting, please call our
Corporate Secretary, Christopher G. Cobb, at (615)
465-7000.
GENERAL INFORMATION
How may I contact the Lead Director of the Board of Directors or other
non-management
members
of the Board of Directors?
The Lead Director of the Companys Board of Directors is Julia B. North, who presides at regularly
scheduled executive sessions of our Board. Ms. North is also the chair of the Governance and Nominating Committee of the Board of Directors. She and any of the other
non-management
directors may be
contacted by any stockholder or other interested party in the following manner:
c/o Community Health Systems
4000 Meridian Boulevard
Franklin, TN 37067
Attention: Christopher G. Cobb, Corporate Secretary
(615)
465-7000
Investor_Communications@chs.net
In the alternative,
stockholders or other interested parties may communicate with our directors or our corporate compliance officer by accessing the Confidential Disclosure Program established under our Code of Conduct:
Corporate Compliance and Privacy Officer
Community
Health Systems
4000 Meridian Boulevard
Franklin, TN 37067
(800)
495-9510
Generally, all materials that are appropriate director communications will be forwarded to the intended
recipient; however, management may simultaneously conduct an investigation of any operational, compliance, or legal matter in accordance with its established policies and procedures. Management reserves the right to reject from this process any
material that is harassing, unduly offensive or otherwise not credible, or that solicits business on behalf of the sender.
5
How is the Board of Directors organized and how is the independence of the Board of Directors
determined?
The role of our Board of Directors is governed by the Companys
By-laws,
and is
further described in our Governance Guidelines (the Governance Guidelines). Currently, our Board of Directors has nine members. W. Larry Cash and H. Mitchell Watson will not stand for
re-election
at the 2017 Annual Meeting. The Board intends to reduce the size of the Board from nine (9) members to eight (8) members at the 2017 Annual Meeting, which would result in one vacancy taking into account the departures of Messrs. Cash and
Watson. Upon the recommendation of our Governance and Nominating Committee, our Board of Directors has nominated Tim L. Hingtgen, the Companys President and Chief Operating Officer, to stand for election to fill this vacancy.
A majority of our directors must be independent under NYSE and NASDAQ Stock Market (NASDAQ) rules. We became subject to NASDAQ
requirements following our issuance of contingent value rights (CVRs) (which do not have voting rights) in connection with the Companys acquisition of Health Management Associates, Inc. (HMA) on January 27, 2014.
In addition, our Governance Guidelines include independence standards established by our Board to assist it in determining independence in accordance with such rules for those directors who are not also members of management. To determine whether
our directors and director nominees are independent, the Board evaluates any relationships of our directors and director nominees with the Company and the members of the Companys management, against the independence standards set forth in our
Governance Guidelines and the applicable rules of the NYSE, NASDAQ and SEC. In making its independence determinations, the Board broadly considers all relevant facts and circumstances, including the responses of directors and director nominees to a
questionnaire that solicited information about their relationships. The Board also considers any relationships between the Company and other organizations on which our directors serve as directors or with respect to which such directors are
otherwise affiliated. The Board determined that each of our
non-management
directors satisfied all of the independence standards set forth in the Governance Guidelines (including the specific standards
applicable to members of our Audit and Compliance Committee and Compensation Committee) and did not otherwise have a material relationship with the Company (either directly or as an officer, employee, shareholder or partner of an organization that
has a relationship with the Company). After such evaluations, our Board of Directors has affirmatively determined that all of the following
non-management
directors are independent under the Governance
Guidelines and the applicable rules of the NYSE, NASDAQ, and the SEC:
John A. Clerico
James S. Ely III
John A. Fry
William Norris Jennings, M.D.
Julia B. North
H. Mitchell Watson, Jr. (not standing for
re-election)
H. James Williams, Ph.D.
Messrs. Wayne T.
Smith, W. Larry Cash (not standing for
re-election)
and Tim L. Hingtgen (nominee), who are also officers of the Company and employed by a subsidiary of the Company, are not independent.
6
Do the independent members of the Board of Directors meet in separate sessions?
The independent members of our Board meet frequently in executive sessions, typically at the end of each regularly scheduled Board meeting, and
otherwise as needed. The Lead Director presides over those sessions and is in a position to take a leadership role in certain limited circumstances when leadership by the Chair, who is also our Chief Executive Officer, is not deemed advisable. The
Lead Director also provides significant input into Board meeting agendas and presentation topics. During 2016, the independent members of our Board met in executive session thirteen (13) times, either in conjunction with a Board meeting or a
committee meeting at which the other independent members were present.
What is the leadership structure of the Board of Directors?
As set forth in the Companys Governance Guidelines, the Board believes that the most effective and appropriate leadership model for
the Company is that of a combined Chair of the Board and Chief Executive Officer, balanced by certain practices and policies to assure that the independent members of the Board (who comprise a super-majority of the Board) provide the desired
oversight, advice, and balance.
The Board believes that the substantive duties of the Chair of the Board, including calling and organizing meetings
and preparing agendas (in consultation with the Lead Director), are best performed by someone who has
day-to-day
familiarity with the business issues confronting the
Company and an understanding of the specific areas in which management seeks advice and counsel from the Board. Given Mr. Smiths broad and lengthy leadership experience in the healthcare industry, including 20 years as the Chief
Executive Officer of the Company, the Board believes that he is especially qualified to serve as both Chief Executive Officer and Chair of the Board.
The Board of Directors is responsible for broad corporate policy and overseeing the overall performance of the Company. Members of the Board are kept
informed of the Companys business by various documents sent to them before each meeting and oral reports made to them during these meetings by the Companys Chair and Chief Executive Officer and other corporate executives. They are
advised of actions taken by the various committees of the Board of Directors and are invited to, and frequently attend, meetings of Board committees on which they do not serve. Directors have access to the Companys books, records and reports,
and members of management are available at all times to answer their questions.
The Governance and Nominating Committee, which consists entirely of
independent directors, periodically examines the Board leadership structure, as well as other governance practices, and also conducts an annual assessment of the Boards and each committees effectiveness. The Governance and Nominating
Committee has determined that the present leadership structure continues to be effective and appropriate.
As indicated above, the independent
members of the Board meet in executive sessions that are presided over by the Lead Director, who currently is Julia B. North. The Lead Director serves as the principal liaison between the independent directors and the Chair and other members of
management. The Lead Director also has the authority to call meetings of the independent directors and prepare agendas for such meetings. The Lead Director also takes an active role in approving and setting agendas and presentation topics, and
approving the materials to be sent to the Board of Directors prior to its meeting. Upon request, the Lead Director is also available for consultation and direct communication with major stockholders.
Board independence is further achieved through the completely independent composition of the three standing committees: Audit and Compliance,
Compensation, and Governance and Nominating, each of which is supported by an appropriate charter and holds executive sessions without management present. Each of the Boards independent directors serves on one or more of these committees, and
thus there is ample opportunity to meet and confer without any member of management present.
The Board has concluded that the structure and
practices of the independent members of the Board of Directors assure effective independent oversight, as well as effective independent leadership while maintaining practical efficiency.
7
How does the Board of Directors Oversee Risk?
Risk management is primarily the responsibility of the Companys management team, which is administered through a broad-based committee that
includes executives from our operations, internal audit, compliance, clinical quality, revenue management, accounting, risk management, finance, human resources, information technology, and legal departments. The Board of Directors is responsible
for the overall supervision of the Companys risk management activities and annually performs a review of those activities along with a review of the Companys enterprise risk assessment. The Boards oversight of the material risks
faced by the Company occurs at both the full board level and at the committee level.
The Audit and Compliance Committee has oversight
responsibility, not only for financial reporting with respect to the Companys major financial exposures and the steps management has taken to monitor and control such exposures, but also for the effectiveness of managements enterprise
risk management process that monitors key business risks facing the Company. The Audit and Compliance Committee also oversees the delegation of responsibility for the oversight of specific risk areas among the other Board committees, consistent with
the committees charters and responsibilities.
The Company has determined that any risks arising from its compensation programs and policies
are not reasonably likely to have a material adverse effect on the Company. For additional information regarding the Companys risk assessment of its compensation programs and practices, and relevant considerations in connection therewith, see
Compensation Discussion and Analysis Risk Assessment of Executive Compensation.
Management provides regular updates throughout
the year to the respective Board committees regarding the management of the risks each committee oversees, and each of these committees discuss those risks with the full Board at either regular meetings of the Board or at committee meetings in which
all Board members participate. At least once every year, the Audit and Compliance Committee reviews the allocation of risk responsibility among the Boards committees and implements any changes it deems appropriate. The Audit and Compliance
Committee, together with the full Board of Directors, is actively involved in the oversight of risk issue identification and assessment at the Company and mitigation strategies employed by the Company with respect to each of these risks.
In addition to the reports from the committees, the Board receives presentations throughout the year from various department and business unit leaders
that include discussions of possible risks. At each Board meeting, the Chair and Chief Executive Officer addresses, in a director-only session, matters of particular importance or concern, including any areas of risk that require attention from the
Board. Additionally, through dedicated sessions focusing entirely on corporate strategy, the full Board reviews in detail the Companys short and long-term strategies, including consideration of risks facing the Company and their potential
impact.
We believe that our approach to risk oversight, as described above, optimizes our ability to assess inter-relationships among the various
risks, make informed cost-benefit decisions, and approach emerging risks in a proactive manner for the Company. We also believe that our risk structure complements our current Board leadership structure, as it allows our independent directors,
through the three fully independent Board committees, as well as the Lead Director, to exercise effective oversight of the actions of management, led by Mr. Smith as Chair and Chief Executive Officer, in identifying risks and implementing
effective risk management policies and controls.
8
What are the standing committees of the Board of Directors?
Our Board of Directors has three standing committees: Audit and Compliance, Compensation, and Governance and Nominating. Each of these committees is
comprised solely of independent directors, and each independent director meets the additional criteria for committee membership, as set forth in the applicable committee charter. Each standing committee operates pursuant to a committee charter. The
current composition of our Boards standing committees is as follows:
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Audit and Compliance
Committee
|
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Compensation
Committee
|
|
Governance and Nominating
Committee
|
John A. Clerico, Chair
James S. Ely III
John A. Fry
H. James Williams, Ph.D.
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|
H. Mitchell Watson, Jr., Chair
John A. Clerico
Julia B. North
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|
Julia B. North, Chair
John A. Fry
William Norris Jennings, M.D.
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Mr. Watson is not standing for
re-election.
How many times did the Board of Directors and its committees meet in 2016? What was the attendance by the members? What are the duties of the
Boards committees?
Directors are encouraged to attend our annual meeting of stockholders; all nine (9) of our then-serving
directors were present at our 2016 Annual Meeting of Stockholders. The annual meeting of the Board of Directors in 2016 was held immediately after the 2016 Annual Meeting of Stockholders.
In 2016, the Board of Directors held six (6) regular meetings and six (6) special meetings. Each director attended at least 75% of the Board
meetings and meetings of the committees of the Board on which he/she served during the period in which he/she served in 2016.
The Audit and
Compliance Committee held eight (8) meetings during 2016. A number of the meetings held by the Audit and Compliance Committee also included the other independent members of the Board of Directors. As set forth in its charter, the Audit and
Compliance Committees responsibility is to provide advice and counsel to management regarding, and to assist the Board of Directors in its oversight of: (i) the integrity of the Companys financial statements; (ii) the
Companys compliance with legal and regulatory requirements; (iii) the requirements of the Corporate Integrity Agreement, dated July 28, 2014, between the Company and the Office of Inspector General of the United States Department of
Health and Human Services, and any amendments thereto (the CIA); (iv) the independent registered public accounting firms qualifications and independence; (v) the performance of the Companys internal audit function and
its independent registered public accounting firm; and (vi) the Companys policy on the use of derivative products. The Audit and Compliance Committee report is incorporated herein by reference to Part III of the Companys Annual
Report on Form
10-K
filed with the SEC on February 21, 2017 under Item 10. Directors, Executive Officers and Corporate Governance.
The Compensation Committee held four (4) meetings during 2016. The primary purpose of the Compensation Committee is to: (i) assist the Board
of Directors in discharging its responsibilities relating to compensation of the Companys executives; (ii) administer the Community Health Systems, Inc. 2004 Employee Performance Incentive Plan, as amended and restated from time to time,
with regard to the employees to whom Section 162(m) of the Internal Revenue Code (the IRC) applies; (iii) approve awards and grants and administer outstanding awards and grants of equity-based compensation arrangements to
directors, employees, and others pursuant to the Companys stock option and award plan, as amended and restated from time to time; and (iv) produce an annual report on executive compensation for inclusion in the Companys Proxy
Statement in accordance with applicable rules and regulations under the Securities Exchange Act of 1934, as amended (the Exchange Act). The Compensation Committees report is set forth later in this Proxy Statement.
As set forth in its charter, the primary responsibilities of the Compensation Committee are to oversee the elements of the compensation arrangements
available to the Company and its subsidiaries that are used to compensate the Companys executive officers, and in particular, the Chief Executive Officer. The Compensation Committee also approves the goals and objectives relevant to the
compensation of the Chief Executive Officer and the other executive officers and determines whether targets have been attained in connection with target-based compensation awards and equity grants.
9
Pursuant to its charter, the Compensation Committee has authority to engage its own executive compensation
consultants and legal advisors. Since 2005, Mercer Human Resources Consulting, or Mercer, which is a wholly-owned subsidiary of March & McClellan Companies, Inc., or MMC, has served as the independent executive compensation consultant to
the Compensation Committee. A representative of Mercer attends meetings of the Compensation Committee and communicates with the Compensation Committee chair between meetings on matters related to executive compensation. Mercers fees for
serving as the Compensation Committees independent executive compensation consultant in 2016 were approximately $292,000. During 2016, the Company, at the direction of management, also retained MMC or its affiliates to provide limited
consulting services to management, which services were limited primarily to
conducting actuarial analyses of the Companys Supplemental Executive Retirement Plan. In 2016, the total amount paid to MMC or its affiliates for such services
was approximately $166,000. Although the Compensation Committee is aware that the Company uses MMC or its affiliates for such services, it does not specifically approve those services. The Compensation Committee has assessed Mercers
independence pursuant to the independence factors set forth for compensation consultants in the NYSE listing standards, the NASDAQ Global Market Listing Rules and in the Compensation Committees charter and has determined that no conflicts of
interest exist.
The Governance and Nominating Committee met two (2) times during 2016. The primary purpose of the Governance and Nominating
Committee is to (i) recommend to the Board of Directors a set of corporate governance guidelines applicable to the Company; (ii) review at least annually the Companys Governance Guidelines and make any recommended changes, additions
or modifications; (iii) identify individuals qualified to become Board members and to select, or recommend that the Board of Directors select, the director nominees for the next annual meeting of stockholders; (iv) assist the Board by
making recommendations regarding compensation for directors; and (v) subject to Delaware law, review and approve the Companys policies on and responses to important stockholder issues and proposals, and recommend to the Board the
placement of stockholder proposals, and the Boards response thereto, in the proxy statement.
Who are the Companys audit committee
financial experts?
Our Board has determined that all four of the members of our Audit and Compliance Committee are audit committee
financial experts as defined by the Exchange Act John A. Clerico, James S. Ely III, John A. Fry, and H. James Williams, Ph.D.
Does the Company have limitations regarding service on other boards by the Companys directors?
Yes, in order to ensure that our directors have sufficient time to devote to Company matters, under the Companys Governance Guidelines, no
non-management
director of the Company may serve on more than four other public companies boards of directors. In addition, no member of the Companys Audit and Compliance Committee may serve on more
than two other companies audit committees. The Companys Chief Executive Officer
may not serve on more than two other public companies boards of directors and is required to obtain the approval of the Governance and
Nominating Committee prior to accepting any such nomination or appointment. A director of the Company is required to notify the chair of the Companys Governance and Nominating Committee and the secretary of the Company in a timely fashion of
his or her appointment to or resignation from the board of directors of another public company. Any member of the Audit and Compliance Committee is also required to notify the chair of the Companys Governance and Nominating Committee and
the secretary of the Company of his or her appointment to or resignation from another companys audit committee.
Does the Company have a
code of conduct?
The Company has a robust compliance program, the cornerstone of which is our Code of Conduct. Our Code of Conduct has been
adopted and implemented throughout our organization and is applicable to all members of the Board of Directors and our officers, as well as employees of our subsidiaries. A variation of this Code of Conduct has been in effect at our Company since
1997.
10
Where can I obtain a copy of the Companys Board of Directors governance documents?
Copies of the current version of our Governance Guidelines, including our independence standards, along with current versions of our
By-laws,
Code of Conduct and Board committee charters are posted on the Company Overview Corporate Governance section of our internet website at
www.chs.net/company-overview/corporate-governance/
.
These items are also available in print to any stockholder who requests them by writing to Community Health Systems, Inc., Investor Relations, at 4000 Meridian Boulevard, Franklin, TN 37067.
How are the Companys Directors compensated?
Our Board of Directors has approved a compensation program for
non-management
directors, which consists of both
cash and equity-based compensation. The Board compensation is typically reviewed annually by the Governance and Nominating Committee and the Compensation Committees independent executive compensation consultant, Mercer Human Resources
Consulting, and adjusted if needed, on the same cycle as is our executive compensation. In addition, pursuant to a final order of settlement in the derivative actions In re
Community Health Systems Inc. Shareholder Derivative Litigation Case
(the Settlement Agreement) entered into by the Company in January 2017, the Company adopted a requirement that it would pay at least
one-half
of the
non-management
directors annual compensation in the form of equity in the Company.
For 2016, the
non-management
directors compensation package was reviewed by the Governance and Nominating Committee, in consultation with Mercer. Mercer advised that, based on a review of the board compensation paid by our
peer group as set forth below under Compensation Discussion and Analysis Components of the Executive Compensation Program Peer Group Companies (for 2016 Compensation Cycle), the annual total compensation package of $290,000
paid to our
non-management
directors in 2015 continued to be generally consistent with the median total director compensation package paid by companies within our peer group. Consistent with this analysis, in
2016, each
non-management
director received a cash stipend of $120,000 as well as an equity award with a grant date fair value of approximately $170,000, which were the same amounts awarded to our
non-management
directors in 2015. For 2016, no changes were made to the additional annual stipends for the three committee chairs compared to 2015, which were as follows: Audit and Compliance Committee: $20,000;
Compensation Committee: $15,000; and Governance and Nominating Committee: $12,250.
The annual cash stipend of $120,000 to all
non-management
directors and the additional annual stipends for the three committee chairs were paid in quarterly installments in 2016. No separate meeting attendance fees are paid to the directors. All directors
are reimbursed for their
out-of-pocket
expenses arising from attendance at meetings of the Board and its committees.
For 2016, each of our
non-management
directors was granted 11,017 restricted stock units in respect of the
equity portion of the
non-management
directors compensation in March 2016, at the same time that managements long-term incentive awards were granted. On the date of grant, these awards had an
actual award value of $169,992 per
non-management
director, which represented the number of restricted stock units valued at $170,000 rounded to the nearest whole number. Upon the Companys completion of
the
spin-off
of Quorum Health Corporation (QHC) as a separately-traded public company on April 29, 2016, the number of restricted stock units granted pursuant to this award was adjusted to
13,484 restricted stock units (an incremental 2,467 restricted stock units) pursuant to the Employee Matters Agreement between the Company and QHC, dated April 29, 2016, to preserve the aggregate intrinsic value of the original award. The
unvested portion of prior years grants of restricted stock units was adjusted in the same manner.
Any
non-management
directors who join our Board of Directors during the first six months of the year will receive the same number of restricted stock units as is awarded to the other
non-management
directors as stock-based compensation for that year; however, if a
non-management
directors appointment occurs during the last six months of the
year such
non-management
director will receive no stock-based compensation until the following year. These restricted stock unit awards vest in
one-third
increments on
each of the first three anniversaries of the grant date for so long as the director is a member of the Board. If a
non-management
directors service as a member of the Board terminates as a result of
death, disability, or for any other reason (other than for cause), all unvested restricted stock units will vest as of the date of termination.
11
At any time prior to the beginning of the calendar year, a
non-management
director may elect to defer some or all of their cash compensation for the upcoming year into a cash account or stock unit account pursuant to the Companys Directors Fees Deferral
Plan, amended and restated as of December 10, 2008. When making a deferral election, a
non-management
director may elect to receive payment for the deferred amounts in a lump sum or in installments
beginning either upon his or her separation from service with the Company or the attainment of an age specified by the
non-management
director.
A number of extraordinary circumstances, including the Companys ultimately withdrawn offer to acquire Tenet Healthcare Corporation in 2011, the
attention to certain government investigations, the Companys acquisition of HMA in 2014, and the cyber-attack on the Companys information systems that occurred in 2014, placed heightened time commitments on the Companys
non-management
directors. In 2015, based on the recommendation of the Governance and Nominating Committee as well as feedback from Mercer, the Board approved a special cash stipend of $200,000 to be paid to each of
the
non-management
directors who were serving on the Board as of December 31, 2014 to compensate them for these heightened time commitments. This special cash stipend was paid in two equal annual
installments in each of March 2015 and March 2016 and was in addition to the annual
non-management
director compensation package discussed above. The Company does not expect a similar special cash stipend to
be paid to
non-management
directors in 2017.
Management directors do not receive any additional
compensation for their service on the Board.
Director Compensation
The following table summarizes the aggregate fees earned or paid and the value of equity-based awards earned by our
non-management
directors in 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Fees Earned
or Paid in
Cash
($) (1)
|
|
|
Restricted
Stock Unit
Awards
($) (2)
|
|
|
Total
Compensation
($)
|
|
John A. Clerico
|
|
|
240,000
|
|
|
|
169,992
|
|
|
|
409,992
|
|
James S. Ely III
|
|
|
220,000
|
|
|
|
169,992
|
|
|
|
389,992
|
|
John A. Fry
|
|
|
220,000
|
|
|
|
169,992
|
|
|
|
389,992
|
|
William Norris Jennings, MD
|
|
|
220,000
|
|
|
|
169,992
|
|
|
|
389,992
|
|
Julia B. North
|
|
|
232,250
|
|
|
|
169,992
|
|
|
|
402,242
|
|
H. Mitchell Watson, Jr.
|
|
|
235,000
|
|
|
|
169,992
|
|
|
|
404,992
|
|
H. James Williams, Ph.D.
|
|
|
120,000
|
|
|
|
169,992
|
|
|
|
289,992
|
|
(1)
|
This amount includes the annual cash stipend of $120,000 paid to all
non-management
directors and the additional annual cash stipends paid to the chairs of the Boards three
committees, as well as a special cash stipend of $100,000 discussed above paid to all
non-management
directors who were serving on the Board as of December 31, 2014. All fees for 2016 were paid in cash to
each outside director except for Mr. Ely and Mr. Watson. Mr. Ely elected for the entire amount of his fees, except for the special cash stipend, to be deferred with stock units. He received 12,076.752 stock units and $100,000 in cash.
Mr. Watson elected for a portion of his fees to be deferred with stock units. He received 2,012.792 stock units and $220,000 in cash. These deferrals were made pursuant to the Companys Directors Fees Deferral Plan, as amended and
restated as of December 10, 2008. Additionally, upon the Companys completion of the
spin-off
of QHC noted above, the number of stock units outstanding under the deferral plan was adjusted pursuant
to the Employee Matters Agreement between the Company and QHC, dated April 29, 2016, to preserve the aggregate intrinsic value of the outstanding stock units. Mr. Ely received 1,008.720 additional stock units and Mr. Watson received
2,439.385 additional stock units related to this adjustment. While she did not elect to defer any director fees during 2016, Ms. North also received 6,139.253 additional stock units on the outstanding number of stock units she had outstanding
that previously had been deferred by her as part of the adjustment related to the
spin-off
of QHC.
|
(2)
|
This amount reflects the grant date fair value of director compensation earned in the form of restricted stock unit awards.
This grant is based on the portion of his or her annual compensation that is allocated to equity. For 2016, this value based award amount was for 11,017 restricted stock units granted on March 1, 2016 ($15.43 per share). The grant date fair
value was computed in accordance with Financial Accounting Standards Board Accounting Standards Codification
|
12
|
Topic 718 (ASC 718). As of December 31, 2016, each
non-management
director, except for Dr. Williams (who held 13,484 restricted stock
units due to his more recent appointment to the Board of Directors), had 17,817 restricted stock units outstanding (which takes into account the incremental restricted stock units issued in connection with the
spin-off
of QHC as noted above to preserve the aggregated intrinsic value of the original award), with a total of 120,386 restricted stock units.
|
How are Directors nominated by the Company?
The Governance and Nominating Committee has responsibility for the director nomination process.
The Governance and Nominating Committee believes that the minimum qualifications that must be met by any director nominee, including any director
nominee who is recommended by stockholders, include (i) a reputation for the highest ethical and moral standards, (ii) good judgment, (iii) a positive record of achievement, (iv) if on other boards, an excellent reputation for
preparation, attendance, participation, interest and initiative, (v) business knowledge and experience relevant to the Company, and (vi) a willingness to devote sufficient time to carrying out his or her duties and responsibilities
effectively.
The qualities and skills necessary in a director nominee are governed by the specific needs of the Board at the time the Governance
and Nominating Committee determines to nominate a candidate for director. The specific requirements of the Board will be determined by the Governance and Nominating Committee and will be based on, among other things, the Companys then existing
strategies and business, market and regulatory environments, and the mix of perspectives, experience and competencies then represented by the other Board members. The Governance and Nominating Committee will also take into account the Chair and
Chief Executive Officers views as to areas in which management desires additional advice and counsel.
When the need to recruit a director
arises, the Governance and Nominating Committee will consult the other directors, including the Chair and Chief Executive Officer and, when deemed appropriate, utilize
fee-paid
third-party recruiting firms to
identify potential candidates. The candidate evaluation process may include inquiries as to the candidates reputation and background, examination of the candidates experiences and skills in relation to the Boards requirements at
the time, consideration of the candidates independence as measured by the Companys independence standards, and other considerations as the Governance and Nominating Committee deems appropriate at the time. Prior to formal consideration
by the Governance and Nominating Committee, any candidate who passes such screening would be interviewed by the chair of the Governance and Nominating Committee and the Chair and Chief Executive Officer.
What diversity considerations are evaluated in nominating Directors?
As set forth in the charter of the Governance and Nominating Committee, the nominating criteria require the committee to determine as necessary
the portfolio of skills, experience, perspective and background required for the effective functioning of the Board. The most robust selection process occurs at the time a new director is being added, including upon the decision of a Board
member that he or she will not stand for
re-election
at the end of a then current term. The Governance and Nominating Committee takes into account a variety of factors in selecting and nominating individuals
to serve on the Board of Directors, including:
|
|
The Boards and the Companys needs for input and oversight about the strategy, business, regulatory environment, and operations of the Company;
|
|
|
The management directors views as to areas in which additional advice and counsel could be provided by the Board;
|
|
|
The mix of perspectives, experience and competencies currently represented on the Board; while this is primarily directed to the professional acumen of an individual, it may also include gender, ethnic and cultural
diversity;
|
|
|
The results of the Boards annual self-assessment process; and
|
|
|
As to incumbent directors, meeting attendance, participation and contribution, and the directors current independence status.
|
The Governance and Nominating Committee seeks candidates with broad background and experience that will enable them to serve on and contribute to any of
the Boards three standing committees. The Governance and Nominating Committee also believes that every director nominee should demonstrate a strong record of integrity and ethical conduct, an absence of conflicts that might
13
interfere with the exercise of his or her independent judgment, and a willingness and ability to represent all stockholders of the Company.
The experience, skills and diversity contributions of each of the members of the Board of Directors is described below under Members of the Board
of Directors.
How can stockholders nominate or recommend individuals to serve on the Companys Board?
There are three ways in which stockholders can participate in the nomination process.
|
|
First, as a result of the stockholder vote in favor of proxy access at the 2016 Annual Meeting of Stockholders, the Board amended the Companys
By-laws
to provide
a means for stockholders to nominate directors and have their nominees names included in the Companys proxy statement. The procedures and applicable dates for proxy access nominees are referenced below in How can I
submit a stockholder proposal or nominate a Director for the 2018 Annual Meeting of Stockholders?
|
|
|
Second, the Companys Board, subject to the exercise of its fiduciary duties, will include two independent Directors who are nominated by the Board from a pool of qualified candidates who are recommended for
nomination to the Board by the Governance and Nominating Committee after being identified by one or more stockholders of the Company who have continuously held at least 1% of the Companys outstanding Common Stock for at least one year prior to
making such recommendation. The addition of these two director positions and the process for nomination and service is pursuant to the Settlement Agreement, and will continue for a period of four years, which commenced on January 17,
2017. As of March 15, 2017, no recommendations for nomination had been received from this group of stockholders. Recommendations may be made at any time and are subject to the same evaluation process as all other director nominees. If
one or more mutually satisfactory candidates is identified pursuant to the processes set forth above and in the Settlement Agreement, the Board will establish up to two vacancies on the Board and nominate the candidates for election to the Board or,
if no stockholders meeting is scheduled within the next 90 days, the Board will establish up to two vacancies on the Board and appoint these candidates to fill such vacancies.
|
|
|
Finally, the Governance and Nominating Committee will consider candidates for election to our Board of Directors who are recommended by stockholders submitted in accordance with our advance notice
by-law
provisions. The procedures applicable for such nominations made pursuant to our advance notice
by-law
provisions are referenced below in How can I submit a
stockholder proposal or nominate a Director for the 2018 Annual Meeting of Stockholders? The Governance and Nominating Committee will conduct the same analysis that it conducts with respect to its director nominees or other potential
candidates recommended by a Board member, management, search firm or other source in order to evaluate any director nominations properly submitted by a stockholder.
|
How can I submit a stockholder proposal or nominate a Director for the 2018 Annual Meeting of Stockholders?
If a stockholder seeks to have a proposal included in the Companys Proxy Statement for the 2018 Annual Meeting of Stockholders pursuant to Rule
14a-8
under the Exchange Act, the proposal must be received by the Company no later than December 7, 2017 and be submitted in accordance with applicable SEC rules and regulations. Such proposals must be
delivered to Community Health Systems, Inc., Attn: Secretary, 4000 Meridian Boulevard, Franklin, TN 37067.
In connection with the proxy access
by-law
amendments noted above, the Companys
By-laws
permit a stockholder, or a group of up to 20 stockholders, owning 3% or more of the Companys outstanding common
stock continuously for at least three years to nominate and include in the Companys proxy materials for its annual meeting of stockholders nominees for election to the Companys Board of Directors constituting up to the greater of
(x) two individuals or (y) 20% of the number of Directors currently serving on the Companys Board, provided that the stockholder(s) and the nominee(s) comply with the proxy access procedures described in the
By-laws.
For the Companys 2018 Annual Meeting of Stockholders, the Secretary must receive notice of such proxy access director nomination no earlier than November 7, 2017 and no later than
December 7, 2017 (or, if the annual meeting is called for a date that is not within 30 days of May 16, 2018, the notice must be received by the later of the date that is 180 days prior to such annual meeting or the 10
th
day following the date such annual meeting is first publicly announced or disclosed). Any nominations made pursuant to the
14
proxy access provisions of the Companys
By-laws
must be in proper written form and must meet the detailed disclosure and other requirements
applicable to the proxy access nominations set forth in the Companys
By-laws.
In addition, if a
stockholder seeks to bring business before our annual meeting that is not the subject of a proposal submitted for inclusion in the proxy statement under Rule
14a-8,
or seeks to make a director nomination, and
that is not made pursuant to the proxy access provisions noted in the previous paragraph, such stockholder must comply with the advance notice procedures described in the Companys
By-laws.
For the
Companys 2018 Annual Meeting of Stockholders, the Secretary must receive notice of such business or director nomination no earlier than January 21, 2018 and no later than February 20, 2018 (or, if the annual meeting is called for a
date that is not within 30 days of May 16, 2018, the notice must be received by the later of the date that is 90 days prior to such annual meeting or the 10
th
day following the date such
annual meeting is first publicly announced or disclosed).
All such stockholder proposals or director nominations made pursuant to the advance
notice provisions of the Companys
By-laws
must be in proper written form and must meet the detailed disclosure requirements set forth in the Companys
By-laws.
The Companys
By-laws
also require that stockholder proposals concerning nomination of directors provide additional disclosure and information regarding
any nominee. Any stockholder proposals or director nominations made pursuant to the Companys advance notice
by-laws
must be in proper written form and must meet the detailed disclosure and other
requirements applicable to such stockholder proposals or director nominations set forth in the Companys
By-laws.
15
MEMBERS OF THE BOARD OF DIRECTORS
Each of the Companys director nominees are nominated for election to a term of one (1) year
.
W. Larry Cash and H. Mitchell Watson will
not stand for
re-election
at the 2017 Annual Meeting. The Board intends to reduce the size of the Board from nine (9) members to eight (8) members at the 2017 Annual Meeting in connection with the
departures of Messrs. Cash and Watson. Upon the recommendation of the Governance and Nominating Committee, the eight (8) persons listed in the table below are nominated for election at the Meeting, each to serve as a director for a term of one
(1) year and until his or her successor is elected and qualified.
|
|
|
|
|
Name
|
|
Age
|
|
Position
|
John A. Clerico
|
|
75
|
|
Director
|
James S. Ely III
|
|
59
|
|
Director
|
John A. Fry
|
|
56
|
|
Director
|
William Norris Jennings, M.D.
|
|
73
|
|
Director
|
Julia B. North
|
|
69
|
|
Director
|
Wayne T. Smith
|
|
71
|
|
Chairman of the Board, Chief Executive Officer, and Director
|
H. James Williams, Ph.D.
|
|
62
|
|
Director
|
Tim L. Hingtgen (nominee)
|
|
49
|
|
President, Chief Operating Officer, and Director Nominee
|
|
|
|
John A. Clerico
|
|
Director Since 2003
|
Audit and Compliance Committee Chair
Compensation Committee Member
Since 2000, when
Mr. Clerico
co-founded
ChartMark Investments, Inc., a registered investment advisor providing portfolio management, investment consulting and financial planning solutions to individuals, small businesses
and institutions, he has served as its chairman and as a registered financial advisor. From 2006 until 2012, Mr. Clerico served on the board of directors of Global Industries, Ltd., a provider of solutions for offshore oil and gas construction,
engineering, project management and support services, with prior service on its audit, compensation and finance (chair) committees. In 2008, Mr. Clerico resigned from these committees upon his appointment as chairman of the board and interim
chief executive officer. He stepped down as Global Industries, Ltd.s interim chief executive officer in 2010 but continued to serve as chairman of its board through 2011, when Global Industries, Ltd. was acquired by Technip S.A. From 1992 to
2000, he served as an executive vice president and chief financial officer and a director of Praxair, Inc., a supplier of industrial gases and coatings and related services and technologies. From 1983 until its
spin-off
of Praxair, Inc. in 1992, he served as an executive officer of Union Carbide Corporation in various financial and accounting areas. Mr. Clerico currently serves on the board of directors of
Educational Development Corporation, a trade publisher and distributor of childrens books, and serves on its audit (chair), compensation, executive, and nominating and corporate governance (chair) committees. He previously served on the board
of MacroSolve, Inc., a provider of consulting services related to the development, marketing and financing of mobile app businesses that also focuses on intellectual property licensing and enforcement of its mobile app market development patent
where he also served on its audit (chair) and compensation committees.
Mr. Clerico brings executive leadership experience and skills to the
Board of Directors. He has held the positions of chairman of the board, chief executive officer,
co-chief
operating officer, chief financial officer and treasurer at various points of his career. His extensive
experience in industries (chemical and industrial gases) with a high risk profile give him a unique perspective on risk oversight. His14 years of experience guiding our Boards Audit and Compliance Committee and serving as one of its
audit committee financial experts lend important continuity to the Boards financial, audit, and compliance oversight functions. Finally, having formed and operated his own investment company, Mr. Clerico also brings the
investor perspective to the Boards review activities.
16
|
|
|
James S. Ely III
|
|
Director Since 2009
|
Audit and Compliance Committee Member
Mr. Ely founded PriCap Advisors, LLC (formerly known as Priority Capital Management LLC) in 2008 and has served as its chief executive officer
since its inception. From 1995 to 2008, he was a senior banker and managing director in J.P. Morgans Syndicated and Leveraged Finance Group, where he was responsible for structuring and arranging syndicated loans and high yield issues in
the healthcare, aerospace, defense and other sectors. Mr. Elys service with J.P. Morgans predecessor institutions commenced in 1987. He is a director of Select Medical Holdings Corporation, a provider of long-term
hospitalization services, and serves on its audit and compliance committee.
Mr. Elys educational background (MBA in finance and
accounting from the University of Chicago) and extensive (over twenty years) experience in the financing industry, and in the healthcare sector in particular, provide a needed area of expertise among the independent Board members. He is able to
assist the Board members and management in evaluating financing opportunities, as he has specific experience in financing the types of indebtedness reflected on the Companys balance sheet.
|
|
|
John A. Fry
|
|
Director Since 2004
|
Audit and Compliance Committee Member
Governance and Nominating Committee Member
Mr. Fry has
served as president of Drexel University in Philadelphia, Pennsylvania since 2010. Prior to becoming president of Drexel University, Mr. Fry served as president of Franklin & Marshall College in Lancaster, Pennsylvania from 2002 until
2010. From 1995 to 2002, he was executive vice president of the University of Pennsylvania and served as the chief operating officer of the university and as a member of the executive committee of the University of Pennsylvania Health System.
Mr. Fry is a member of the board of trustees of Delaware Investments, an asset management firm, with oversight responsibility for all of the portfolios in that mutual fund family; he also serves as chair of its nominating and corporate
governance committee. Mr. Fry also serves as a director of vTV Therapeutics Inc., a clinical-stage pharmaceutical company focused on the discovery and development of human therapeutics.
Mr. Frys unique experience as the president of an academic institution, together with his prior experience with the University of
Pennsylvania Health System and service on the boards of a number of
non-profit
institutions, brings two important perspectives to the Board of Directors. His familiarity with the governance issues faced by
non-profit
organizations assists the Board of Directors in understanding the competitive environment in which many of the Companys competitors and acquisition targets operate. His educational background (MBA
in accounting from New York University) and his experience in financial management, financial reporting, audit and compliance, and risk management are all skill sets available to and needed by the Board of Directors.
|
|
|
William Norris Jennings, M.D.
|
|
Director Since 2008
|
Governance and Nominating Committee Member
Dr. Jennings is currently retired. For more than 43 years, he was a practicing family medicine physician, most recently with KentuckyOne Health, in
Louisville, Kentucky, which was formed by the merger of Jewish Hospital & St. Marys HealthCare with Saint Joseph Health System in 2012. He served on KentuckyOne Healths quality committee and formerly served as the quality
committee chair for The Physician Group, which was affiliated with Jewish Hospital & St. Marys HealthCare prior to its merger with Saint Joseph Health System. From 1971 until 2005, when the practice was acquired by Jewish Hospital,
Dr. Jennings was in private practice with Southend Medical Clinic, PSC, serving as its managing partner.
Dr. Jennings brings the
perspective of a physician to the Board of Directors. His career in a community practice setting is typical to that of most of the Companys facilities and he provides advice to the Board of Directors and management about trends in both
medicine and the organization and operation of physician practices. His experience managing large physician practices, with particular focus in the areas of risk and quality oversight, brings counterpoint and balance to the perspectives presented by
management leadership. He also brings practitioner insight to quality measures and reporting, electronic health record implementation, and federal government regulation of practitioner-hospital relationships.
17
|
|
|
Julia B. North
|
|
Director Since 2004
|
Lead Director
Governance and Nominating
Committee Chair
Compensation Committee Member
Ms. North
was elected as our Lead Director in February 2017. She
is currently retired. Over the course of her career, Ms. North
served in many senior executive positions, including as president of consumer services for BellSouth Telecommunications, Inc. from 1994 to 1997. After leaving BellSouth in 1997, she served as the president and chief executive officer of VSI
Enterprises, Inc., a manufacturer of video conferencing systems, until 1999. She currently serves on the board of directors of Acuity Brands, Inc., a provider of lighting fixtures and related products and services, and serves on its compensation
committee and governance committee, with previous service on its audit committee. From 2011 until 2016, Ms. North served on the board of directors of Lumos Networks Corp., a fiber-based telecommunications service provider, where she served on
its compensation committee (chair). She also previously served on the boards of directors of NTELOS Holdings Corp., a provider of wireless and wireline communications services, where she also served on its compensation committee and nominating and
governance committee (chair); Simtrol, Inc., a developer of enterprise-class software solutions, where she also served on its audit committee and compensation committee; Winn-Dixie Stores, Inc., a food retailer, where she also served on its
compensation committee (chair), nominating and governance committee (chair), and audit committee; and MAPICS, Inc., a business application software and consulting company, where she also served on its compensation committee.
Ms. North has extensive experience serving on boards of directors and brings those experiences to her service as our Lead Director and
on
the Boards Compensation Committee and Governance and Nominating Committee. The breadth of the industries in which she has worked provides risk assessment perspectives that are different from the Companys operations. Her operational
experience in customer service, marketing, technical network design, and strategic planning bring those skill sets, not represented by other Board members, to the Boards functions.
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Wayne T. Smith
|
|
Director Since 1997
|
Chairman of the Board
Mr. Smith is our Chairman and Chief Executive Officer. Mr. Smith joined us in January 1997 as President, a position he held until January
2014. Since April 1997, he has served as our Chief Executive Officer and as a member of the Board of Directors. In 2001, he was elected Chairman of our Board of Directors. Prior to joining us, Mr. Smith was president and chief operating officer
of Humana Inc., where he served in various management positions during 23 years with that company, and as a director from 1993 to 1996. He currently serves on the board of directors of Praxair, Inc. and serves on its compensation committee (former
chair). Mr. Smith also serves on the board of trustees of Auburn University. He previously served on the board of directors of Citadel Broadcasting Corporation, an owner and operator of radio stations and producer and distributor of radio
programming, where he also served on its audit committee. Mr. Smith is a past-chair and current board member of the Nashville Area Chamber of Commerce, the Federation of American Hospitals and Nashville Health Care Council.
Mr. Smith is one of the most tenured executives in the healthcare industry, with decades of experience in both the hospital sector and the managed
care sector. He has been named one of the 100 Most Influential People in Healthcare each of the 15 years
Modern Healthcare
has published the peer voted list, ranking number 23 in 2016.
Institutional Investor
magazine has also
named Smith a Top CEO for the healthcare facilities sector several times over the past decade. His service on other companies boards of directors provides him with insights and experiences to support his leadership of the Company and its Board
of Directors. Mr. Smith has been honored year after year by investor organizations as being one of the top chief executive officers in the institutional provider segment of the healthcare sector.
18
|
|
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H. James Williams, Ph.D.
|
|
Director Since 2015
|
Audit and Compliance Committee Member
Dr. Williams has served as president of Mount St. Joseph University in Cincinnati, Ohio since March 2016. Mount St. Joseph University provides
interdisciplinary liberal arts and professional curricula to its students, including a number of graduate and doctoral healthcare programs. Prior to that, he served as president of Fisk University, a leading liberal arts university located in
Nashville, Tennessee, from February 2013 until September 2015. Fisk University is renowned for its leadership role and history in the education of African-American students. Dr. Williams also served as dean and a professor of accounting at the
Seidman College of Business of Grand Valley State University in Grand Rapids, Michigan from 2004 until 2013. From 2006 until 2013, Dr. Williams served on the board of trustees of St. Marys Hospital, a
non-profit
hospital in Grand Rapids, Michigan. From 1999 until 2004, he was dean and a professor of accounting at the School of Business of North Carolina Central University in Durham, North Carolina. From
1994 to 1999, Dr. Williams was dean of the School of Management and a professor of accounting at Delaware State University in Dover, Delaware. Prior to that, he held faculty positions in the business schools at several universities.
Dr. Williams also serves on the boards of several
non-profit
organizations. He previously served on the advisory board of Fifth Third Bank of Tennessee and as a member of the Metropolitan Nashville
Airport Authoritys Air Service Coalition. Dr. Williams has also practiced law, primarily in the areas of partnership and corporate tax, as well as contract law. He started his diverse career as an accountant with Ernst & Young
where he worked in the audit division with companies in the banking, textiles, automotive and shipping industries.
Dr. Williams
educational background (MBA in accounting from the University of Wisconsin-Madison; Ph.D. in accounting from University of Georgia; and J.D. and LL.M. degrees from Georgetown University Law Center) and his extensive teaching experience provide
additional accounting expertise to the Board of Directors. Additionally, his diverse experience, including serving as president of academic institutions and service on the boards of a number of
non-profit
institutions and a bank, bring a unique perspective to the Board of Directors.
Mr. Hingtgen has served as our President and Chief Operating Officer since September 2016. He joined us in 2008 as
a vice president of division operations, and, in January 2014, he was promoted to division president. In that position, he oversaw the operations of our affiliated hospitals in Alaska, Arizona, California, Nevada, New Mexico, Oklahoma, Oregon, Utah,
Washington and Wyoming. In May 2016, Mr. Hingtgen was promoted again to executive vice president of operations. In that position he worked directly with the Companys chief executive officer, chief operating officer and chief financial
officer to advance the Companys strategic priorities and to help elevate operational and financial performance in key markets. Mr. Hingtgen has over 20 years of healthcare management experience. Prior to joining us, he held chief
operating officer and chief executive officer positions at
for-profit
hospitals in Arizona, Indiana and Nevada from 2001 to 2008. Mr. Hingtgen has a masters degree in business administration from
the University of Nevada, Las Vegas.
As the Companys chief operating officer, Mr. Hingtgen brings a new and deep perspective on the
strategic development of the Company and its business lines, as well as the operation of hospitals, outpatient care centers, and networked delivery systems. His vision and implementation of the corporate-wide efforts to strengthen the Companys
overall operations and support of organic growth and the delivery of high quality healthcare services are needed inputs on the Boards development of its agenda.
19
The following incumbent directors terms expire at the 2017 Annual Meeting. Messrs. Cash and Watson will not stand for
re-election
at the Annual Meeting.
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|
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W. Larry Cash
|
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Director Since 2001
|
Mr. Cash will be retiring as our President of Financial Services and Chief Financial Officer effective at the 2017
Annual Meeting. Mr. Cash joined us as Executive Vice President and Chief Financial Officer in 1997. In 2001, he was also named to our Board of Directors. In January 2014, he was named our President of Financial Services. Prior to joining us, he
served as vice president and group chief financial officer of Columbia/HCA Healthcare Corporation from September 1996 to August 1997. Prior to Columbia/HCA, Mr. Cash spent 23 years at Humana Inc., most recently as senior vice president of
finance and operations from 1993 to 1996. He is also a director of Cross Country Healthcare, Inc., a provider of nurse and allied staffing services, multi-specialty locum tenens services, and other human capital management services in the healthcare
industry, and he serves on its audit (chair) and compensation committees.
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|
|
H. Mitchell Watson, Jr.
|
|
Director Since 2004
|
Compensation Committee Chair
Mr. Watson is currently retired. From 1981 to 1989, Mr. Watson was a vice president of International Business Machines Corporation (IBM),
serving from 1981 to 1985 as president of its systems product division, and from 1985 through 1988 as vice president of marketing and service. From 1989 until its sale in 1992, Mr. Watson was the president and chief executive officer of ROLM
Corporation, a joint venture between IBM and Siemens AG that produced digital voice systems. Mr. Watson previously served on the board of directors of Praxair, Inc. from 1992 until 2010, where he also served on its audit (chair), compensation,
and governance and nominating committees. He also previously served on the boards of directors of Roadway, Inc., a transportation service provider, where he also served on its audit and compensation committees; and MAPICS, Inc., where he served as
chairman of the board and on its audit committee. Mr. Watson serves on the Board of Trustees of the University of North Carolina-Asheville Foundation, is a past president of Helen Keller International, chairman emeritus of the Brevard Music
Center in Brevard, North Carolina, has served on the board of Union Theological Seminary in New York, New York, and as trustee of the Interdenominational Theological Center at Atlanta University.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of March 20, 2017, except as otherwise footnoted, with respect to ownership of our Common Stock by:
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|
each person known by us to be a beneficial owner of more than 5% of our Companys Common Stock;
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|
|
each of our directors and nominees;
|
|
|
each of our executive officers named in the Summary Compensation Table on page 48 of this Proxy Statement; and
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|
|
all of our directors and executive officers as a group.
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20
Except as otherwise indicated, the persons or entities listed below have sole voting and investment power with respect to
all shares of Common Stock beneficially owned by them, except to the extent such power may be shared with a spouse. Ownership percentages are calculated based on 114,686,164 shares of our Common Stock outstanding as of March 20, 2017.
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|
|
|
|
|
|
|
|
|
|
|
|
Shares Beneficially
Owned
(1)
|
|
Name
|
|
|
|
Number
|
|
|
Percent
|
|
5% Stockholders:
|
|
|
|
|
|
|
|
|
|
|
Shanda Asset Management Holdings Limited
|
|
|
|
|
15,640,785
|
(2)
|
|
|
13.6%
|
|
Blackrock, Inc.
|
|
|
|
|
13,920,733
|
(3)
|
|
|
12.1%
|
|
The Vanguard Group
|
|
|
|
|
8,641,029
|
(4)
|
|
|
7.5%
|
|
|
|
|
|
Directors and Nominees:
|
|
|
|
|
|
|
|
|
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W. Larry Cash
|
|
|
|
|
724,152
|
(5)
|
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|
0.6%
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|
John A. Clerico
|
|
|
|
|
106,187
|
(6)
|
|
|
*
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|
James S. Ely III
|
|
|
|
|
56,187
|
(7)
|
|
|
*
|
|
John A. Fry
|
|
|
|
|
37,890
|
(8)
|
|
|
*
|
|
Tim Hingtgen
|
|
|
|
|
229,523
|
(9)
|
|
|
0.2%
|
|
William N. Jennings, M.D.
|
|
|
|
|
38,366
|
(10)
|
|
|
*
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|
Julia B. North
|
|
|
|
|
61,816
|
(11)
|
|
|
*
|
|
Wayne T. Smith
|
|
|
|
|
2,648,769
|
(12)
|
|
|
2.3%
|
|
H. Mitchell Watson, Jr.
|
|
|
|
|
12,176
|
(13)
|
|
|
*
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|
H. James Williams, Ph.D.
|
|
|
|
|
4,495
|
(14)
|
|
|
*
|
|
Other Named Executive Officers:
|
|
|
|
|
|
|
|
|
|
|
David L. Miller
|
|
|
|
|
465,880
|
(15)
|
|
|
0.4%
|
|
Michael T. Portacci
|
|
|
|
|
172,823
|
(16)
|
|
|
0.2%
|
|
Directors and Executive Officers as a Group (19 persons)
|
|
|
|
|
5,466,557
|
(17)
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|
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4.7%
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(1)
|
For purposes of this table, a person or group of persons is deemed to have beneficial ownership of any shares of Common Stock when such person or persons have the right to acquire them within 60 days after
March 20, 2017. For purposes of computing the percentage of outstanding shares of Common Stock held by each person or group of persons named above, any shares which such person or persons have the right to acquire within 60 days after
March 20, 2017 is deemed to be outstanding but is not deemed to be outstanding for the purpose of computing the percentage ownership of any other person.
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(2)
|
Shares beneficially owned are based on Schedule 13D filed with the SEC on March 13, 2017, by Tianqiao Chen (Mr. Chen), Shanda Media Limited, Shanda Investment Group Limited, Shanda Technology
Overseas Capital Company Limited and Shanda Asset Management Holdings Limited (the Shanda Entities). Each of Mr. Chen and the Shanda Entities has shared voting and dispositive power with respect to 15,640,785 shares of Common Stock.
The address of each of Mr. Chen and the Shanda Entities is 8 Stevens Road, Singapore 257819.
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(3)
|
Shares beneficially owned are based on Schedule 13G filed with the SEC on January 12, 2017, by BlackRock, Inc. (BlackRock). BlackRock has sole voting power with respect to 13,606,280 shares of Common
Stock and sole dispositive power with respect to 13,920,733 shares of Common Stock. The address of BlackRock, Inc. is 55 East 52nd Street, New York, NY 10055.
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(4)
|
Shares beneficially owned are based on Schedule 13G filed with the SEC on February 10, 2017, by The Vanguard Group, Inc. (The Vanguard Group). The Vanguard Group has sole voting power with respect to
133,616 shares of Common Stock; shared voting power with respect to 11,973 shares of Common Stock; sole dispositive power with respect to 8,502,603 shares of Common Stock and shared dispositive power with respect to 138,426 shares of Common Stock.
The address of The Vanguard Group is 100 Vanguard Blvd, Malvern, PA 19355.
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21
(5)
|
Includes 140,000 shares subject to options which are currently exercisable or exercisable within 60 days of March 20, 2017 and 16,000 shares subject to restricted stock awards with performance measures that have
not been met as of March 20, 2017.
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(6)
|
Includes 0 shares subject to options which are currently exercisable or exercisable within 60 days of March 20, 2017 and 0 shares subject to restricted stock awards with performance measures that have not been met
as of March 20, 2017.
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(7)
|
Includes 0 shares subject to options which are currently exercisable or exercisable within 60 days of March 20, 2017 and 0 shares subject to restricted stock awards with performance measures that have not been met
as of March 20, 2017.
|
(8)
|
Includes 0 shares subject to options which are currently exercisable or exercisable within 60 days of March 20, 2017 and 0 shares subject to restricted stock awards with performance measures that have not been met
as of March 20, 2017.
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(9)
|
Includes 3,834 shares subject to options which are currently exercisable or exercisable within 60 days of March 20, 2017 and 37,500 shares subject to restricted stock awards with performance measures that have not
been met as of March 20, 2017.
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(10)
|
Includes 0 shares subject to options which are currently exercisable or exercisable within 60 days of March 20, 2017 and 0 shares subject to restricted stock awards with performance measures that have not been met
as of March 20, 2017.
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(11)
|
Includes 0 shares subject to options which are currently exercisable or exercisable within 60 days of March 20, 2017 and 0 shares subject to restricted stock awards with performance measures that have not been met
as of March 20, 2017.
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(12)
|
Includes 340,000 shares subject to options which are currently exercisable or exercisable within 60 days of March 20, 2017 and 75,000 shares subject to restricted stock awards with performance measures that have
not been met as of March 20, 2017.
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(13)
|
Includes 0 shares subject to options which are currently exercisable or exercisable within 60 days of March 20, 2017 and 0 shares subject to restricted stock awards with performance measures that have not been met
as of March 20, 2017.
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(14)
|
Includes 0 shares subject to options which are currently exercisable or exercisable within 60 days of March 20, 2017 and 0 shares subject to restricted stock awards with performance measures that have not been met
as of March 20, 2017.
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(15)
|
Includes 10,000 shares subject to options which are currently exercisable or exercisable within 60 days of March 20, 2017 and 0 shares subject to restricted stock awards with performance measures that have not been
met as of March 20, 2017. Mr. Miller retired from his position with the Company effective December 31, 2016.
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(16)
|
Includes 42,667 shares subject to options which are currently exercisable or exercisable within 60 days of March 20, 2017 and 20,000 shares subject to restricted stock awards with performance measures that have not
been met as of March 20, 2017.
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(17)
|
Includes 601,001 shares subject to options which are currently exercisable or exercisable within 60 days of March 20, 2017 and 261,000 shares subject to restricted stock awards with performance measures that have
not been met as of March 20, 2017.
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SECTION 16(A) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires our executive officers, directors and persons who beneficially own
greater than 10% of a registered class of our equity securities to file reports of ownership and changes in ownership with the SEC. These persons are required by regulation to furnish us with copies of all Section 16(a) reports that they file.
Based solely on our review of copies of these reports that we have received and on representations from all reporting persons who are our directors and executive officers, we believe that during 2016 all of our officers, directors and greater than
10% beneficial owners complied with all applicable Section 16(a) filing requirements.
22
RELATIONSHIPS AND CERTAIN TRANSACTIONS BETWEEN THE COMPANY AND ITS OFFICERS, DIRECTORS AND
5% BENEFICIAL OWNERS AND THEIR FAMILY MEMBERS
The Company employs Brad Cash, son of W. Larry Cash. In 2016, Brad Cash received a base
salary of $324,012, earned a bonus of $82,642 for 2016, which was paid in 2017, and earned additional bonuses totaling $35,000 for his leadership in transactions at certain hospitals and for the effective execution of an operational improvement plan
during the fourth quarter of 2015 for the hospitals in his operating division. In 2016, he also received a grant of a restricted stock award with a grant date fair value of $92,580 while serving as the divisional financial executive for one of our
operating divisions. The Company believes that the compensation paid to Brad Cash was on terms as favorable to the Company as could have been maintained with an unrelated third party.
On December 31, 2016, CHSPSC, LLC, a wholly-owned subsidiary of the Company, entered into a consulting agreement with David L. Miller, the
Companys former President and Chief Operating Officer, upon his retirement as Executive Vice President and Special Advisor to the Chief Executive Officer. The Company believes that the compensation paid to Mr. Miller under his consulting
agreement is on terms as favorable to the Company as could have been maintained with an unrelated third party. Pursuant to the consulting agreement, Mr. Miller provides certain consulting services related to matters of administration,
healthcare operations, healthcare management and other matters as requested by our Chief Executive Officer. The term of the consulting agreement is from January 1, 2017 to March 31, 2019, subject to the right of either party to terminate
the consulting agreement at any time upon 30 days written notice. During the term of the consulting agreement, Mr. Miller receives consulting fees of $16,666.66 per month, and he is subject to restrictions on competing with the Company or its
affiliates. For the duration of the consulting agreement, Mr. Millers previously granted stock options will remain in effect in accordance with the applicable terms of their grant. He will also continue to vest in previously granted
restricted stock of the Company in accordance with the applicable time-vesting schedule.
On March 31, 2017, CHSPSC, LLC entered into a
consulting agreement with Rachel A. Seifert, the Companys former Executive Vice President, Secretary and General Counsel, upon her retirement. The Company believes that the compensation paid to Ms. Seifert under her consulting agreement
is on terms as favorable to the Company as could have been maintained with an unrelated third party. Pursuant to the consulting agreement, Ms. Seifert provides certain consulting services related to legal matters as requested by our Chief
Executive Officer. The term of the consulting agreement is from April 1, 2017 to March 31, 2019, subject to the right of either party to terminate the consulting agreement at any time upon 30 days written notice. During the term of the
consulting agreement, Ms. Seifert receives consulting fees of $20,833 per month, and she is subject to restrictions on competing with the Company or its affiliates. For the duration of the consulting agreement, Ms. Seiferts
previously granted stock options will remain in effect in accordance with the applicable terms of their grant. She will also continue to vest in previously granted restricted stock of the Company in accordance with the applicable time-vesting
schedule.
It is anticipated that, upon his retirement as the Companys President of Financial Services and Chief Financial Officer
concurrently with the 2017 Annual Meeting, Mr. Cash will enter into a consulting agreement with CHSPSC, LLC pursuant to which he would advise the Companys management team on issues related to healthcare finance, management and operations.
The terms of such an agreement have not yet been determined but are expected to be as favorable to the Company as could be maintained with an unrelated third party.
In 2005, the Companys subsidiary CHS/Community Health Systems, Inc. established the Community Health Systems Foundation, a tax exempt charitable
foundation. One of the purposes of the foundation is to match, subject to certain conditions, charitable contributions made by the Companys directors and officers up to an aggregate maximum per year of $25,000 per individual.
There were no loans outstanding during 2016 from the Company to any of its directors, nominees for director, executive officers, or any beneficial owner
of 5% or more of our equity securities, or any family member of any of the foregoing.
The Company applies the following policy and procedure with
respect to related person transactions, including each of the related person transactions described above. All such transactions are first referred to our General Counsel to determine if they are within the scope of the Companys written
related party transactions policy. Under the Companys policy, related person transaction means those transactions, arrangements or relationships involving the Company and any of its subsidiaries, on the one hand, and any
related person, on the other hand, excluding any exempted transactions (as described below). Under this policy, a related person is defined to mean any person
23
who is a director (or nominee) or an executive officer, any immediate family member of any of the foregoing persons, any person who is a beneficial owner of 5% or more of the Companys
Common Stock (our only class of voting securities) or any immediate family member of such owner, or any entity in which any of the foregoing persons is employed or is a general partner or principal or in a similar position or in which any of the
foregoing persons has a 5% or more beneficial ownership interest. The Companys policy exempts related person transactions if it is determined by our General Counsel that the direct or indirect interest a related person had, has or will have in
the transaction is not material or that such transaction is not otherwise required to be disclosed pursuant to Item 404(a) of Regulation
S-K.
If any such transaction is within the scope of the Companys
related party transactions policy, the transaction must be reviewed by the Audit and Compliance Committee to consider and determine whether, among other factors, the benefits of the relationship outweigh the potential conflicts inherent in such
relationships and whether the transaction is otherwise in compliance with the Companys Code of Conduct and other policies, including for example, the independence standards of the Governance Guidelines of the Board of Directors. Related person
transactions are reviewed not less frequently than annually if they are to continue beyond the year in which the transaction is initiated.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 2016, John A. Clerico, Julia B. North and H. Mitchell Watson, Jr.
served as members of the Compensation Committee. None of these persons has at any time been an officer or employee of the Company or any of its subsidiaries. In addition, there are no relationships among our executive officers, members of the
Compensation Committee or entities whose executives serve on the Board of Directors or the Compensation Committee that require disclosure under applicable rules of the SEC.
INFORMATION ABOUT OUR EXECUTIVE OFFICERS
The following sets forth information regarding our executive officers as of March 20, 2017. Each of our executive officers holds an identical
position with CHS/Community Health Systems, Inc., and CHSPSC, LLC, two of our wholly-owned subsidiaries:
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|
|
|
|
Name
|
|
Age
|
|
Position
|
Wayne T. Smith
|
|
71
|
|
Chairman of the Board, Chief Executive Officer and Director
|
W. Larry Cash
|
|
68
|
|
President of Financial Services, Chief Financial Officer and Director
|
Tim L. Hingtgen
|
|
49
|
|
President, Chief Operating Officer and Director Nominee
|
Lynn T. Simon, M.D.
|
|
57
|
|
President of Clinical Services and Chief Quality Officer
|
Martin J. Bonick
|
|
43
|
|
Division President Division Operations
|
Robert O. Horrar
|
|
51
|
|
Division President Division Operations
|
John W. McClellan
|
|
48
|
|
Division President Division Operations
|
Michael T. Portacci
|
|
58
|
|
Division President Division Operations
|
P. Paul Smith
|
|
53
|
|
Division President Division Operations
|
Rachel A. Seifert
|
|
57
|
|
Executive Vice President, Secretary and General Counsel
|
Kevin J. Hammons
|
|
51
|
|
Senior Vice President and Chief Accounting Officer
|
Wayne T. Smith
The principal occupation and employment experience of Mr. W. Smith during the
last five years is set forth on page 18 of this Proxy Statement.
W.
Larry Cash
The principal occupation and
employment experience of Mr. Cash during the last five years is set forth on page 20 of this Proxy Statement.
Tim L. Hingtgen
The principal occupation and employment experience of Mr. Hingtgen during the last five years is set forth on page 19 of this Proxy Statement
Lynn T. Simon, M.D.
serves as President of Clinical Services and Chief Quality Officer. She has leadership responsibilities for all aspects of
clinical operations, including quality and safety, clinical service lines, nursing, and case management. She also oversees medical staff relations, physician practice management, clinical integration and telemedicine initiatives, medical informatics
and corporate support areas such as pharmacy, medical imaging, laboratory and hospital-based physician services. Upon joining us in 2010 and until she assumed her current position in January 2014, Dr. Simon served as senior vice president and
chief quality officer. She is also a director of Kindred
24
Healthcare, Inc., a provider of post-acute care services, and she serves on its audit committee and its quality of care and patient outcomes committee. Prior to joining us, Dr. Simon served
as vice president of medical affairs at Jewish Hospital in Louisville, Kentucky from 2004 to 2005 and as senior vice president and chief medical officer of Jewish Hospital & St. Marys HealthCare from 2005 to 2010, following the merger
of Jewish Hospital and St. Marys HealthCare. She was a full-time practicing neurologist in Louisville, Kentucky from 1989 until 2005. She has a medical degree from the University of Louisville and a masters degree in business
administration from Bellarmine University in Louisville. Dr. Simon was named to
Modern Healthcares
50 Most Influential Physician Executives and Leaders list the last two years and to
Modern Healthcares
biennial Top 25
Women in Healthcare list in 2015 and 2017.
Martin J. Bonick
serves as Division President Division I Operations. Mr. Bonick joined
us in 2011 as a vice president of division operations bringing more than 18 years of
for-profit
and
non-profit
healthcare leadership experience. In January 2014, he was
promoted to Division President. He oversees the operations of our affiliated hospitals in Alabama, Louisiana, Mississippi, Missouri, North Carolina and Virginia. Prior to joining us, Mr. Bonick served as chief executive officer of Jewish
Hospital in Louisville, Kentucky from 2008 to 2011 as well as senior vice president of operations for its parent company, Jewish Hospital & St. Marys HealthCare. Prior to that, Mr. Bonick served as chief executive officer of
Oklahoma State University Medical Center in Tulsa, Oklahoma from 2005 to 2008. He has dual masters degrees in healthcare administration and information management from Washington University in St. Louis.
Robert O. Horrar
serves as Division President Division III Operations. Mr. Horrar joined us in 1998 as vice president of business
development and managed care. From 2011 through 2015, he served as vice president of division operations with responsibility for affiliated hospitals in Texas. In January 2016, he was promoted to Division President. He oversees the operations of
affiliated hospitals in Indiana, Tennessee and West Virginia. Prior to joining us, Mr. Horrar was with Humana, Inc. for over 11 years and held several key management positions, including executive director for Nevada operations. He holds a
masters degree in healthcare administration from Trinity University in San Antonio.
John W. McClellan
serves as Division President
Division IV Operations. Mr. McClellan joined us in 2009 as a vice president of division operations. In that role, he supported operations in affiliated hospitals in Indiana, Pennsylvania and Tennessee. In May 2016, he was promoted to
Division President. Mr. McClellan oversees the operations of affiliated hospitals in New Jersey, Ohio, Oklahoma, and Pennsylvania. Mr. McClellan has over twenty years of healthcare management experience. Prior to joining us,
Mr. McClellan was with another hospital management company for 13 years, where he served as chief executive officer of hospitals in Florida, Missouri and North Carolina. He holds a masters degree in healthcare administration from the
University of Kentucky.
Michael T. Portacci
serves as Division President Division II Operations. Mr. Portacci
joined us in 1988 as a hospital administrator and became a group director with oversight for multiple facilities in 1991. In 1995, he was promoted to group vice president, and in 2001 he was named a senior vice president of group operations.
Mr. Portacci oversees the management of our affiliated hospitals in Alaska, Arizona, Arkansas, New Mexico, Texas and Washington. He has a masters degree in health care administration from Trinity University.
P
.
Paul
Smith
serves as Division President Division V Operations. Mr. P. Smith joined us in 2008 as a vice
president of division operations, supporting operations in affiliated hospitals across the southeast. In January 2016, he was promoted to Division President. He oversees the operations of affiliated hospitals in Florida, Georgia and South Carolina.
Prior to joining us, Mr. P. Smith was with another hospital management company for 14 years, where he served as a vice president and as chief executive officer of a hospital in North Carolina. He has masters degrees in both business and
health administration from Georgia State University in Atlanta.
Rachel A. Seifert
served as Executive Vice President, Secretary and General
Counsel until her retirement on March 31, 2017. She was responsible for oversight of all legal aspects within the company, including acquisitions/development, SEC and corporate governance, litigation and management of the legal department. She
joined us in 1998 as vice president, secretary and general counsel. She was promoted to senior vice president in 2001 and to executive vice president in 2010.
Kevin J. Hammons
serves as Senior Vice President and Chief Accounting Officer. He is responsible for SEC reporting matters, as well as overseeing
other accounting and financial reporting matters, including consolidations, income taxes, budgeting and the design and implementation of financial systems and processes. Mr. Hammons joined us in 1997 and, in 2002, he was promoted to assistant
vice president, financial reporting. In 2005, he was promoted to vice president, financial
25
reporting. In 2012, he was promoted to vice president and chief accounting officer, and in January 2014, he was promoted to senior vice president. Prior to joining us, he served in various
positions in the assurance and advisory services practice at Ernst & Young LLP.
The executive officers named above were appointed by the
Board of Directors to serve in such capacities until their respective successors have been duly appointed and qualified, or until their earlier death, resignation or removal from office.
PROPOSAL 1 ELECTION OF DIRECTORS
Upon the recommendation of the Governance and Nominating Committee, the Board has nominated the eight (8) persons listed below for election to
serve as directors, each for a term of one (1) year and until his or her successor is elected and qualified.
The nominees for director are:
John A. Clerico
James S. Ely III
John A. Fry
William Norris Jennings, M.D.
Julia B. North
Wayne T. Smith
H. James Williams, Ph.D.
Tim L. Hingtgen
Each of the nominees, other than Tim L. Hingtgen,
is an incumbent. Each of the nominees has consented to being named as a director nominee in
this Proxy Statement and has agreed to serve for the one (1) year term to which he or she has been nominated, if elected. If any of the nominees are unable to serve or refuses to serve as a director, the proxies will be voted in favor of such
other nominee(s), if any, as the Board of Directors may designate. The Company has no reason to believe that any director nominee will be unable or unwilling to serve if elected as a director.
Required Vote
Each director nominee
will be elected if he or she receives more votes for his or her election than against his or her election. Abstentions and broker
non-votes
in connection with the election of directors
have no effect on such election. If any director nominee does not receive more votes for his or her election than against, then pursuant to the Governance Guidelines, that nominee is required to promptly submit his or her
resignation to the Board of Directors following certification of the vote. The Governance and Nominating Committee (excluding any member of such committee whose resignation is to be considered) is required to consider the resignation and recommend
to the Board whether to accept or reject the resignation or whether other action should be taken. The Board is required to take action on the recommendation within 90 days following certification of the vote, and promptly thereafter to publicly
disclose its decision and the reasons therefor.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR EACH OF THE NOMINEES FOR ELECTION AS
A DIRECTOR.
PROPOSAL 2 ADVISORY VOTE ON EXECUTIVE COMPENSATION
Consistent with the Dodd-Frank Wall Street Reform and Consumer Protection Act, and as required by Section 14A of the Exchange Act, we are providing our
stockholders with the opportunity to vote to express their views with respect to the compensation of our named executive officers. The vote is on an advisory basis and is
non-binding
and applies to the
compensation disclosed in this Proxy Statement, which has been prepared in accordance with the compensation disclosure rules of the Securities and Exchange Commission.
26
As described in detail under the heading
Compensation Discussion and Analysis,
we seek
to closely align the interests of our named executive officers with the interests of our stockholders. Our compensation programs are designed to retain and reward our named executive officers for the achievement of short-term and long-term strategic
and operational goals and the achievement of increased total shareholder return.
The Companys executive compensation philosophy and program
have consistently and proactively sought to be responsive to governance and stockholder concerns as evidenced by our stockholder outreach efforts and our responsiveness to feedback received in those efforts. Our executive compensation program is
overseen by the Compensation Committee of our Board of Directors (which is wholly comprised of independent members of the Board of Directors), and our Compensation Committee engages an independent executive compensation consultant, Mercer Human
Resources Consulting, to provide advice to the Compensation Committee.
Our executive compensation program has been designed, reviewed and modified
over time to conform to governance best practices and to respond to investor feedback regarding pay practices. All executives are subject to stock ownership guidelines, cash incentive compensation is capped and allocated among components to
avoid undue risk, and each of our executives is an
at-will
employee.
Our Compensation Committee monitors
changes in our industry and our business to ensure that the compensation elements continue to meet the goals of the program and the expectations of our stockholders and makes adjustments as necessary.
As described in detail under the heading
Compensation Discussion and Analysis,
our performance in 2016 fell below our financial
targets, which significantly impacted the compensation paid to our named executive officers for 2016. In addition, in response to the stockholder advisory vote on our executive compensation at the 2016 Annual Meeting of Stockholders, we undertook a
thorough
re-evaluation
of our executive compensation program, including seeking additional feedback from our stockholders. As a result of that evaluation, we have made significant changes to our annual cash
incentive compensation and long-term incentives programs for 2017.
The vote on this resolution is advisory, which means that the vote is not
binding on the Company, our Board of Directors, or the Compensation Committee of the Board of Directors. To the extent there is any significant vote against our named executive officer compensation, the Compensation Committee will consider the
results of this advisory vote and will evaluate whether any additional actions are necessary to address the concerns of stockholders.
Accordingly,
we ask our stockholders to vote on the following resolution at the Annual Meeting:
RESOLVED, that the compensation paid to the Companys
named executive officers, as disclosed pursuant to Item 402 of
Regulation S-K,
including the Compensation Discussion and Analysis, compensation tables, and narrative discussion, is hereby
APPROVED.
Required Vote
The affirmative vote of a majority of the shares of Common Stock entitled to vote and present in person or represented by proxy at the Meeting is
required to approve this Proposal 2. Abstentions will be considered a vote against this proposal and broker
non-votes
will have no effect on such matter since these votes will not be considered present
and entitled to vote for this purpose.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE APPROVAL, ON AN ADVISORY BASIS, OF THE COMPENSATION OF OUR
NAMED EXECUTIVE OFFICERS, AS DISCLOSED IN THIS PROXY STATEMENT.
27
PROPOSAL 3 ADVISORY VOTE ON THE FREQUENCY OF AN ADVISORY VOTE ON EXECUTIVE
COMPENSATION
In addition to providing stockholders with the opportunity to cast an advisory vote on executive compensation, the Company
this year, as required by Section 14A of the Exchange Act, is providing stockholders with an advisory vote on whether the advisory vote on executive compensation should be held every one, two or three years. Consistent with the views of our
stockholders expressed in 2011 when we previously held an advisory vote on the frequency of an advisory vote on executive compensation, we have held an advisory vote on executive compensation every year since 2011.
The Board believes that a frequency of every one year for the advisory vote on executive compensation continues to be the optimal interval
for conducting and responding to a say on pay vote. In formulating this recommendation, the Board believes that current best corporate governance practices favor an annual advisory vote, and that an annual advisory vote will allow our
stockholders to provide us with their direct input on our compensation philosophy, policies and practices with respect to our named executive officers on a more timely and consistent basis than the biennial and triennial alternatives. In addition,
the Board believes that the annual advisory vote allows the Board and Compensation Committee the opportunity to evaluate compensation decisions in light of this annual feedback from our stockholders in a manner that is consistent with our policy of
seeking regular dialogue with our stockholders on corporate governance and executive compensation matters.
Stockholders will not be voting to
approve or disapprove the Boards recommendation. Instead, stockholders will be provided the opportunity to choose among four options (holding the vote every one, two, or three years, or abstaining from selecting any particular interval) when
voting in response to the resolution set forth below:
RESOLVED, that the option of every one year, two years, or three years
that receives the highest number of votes cast for this resolution will be the preferred frequency with which the Company is to provide shareholders with the opportunity to vote to approve the compensation of named executive officers, as disclosed
pursuant to the compensation disclosure rules of the Securities and Exchange Commission.
The Company will consider stockholders to have
expressed a
non-binding
preference for the option that receives the most votes.
Although this advisory vote
on the frequency of the say on pay vote is
non-binding,
the Board and the Compensation Committee will take into account the outcome of the vote when considering the frequency of future advisory
votes on executive compensation.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE OPTION OF EVERY ONE YEAR, ON AN ADVISORY BASIS,
FOR FUTURE ADVISORY VOTES ON EXECUTIVE COMPENSATION.
28
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
Introduction
As a leader in the hospital
sector of the healthcare industry, one of the nations largest and most dynamic industries, the Company must ensure that it attracts and retains the leadership and managerial talent needed to sustain its position in this rapidly changing
industry. To remain competitive in the Companys financial, capital and business markets, growth in earnings and profitability are paramount objectives of the Companys strategy. We believe these strategic imperatives are fundamental
points of alignment between stockholder value and the compensation of executive management. In recent years, stockholders have focused on year-over-year stock price performance as a key measure of stockholder-executive compensation alignment.
Accordingly, we include total stockholder return as a component in the annual incentive compensation plans for the Companys Chief Executive Officer and Chief Financial Officer.
In 2016, the Company was focused on its previously disclosed portfolio rationalization and deleveraging plan as well as expense reduction efforts.
Further, the Company was focused on the expansion of service lines that the Company believes have the greatest growth potential, including orthopedics, neuroscience, cardiovascular care, womens health and cancer care. The Company believes that
these efforts will ultimately result in a stronger Company. Despite the progress made in these areas, the Company did not meet several of its financial expectations in 2016, as initially set forth in the Companys earnings release issued in
February 2016 and as subsequently adjusted to reflect the removal from the 2016 operating results of 38 hospitals and Quorum Health Resources as a result of the
spin-off
of Quorum Health Corporation as well as
the sale of the Companys minority equity interests in five hospitals located in Las Vegas, Nevada, all of which occurred during the second quarter of 2016 (the Adjusted 2016 Performance Objectives).
Consistent with the
Companys
pay-for-performance
philosophy, this resulted in the annual cash incentive compensation and total compensation paid to our named executive officers for
2016 being significantly less than the target cash incentive award that could have been earned if the Company had achieved all of its financial goals. In addition, as a result of the Companys practice of granting executives approximately the
same number of restricted shares each year (absent any change in responsibility, competitive positioning as compared to the peers, etc.), the value of these awards has been greatly reduced due to our stock price declines in 2015 and 2016, as
compared to the value of the awards made in prior years.
Executive Summary
Compensation Program Objectives and Best Practices
The primary objectives of the Companys executive compensation program are to:
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Provide market competitive pay levels, compensation programs and incentive plan designs, all of which are underpinned by our strong pay for performance philosophy;
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Attract and retain seasoned professionals with demonstrated abilities to capitalize on growth opportunities in both same-store and new markets (both geographic and business line);
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Incorporate short-term and long-term components that align the interests of executive management with stockholders while also appropriately incentivizing our executives to drive Company performance and maximize value;
and
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Adhering to rigorous expense management in an environment of ethical and compliant behavior.
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29
Our executive compensation program has been designed, reviewed and modified over time to conform to
governance best practices and to respond to investor concerns regarding pay practices. For example, the Company, over the years, has implemented the following policies:
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What We Do
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What We Dont Do
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Payfor Performance A significant portion of the compensation for our NEOs is in the form of
at-risk
variable compensation.
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ExcessivePerquisites Perquisites represent less than 1% of our NEOs compensation.
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MultiplePerformance Metrics Cash incentive compensation is based on multiple measures to encourage balanced initiatives.
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EmploymentAgreements All of our NEOs are employed on an
at-will
basis.
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TotalShareholder Return is a factor in the Chief Executive Officers and Chief Financial Officers incentive compensation.
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ExciseTax
Gross-ups
are not offered for any new executives covered under the Companys
Change-in-Control
Severance Agreements.
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StockOwnership Guidelines All NEOs are subject to our stock ownership requirements.
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Single-triggerchange-of-control
severance payments Companys Plan documents prohibit
single-trigger change in control severance payments.
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ClawbackProvisions Our policy provides for the adjustment or recovery of compensation in certain circumstances.
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Pledgingor Hedging Company policy prohibits directors, executives, and certain other employees from pledging or hedging their stock in the Company.
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AwardCaps All of our annual cash incentive compensation plans have caps on plan formulas.
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Repricingof underwater stock options Companys Plan documents prohibit any repricing.
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RiskAssessment The Compensation Committee regularly assesses the risk levels of the Companys executive compensation program.
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Usea representative and relevant peer group.
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Usean independent compensation consultant.
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A more detailed discussion of these policies and actions can be found on the following pages.
Over the years, we have continued to adapt elements of the program, as appropriate, taking into account stockholder expectations and feedback in order
to ensure that our executive compensation program continues to be structured in an optimal manner.
Key 2016 Compensation Decisions
In 2016, our performance fell below our financial targets, which significantly impacted the compensation paid to our named executive
officers. As a result, the following compensation-related decisions were made for 2016:
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Annual cash incentive compensation achieved for 2016 was significantly below target
: Annual cash incentive compensation paid to our named executive officers for 2016 was significantly less than the cash
incentive award that could have been earned if the Company had achieved all of its financial goals. For example, our Chief Executive Officer received only 13% of his maximum cash incentive award attainable for 2016.
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30
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Revised performance criteria for 2016 performance-based restricted stock awards
: In response to feedback received from our stockholders, we increased the level of achievement required to earn the 2016
performance-based restricted stock awards. For 2016, we replaced the attainment of 75% of the
low-end
target range of projected earnings per share (as had been used in prior years) with the attainment of 90%
of the
low-end
target range of Adjusted EBITDA. As a result, the performance criteria for 2016 performance-based restricted stock awards required the satisfaction of one of two performance measures:
(i) the attainment of 90% of the
low-end
target range of 2016 Adjusted EBITDA; or (ii) the attainment of 90% of the
low-end
target range of 2016 net operating
revenue (the net operating revenue performance measure was unchanged from prior years), both as based on the Adjusted 2016 Performance Objectives.
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Significant decline in grant value of 2016 performance-based restricted stock awards
: From 2014 through 2016, we granted our named executive officers the same number of shares of performance-based
restricted stock each year (absent any change in responsibility, competitive positioning as compared to the peers, etc.). As an example, our Chief Executive Officer received 150,000 performance-based restricted shares in each of 2014, 2015 and 2016
thus, the value of performance-based restricted stock awarded to the Chief Executive Officer and other executives is aligned with that of the gains or losses experienced by stockholders. As such, the value of the Chief Executive
Officers 2016 performance-based restricted stock award as of the date it was granted was 68% less than the value of his 2015 performance-based restricted stock grant as of the date it was granted.
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No salary increases
: Our Chief Executive Officer and Chief Financial Officer and our then-serving Chief Operating Officer did not receive any increases in their respective base salaries for 2016 compared
to 2015.
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The chart below reflects the alignment of our Chief Executive Officers annual compensation to the Companys failure to achieve
its financial goals and the decline in the price of the Companys stock. It demonstrates our belief that the compensation of our executives is aligned with our stockholders interests.
2015 and 2016 Compensation Elements
Wayne
T. Smith, Chairman and Chief Executive Officer
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2015
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2016
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Salary
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$
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1,600,000
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|
$
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1,600,000
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Incentive Plan Compensation
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400,000
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640,000
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Performance-Based Restricted Stock (grant date fair value)
(1)
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7,278,000
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2,314,500
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Total
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$
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9,278,000
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$
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4,554,500
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(1)
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The closing price of the Companys stock on the respective grant dates was: $48.52 per share on March 1, 2015; $15.43 per share on March 1, 2016.
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Please see,
Managements Discussion and Analysis of Financial Condition and Results
of Operations
in the Companys
2016 Annual Report on
Form 10-K
filed on February 21, 2017, for more details about the Companys recent performance.
31
Stockholder Outreach and Responsiveness to Feedback
2015 Stockholder Outreach Efforts and 2016 Program Changes
During 2015, we spoke with and received feedback regarding executive compensation and/or other matters from stockholders that held approximately 78% of
our shares outstanding at that time. In response to this feedback, we revised the performance criteria used for 2016 performance-based restricted stock awards, as discussed above, to increase the level of achievement required to earn the
performance-based restricted stock awards replacing 75% of the
low-end
target range of projected earnings per share (as had been used in prior years) with the attainment of 90% of the
low-end
target range of Adjusted EBITDA. As a result, the performance criteria for 2016 performance-based restricted stock awards required the satisfaction of one of two performance measures, (i) the attainment
of 90% of the
low-end
target range of 2016 Adjusted EBITDA; or (ii) the attainment of 90% of the
low-end
target range of 2016 net operating revenue, both as based
on the Adjusted 2016 Performance Objectives.
2016 Stockholder Outreach Efforts and 2017 Program Changes
We remain committed to a continuing dialogue between stockholders and the Company to fully understand and consider stockholder concerns on executive
compensation and other topics that are important to our stockholders. We evaluated and responded to the results of the advisory vote on our executive compensation at our 2016 Annual Meeting of Stockholders, which took place in May 2016, after
incentive compensation targets were set and annual restricted stock grants were awarded for 2016. Following our 2016 Annual Meeting, we undertook a thorough
re-evaluation
of our executive compensation program
going forward in light of this vote and current trends in public company pay practices. As a result of that evaluation, our Compensation Committee and management, in consultation with Mercer, proposed several changes to our executive compensation
program for 2017. We consulted with stockholders that held a majority
of our shares outstanding at that time and solicited their feedback on our existing executive compensation program as well as the proposed changes. Moreover, the members of
our independent Compensation Committee and our other outside directors were available to speak directly with these stockholders if desired. Our Compensation Committee considered the feedback and suggestions we received in light of both market best
practices and what we believe to be necessary to execute a
best-in-class
compensation program that successfully addresses our senior executive talent attraction and
retention needs.
After considering all of the feedback and market perspectives, our Compensation Committee made the following changes to our
executive compensation program for 2017:
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Revised annual cash incentive compensation methodology
: For 2017, the total cash incentive compensation bonus opportunity for each of our named executive officers has been revised to provide for a lower
incentive compensation bonus target opportunity for fully achieving the Companys targeted financial goals. The target cash incentive bonus opportunity, absent specified performance improvements or overachievement, has been reduced by 30
percentage points for our Chief Executive Officer (from 265% to 235%) and Chief Financial Officer (from 165% to 135%), 25 percentage points for our Chief Operating Officer (from 165% to 140%), and 15 percentage points for our Division Presidents
(from 130% to 115%). In response to feedback received in our engagement with our stockholders, we have also incorporated substantial progress toward the Companys previously disclosed portfolio rationalization and deleveraging plan as a
component of the
non-financial
performance strategic and operational improvement goals under our annual cash incentive program. The 2017 cash incentive bonus opportunities for our Chief Executive Officer and
our Chief Financial Officer continue to include a component for relative Total Shareholder Return Percentile Rank.
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Revised long-term incentive methodology
: Our named executive officers were granted
one-half
of their 2017 long-term incentive awards in the form of performance-based
restricted stock with three-year (rather than
one-year)
performance targets. The attainment of a
pre-determined
level of Cumulative Same-Store Adjusted EBITDA Growth
during the three-year period beginning January 1, 2017 and ending December 31, 2019 (the Performance Period) is weighted 80%, and the attainment of a
pre-determined
level of Cumulative
Adjusted EPS during the Performance Period is weighted 20%. The other half of the long-term incentive awards granted to each named executive officer was in the form of time-based restricted stock that will vest in
one-third
increments on each of the first three anniversaries of the grant date.
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32
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No salary increases
: Our Chief Executive Officer and Chief Financial Officer did not receive any increase in their base salary for 2017.
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Overall, these proposed changes to our executive compensation plan were generally supported by the stockholders with whom we spoke.
Going forward, we will continue to evaluate our executive compensation program in light of stockholder feedback, governance best practices, regulatory
requirements, economic and industry factors, and competitive considerations. We will make changes, as applicable, that both ensure the alignment between the interests of our stockholders and our executives and reflect industry-leading executive
compensation programs.
2016 Guiding Principles and Compensation Framework
The core goals applied by the Company in implementing its executive compensation program for 2016 were to provide a mix of compensation vehicles that
generated a compensation package that is competitive with an appropriate peer group, provides for the attainment of performance and growth objectives from both a short-term and long-term perspective, aligns the interests of executive management with
stockholders, and retains and attracts valuable executive talent.
The guiding principles used by the Company during 2016 included:
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An overall targeted mix of compensation elements that is competitive with our selected peer group companies (see below for a discussion of our peer group);
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Annual target incentive cash compensation that is at risk, performance-based, and tied to the attainment of the Companys growth objectives;
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Long-term incentive awards of stock-based compensation that are predominately performance-based and, accordingly, are at risk and further align the interests of executive management with our stockholders; and
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Provision of longer range savings, retirement, and other benefits, including appropriate perquisites, to encourage the retention of the most experienced and talented executives through their most productive and valuable
years of employment service.
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The Company believes that the flexibility to make upward or downward adjustments as needed for
individual performance, unusual market fluctuations, or extraordinary performance considerations, provides consistency and predictability to the Companys executives and alignment of interests and transparency to the Companys investors.
Variations in pay levels for executives are based on factors such as internal equity, level of responsibility, individual performance, and Company performance.
33
Components of our 2016 Executive Compensation Program
Peer Group
In accordance with the
process described above, the Company utilized a benchmark peer group in connection with determining the executive compensation for the named executive officers.
The Company regularly reviews the composition of its peer group to ensure comparability between the Company and its peer group. The 2016 peer group
included the other four major hospital management companies. In addition, given the limited number of large, publicly-traded hospital management companies, the peer group also included 16 other companies in the healthcare facilities, healthcare
services, healthcare distribution, insurance or managed care areas. Molina Healthcare, Inc. replaced Catamaran Corporation in the Companys 2016 peer group following the latter companys acquisition during 2015. There were no other changes
to the Companys peer group for 2016. The 20 companies included in the 2016 peer group analysis are:
Peer Group Companies (for 2016
Compensation Cycle)
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Aetna Inc.
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Henry Schein, Inc.
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Aflac
Incorporated
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Humana Inc.
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AmerisourceBergen
Corporation
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Kindred Healthcare, Inc.
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Anthem, Inc.
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LifePoint Health, Inc.
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Cardinal Health,
Inc.
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Molina Healthcare, Inc. (added for 2016)
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Centene
Corporation
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Owens & Minor, Inc.
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CIGNA
Corporation
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Tenet Healthcare Corporation
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DaVita HealthCare
Partners Inc.
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Universal Health Services, Inc.
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HCA Holdings,
Inc.
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Unum Group
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Health Net,
Inc.
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WellCare Health Plans, Inc.
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In selecting the peer group companies, consideration was given to revenue, market capitalization, enterprise value and
number of employees of each company, while being sensitive to the positioning of the Company in relation to the peer group medians. The goal was to have the Company fit within the middle of the peer group (i.e., between the 25
th
and the 75
th
percentile) with respect to these metrics if possible. Based on 2015 data, the Company was near the 50th percentile of this peer
group in terms of revenue, near the 55
th
percentile in terms of enterprise value, and, as the result of the decline in the Companys stock price in the fourth quarter of 2015,
near the
20
th
percentile in terms of market capitalization. Our Compensation Committee believes that the Companys peer group continues to align the Company with the competitive market for talent for
our key executives.
Base Salary
Base salary, as its name implies, is the basic element of the employment relationship, designed to compensate the executive for his or her
day-to-day
performance of duties. The amount of base salary distinguishes individuals level and responsibility within the organization. Exceptional performance and
contribution to the growth and greater success of the organization are rewarded through other compensation elements, and for this reason, the benchmark target for base salary for each of our executive officers is set at a market-competitive level
relative to our peer group as identified above when considering each executives role and responsibilities, as well as individual performance.
The base salaries of the Chief Executive Officer and the other named executive officers were reviewed by the Compensation Committee in early 2016 as
part of its annual review. The Compensation Committee determined that there would be no change to the base salaries of the Chief Executive Officer, the Chief Financial Officer and the then-serving Chief Operating Officer for 2016. The base salary
for each of the named executive officers for 2015 and 2016 is set forth in the table below. In May 2016, the Compensation Committee approved an additional increase to the base salary of Mr. Hingtgen as a
result of his promotion to
Executive Vice President of Operations and the
34
corresponding changes to his role and responsibilities. At that time, the Compensation Committee also approved an additional increase to the base salary of Mr. Portacci as a result of his
additional job responsibilities due to the realignment of the Companys operating divisions following the
spin-off
of Quorum Health Corporation.
In September 2016, the Compensation Committee approved an additional increase to Mr. Hingtgens base salary as a result of his promotion to Chief Operating
Officer, effective September 1, 2016, and the additional changes to his role and responsibilities.
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Annual Base Salary
|
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2015
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2016
|
Wayne T. Smith
Chairman and CEO
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$1,600,000
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$1,600,000
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W. Larry Cash
President of Financial Services and CFO
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$850,000
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$850,000
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David L. Miller
President and COO
(January 1 through August 31, 2016)
Executive Vice President and Special Advisor to CEO
(September 1 through December 31, 2016)
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$750,000
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$750,000
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Tim L. Hingtgen
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Division President
(January 1 through April 30, 2016)
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$515,000
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$550,000
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Executive Vice President of Operations
(May 1 through August 31, 2016)
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$690,000
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President and
COO
(September 1 through December 31, 2016)
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$725,000
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Michael T.
Portacci
Division President
|
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$610,000
|
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$620,000
(January 1 April 30, 2016
$685,000
(May 1 December 31, 2016)
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Annual Cash Incentive Compensation
Annual cash incentive compensation awards to the named executive officers are made pursuant to the Companys 2004 Employee Performance Incentive
Plan (EPIP), as most recently amended and restated in February 2014 and approved by our stockholders in May 2014. Annual cash incentive compensation awards are intended to align employees interests with the goals and strategic
initiatives established by the Company and to reward employees for their contributions during the period to which the incentive award relates. Annual cash incentive compensation awards targets are typically expressed as a percentage of the
individuals base salary.
Annual cash incentive compensation awards are at risk as they are subject to the attainment of specific
goals. For each named executive officer, the individuals target plan includes two or more budgeted goals, and for each goal, different award amounts may be earned depending on the level at which that goal is attained, (i.e., an
underachievement and overachievement opportunity). The Companys goals based on budgeted operating performance as noted below were each within the range of the Companys Adjusted 2016 Performance Objectives. The Company did not undertake a
statistical analysis to quantify how difficult it would be to achieve the relevant targets used to determine cash incentive compensation awards. However, at the time the target levels were set, the Compensation Committee believed that achieving such
target levels, although challenging, was possible with significant effort from the named executive officers. Accordingly, the likelihood of the named executive officers achieving their respective target levels was not known and historically, in any
given year, not all of the target levels have been fully achieved. The Compensation Committee determined that it was appropriate to set rigorous financial targets used to determine the cash incentive
35
compensation awards in order to motivate the named executive officers to meet the Companys business goals and to align named executive officers interests with the goals and strategic
initiatives established by the Company.
For 2016, the Companys Adjusted 2016 Performance Objectives were as follows:
|
|
The Adjusted EBITDA target was $2.735 billion (with a minimum of $2.461 billion, which would have yielded 50% of bonus amount linked to this objective),
|
|
|
The Continuing Operations EPS target was $2.95 per share (with a minimum of $2.65, which would have yielded 50% of bonus amount linked to this objective), and
|
|
|
The Net Revenues target was $18.300 billion (with a minimum of $16.470 billion, which would have yielded 50% of the bonus amount linked to this objective).
|
Additional division-specific goals were based upon certain financial and operational results of the hospitals within each respective division.
For 2016, the Companys financial performance in relation to its Adjusted 2016 Performance Objectives was achieved as follows: Company Adjusted
EBITDA 81%; Continuing Operations EPS 16%; and Net Revenue 100%. Individual Division Presidents goal attainment varied depending upon the operations within the applicable division as set forth in the
table on page 39 of this Proxy Statement.
Each goal target was scaled to achieve a partial award for less than targeted performance or above target
award for exceptional performance. For example, for each 1% decrease in the Companys achievement of a particular objective, the award percentage linked to that objective would be reduced by 5%, so that at 90% of target attainment, 50% of the
bonus amount linked to this objective would have been paid. Where the Companys achievement was below 90% of target attainment, none of the bonus amount linked to that objective would have been paid. This is further illustrated below:
|
|
|
|
|
|
|
|
|
2016 Adjusted
EBITDA
|
|
% of Target
Attained
|
|
% of Bonus
Amount
Linked to
Adjusted
EBITDA
Awarded
|
Target
g
|
|
$2,735,000,000
|
|
100%
|
|
100%
|
|
|
$2,707,650,000
|
|
99%
|
|
95%
|
|
|
$2,680,300,000
|
|
98%
|
|
90%
|
|
|
$2,652,950,000
|
|
97%
|
|
85%
|
|
|
$2,625,600,000
|
|
96%
|
|
80%
|
|
|
$2,598,250,000
|
|
95%
|
|
75%
|
|
|
$2,570,900,000
|
|
94%
|
|
70%
|
|
|
$2,543,550,000
|
|
93%
|
|
65%
|
|
|
$2,516,200,000
|
|
92%
|
|
60%
|
|
|
$2,488,850,000
|
|
91%
|
|
55%
|
|
|
$2,461,500,000
|
|
90%
|
|
50%
|
Actual (81%)
g
|
|
< $2,461,500,000
|
|
< 90%
|
|
0%
|
36
|
|
|
|
|
|
|
|
|
2016 Continuing
Operations EPS
|
|
% of Target
Attained
|
|
% of Bonus
Amount
Linked
to
Continuing
Operations
EPS Awarded
|
Target
g
|
|
$2.95
|
|
100%
|
|
100%
|
|
|
$2.92
|
|
99%
|
|
95%
|
|
|
$2.89
|
|
98%
|
|
90%
|
|
|
$2.86
|
|
97%
|
|
85%
|
|
|
$2.83
|
|
96%
|
|
80%
|
|
|
$2.80
|
|
95%
|
|
75%
|
|
|
$2.77
|
|
94%
|
|
70%
|
|
|
$2.74
|
|
93%
|
|
65%
|
|
|
$2.71
|
|
92%
|
|
60%
|
|
|
$2.68
|
|
91%
|
|
55%
|
|
|
$2.65
|
|
90%
|
|
50%
|
Actual (16%)
g
|
|
< $2.65
|
|
< 90%
|
|
0%
|
|
|
|
|
|
|
|
|
|
2016 Net Revenues
|
|
% of Target
Attained
|
|
% of Bonus
Amount
Linked to Net
Revenue
Awarded
|
Target and Actual (100%)
g
|
|
$18,300,000,000
|
|
100%
|
|
100%
|
|
|
$18,117,000,000
|
|
99%
|
|
95%
|
|
|
$17,934,000,000
|
|
98%
|
|
90%
|
|
|
$17,751,000,000
|
|
97%
|
|
85%
|
|
|
$17,568,000,000
|
|
96%
|
|
80%
|
|
|
$17,385,000,000
|
|
95%
|
|
75%
|
|
|
$17,702,000,000
|
|
94%
|
|
70%
|
|
|
$17,019,000,000
|
|
93%
|
|
65%
|
|
|
$16,836,000,000
|
|
92%
|
|
60%
|
|
|
$16,653,000,000
|
|
91%
|
|
55%
|
|
|
$16,470,000,000
|
|
90%
|
|
50%
|
|
|
< $16,470,000,000
|
|
< 90%
|
|
0%
|
On the other hand, if the target for an objective had been exceeded, each named executive officer would have received an
additional 1% of their base salary for each 1% over the target, limited to a maximum amount of overachievement for each objective and subject to the plan maximum for the individual officer.
37
The 2016 cash incentive opportunities for our Chief Executive Officer and our Chief Financial Officer
included a component for Total Shareholder Return Percentile Rank in accordance with the following table:
|
|
|
TSR Percentile Rank
|
|
Total Percent Opportunity
(as a percentage of base salary)
|
Above 65
th
= Target
|
|
20%
|
50
th
65
th
|
|
15%
|
40
th
49
th
|
|
10%
|
30
th
39
th
|
|
5%
|
Below 30
th
|
|
0%
|
Total Shareholder Return Percentile Rank means the relative growth of the Companys price per share of
Common Stock compared to the TSR comparison group. The TSR comparison group consists of the following companies (which includes the following four major hospital management companies: HCA Holdings, Inc., Tenet Healthcare
Corporation, Universal Health Services, Inc., Kindred Healthcare, Inc., LifePoint Health, Inc., and HealthSouth Corporation.
For 2016, the
Companys Total Shareholder Return was below the 30
th
percentile for Total Shareholder Return among the TSR comparison group, and accordingly neither our Chief Executive Officer nor our Chief
Financial Officer received any portion of their target cash incentive compensation allocated to this component.
The Companys failure to
achieve many of its targeted goals in 2016 resulted in below target cash incentive compensation paid to our named executive officers for 2016.
The Chief Executive Officer and Chief Financial Officer earned 13% and 15%, respectively, of their
maximum cash incentive award attainable for 2016. For each component of the
non-equity
incentive plan compensation, the targeted award and attained award, expressed as a percentage of base salary, for each
named executive officer along with the maximum incentive award attainable are set forth in the table below:
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-equity Incentive
Plan Compensation
(expressed as
a
percentage of base salary)
|
|
|
|
|
|
|
|
Target
|
|
|
|
|
|
Attainment
|
|
Wayne T. Smith,
|
|
Corporate Consolidated EBITDA
|
|
|
|
|
175.0%
|
|
|
|
|
|
|
|
0.0%
|
|
Chairman and Chief Executive Officer
|
|
Corporate Consolidated EPS
|
|
|
|
|
40.0%
|
|
|
|
|
|
|
|
0.0%
|
|
|
|
Corporate Consolidated Net Revenues
|
|
|
|
|
30.0%
|
|
|
|
|
|
|
|
30.0%
|
|
|
|
Total Shareholder Return
|
|
|
|
|
20.0%
|
|
|
|
|
|
|
|
0.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Target
|
|
|
|
|
265.0%
|
|
|
|
|
|
|
|
30.0%
|
|
|
|
Performance Improvement Awarded
|
|
|
|
|
25.0%
|
|
|
|
|
|
|
|
10.0%
|
|
|
|
Overachievement of Company goals
|
|
|
|
|
10.0%
|
|
|
|
|
|
|
|
0.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Achievement
|
|
|
|
|
-
|
|
|
|
|
|
|
|
40.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Achievement Limited to Maximum Award Attainable
|
|
|
|
|
300.0%
|
|
|
|
|
|
|
|
40.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
W. Larry Cash,
|
|
Corporate Consolidated EBITDA
|
|
|
|
|
100.0%
|
|
|
|
|
|
|
|
0.0%
|
|
President of Financial Services and
|
|
Corporate Consolidated EPS
|
|
|
|
|
25.0%
|
|
|
|
|
|
|
|
0.0%
|
|
Chief Financial Officer
|
|
Corporate Consolidated Net Revenues
|
|
|
|
|
20.0%
|
|
|
|
|
|
|
|
20.0%
|
|
|
|
Total Shareholder Return
|
|
|
|
|
20.0%
|
|
|
|
|
|
|
|
0.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Target
|
|
|
|
|
165.0%
|
|
|
|
|
|
|
|
20.0%
|
|
|
|
Performance Improvement Awarded
|
|
|
|
|
25.0%
|
|
|
|
|
|
|
|
10.0%
|
|
|
|
Overachievement of Company goals
|
|
|
|
|
10.0%
|
|
|
|
|
|
|
|
0.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Achievement
|
|
|
|
|
-
|
|
|
|
|
|
|
|
30.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Achievement Limited to Maximum Award Attainable
|
|
|
|
|
200.0%
|
|
|
|
|
|
|
|
30.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tim Hingtgen
|
|
Corporate Consolidated EBITDA
|
|
|
|
|
25.0%
|
|
|
|
|
|
|
|
0.0%
|
|
President, Division Operations and Exec VP
|
|
Corporate Consolidated EPS
|
|
|
|
|
10.0%
|
|
|
|
|
|
|
|
0.0%
|
|
of Operations (from January 1, 2016 through
|
|
Division Hospital EBITDA
|
|
|
|
|
70.0%
|
|
|
|
|
|
|
|
70.0%
|
|
August 31, 2016)
|
|
Division Hospital EBITDA Margin Improvement
|
|
|
|
|
4.0%
|
|
|
|
|
|
|
|
4.0%
|
|
|
|
Division Hospital Revenues
|
|
|
|
|
9.0%
|
|
|
|
|
|
|
|
8.0%
|
|
|
|
Division Hospital Same-Store Adjusted Admissions Growth
|
|
|
|
|
7.0%
|
|
|
|
|
|
|
|
7.0%
|
|
|
|
Clinic Operating Results
|
|
|
|
|
5.0%
|
|
|
|
|
|
|
|
5.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Target
|
|
|
|
|
130.0%
|
|
|
|
|
|
|
|
94.0%
|
|
|
|
Performance Improvement Awarded
|
|
|
|
|
10.0%
|
|
|
|
|
|
|
|
10.0%
|
|
|
|
Overachievement of Company goals
|
|
|
|
|
10.0%
|
|
|
|
|
|
|
|
0.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Achievement
|
|
|
|
|
-
|
|
|
|
|
|
|
|
104.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Achievement Limited to Maximum Award Attainable
|
|
|
|
|
150.0%
|
|
|
|
|
|
|
|
104.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tim Hingtgen
|
|
Corporate Consolidated EBITDA
|
|
|
|
|
125.0%
|
|
|
|
|
|
|
|
56.0%
|
|
President and Chief Operating Officer (from
|
|
Corporate Consolidated EPS
|
|
|
|
|
20.0%
|
|
|
|
|
|
|
|
0.0%
|
|
September 1, 2016 through December 31, 2016)
|
|
Corporate Consolidated Net Revenues
|
|
|
|
|
20.0%
|
|
|
|
|
|
|
|
24.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Target
|
|
|
|
|
165.0%
|
|
|
|
|
|
|
|
80.0%
|
|
|
|
Performance Improvement Awarded
|
|
|
|
|
25.0%
|
|
|
|
|
|
|
|
25.0%
|
|
|
|
Overachievement of Company goals
|
|
|
|
|
10.0%
|
|
|
|
|
|
|
|
0.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Achievement
|
|
|
|
|
-
|
|
|
|
|
|
|
|
105.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Achievement Limited to Maximum Award Attainable
|
|
|
|
|
200.0%
|
|
|
|
|
|
|
|
105.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Target
|
|
|
|
|
|
Attainment
|
|
David L Miller
|
|
Corporate Consolidated EBITDA
|
|
|
|
|
100.0%
|
|
|
|
|
|
|
|
0.0%
|
|
President and Chief Operating Officer (from January 1,
|
|
Corporate Consolidated EPS
|
|
|
|
|
20.0%
|
|
|
|
|
|
|
|
0.0%
|
|
2016 through August 1, 2016)
|
|
Corporate Consolidated Net Revenues
|
|
|
|
|
20.0%
|
|
|
|
|
|
|
|
20.0%
|
|
Exec VP and Special Advisor to the CEO (from
August 1, 2016 through December 31, 2016)
|
|
Division Hospital EBITDA
|
|
|
|
|
25.0%
|
|
|
|
|
|
|
|
0.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Target
|
|
|
|
|
165.0%
|
|
|
|
|
|
|
|
20.0%
|
|
|
|
Performance Improvement Awarded
|
|
|
|
|
25.0%
|
|
|
|
|
|
|
|
10.0%
|
|
|
|
Overachievement of Company goals
|
|
|
|
|
10.0%
|
|
|
|
|
|
|
|
0.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Achievement
|
|
|
|
|
-
|
|
|
|
|
|
|
|
30.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Achievement Limited to Maximum Award Attainable
|
|
|
|
|
200.0%
|
|
|
|
|
|
|
|
30.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael T. Portacci
|
|
Corporate Consolidated EBITDA
|
|
|
|
|
25.0%
|
|
|
|
|
|
|
|
0.0%
|
|
President, Division Operations
|
|
Corporate Consolidated EPS
|
|
|
|
|
10.0%
|
|
|
|
|
|
|
|
0.0%
|
|
|
|
Division Hospital EBITDA
|
|
|
|
|
70.0%
|
|
|
|
|
|
|
|
21.0%
|
|
|
|
Division Hospital EBITDA Margin Improvement
|
|
|
|
|
4.0%
|
|
|
|
|
|
|
|
0.0%
|
|
|
|
Division Hospital Net Revenues
|
|
|
|
|
9.0%
|
|
|
|
|
|
|
|
9.0%
|
|
|
|
Division Hospital Same-Store Adjusted Admissions Growth
|
|
|
|
|
7.0%
|
|
|
|
|
|
|
|
6.0%
|
|
|
|
Clinic Operating Results
|
|
|
|
|
5.0%
|
|
|
|
|
|
|
|
1.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Target
|
|
|
|
|
130.0%
|
|
|
|
|
|
|
|
37.0%
|
|
|
|
Performance Improvement Awarded
|
|
|
|
|
10.0%
|
|
|
|
|
|
|
|
10.0%
|
|
|
|
Overachievement of Company goals
|
|
|
|
|
10.0%
|
|
|
|
|
|
|
|
0.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Achievement
|
|
|
|
|
-
|
|
|
|
|
|
|
|
47.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Achievement Limited to Maximum Award Attainable
|
|
|
|
|
150.0%
|
|
|
|
|
|
|
|
47.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As shown above, effective September 1, 2016, in conjunction with Mr. Hingtgens promotion to President
and Chief Operating Officer and the corresponding changes to his role and responsibilities, the Compensation Committee established revised performance goals and a corresponding incentive compensation plan for Mr. Hingtgen for the period from
September 1, 2016 through December 31, 2016, which was tied to achieving the then most recent 2016 fiscal year guidance for volume, revenue, and earnings growth as set forth in the Companys earnings release issued on August 2,
2016, and expressed as a percentage of Mr. Hingtgens base salary for that period. The targeted award and attained award expressed as a percentage of Mr. Hingtgens base salary from September 1, 2016 through
December 31, 2016, along with the maximum incentive award attainable for that period, are set forth in the table above.
In addition to bonus
compensation earned under the EPIP, (i) both Mr. Hingtgen and Mr. Portacci received $15,000 in bonus compensation in 2016 for their leadership in the completion of certain transactions at hospitals within their respective division at
the time, and (ii) Mr. Hingtgen also received a $75,000
one-time
bonus in 2016 for the effective execution of an operational improvement plan during the fourth quarter of 2015 for the hospitals for
which he previously served as Division President.
Long-term Incentives
Long-term incentives comprise a very important part of the Companys executive compensation program. Equity awards are designed to reward the
executives for their longer-term contributions to the success and growth of the Company and are directly linked to maximizing stockholder value. They also serve as a key retention tool.
Equity-based incentive awards are made pursuant to the Companys 2009 Stock Option and Award Plan, as most recently amended and restated in March
2016 and approved by our stockholders in May 2016 (the 2009 Plan). This plan provides for a wide variety of stock-based compensation awards, including incentive stock options,
non-qualified
stock
options, stock appreciation rights, restricted stock, performance awards and other share-based awards. The Company has historically only made awards in the form of
non-qualified
stock options and restricted
stock, as these types of awards are most consistently used by the Companys peer group and are thus deemed to provide the most competitive compensation element for long-term incentive compensation.
The Company believes annual grants that create an appropriate (i.e., market competitive) mix of compensation elements more directly and effectively
align the interests of management with those of stockholders. The named executive officers restricted stock awards are subject to performance-based restrictions; these awards would be forfeited in their entirety if the performance measures for
the relevant calendar year are not attained. To the extent that performance measures for the grants in a given year are attained, such grants would then be subject to time-based restrictions, which lapse in
one-third
increments on each of the first three anniversaries of the grant date.
40
Prior to 2016, performance-based restricted stock awards to the named executive officers required the
satisfaction of one of two performance measures, either 75% of the
low-end
target range of earnings per share from continuing operations for the year in which the award was made, or the attainment of 90% of
the
low-end
target range of net operating revenue for the year in which the award was made, both as projected in our earnings release in February of that year. Taking into account feedback from stockholders,
the Company revised the performance criteria used for 2016 performance-based restricted stock awards, intending to increase the level of achievement required to earn such awards by replacing the attainment of 75% of the
low-end
target range of projected earnings per share with the attainment of 90% of the
low-end
target range of Adjusted EBITDA. As a result, the performance criteria for 2016
performance-based restricted stock awards required the satisfaction of one of two performance measures, either the attainment of 90% of the
low-end
target range of 2016 Adjusted EBITDA, or the attainment of
90% of the
low-end
target range of 2016 net operating revenue, both as based on the Adjusted 2016 Performance Objectives. In March 2016, we made an annual grant of performance-based restricted stock to each of
our named executive officers, which had performance criteria consistent with this revised framework as noted above. These awards would have been forfeited in their entirety if neither target was attained, but, since the net operating revenue target
was attained, the performance-based criteria were met and the awards time-based restrictions lapse in
one-third
increments on each of the first three anniversaries of the grant date.
In recent years, we have granted executives the same number of performance-based restricted shares each year (absent any change in responsibility,
competitive positioning as compared to the peers, etc.). As an example, our Chief Executive Officer received 150,000 performance-based restricted shares in each of 2014, 2015 and 2016 thus, the value of performance-based restricted stock
awarded to the Chief Executive Officer and other executives has been aligned with that of the gains/losses experienced by our stockholders. On their respective dates of grant, the value of our Chief Executive Officers 2016 performance-based
restricted stock award was 68% less than the value of the grant awarded in 2015.
In addition to an annual grant of performance-based restricted
stock in March 2016, Mr. Hingtgen received an additional grant of 50,000 shares of
non-performance-based
restricted stock on October 1, 2016 in conjunction with his promotion to Chief Operating
Officer in recognition of his increased job scope and responsibilities. This grant will vest in
one-third
increments on each of the first three anniversaries of the grant date. The Compensation Committee
believes that this award will also serve as a long-term retention device as Mr. Hingtgen must remain employed with the Company through each of the vesting dates in order to receive the shares vesting on each of those dates.
Changes to Executive Compensation Program for 2017
Following the advisory vote on our executive compensation at our 2016 Annual Meeting of Stockholders, our Compensation Committee and management, in
consultation with Mercer, responded by undertaking a thorough
re-evaluation
of our executive compensation program in light of current trends in public company pay practices, including seeking additional
feedback from our stockholders. As a result, our Compensation Committee has made several important changes to the executive compensation program for 2017 intended to further emphasize the Companys pay for performance philosophy and to ensure
that our executive compensation program continues to conform to governance best practices and to investor concerns regarding pay practices:
|
|
|
Annual Cash Incentive (EPIP)
: Baseline target opportunities for our NEOs have been reduced relative to 2016 levels as follows:
|
|
|
|
CEO: 30 percentage points (from 265% to 235% of base salary)
|
|
|
|
CFO: 30 percentage points (from 165% to 135% of base salary)
|
|
|
|
COO: 25 percentage points (from 165% to 140% of base salary)
|
|
|
|
Division Presidents: 15 percentage points (from 130% to 115% of base salary)
|
These baseline target
reductions do not include potential amounts that could be earned for overachievement on financial goals or with respect to
non-financial
strategic and operational improvement goals. Also, in response to
feedback received in our engagement with our
41
stockholders, substantial progress toward the Companys previously disclosed portfolio rationalization and deleveraging plan is one component of the
non-financial
strategic and operational improvement goals; other components of these goals include various metrics related to the successful achievement of our business plan for 2017.
|
|
|
Long-term Incentives (LTI):
|
|
|
|
One half of the target LTI award will be granted as performance-based restricted stock awards with three-year performance targets; Cumulative Same-Store Adjusted EBITDA Growth will be weighted 80%, and Cumulative
Adjusted EPS will be weighted 20%. The performance-based restricted stock grant will have the potential for overachievement and for underachievement with respect to the portion of the award weighted to each performance target (Cumulative Same-Store
Adjusted EBITDA Growth and Cumulative Adjusted EPS, as applicable). A minimum of 80% achievement of either such performance target will be required before any of the shares weighted to that performance target will be earned.
|
|
|
|
The other half of the target LTI award will be granted as time-based restricted stock that will vest in
one-third
increments on each of the first three anniversaries of the grant
date; these awards facilitate the retention of our top talent necessary to successfully execute our business strategy in the future.
|
|
|
|
The total number of restricted shares granted to each executive in 2017 was approximately the same number of restricted shares as granted in prior years (absent any change in responsibility, competitive positioning as
compared to peers, etc.) so that the value of such awards continued to be aligned with changes in the market price of the Companys stock.
|
|
|
|
Base Salary
: No adjustments were made for 2017 to the Chief Executive Officers or Chief Financial Officers base salary
|
We will continue to monitor market best practices and thoughtfully consider stockholder feedback in future years with respect to potential changes to
our executive compensation programs.
Benefits
The Companys named executive officers are each eligible to participate in the Companys customary qualified benefit plans for health, dental,
vision, life insurance, long-term disability and retirement savings (401(k)). The named executive officers are eligible to participate in these plans on the same basis (i.e., benefits, premium amounts and
co-payment
deductibles) as all other full-time employees of the Company. The Companys named executive officers also participate in or receive additional benefits described below, which are competitive
with the benefits provided to executives of other companies.
Retirement and Deferred Compensation Benefits
The Companys named executive officers also participate in executive compensation arrangements available only to specified officers of the Company
and certain key employees of its subsidiaries. These plans include the Supplemental Executive Retirement Plan (the SERP), the Supplemental 401(k) Plan and the Deferred Compensation Plan, each of which is a
non-qualified
plan under the IRC. The benefits under these plans are made available to the named executive officers to encourage and reward their continued service through their most productive years.
We believe that the provision of a retirement benefit is necessary to remain competitive with the Companys peer group, and is thus an important
element for the recruitment and retention of executives. Effective January 1, 2003, while the Companys stock ownership and the Board of Directors were controlled by affiliates of Forstmann Little & Co., the Company adopted the
SERP for the benefit of our officers and key employees of our subsidiaries. This plan is a
non-contributory
non-qualified
defined benefit plan that provides for the
payment of benefits from the general funds of the Company. The Compensation Committee of our Board of Directors administers this plan and all determinations and decisions made by the Compensation Committee are final, conclusive and binding upon all
participants. In particular, the defined benefit provided under the SERP is intended to supplement the incentives provided by the other elements of the executive compensation program, for which the maximum provision of benefits is limited to three
years.
42
The SERP generally provides that, when a participant retires after his or her normal retirement date
(age 65), he or she will be entitled to receive a single
lump-sum
payment based on the actuarially-determined monthly income payment based on a monthly calculation of (i) the participants
Annual Retirement Benefit, reduced by (ii) the participants monthly amount of Social Security old age and survivor disability insurance benefits payable to the participant commencing at his or her unreduced Social Security retirement age
(the Social Security Benefit).
For this purpose, the Annual Retirement Benefit means an amount equal to the sum of the
participants compensation for the highest three years out of the last five full years of service preceding the participants termination of employment, divided by three, then multiplied by the lesser of (i) 60% or (ii) a
percentage equal to 2% multiplied by the participants years of service. Employees who retire prior to the normal retirement date or with fewer than 30 years of service receive a reduced benefit. Generally, named executive officers receive
one year of credited service for each year of actual service. In March 2004, the then Compensation Committee of the Board of Directors, in an effort to achieve peer pay equality using a mechanism that would also maximize retention, caused the SERP
to be amended to credit both Mr. Smith and Mr. Cash with two years of service for each year of actual service. This change occurred at a time when the Company was controlled by affiliates of Forstmann Little & Co. (through the
ownership of greater than 46,000,000 shares of the Companys Common Stock) and all members of the Board of Directors and the Compensation Committee were nominated by Forstmann Little & Co. None of the Forstmann Little & Co.
affiliates continued to serve on the Board of Directors or its committees following the sale of their position in the Company during 2004. In 2008, the Compensation Committee and the Board voted to amend the SERP to terminate this practice after 25
years of service had been credited. Since reaching 25 years of credited service, Mr. Smith and Mr. Cash have each received one year of credited service for each year of actual service. Mr. Smith, having reached his maximum number of
30 years of credited service and Mr. Cash, having reached his approximate maximum number of years of credited service, have elected in accordance with the plan provisions to have their benefit frozen, effective in July 2014, with future
increases for interest earned based on the
24-month
average yield on
10-Year
Treasury Bonds. Messrs. Smith and Cash will earn no additional service credit.
In the event of a change in control of the Company, all participants who have been credited with five or more years of service will be credited with an
additional three years of service (not to exceed the maximum of 30 years of service) for purposes of determining the benefit. In addition, the benefit accrued by any such participant will become fully vested and be paid out as soon as
administratively feasible in a single lump sum payment following such change in control. Upon such payment to all participants, the SERP will terminate.
The Companys named executive officers are also eligible to participate in and contribute to the Companys
non-qualified
Deferred Compensation Plan. Employees voluntary contributions to this plan are tax deferred, but are subject to the claims of the general creditors of the Company. A separate supplemental
401(k) plan also exists, but employees are no longer eligible to contribute additional amounts to the
non-qualified
Supplemental 401(k) Plan. The individual asset balances remaining in this plan are eligible
for investment earnings to the named executive officers and employees. These plans do not play a significant role in the Companys executive compensation program. Effective since 2009, no Company contributions are made to the Deferred
Compensation Plan and the named executive officers are limited to the matching provisions of the
tax-qualified
401(k) plan.
Perquisites
The Company provides
limited perquisites to its named executive officers and operates under the belief that benefits of a personal nature or those which are not available to the other employees of the Company should be funded from the executives personal funds.
The Company believes that the supplemental benefits that it does provide to the named executive officers are reasonable when compared to the peer group and other
similarly-sized
companies and are appropriate
additional items of compensation for these individuals.
Group-term life insurance (or a combination of group-term life insurance and
individually-owned policies) is provided for each of the named executive officers in an amount equal to four times the individuals base salary.
The Company operates aircraft to facilitate the operation and management of its business. The Board of Directors has adopted a policy that requires the
Chief Executive Officer to use the Companys aircraft for both his business and personal travel. From time to time, the other named executive officers are also permitted to use the Companys aircraft for their personal use. The incremental
cost of
43
personal air travel attributable to each named executive officers personal aircraft usage has been included in the Summary Compensation table below. In addition, named executive officers
are taxed on the income attributable to their personal use of company aircraft based on Internal Revenue Service guidelines and are not grossed up by the company.
Employment Contracts; Change in Control Severance Agreements
None of the Companys executive officers have a written employment agreement with the Company or any of its subsidiaries. Since 2007, each officer
of the Company, including each of the named executive officers (collectively, the Covered Executives), has been a party to a change in control severance agreement (a CIC Agreement) with the Company. The CIC Agreements are
considered double trigger agreements and require both the occurrence of a change in control of the Company
and
a termination of employment for any cash severance benefits to become payable. The CIC Agreements provide for
certain compensation and benefits in the event of termination of a Covered Executives employment during the period following a change in control of the Company (as defined in the CIC Agreements), (A) by the Company, other than as a result
of the Covered Executives death or disability within
thirty-six
(36) months of the change in control or (B) by the Covered Executive, upon the happening of certain good reason
events within twenty-four (24) months of the change in control, including (i) certain changes in the Covered Executives title, position, responsibilities or duties, (ii) a reduction in the Covered Executives base salary,
(iii) certain changes in the Covered Executives principal location of work, (iv) the failure of the Company to perform its obligations under or to continue in effect any material compensation or benefit plan, or (v) certain
other employer actions that would cause the Covered Executive to lose the benefits of the CIC Agreement. The
thirty-six
(36) and twenty-four (24) month time periods described in the preceding
sentence apply to the CIC Agreements for the Companys Chief Executive Officer, Chief Financial Officer, Chief Operating Officer, the Presidents, the Executive Vice Presidents, Division Presidents and each Senior Vice President. For the
CIC Agreements with each Vice President of the Company, the applicable time periods are twenty-four (24) and twelve (12) months, respectively. CIC Agreements entered into since 2009 do not contain any tax
gross-up
provisions.
Compensation and benefits payable under the CIC Agreements include, in the
event of a qualifying termination of employment, a lump sum payment equal to the sum of (a) unpaid base pay, (b) accrued but unused paid vacation or sick pay and unreimbursed business expenses, (c) any other compensation or benefits
in accordance with the terms of the Companys existing plans and programs, (d) a pro rata portion of the incentive bonus that would have been earned by the Covered Executive for the year of termination based on actual performance, and
(e) a lump sum equal to the sum of three (3) times (two (2) times, in the case of each Vice President of the Company) the sum of base salary and the greater of (A) the highest incentive bonus earned during any of the three
(3) fiscal years prior to the fiscal year in which the Covered Executives termination of employment occurs or, if greater, the three fiscal years prior to the fiscal year in which a change in control occurs and (B) the target
incentive bonus for the fiscal year in which the Covered Executives termination of employment occurs assuming the performance objectives were met in full. The Covered Executives will also be entitled to continuation of certain health and
welfare benefits for
thirty-six
(36) months following termination (twenty-four (24) months in the case of each Vice President) and reimbursement of up to $25,000 for outplacement counseling and
related benefits.
In addition, the Covered Executives with agreements entered into before 2009 will be entitled to receive certain gross
up payments to offset any excise tax imposed by Section 4999 of the IRC on any payment or distribution by the Company to or for their benefit, including under any stock option, restricted stock or other agreement, plan or program;
provided, however, that if a reduction in such payments or distributions by 10% or less would cause no excise tax to be payable, then the payments and distributions to the Covered Executive will be reduced by that amount and no excise tax gross up
payment will be paid. As noted above, CIC Agreements entered into since 2009 do not contain any tax
gross-up
provisions.
The Companys executive officers are employees of the Companys indirect, wholly-owned subsidiary, CHSPSC, LLC,
and hold the same
elected officer titles with this entity as they do with the Company.
Termination of Service and Severance Arrangements
The Companys severance policy provides that the named executive officers are entitled to receive twenty-four (24) months of their base salary
upon a qualifying termination under the severance policy. In addition, upon a termination without cause, each of the named executive officers would be entitled to receive a
pro-rated
portion of their cash
incentive compensation for the year of termination (based on
44
actual results, when determined) and under their restricted stock award agreements, the lapse schedule is fully accelerated. Upon termination, the named executive officers are entitled to
continuation health insurance coverage under the Consolidated Omnibus Budget Reconciliation Act by so electing and paying the then active employee premium amount. The period of this benefit is equal to the number of months of severance payment,
i.e., twenty-four (24) months for the named executive officers.
As described on page 44 of this Proxy Statement, each of the named executive
officers is party to a CIC Agreement, which provides severance benefits only upon
both
a change in control of the Company and qualifying termination of employment. In the event that a named executive officer is entitled to receive payment
pursuant to his or her CIC Agreement, that executive officer will not be eligible to participate in the Companys severance policy.
In
addition to the benefits payable under the life insurance policy or the long-term disability policy described above, in the event a named executive officer dies or is permanently disabled while in the employ of the Company, vesting is fully
accelerated for all grants under the Companys 2009 Plan.
Executive Compensation Policies
Stock Ownership Policies
The
Community Health Systems Stock Ownership Guidelines align the interests of its directors and executive officers with the interests of stockholders and promote the Companys commitment to sound corporate governance. The guidelines apply to the
Companys
non-management
directors and the following officers, in the indicated multiples of either an officers base salary or a
non-management
directors annual cash stipends, as applicable, at the time the participant becomes subject to the guidelines:
|
|
|
Position with the Company
|
|
Value of
Common Stock
Required
|
Chairman/Chief Executive Officer
|
|
5.0x
|
Members of the Board of Directors (including executives)
|
|
5.0x
|
Officers Named in the Proxy Statement and Executive Vice Presidents
|
|
3.0x
|
Other Officers above Vice President
|
|
1.5x
|
Vice Presidents
|
|
1.0x
|
Company officers and directors subject to these guidelines are expected to achieve their respective ownership levels
within five (5) years of becoming subject to the guidelines (and an additional five (5) years in the event of a promotion to a higher guideline). Once achieved, ownership of the guideline amount must be maintained for as long as the
individual is subject to these Stock Ownership Guidelines. Until such time as a Company officer or director satisfies the Stock Ownership Guidelines, that individual will also be required to hold, for at least one year, 100% of the shares received
upon the exercise of stock options and upon the vesting of full value stock awards, including but not limited to restricted stock awards and restricted stock units, in each case net of those shares required to pay the exercise price and any taxes
due upon exercise or vesting.
Stock that counts towards satisfaction of the Companys Stock Ownership Guidelines includes: (i) Common
Stock held outright by the participant or his or her immediate family members living in the same household; (ii) restricted stock and restricted stock units issued and held as part of an executive officers or directors long-term
compensation, whether or not vested; (iii) Common Stock underlying vested Community Health Systems, Inc. stock options; and (iv) Common Stock acquired on stock option exercises that the participant continues to hold. The Governance and
Nominating Committee of the Board of Directors reviews each participants progress and compliance with the applicable guidelines and may grant any hardship waivers or exceptions (e.g., in the event of a divorce) as it deems necessary and
appropriate. Pursuant to the Companys Stock Ownership Guidelines, until those individuals satisfy the Stock Ownership Guidelines, they will be required to hold, for at least one year, 100% of the shares received upon the exercise of stock
options and upon the vesting of full value stock awards, including but not limited to restricted stock awards and restricted stock units, in each case net of those shares required to pay the exercise price and any taxes due upon exercise or vesting.
45
Compensation Clawback Policy
In February 2009, the Board of Directors adopted a policy (the Clawback Policy) requiring that, in certain circumstances, the elected
officers of the Company reimburse the Company for the amount and/or value of performance-based cash, stock or equity-based awards received by such elected officers, and/or gains realized by such elected officers in connection with these awards. The
circumstances triggering this recoupment require a determination by the Board of Directors, or an appropriate committee of the Board of Directors, that fraud by an elected officer materially contributed to the Company having to restate all or a
portion of its financial statements. The Board of Directors or the appropriate committee is granted the right to determine, in its discretion, the action necessary to remedy the misconduct. In determining what remedies to pursue, the Board or
committee will take into account all relevant factors, including consideration of fairness and equity, and may require reimbursement to the extent the value transferred to the elected officer can be reasonably attributed to the reduction in the
restated financial statements and the amount of the award would have been lower than the amount actually paid, granted or realized.
In February
2017, in accordance with the terms of the Settlement Agreement, the Board of Directors revised the Clawback Policy to require that, in the event of a restatement of the Companys financial statements required under the applicable statutes,
rules and regulations of the SEC, the Company will, to the extent permitted by applicable law, require the Companys Chief Executive Officer and Chief Financial Officer to reimburse the Company for any performance-based cash, stock or
equity-based award paid or granted to, or gains realized (such as through the exercise of stock options or sale of equity securities) by the Chief Executive Officer and Chief Financial Officer, to the extent that the amount of such cash, stock or
equity-based award or realized gain during the two (2) year period preceding the date of the restatement exceeded the amounts that would have been paid, granted or realized under the Companys financial statement(s), as restated. This
requirement applies to all awards paid or granted to these individuals from the date of its adoption by the Board.
The Company intends to impose
such additional recoupment obligations as are necessary to ensure continuing compliance with other applicable laws including compliance with final SEC clawback rules to be adopted under the Dodd-Frank Act once such final rules have been adopted.
Prohibition on Pledging and Speculative Stock Transactions
The Company considers it inappropriate for any director or executive officer to enter into speculative transactions involving the Companys
securities. Therefore, the Companys insider trading policy prohibits directors and executive officers from trading in any put or engaging in any short sale or other hedging transaction (including a short sale against the box) or
equity swap of Company securities, or trading in any call or other derivative on Company securities. The insider trading policy also prohibits any director or executive officer from pledging Company securities, including holding such securities in a
margin account. On a
case-by-case
basis, the Trading Compliance Committee, consisting of the Chief Financial Officer and the General Counsel, may approve an exception to
the prohibition on pledging Company securities as collateral for a loan (not including margin debt) where the director or executive officer clearly demonstrates the financial capacity to repay the loan without resorting to the pledged securities.
Oversight of the Executive Compensation Program
The Compensation Committee of the Board of Directors oversees the Companys executive compensation program. Each of the Compensation Committee
members is fully independent of management and has never served as an employee or officer of the Company or its subsidiaries. In addition to meeting the independence requirements of the NYSE and NASDAQ, each member of the Compensation Committee is
an outside director for purposes of Section 162(m) of the Internal Revenue Code (IRC) and is a
non-employee
director for purposes of Section 16(b) of the Exchange Act.
Risk Assessment of Executive Compensation
The
Compensation Committee, with management and the Compensation Committees independent executive compensation consultant, Mercer Human Resources Consulting, regularly assesses the risk levels of the Companys executive compensation program.
As part of this
46
assessment, the Compensation Committee reviews the Companys compensation programs for certain design features identified by the Compensation Committee and its advisors as having the
potential to encourage excessive risk-taking, and considers the Companys compensation programs in light of the Companys key enterprise and business strategy risks. The Compensation Committee believes that the Companys compensation
programs are designed so that they do not include compensation mix overly weighted toward annual incentives, highly leveraged short-term incentives, uncapped or all or nothing bonus payouts or unreasonable performance goals. The
Compensation Committee also noted several design features of the Companys cash and equity incentive programs that the Compensation Committee believes reduce the likelihood of excessive risk-taking, including the use of multiple balanced
performance metrics, maximum payouts at levels deemed appropriate, a carefully considered peer group to assure the Companys compensation practices are measured and appropriately competitive, multi-year vesting schedules for equity awards, and
significant long-term incentives that promote longer-term goals and reward sustainable stock, financial and operating performance, especially when combined with the Companys executive stock ownership guidelines. Additionally, the
Companys executive compensation clawback policy allows the Company to recover bonus payments and certain equity awards under certain circumstances, and compliance and ethical behaviors of the Companys executive officers are
factors considered in all performance and bonus assessments. Based on its assessment, the Compensation Committee believes that the Companys compensation programs do not motivate risk-taking that could reasonably be expected to have a
materially adverse effect on the Company. These principles are reviewed annually as a part of the overall enterprise risk assessment.
Tax Considerations
Section 162(m) of the IRC limits the Companys ability to deduct certain compensation in excess of $1 million paid to the
Companys Chief Executive Officer and to certain of the Companys other named executive officers. This limitation does not apply to compensation that constitutes under applicable regulations qualified performance-based
compensation. The Company aims to design the performance-based compensation paid to its named executive officers so that it will satisfy the requirements for deductibility under Section 162(m). The Compensation Committee considers
Section 162(m) when making compensation decisions, but other considerations, such as providing the Companys named executive officers with competitive and adequate incentives to remain with the Company and increase the Companys
business operations, financial performance and prospects, as well as rewarding extraordinary contributions, also significantly factor into the Compensation Committees decisions. In this regard, the Compensation Committee believes that
stockholder interests are best served if it retains discretion and flexibility in awarding compensation to the Companys named executive officers. The Compensation Committee has approved and may approve payment of compensation that is outside
the deductibility limitation of Section 162(m).
Financial Accounting Standards Board Accounting Standards Codification Topic 718 (ASC 718)
ASC 718 requires a public company to measure the cost of employee services received in exchange for an award of equity instruments based on the grant
date fair value of the award. The Companys equity awards to the named executive officers are structured to comply with the requirements of ASC 718. To maintain the appropriate equity accounting treatment, the Company takes such accounting
treatment into consideration when designing and implementing its compensation programs.
47
Executive Compensation Tables
Summary Compensation Table
The
following table includes information regarding our named executive officers total compensation earned during the years ended December 31, 2016, 2015 and 2014 (except to the extent that any of these individuals did not serve as an
executive officer during any such year). This table is prepared in accordance with SEC rules which require that equity awards be valued based on the grant date fair value of such awards, and there can be no assurance regarding the extent to which
the value of such stock-based compensation reflected in the table below (including performance-based restricted stock) will be realized by any executive.
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|
Name and Position
|
|
Year
|
|
|
Salary
($)
(1)
|
|
|
Bonus
($)
(1)
|
|
|
Plan Based Awards
|
|
|
Non-equity
Incentive
Plan
Compensation
($)
(1)
|
|
|
Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings
($)
(4)
|
|
|
All
Other
Compensation
($)
(5)
|
|
|
Total
Compensation
($)
|
|
|
|
|
|
Restricted
Stock
Awards
($)
(2)
|
|
|
Option
Awards
($)
(3)
|
|
|
|
|
|
Wayne T. Smith
|
|
|
2016
|
|
|
|
1,600,000
|
|
|
|
-
|
|
|
|
2,314,500
|
|
|
|
-
|
|
|
|
640,000
|
|
|
|
1,032,245
|
|
|
|
178,840
|
|
|
|
5,765,585
|
|
Chairman of the Board
|
|
|
2015
|
|
|
|
1,600,000
|
|
|
|
-
|
|
|
|
7,278,000
|
|
|
|
-
|
|
|
|
400,000
|
|
|
|
1,009,242
|
|
|
|
151,532
|
|
|
|
10,438,774
|
|
and Chief Executive Officer
|
|
|
2014
|
|
|
|
1,500,000
|
|
|
|
-
|
|
|
|
18,679,500
|
|
|
|
-
|
|
|
|
4,117,500
|
|
|
|
1,998,799
|
|
|
|
145,583
|
|
|
|
26,441,382
|
|
|
|
|
|
|
|
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|
|
|
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|
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|
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
W. Larry Cash
|
|
|
2016
|
|
|
|
850,000
|
|
|
|
-
|
|
|
|
1,157,250
|
|
|
|
-
|
|
|
|
255,000
|
|
|
|
440,777
|
|
|
|
63,000
|
|
|
|
2,766,027
|
|
President of Financial Services
|
|
|
2015
|
|
|
|
850,000
|
|
|
|
-
|
|
|
|
3,639,000
|
|
|
|
-
|
|
|
|
180,625
|
|
|
|
430,955
|
|
|
|
83,025
|
|
|
|
5,183,605
|
|
and Chief Financial Officer
|
|
|
2014
|
|
|
|
800,000
|
|
|
|
-
|
|
|
|
9,339,750
|
|
|
|
-
|
|
|
|
1,464,000
|
|
|
|
919,238
|
|
|
|
87,812
|
|
|
|
12,610,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tim Hingtgen
|
|
|
2016
|
|
|
|
655,007
|
|
|
|
90,000
|
|
|
|
1,194,200
|
|
|
|
-
|
|
|
|
683,624
|
|
|
|
208,609
|
|
|
|
13,335
|
|
|
|
2,844,775
|
|
President and
|
|
|
2015
|
|
|
|
515,000
|
|
|
|
-
|
|
|
|
1,698,200
|
|
|
|
-
|
|
|
|
525,300
|
|
|
|
1,281
|
|
|
|
13,304
|
|
|
|
2,753,085
|
|
Chief Operating Officer (a)
|
|
|
2014
|
|
|
|
450,000
|
|
|
|
-
|
|
|
|
1,452,850
|
|
|
|
-
|
|
|
|
659,250
|
|
|
|
-
|
|
|
|
12,456
|
|
|
|
2,574,556
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David L. Miller
|
|
|
2016
|
|
|
|
750,000
|
|
|
|
-
|
|
|
|
771,500
|
|
|
|
-
|
|
|
|
225,000
|
|
|
|
262,514
|
|
|
|
147,964
|
|
|
|
2,156,978
|
|
Executive Vice President and
|
|
|
2015
|
|
|
|
750,000
|
|
|
|
-
|
|
|
|
2,426,000
|
|
|
|
-
|
|
|
|
300,000
|
|
|
|
1,186,320
|
|
|
|
52,945
|
|
|
|
4,715,265
|
|
Special Advisor to Chief
Executive Officer (b)
|
|
|
2014
|
|
|
|
700,000
|
|
|
|
-
|
|
|
|
6,226,500
|
|
|
|
-
|
|
|
|
1,255,100
|
|
|
|
139,523
|
|
|
|
41,324
|
|
|
|
8,362,447
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael T. Portacci
|
|
|
2016
|
|
|
|
663,341
|
|
|
|
15,000
|
|
|
|
540,050
|
|
|
|
-
|
|
|
|
311,806
|
|
|
|
704,286
|
|
|
|
21,666
|
|
|
|
2,256,149
|
|
President -
|
|
|
2015
|
|
|
|
610,000
|
|
|
|
-
|
|
|
|
1,698,200
|
|
|
|
-
|
|
|
|
539,850
|
|
|
|
341,013
|
|
|
|
19,939
|
|
|
|
3,209,002
|
|
Division Operations
|
|
|
2014
|
|
|
|
590,000
|
|
|
|
-
|
|
|
|
1,452,850
|
|
|
|
-
|
|
|
|
699,150
|
|
|
|
329,599
|
|
|
|
19,076
|
|
|
|
3,090,675
|
|
(a)
|
From January 1, 2016 through August 31, 2016, Mr. Hingtgen served first as a Division President and then as Executive Vice President Operations of the Company. Effective September 1, 2016,
Mr. Hingtgen was promoted to President and Chief Operating Officer of the Company.
|
(b)
|
From January 1, 2016 through August 31, 2016, Mr. Miller served as President and Chief Operating Officer of the Company. From September 1, 2016 through his retirement from the Company effective
December 31, 2016, Mr. Miller served as Executive Vice President and Special Advisor to the Chief Executive Officer.
|
(1)
|
Amounts represent cash-based salary and bonus compensation before any deferrals under the Companys deferred
compensation plans. In addition to bonus compensation earned under the EPIP, (i) both Mr. Hingtgen and Mr. Portacci received $15,000 in bonus compensation in 2016 for their leadership in the completion of certain transactions at
hospitals within their respective division at the time, and (ii) Mr. Hingtgen also received a $75,000
one-time
bonus in 2016 for the effective execution of an operational improvement plan during the
fourth quarter of 2015 for the hospitals for which he previously served as Division President. Total cash-based compensation for the year
|
48
|
ended December 31, 2016 was as follows: Mr. Smith, $2,240,000; Mr. Cash, $1,105,000; Mr. Hingtgen, $1,428,631; Mr. Miller, $975,000; and Mr. Portacci, $990,147.
|
(2)
|
The dollar amounts shown in this column represent the fair value of restricted shares on their respective grant dates. For the performance-based restricted shares the fair value on the respective grant dates are as
follows: March 1, 2016 ($15.43) per share; March 1, 2015 ($48.52) per share; and March 1, 2014 ($41.51) per share. The grant date fair value of each restricted share in the grant to Mr. Hingtgen on October 1, 2016 (in
conjunction with his promotion to President and Chief Operating Officer) is $11.54. The grant date fair value of performance-based restricted shares included in the table above is based on a 100 percent probability of meeting the performance
conditions. The grant date fair value was computed in accordance with ASC 718. The market value for the restricted stock awards on their respective first vesting dates were as follows: $9.19 per share on March 1, 2017 for awards granted on
March 1, 2016; $15.43 per share on March 1, 2016 for awards granted on March 1, 2015; and $48.52 per share on March 1, 2015 for awards granted on March 1, 2014.
|
(3)
|
No options were granted in 2016, 2015 or 2014.
|
(4)
|
Amounts represent the actuarial increase in the present value of the named executive officers benefit under the SERP using interest rate and mortality rate assumptions consistent with those used in the
Companys financial statements and include amounts which the named executive officers may not currently be entitled to receive because such amounts are not vested. The
non-qualified
deferred compensation
plan earnings contained no above-market or preferential portion of earnings for 2016, 2015 or 2014.
|
(5)
|
All Other Compensation for the year ended December 31, 2016 consists of the following (which benefits are valued based on the aggregate incremental cost to the Company and are discussed in Perquisites
on page 43 of this Proxy Statement):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Long-Term
Disability
Premiums
($)
|
|
|
401(k) Plan
Employer
Matching
Contributions
($)
|
|
|
Life
Insurance
Premiums
($)
|
|
|
Personal
Use of
Corporate
Aircraft
($)
|
|
|
Membership/
Dues
($)
|
|
|
Other
($)
|
|
Wayne T. Smith
|
|
|
4,450
|
|
|
|
7,950
|
|
|
|
81,366
|
|
|
|
79,128
|
|
|
|
5,946
|
|
|
|
-
|
|
W. Larry Cash
|
|
|
4,450
|
|
|
|
7,950
|
|
|
|
23,771
|
|
|
|
26,829
|
|
|
|
-
|
|
|
|
-
|
|
Tim Hingtgen
|
|
|
1,875
|
|
|
|
7,950
|
|
|
|
3,510
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
David L. Miller
|
|
|
4,450
|
|
|
|
7,950
|
|
|
|
29,379
|
|
|
|
5,227
|
|
|
|
-
|
|
|
|
100,958(a)
|
|
Michael T. Portacci
|
|
|
4,850
|
|
|
|
7,950
|
|
|
|
8,866
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
(a)
|
Represents accrued vacation paid upon retirement.
|
49
Grants of Plan-Based Awards
The following table sets forth information regarding restricted stock awards granted under the 2009 Plan, as amended and restated in 2016, including the
grant date fair value of these awards, and the range of potential cash incentive payments under the 2004 Employee Performance Incentive Plan for the named executive officers for the year ended December 31, 2016. There can be no assurance that
the grant date fair value of restricted stock awards will ever be realized.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Grant
Date
|
|
|
Estimated Possible Payouts
Under
Non-Equity
Incentive Plan Awards
|
|
|
|
|
|
Estimated Future Payouts
Under Equity
Incentive Plan Awards
|
|
|
|
|
|
All Other
Stock Awards:
Number of
Shares of
Stock or Units
(#)
|
|
All Other
Option Awards:
Number of
Securities
Underlying
Options
(#)
|
|
Exercise or
Base Price
of Option
Awards
Per Share
($)
|
|
Grant Date
Fair Value
of Stock
and Option
Awards
($)(3)
|
|
|
|
Threshold
($)
|
|
Target
($)
|
|
|
Maximum
($)
|
|
|
|
|
|
Threshold
(#)
|
|
Target
(#)
|
|
|
Maximum
(#)
|
|
|
|
|
|
|
|
|
Wayne T. Smith
|
|
|
-
|
|
|
-
|
|
|
4,240,000
|
|
|
|
4,800,000
|
|
|
|
|
|
|
-
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
-
|
|
-
|
|
-
|
|
|
-
|
|
|
|
|
3/1/2016
|
(1)
|
|
-
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
-
|
|
|
150,000
|
|
|
|
150,000
|
|
|
|
|
|
|
-
|
|
-
|
|
-
|
|
|
2,314,500
|
|
W. Larry Cash
|
|
|
-
|
|
|
-
|
|
|
1,402,500
|
|
|
|
1,700,000
|
|
|
|
|
|
|
-
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
-
|
|
-
|
|
-
|
|
|
-
|
|
|
|
|
3/1/2016
|
(1)
|
|
-
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
-
|
|
|
75,000
|
|
|
|
75,000
|
|
|
|
|
|
|
-
|
|
-
|
|
-
|
|
|
1,157,250
|
|
Tim Hingtgen
|
|
|
-
|
|
|
-
|
|
|
936,093
|
|
|
|
1,103,344
|
|
|
|
|
|
|
-
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
-
|
|
-
|
|
-
|
|
|
-
|
|
|
|
|
3/1/2016
|
(1)
|
|
-
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
-
|
|
|
40,000
|
|
|
|
40,000
|
|
|
|
|
|
|
-
|
|
-
|
|
-
|
|
|
617,200
|
|
|
|
|
10/1/2016
|
(2)
|
|
-
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
-
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
50,000
|
|
-
|
|
-
|
|
|
577,000
|
|
David L. Miller
|
|
|
-
|
|
|
-
|
|
|
1,237,500
|
|
|
|
1,500,000
|
|
|
|
|
|
|
-
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
-
|
|
-
|
|
-
|
|
|
-
|
|
|
|
|
3/1/2016
|
(1)
|
|
-
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
-
|
|
|
50,000
|
|
|
|
50,000
|
|
|
|
|
|
|
-
|
|
-
|
|
-
|
|
|
771,500
|
|
Michael T. Portacci
|
|
|
-
|
|
|
-
|
|
|
862,442
|
|
|
|
995,126
|
|
|
|
|
|
|
-
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
-
|
|
-
|
|
-
|
|
|
-
|
|
|
|
|
3/1/2016
|
(1)
|
|
-
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
-
|
|
|
35,000
|
|
|
|
35,000
|
|
|
|
|
|
|
-
|
|
-
|
|
-
|
|
|
540,050
|
|
(1)
|
Lapsing of the performance-based restrictions with respect to this March 1, 2016 grant of restricted stock required satisfaction of one of two performance measures, either ninety percent (90%) or more of the low
end of the range of projected Adjusted EBITDA, or (ii) ninety percent (90%) or more of the low end of the range of projected net operating revenues, both as adjusted to reflect the
spin-off
of 38
hospitals to QHC and the sale of our investment in a joint venture with Universal Health Systems, Inc. related to five hospitals in Las Vegas, Nevada. Since one of the performance criteria was met, the awards time-based restrictions will now
lapse in equal
one-third
increments on each of the first three anniversaries of the grant date.
|
(2)
|
The time-based restrictions with respect to this October 1, 2016 grant of restricted stock will lapse in equal
one-third
increments on each of the first three anniversaries
of the grant date.
|
(3)
|
Represents the grant date fair value calculated under ASC 718, and as presented in our audited consolidated financial statements included in our Annual Report on Form
10-K
for the
2016 fiscal year. The grant date fair value of each restricted share granted on March 1, 2016 is $15.43, and the grant date fair value of each restricted share in the grant to Mr. Hingtgen on October 1, 2016 (in conjunction with his
promotion to President and Chief Operating Officer) is $11.54, which in each case was the closing market value of the shares of our Common Stock on the date of grant. The closing market value of the shares of our Common Stock at December 31,
2016 was $5.59.
|
50
Outstanding Equity Awards at Fiscal Year End
The following table shows outstanding stock option awards and unvested restricted stock awards as of December 31, 2016 for the named executive
officers.
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|
Option Awards
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|
|
Stock Awards
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|
Name
|
|
Number of
Securities
Underlying
Unexercised
Options
Exercisable
(#) (1)
|
|
|
Number of
Securities
Underlying
Unexercised
Options
Unexercisable
(#) (2)
|
|
Equity Incentive
Plan Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
(#)
|
|
Option
Exercise
Price (3)
|
|
|
Option
Expiration
Date
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|
|
|
|
Number of
Shares or
Units of
Stock
That
Have
Not Vested
(#)
|
|
|
Market Value
of Shares or
Units of
Stock
That
Have Not
Vested
($) (4)
|
|
|
Equity
Incentive
Plan
Awards:
Number
of
Unearned
Shares,
Units or
Other
Rights
That
Have Not
Vested
(#) (5)
|
|
|
Equity
Incentive
Plan
Awards:
Market
or
Payout
Value of
Unearned
Shares,
Units or
Other
Rights
That Have
Not
Vested
($) (4)
|
|
Wayne T. Smith
|
|
|
200,000
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|
|
-
|
|
-
|
|
$
|
28.7000
|
|
|
|
2/26/2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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50,000
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|
|
-
|
|
-
|
|
$
|
30.3200
|
|
|
|
2/23/2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
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50,000
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|
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-
|
|
-
|
|
$
|
34.3800
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|
|
|
2/22/2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
40,000
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|
|
-
|
|
-
|
|
$
|
17.4900
|
|
|
|
2/15/2022
|
|
|
|
|
|
|
|
250,000
|
|
|
|
1,397,500
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|
|
|
150,000
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|
|
|
838,500
|
|
W. Larry Cash
|
|
|
60,000
|
|
|
-
|
|
-
|
|
$
|
28.7000
|
|
|
|
2/26/2018
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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10,000
|
|
|
-
|
|
-
|
|
$
|
15.0100
|
|
|
|
2/24/2019
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|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
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25,000
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|
|
-
|
|
-
|
|
$
|
30.3200
|
|
|
|
2/23/2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,000
|
|
|
-
|
|
-
|
|
$
|
34.3800
|
|
|
|
2/22/2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,000
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|
|
-
|
|
-
|
|
$
|
17.4900
|
|
|
|
2/15/2022
|
|
|
|
|
|
|
|
125,000
|
|
|
|
698,750
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|
|
75,000
|
|
|
|
419,250
|
|
Tim Hingtgen
|
|
|
1,500
|
|
|
-
|
|
-
|
|
$
|
33.1800
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|
|
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5/19/2018
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|
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|
|
|
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|
|
|
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|
|
|
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|
|
1,000
|
|
|
-
|
|
-
|
|
$
|
30.3200
|
|
|
|
2/23/2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,000
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|
|
-
|
|
-
|
|
$
|
34.3800
|
|
|
|
2/22/2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
334
|
|
|
-
|
|
-
|
|
$
|
17.4900
|
|
|
|
2/15/2022
|
|
|
|
|
|
|
|
85,002
|
|
|
|
475,161
|
|
|
|
40,000
|
|
|
|
223,600
|
|
David L. Miller
|
|
|
10,000
|
|
|
-
|
|
-
|
|
$
|
34.3800
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|
|
|
2/22/2021
|
|
|
|
|
|
|
|
83,335
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|
|
|
465,843
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|
|
|
50,000
|
|
|
|
279,500
|
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Michael T. Portacci
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|
|
20,000
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|
|
-
|
|
-
|
|
$
|
28.7000
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|
|
|
2/26/2018
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000
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|
|
-
|
|
-
|
|
$
|
30.3200
|
|
|
|
2/23/2020
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|
|
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|
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|
|
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|
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|
|
|
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|
|
|
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|
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10,000
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|
|
-
|
|
-
|
|
$
|
34.3800
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|
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2/22/2021
|
|
|
|
|
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|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
2,667
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|
-
|
|
-
|
|
$
|
17.4900
|
|
|
|
2/15/2022
|
|
|
|
|
|
|
|
35,002
|
|
|
|
195,661
|
|
|
|
35,000
|
|
|
|
195,650
|
|
(1)
|
These options were fully vested as of December 31, 2016.
|
(2)
|
There are no unexercisable stock options as of December 31, 2016.
|
(3)
|
The per share exercise price of each option listed in the table above granted prior to April 29, 2016, was adjusted pursuant to the Employee Matters Agreement between the Issuer and QHC, dated as of April 29,
2016, to preserve the aggregate intrinsic value of the original award as a result of the
spin-off
of QHC effective April 29, 2016.
|
(4)
|
Represents the market value of shares of the Companys Common Stock on December 31, 2016 ($5.59 per share) and consists of unvested awards from the grants set forth in the table following footnote 4.
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(5)
|
Reflects the number of performance-based restricted stock awards that were subject to satisfaction of the applicable performance measure at December 31, 2016. Since all such performance measures were met subsequent
to December 31, 2016, the awards time-based restrictions will now lapse in accordance with the terms of the respective award.
|
51
|
|
|
|
|
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|
|
|
Name
|
|
Date
Granted
|
|
|
Unvested
Restricted
Shares
|
|
|
|
|
|
|
|
|
|
|
Wayne Smith
|
|
|
3/1/2014
|
|
|
|
100,000
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|
|
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3/1/2014
|
|
|
|
50,000
|
|
|
|
|
3/1/2015
|
|
|
|
100,000
|
|
|
|
|
3/1/2016
|
|
|
|
150,000
|
|
W. Larry Cash
|
|
|
3/1/2014
|
|
|
|
50,000
|
|
|
|
|
3/1/2014
|
|
|
|
25,000
|
|
|
|
|
3/1/2015
|
|
|
|
50,000
|
|
|
|
|
3/1/2016
|
|
|
|
75,000
|
|
Tim Hingtgen
|
|
|
3/1/2014
|
|
|
|
8,334
|
|
|
|
|
3/1/2014
|
|
|
|
3,334
|
|
|
|
|
3/1/2015
|
|
|
|
23,334
|
|
|
|
|
3/1/2016
|
|
|
|
40,000
|
|
|
|
|
10/1/2016
|
|
|
|
50,000
|
|
David L. Miller
|
|
|
3/1/2014
|
|
|
|
33,334
|
|
|
|
|
3/1/2014
|
|
|
|
16,667
|
|
|
|
|
3/1/2015
|
|
|
|
33,334
|
|
|
|
|
3/1/2016
|
|
|
|
50,000
|
|
Michael T. Portacci
|
|
|
3/1/2014
|
|
|
|
8,334
|
|
|
|
|
3/1/2014
|
|
|
|
3,334
|
|
|
|
|
3/1/2015
|
|
|
|
23,334
|
|
|
|
|
3/1/2016
|
|
|
|
35,000
|
|
Vesting of the special,
one-time
equity grant of performance-based restricted
stock awarded in 2014 in connection with the Companys acquisition of HMA was determined based on achievement of defined synergy targets during the first and second year after the acquisition.
One-third
of the shares in those awards were earned at March 1, 2015 based on the achievement of the first level of synergy targets and the performance measure relating to the remaining
two-thirds
of the shares in
those awards was met at March 1, 2016 based on the achievement of the second level of synergy targets. The awards remaining time-based restrictions lapsed on March 1, 2017 in accordance with the terms of the respective award. Vesting
for all other awards occurred or will occur, subject to the terms of the 2009 Plan, in
one-third
increments on each of the first three (3) anniversaries of the dates of grants for grants on March 1,
2014, March 1, 2015, March 1, 2016 and, for Mr. Hingtgen, October 1, 2016. The market values set forth in the table above assume all applicable performance and all vesting criteria will be met.
52
Option Exercises and Stock Vested
The following table sets forth certain information regarding options exercised for the named executive officers along with the number of restricted
stock awards that vested during the year ended December 31, 2016.
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options
|
|
|
Stock Awards
|
|
Name
|
|
Number of
Shares Acquired
on Exercise
(#)
|
|
|
Value Realized
Upon Exercise
($)
|
|
|
Number of
Shares Acquired
on Vesting
(#)
|
|
|
Value Realized
Upon Vesting
($) (1)
|
|
Wayne T. Smith
|
|
|
-
|
|
|
|
-
|
|
|
|
241,667
|
|
|
|
3,716,005
|
|
W. Larry Cash
|
|
|
-
|
|
|
|
-
|
|
|
|
116,667
|
|
|
|
1,795,005
|
|
Tim Hingtgen
|
|
|
-
|
|
|
|
-
|
|
|
|
25,332
|
|
|
|
390,253
|
|
David L. Miller
|
|
|
-
|
|
|
|
-
|
|
|
|
75,000
|
|
|
|
1,154,666
|
|
Michael T. Portacci
|
|
|
-
|
|
|
|
-
|
|
|
|
31,666
|
|
|
|
486,023
|
|
(1)
|
The value realized upon vesting is based on the number of shares vesting multiplied by the closing price of our common stock on the date the award vested.
|
Pension Benefits
The table below
shows the present value of accumulated benefits payable to each of the named executive officers as of December 31, 2016, including the number of years of service credited to each such named executive officer. Under the Companys SERP, the
present value is determined by using discount rate and mortality rate assumptions consistent with those described in Note 10 of the footnotes of the Companys audited consolidated financial statements for the year ended December 31, 2016,
included in the Companys Annual Report on
Form 10-K
filed with the SEC on February 21, 2017.
This plan is a
non-contributory
non-qualified
defined benefit plan that
provides for the payment of benefits from the general funds of the Company. The plan generally provides that, when a participant retires after his or her normal retirement age (age 65), he or she will be entitled to receive a single
lump-sum
payment based on the actuarially-determined monthly income payment based on a monthly calculation of (i) the participants Annual Retirement Benefit,
reduced by (ii) the
participants monthly amount of Social Security old age and survivor disability insurance benefits payable to the participant commencing at his or her unreduced Social Security retirement age. For this purpose, the Annual Retirement
Benefit means an amount equal to the sum of the participants compensation for the highest three years out of the last five full years of service preceding the participants termination of employment, divided by three, then
multiplied by the lesser of (i) 60% or a (ii) percentage equal to 2% multiplied by the participants years of service.
53
|
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|
|
|
|
|
|
|
|
Name
|
|
Plan Name
|
|
Number of
Years
of
Credited
Service
(#) (1)
|
|
|
Present
Value of
Accumulated
Benefit
($)
|
|
|
Payments
During
Last Fiscal
Year
($)
|
|
Wayne T. Smith
|
|
SERP
|
|
|
30.00
|
|
|
|
46,321,528
|
|
|
|
-
|
|
W. Larry Cash
|
|
SERP
|
|
|
29.33
|
|
|
|
19,779,685
|
|
|
|
-
|
|
Tim Hingtgen
|
|
SERP
|
|
|
2.92
|
|
|
|
209,890
|
|
|
|
-
|
|
David L. Miller
|
|
SERP
|
|
|
19.08
|
|
|
|
7,963,788
|
|
|
|
-
|
|
Michael T. Portacci
|
|
SERP
|
|
|
20.00
|
|
|
|
6,078,524
|
|
|
|
-
|
|
(1)
|
Named executive officers receive one year of credited service for each year of actual service. As discussed further in Retirement and Deferred Compensation Benefits on page 42
of this Proxy Statement,
under the SERP, both Mr. Smith and Mr. Cash were formerly credited with two years of service for each year of actual service. This component of the SERP was adopted by the Compensation Committee in March 2004, while the Companys
stock ownership and Board of Directors were controlled by affiliates of Forstmann Little & Co. In 2008, the Compensation Committee and the Board voted to amend the SERP to terminate this practice after 25 years of service had been credited.
Since reaching 25 years of credited service, Mr. Smith and Mr. Cash have each received one year of credited service for each year of actual service. Mr. Smith, having reached his maximum number of 30 years of credited service and
Mr. Cash, having reached his approximate maximum number of years of credited service, have elected in accordance with the plan provisions to have their benefit frozen, effective in July 2014, with future increases for interest earned based on
the
24-month
average yield on
10-Year
Treasury Bonds. Messrs. Smith and Cash will earn no additional service credit.
|
Non-Qualified
Deferred Compensation
The following table shows the contributions, earnings and account balances for the named executive officers in the Deferred Compensation Plan.
Participation in this plan is limited to a selected group of management or highly compensated employees of the Company. The participants may select their investment funds in the plan in which their accounts are deemed to be invested. Since 2009, the
Company has not contributed to this plan. Company contributions made prior to that time are now fully vested.
Distributions from the plan are in a
lump sum payment as soon as administratively feasible, but no earlier than 10 days and no later than 45 days following the date on which the participant is entitled to receive the distribution. The participant also has the option to make an election
to delay the time of payments in five (5) annual installments or in ten (10) annual installments. The election for the deferral may not be made less than 12 months prior to the date of the first scheduled payment. An election relating to
the form of payment may be made as permitted under Section 409A of the IRC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Executive
Contributions
in Last FY
($) (1)
|
|
|
Aggregate
Earnings
in Last FY
($) (2)
|
|
|
Aggregate
Withdrawals/
Distributions
($)
|
|
Aggregate
Balance
at Last FYE
($) (3)
|
|
Wayne T. Smith
|
|
|
-
|
|
|
|
440,714
|
|
|
-
|
|
|
7,877,554
|
|
W. Larry Cash
|
|
|
-
|
|
|
|
185,606
|
|
|
-
|
|
|
1,975,945
|
|
Tim Hingtgen
|
|
|
65,341
|
|
|
|
12,870
|
|
|
-
|
|
|
147,419
|
|
David L. Miller
|
|
|
-
|
|
|
|
25,106
|
|
|
-
|
|
|
236,478
|
|
Michael T. Portacci
|
|
|
-
|
|
|
|
85,760
|
|
|
-
|
|
|
1,439,885
|
|
(1)
|
Contributions from 2016 salary. These amounts are also included as compensation in the Summary Compensation Table.
|
(2)
|
Investment earnings for 2016.
|
(3)
|
Plan Balance as of December 31, 2016.
|
54
Potential Payments upon Termination or Change in Control
The table below sets forth potential payments and/or benefits that would be provided to our current named executive officers upon termination of
employment or a change in control. These amounts are the incremental or enhanced amounts that a named executive officer would receive that are in excess of those benefits that the Company would generally provide to other employees under the same
circumstances. These amounts are estimates only and are based on the assumption that the terminating event or a change in control, as applicable, occurred on December 31, 2016. The closing price of the Companys Common Stock was $5.59 on
the last business day prior to that date.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Named Executive Officer
|
|
Cash
Severance
($)
|
|
Equity Incentive Plan Awards
|
|
Retirement
Benefit -
SERP ($)
|
|
Health
and
Welfare
Benefits
($)
|
|
Outplacement
Counseling
and Related
Benefits
($)
|
|
Excise
Tax
Gross
Up
($)
|
|
Total
$
|
|
|
Acceleration
of Options
($)
|
|
Acceleration
of Restricted
Stock ($)
|
|
|
|
|
|
Wayne T. Smith
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voluntary termination
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
46,321,528
|
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
46,321,528
|
|
Involuntary termination
|
|
|
|
3,840,000
|
|
|
|
|
-
|
|
|
|
|
2,236,000
|
|
|
|
|
46,321,528
|
|
|
|
|
20,966
|
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
52,418,494
|
|
Change in control of the company
|
|
|
|
18,720,000
|
|
|
|
|
-
|
|
|
|
|
2,236,000
|
|
|
|
|
46,321,528
|
|
|
|
|
31,450
|
|
|
|
|
25,000
|
|
|
|
|
-
|
|
|
|
|
67,333,978
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
W. Larry Cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voluntary termination
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
19,779,685
|
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
19,779,685
|
|
Involuntary termination
|
|
|
|
1,955,000
|
|
|
|
|
-
|
|
|
|
|
1,118,000
|
|
|
|
|
19,779,685
|
|
|
|
|
20,966
|
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
22,873,651
|
|
Change in control of the company
|
|
|
|
7,395,000
|
|
|
|
|
-
|
|
|
|
|
1,118,000
|
|
|
|
|
19,779,685
|
|
|
|
|
31,450
|
|
|
|
|
25,000
|
|
|
|
|
-
|
|
|
|
|
28,349,135
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tim Hingtgen
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voluntary termination
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
-
|
|
Involuntary termination
|
|
|
|
1,993,638
|
|
|
|
|
-
|
|
|
|
|
698,761
|
|
|
|
|
-
|
|
|
|
|
25,429
|
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
2,717,828
|
|
Change in control of the company
|
|
|
|
5,698,561
|
|
|
|
|
-
|
|
|
|
|
698,761
|
|
|
|
|
-
|
|
|
|
|
38,143
|
|
|
|
|
25,000
|
|
|
|
|
-
|
|
|
|
|
6,460,465
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David L. Miller (a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voluntary termination
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
7,963,788
|
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
7,963,788
|
|
Involuntary termination
|
|
|
|
1,725,000
|
|
|
|
|
-
|
|
|
|
|
745,343
|
|
|
|
|
7,963,788
|
|
|
|
|
20,966
|
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
10,455,097
|
|
Change in control of the company
|
|
|
|
6,525,000
|
|
|
|
|
-
|
|
|
|
|
745,343
|
|
|
|
|
-
|
|
|
|
|
31,450
|
|
|
|
|
25,000
|
|
|
|
|
-
|
|
|
|
|
7,326,793
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael T. Portacci
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voluntary termination
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
8,400,791
|
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
8,400,791
|
|
Involuntary termination
|
|
|
|
1,638,488
|
|
|
|
|
-
|
|
|
|
|
391,311
|
|
|
|
|
8,400,791
|
|
|
|
|
20,966
|
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
|
10,451,556
|
|
Change in control of the company
|
|
|
|
4,776,055
|
|
|
|
|
-
|
|
|
|
|
391,311
|
|
|
|
|
11,256,204
|
|
|
|
|
31,450
|
|
|
|
|
25,000
|
|
|
|
|
-
|
|
|
|
|
16,480,020
|
|
(a)
|
As noted above, the amounts reflected in this table are based on the assumption that the terminating event or change in control occurred on December 31, 2016. Since Mr. Miller retired from the Company
effective December 31, 2016, the potential payments and benefits included herein are no longer applicable subsequent to that date.
|
Below is a discussion of the estimated payments and/or benefits under four events:
|
1.
|
Voluntary Termination
, which includes resignation and involuntary termination for cause, including the Companys termination of the named executive officers employment for reasons such as violation of
certain Company policies or for performance related issues, but does not include retirement.
|
|
2.
|
Retirement
, as defined in the various plans and agreements. The benefits to the named executive officers for Retirement are equal to those available in the case of a Voluntary Termination as described in the
table above. Following his retirement, Mr. Miller became eligible to receive certain accumulated benefits under the Companys SERP, which are described in additional detail above under Pension Benefits.
|
55
|
3.
|
Involuntary Termination
, which includes a termination other than for cause, but does not include a termination related to a change in control of the Company.
|
|
4.
|
Change in Control of the Company
, as defined in the CIC Agreements previously described in the Employment Contracts; Change in Control Severance Arrangements section of the Compensation Discussion and
Analysis.
|
Severance Benefits
The hypothetical benefit to be received by any executive for a particular event should not be combined with any other event, as a named executive officer
could be compensated, if at all, for only one event.
Voluntary Termination
. No severance amounts are payable in the event of
voluntary termination or an involuntary termination for cause.
Retirement
. No severance amounts are payable upon retirement.
Involuntary Termination
. The named executive officers would receive two (2) times the sum of the base salary and a prorated
portion of their cash incentive compensation for the fiscal year in which the named executive officers termination occurs.
Change in
Control of the Company
. In the event of both a change in control of the Company and certain qualifying terminations of employment, the named executive officers would receive three (3) times the sum of the base salary and the
greater of (A) the highest incentive bonus earned during any of the three (3) fiscal years prior to the fiscal year in which the Covered Executives termination of employment occurs or, if greater, the three fiscal years prior to the
fiscal year in which a change in control occurs or (B) the target incentive bonus for the fiscal year in which the Covered Executives termination of employment occurs, assuming all performance objectives were met in full.
Equity-Incentive Plan Awards
Each
named executive officer has outstanding long-term incentive awards granted under the Companys equity-based plans. See the Grants of Plan-Based Awards and the Outstanding Equity Awards at Fiscal
Year-End
Tables above. In certain termination events or upon a change in control, there would be an acceleration of the vesting schedule of restricted stock and/or stock options.
Voluntary Termination
. If a named executive officer voluntarily terminates his employment prior to being eligible for retirement, or
the Company terminates his employment for cause, his unvested restricted stock and unvested stock options will be forfeited. In addition, any vested but unexercised stock options would be forfeited if not exercised within 90 days of the
terminating event.
Retirement
. Upon retirement, unvested stock options would be forfeited.
Involuntary Termination
. If a named executive officer is terminated by the Company for any reason other than disability, death or for
cause, his unvested stock options will be forfeited; however, performance-based restricted stock award will continue until such time as the Board or an appropriate committee determines that the performance objective has been obtained. If attained,
then the restrictions on the entire award shall lapse on the first anniversary of the date of grant (or if the termination occurs after the performance objective has been attained, the restrictions on the entire award shall lapse immediately). If
the performance objective is not attained, the award shall be forfeited in its entirety. The value of unvested restricted stock that would become fully vested for each of the named executive officers is presented in the above table.
Change in Control of the Company
. The value of
in-the-money
unvested stock options that would become fully vested for each of the named executive officers and the value of unvested restricted stock that would become
fully vested for each of the named executive officers is presented in the above table (although this chart reflects such full vesting, the Companys Amended and Restated 2009 Stock Option and Award Plan provides that these equity awards held by
named executive officers will only fully and immediately vest if (1) the equity awards are not assumed or replaced by the successor company or (2) the equity awards are assumed or replaced by the successor company, and the executives
employment is terminated without cause (or the executive terminates his or her employment for good reason) within the
two-year
period following the change in control).
56
Retirement Benefits
The amounts indicated below represent amounts payable if any, under the SERP for each described scenario.
Voluntary Termination
. In the case of voluntary termination, the lump sum value of payments to each of the named executive officers is
presented in the above table.
Retirement
. In the case of retirement, the
lump-sum
value
of payments to each of the named executive officers is presented in the above table.
Involuntary Termination
. In the case of
involuntary termination, the
lump-sum
value of payments to each of the named executive officers is presented in the above table.
Change in Control of the Company
. In the case of change in control of the company, the lump sum value of payments to each of the named
executive officers is presented in the above table; provided, that all participants who have been credited with five or more years of service will be credited with an additional three year of service (not to exceed the maximum of 30 years of
service) for purposes of determining the benefit.
Other Benefits
In the event of both a change in control of the Company and the occurrence of certain qualifying terminations of employment, the Company provides the
continuation of certain health and welfare benefits with values based on the current employer contributions each named executive would have been entitled to receive as of December 31, 2016 for a term of 36 months. Also, in the event of a change
in control, the Company provides reimbursement of up to $25,000 for outplacement counseling and related benefits to each of the named executive officers.
Excise Tax
Gross-Up
Named executive officers (with agreements entered into before 2009) will be entitled to receive certain gross up payments to offset any
excise tax imposed by Section 4999 of the IRC on any payment or distribution by the Company to or for their benefit, including under any stock option, restricted stock or other agreement, plan or program; provided, however, that if a reduction
in such payments or distributions by 10% or less would cause no excise tax to be payable, then the payments and distributions to the Covered Executive will be reduced by that amount and no excise tax gross up payment will be paid. The value of these
gross-up
payments for each of the named executive officers is presented in the above table. As noted above, CIC Agreements entered into since 2009 do not contain any tax
gross-up
provisions.
57
Equity Compensation Plan Information
The following table includes information with respect to our equity compensation plans (and any individual compensation arrangements under which our
equity securities are authorized for issuance to employees or
non-employees)
as of December 31, 2016.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of securities to
be issued upon
exercise of outstanding
options, warrants and
rights (a)
(1)
|
|
|
Weighted average
exercise price of
outstanding options
warrants and rights (b)
|
|
|
Available for future
issuance under equity
compensations plans
(excluding securities
reflected in
column (a)) (c)
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Compensation plans approved by security holders
|
|
|
1,185,320
|
|
|
|
28.12
|
|
|
|
5,960,188
|
|
Equity Compensation plans not approved by security holders
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,185,320
|
|
|
|
28.12
|
|
|
|
5,960,188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Represents shares of our Common Stock to be issued upon the exercise of outstanding stock options granted under the 2009 Plan as of December 31, 2016.
|
|
(2)
|
Represents shares of our Common Stock that may be issued pursuant to
non-qualified
stock options, incentive stock options, stock appreciation rights, restricted stock, performance
units, performance-based shares and other share awards under the 2009 Plan, of 5,960,188 shares. The number of shares shown does not reflect grants made subsequent to December 31, 2016. The number of shares available for future issuance under
the 2009 Plan following the equity grants we made on March 1, 2017 to our named executive officers and other individuals was 3,934,903. Awards granted in the form of restricted stock (including restricted stock units), performance awards
(including shares issued in respect to performance awards) and other awards that are granted in the 2009 Plan, as full-value awards reduce the number of shares available for grant under the 2009 Plan by 1.52 shares for each share subject
to such an award.
|
58
COMPENSATION COMMITTEE REPORT
The information contained in this Compensation Committee Report shall not be deemed filed for purposes of Section 18 of the Exchange
Act or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in any such filing.
The Compensation Committee of the Company has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of SEC Regulation
S-K
with management and, based on such reviews and discussions, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement.
THE COMPENSATION COMMITTEE
H. Mitchell Watson, Jr., Chair
John A. Clerico
Julia B. North
59
PROPOSAL 4 RATIFICATION OF THE APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
The Board of Directors proposes that the stockholders ratify the appointment by the Board of Directors of
Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2017. A representative of Deloitte & Touche LLP will be present at the Meeting and will be available to respond
to appropriate questions submitted by stockholders at the Meeting. Deloitte & Touche LLP will have the opportunity to make a statement if it desires to do so.
Fees Paid to Auditors
The following table summarizes the
aggregate fees billed to the Company by Deloitte & Touche LLP:
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(in thousands)
|
|
Audit Fees (a)
|
|
$
|
6,250
|
|
|
$
|
6,750
|
|
Audit-Related Fees (b)
|
|
|
1,937
|
|
|
|
7,170
|
|
Tax Fees (c)
|
|
|
1,036
|
|
|
|
2,482
|
|
Other Fees (d)
|
|
|
556
|
|
|
|
642
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
9,779
|
|
|
$
|
17,044
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Audit Fees: Fees for audit services billed in 2016 and 2015 consisted of fees paid in connection with services provided with respect to:
|
|
|
|
the audit of the Companys annual consolidated financial statements (including the attestation report on managements assessment of internal control over financial reporting);
|
|
|
|
reviews of the Companys quarterly consolidated financial statements;
|
|
(b)
|
Audit-Related Fees: Fees for audit-related services billed in 2016 and 2015 consisted of fees paid principally in connection with services provided with respect to:
|
|
|
|
non-recurring
separate opinion audit procedures related to the Companys
spin-off
of Quorum Health Corporation, which included audits
for the four years ended December 31, 2015;
|
|
|
|
statutory and regulatory audits;
|
|
|
|
consents and other services related to SEC matters;
|
|
|
|
consents and comfort letter procedures related to refinancing transactions;
|
|
|
|
due diligence associated with acquisitions; and
|
|
|
|
agreed-upon procedures engagements.
|
|
(c)
|
Tax Fees: Fees for tax services billed in 2016 and 2015 consisted of:
|
|
|
|
fees for tax compliance services totaled $220,000 in 2016 and $224,000 in 2015. Tax compliance services constituted services rendered based upon facts already in existence or transactions that have already occurred to
document, compute, and obtain government approval for amounts to be included in tax filings and consisted of:
|
|
(i)
|
federal, state and local income tax return assistance;
|
|
(ii)
|
sales and use, property and other tax return assistance; and
|
|
(iii)
|
assistance with tax audits and appeals.
|
|
|
|
fees for tax planning and advice services totaled $816,000 in 2016 and $2,258,000 in 2015. Tax planning and advice constituted services rendered with respect to proposed transactions or that may impact the structuring
of a transaction. Note that 2016 and 2015 include fees related to the
spin-off
of Quorum Health Corporation.
|
60
|
|
|
fees for various consulting services totaled $556,000 for 2016 and $642,000 for 2015.
|
The Audit and
Compliance Committee considered the nature of the services provided by the independent registered public accounting firm, and determined that such services were compatible with the provision of independent audit services. The Audit and Compliance
Committee discussed these services with the independent registered public accounting firm and Company management to determine that they were permitted under all applicable legal requirements concerning auditor independence, including the rules and
regulations promulgated by the SEC to implement the Sarbanes-Oxley Act of 2002, as well as the rules and regulations of the American Institute of Certified Public Accountants.
Pre-Approval
of Audit and
Non-Audit
Services
The Audit and Compliance Committee is directly responsible for the appointment, compensation, retention and oversight of the Companys independent
registered public accounting firm retained to perform audit services to be performed by our independent registered public accounting firm. One hundred percent of all audit and
non-audit
services performed by
the independent registered public accounting firm during 2016 were
pre-approved
by the Audit and Compliance Committee prior to the commencement of such services. The Companys policy does not permit the
retroactive approval for de minimus
non-audit
services.
Required Vote
The Audit and Compliance Committee and the Board believe that the continued retention of Deloitte & Touche LLP as our independent registered
public accounting firm is in the best interests of the Company and its stockholders. Approval by the stockholders of the appointment of our independent registered public accounting firm is not required, but the Board believes that it is desirable to
submit this matter to be ratified by the stockholders. If holders of a majority of the shares of Common Stock entitled to vote and present in person or represented by proxy at the Meeting do not ratify the appointment of Deloitte & Touche
LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2017, the selection of our independent registered public accounting firm will be reconsidered by the Audit and Compliance Committee. Abstentions
and broker
non-votes
will have the same effect as a vote against this proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS THAT YOU VOTE FOR THE RATIFICATION OF THE APPOINTMENT OF DELOITTE & TOUCHE LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE FISCAL YEAR ENDING DECEMBER 31, 2017.
61
The following stockholder proposal will be voted on at our annual meeting if properly presented by or on
behalf of the stockholder proponent(s). This stockholder proposal may contain assertions about our Company or otherwise that we believe are incorrect. We have not attempted to refute any such assertions. Share holdings and the address of the
stockholder proponent will be supplied promptly upon oral or written request to the Corporate Secretary.
PROPOSAL 5 STOCKHOLDER PROPOSAL REGARDING VESTING OF EQUITY AWARDS IN A CHANGE IN CONTROL
Marco Consulting Group Trust I has notified the Company that it intends to present the following proposal at this years Annual Meeting:
RESOLVED: The shareholders ask the board of directors of Community Health Systems, Inc. to adopt a policy that in the event of a change in control (as
defined under any applicable employment agreement, equity incentive plan or other plan), there shall be no acceleration of vesting of any equity award granted to any senior executive, provided, however, that the boards Compensation Committee
may provide in an applicable grant or purchase agreement that any unvested award will vest on a partial,
pro rata
basis up to the time of the senior executives termination, with such qualifications for an award as the Committee may
determine.
For purposes of this Policy, equity award means an award granted under an equity incentive plan as defined in Item 402 of
the SECs Regulation
S-K,
which addresses elements of executive compensation to be disclosed to shareholders. This resolution shall be implemented so as not affect any contractual rights in existence on
the date this proposal is adopted, and it shall apply only to equity awards made under equity incentive plans or plan amendments that shareholders approve after the date of the 2017 annual meeting.
PROPONENTS SUPPORTING STATEMENT:
Community Health
Systems, Inc. (Company) allows senior executives to receive an accelerated award of unearned equity under certain conditions after a change of control of the Company. We do not question that some form of severance payments may be
appropriate in that situation. We are concerned, however, that current practices at the Company may permit windfall awards that have nothing to do with an executives performance.
According to last years proxy statement, a change in control as of December 31, 2015, would have accelerated the vesting of $27 million
worth of long-term equity to the Companys five senior executives, with the CEO entitled to $13 million.
We are unpersuaded by the
argument that executives somehow deserve to receive unvested awards. To accelerate the vesting of unearned equity on the theory that an executive was denied the opportunity to earn those shares seems inconsistent with a pay for
performance philosophy worthy of the name.
We do believe, however, that an affected executive should be eligible to receive an accelerated
vesting of equity awards on a
pro rata
basis as of his or her termination date, with the details of any
pro rata
award to be determined by the Compensation Committee.
Other major corporations, including Apple, Chevron, ExxonMobil, IBM, Intel, Microsoft, and Occidental Petroleum, have limitations on accelerated vesting
of unearned equity, such as providing pro rata awards or simply forfeiting unearned awards. Research from James Reda & Associates found that over one third of the largest 200 companies now pro rate, forfeit, or only partially vest
performance shares upon a change of control.
We urge you to vote FOR this proposal.
62
BOARD OF DIRECTORS STATEMENT IN OPPOSITION TO PROPOSAL 5:
Our Board of Directors recommends a vote AGAINST the foregoing proposal for the following reasons:
The Board believes that the most effective executive compensation program is one that places a heavy emphasis on pay for performance and aligns the
interests of company executives with those of our stockholders, with the ultimate objective of increasing stockholder value. In contrast, for the reasons discussed below, the Board does not believe that the adoption of a
one-size
fits all policy restricting the Compensation Committees discretion to determine the appropriate treatment of equity awards in connection with any change in control as reflected in the
proposal would be in the best interests of the Company or its stockholders.
Implementing the proposal would disrupt the alignment between executive and
stockholder interests and result in a loss of flexibility during a time of uncertainty which would be associated with any potential change in control event.
The Companys Amended and Restated 2009 Stock Option and Award Plan (the 2009 Plan), which was approved by the Companys
stockholders at the 2016 Annual Meeting of Stockholders, does not provide for automatic accelerated vesting of equity awards in connection with any change in control. Instead, the 2009 Plan provides that the outstanding equity awards held by
executives (and other employees) will only fully and immediately vest if (1) the equity awards are not assumed or replaced by the successor company or (2) the equity awards are assumed or replaced by the successor company, and the
executives employment is terminated without cause (or the executive terminates his or her employment for good reason) within the
two-year
period following the change in control.
The Board believes that this construct appropriately aligns the interests of executives with the interests of stockholders in the context of any
potential change in control transaction and provides the Board and the Compensation Committee with flexibility and discretion to respond to circumstances at the time of any such transaction. Implementation of the proposal, by prohibiting
acceleration and only allowing for pro rata vesting in connection with future grants, would eliminate the Boards ability to determine whether and under what circumstances equity awards of the Company should be assumed by the successor company
or, alternatively, should accelerate. Moreover, implementation of the proposal would, for future grants, eliminate the protections currently afforded to our executives that, if their equity awards are assumed by the successor company, such awards
would vest in the event the executive is terminated without cause (or the executive terminates his or her employment for good reason) within the
two-year
period following the change in control.
We believe that the change in control provisions reflected in the 2009 Plan as noted above would ensure that our executives are not penalized with a loss
of equity compensation awards that could occur from the consummation of any potential change in control event that, while outside of the control of our executives, would be in the best interests of the Companys stockholders. We believe that
these change in control provisions would permit our executives to remain objective and focused on enhancing stockholder value during the course of any change in control event. Further, we believe that our current change in control provisions would
incentivize our executives to remain with us through and following any change in control by reducing the uncertainty associated with the potential loss of equity awards that may otherwise exist. In addition, a higher likelihood that our executives
would depart could negatively affect our value to any potential acquirer, and reduce the price our stockholders would receive in such a transaction.
We believe
that implementing the proposal would cause our change in control provisions with respect to future equity grants to significantly deviate from market standards and would significantly limit the Companys ability to attract, retain and
incentivize talented executives.
The Board believes that it is critical for the Company to offer compensation and benefits that are competitive
in the marketplace for talent. We believe that the implementation of this proposal would cause our change in control provisions with respect to future grants to significantly deviate from market standards. In this regard, we believe that it is
atypical to only allow for pro rata vesting in connection with a change in control, including as compared to the compensation practices of many of the companies with which we compete for talent. For example, a publicly-available compensation
consultant survey from March 2016 regarding the compensation practices as to chief executive officers
63
and chief financial officers of 200
large-cap
and
mid-cap
companies indicated that approximately 90% of surveyed
companies fully accelerate time-based unvested stock option and restricted stock awards in the event of a change in control and a qualifying termination, and approximately
two-thirds
of surveyed companies
provide for full acceleration of performance-based awards in connection with a change in control and qualifying termination. Both of these common practices would be prohibited in future equity grants of the Company if this proposal were implemented.
Offering equity awards in accordance with market practice for companies similar to ours is important to maintain our competitiveness in securing
the executive talent we need to create stockholder value. As a result, implementing the policy as outlined in the proposal would place us at a competitive disadvantage and jeopardize the objective of our executive compensation program to attract,
retain, reward and incentivize our executives.
Implementing the proposal would impose undue restrictions on the ability of the Compensation Committee to
structure executive compensation.
This proposal, through its imposition of undue restrictions on the ability of the Compensation Committee to
structure our executive compensation program, would infringe upon one of the cornerstones of effective corporate governance namely, the ability of directors, who are bound by fiduciary duties under applicable legal standards, to act in a
manner they believe to be in the best interests of the Company and its stockholders. In this regard, our Board believes that the interests of our stockholders are best served by recognizing that the Compensation Committee is in the optimal position
to determine the terms of our executive compensation arrangements. Moreover, we have a robust stockholder engagement program and each year we interact with our stockholders through stockholder engagement activities on a variety of issues, including
those related to executive compensation.
The Board believes that the Compensation Committee should continue to retain the flexibility to design and
administer competitive compensation programs which reflect market conditions, taking into account ongoing feedback we receive from our stockholders. In contrast, we believe the rigid policy advanced by the proponent would frustrate the purpose of
the Compensation Committee by constraining its ability to act in the best interests of the Company and its stockholders and otherwise interfere with the objectives of our compensation program.
For the reasons described above, the Board does not believe that this proposal is in the best interests of the Company or its stockholders.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE AGAINST THE STOCKHOLDER PROPOSAL REGARDING VESTING OF EQUITY AWARDS IN A CHANGE IN CONTROL
DESCRIBED IN PROPOSAL 5.
64
MISCELLANEOUS
As of the date of this Proxy Statement, the Board has not received notice of, and does not intend to propose, any other matters for stockholder action.
However, if any other matters are properly brought before the Meeting, it is intended that the persons voting the accompanying proxy will vote the shares represented by the proxy in accordance with their best judgment.
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By Order of the Board of Directors,
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Christopher G. Cobb
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Corporate Secretary
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Franklin, Tennessee
April 6, 2017
65
Annex A
Non-GAAP
Financial Measures
This Proxy Statement contains
non-GAAP
financial measures that have adjusted or excluded items from the most directly comparable financial measure calculated in accordance with U.S. generally accepted accounting principles
(GAAP). The following is a discussion of the Companys use of these
non-GAAP
financial measures and a reconciliation to their most directly comparable GAAP financial measure.
EBITDA is a
non-GAAP
financial measure which consists of net (loss) income attributable to Community Health
Systems, Inc. before interest, income taxes, depreciation and amortization. Adjusted EBITDA, also a
non-GAAP
financial measure, is EBITDA adjusted to add back net income attributable to noncontrolling
interests and to exclude the effect of discontinued operations, loss from early extinguishment of debt, impairment and (gain) loss on sale of business, gain on sale of investments in unconsolidated affiliates, amortization of software to be
abandoned, acquisition and integration expenses from the acquisition of HMA, expense incurred related to the
spin-off
of QHC, expense incurred related to the sale of a majority ownership interest in our home
care division, expense related to government and other legal settlements and related costs, (income) expense from fair value adjustments on the CVR agreement liability accounted for at fair value related to the HMA legal proceedings, and related
legal expenses, and for fiscal 2012, the impact of the resolution of an industry-wide governmental settlement and payment update relating to prior periods, as previously disclosed. We have from time to time sold noncontrolling interests in certain
of our subsidiaries or acquired subsidiaries with existing noncontrolling interest ownership positions. We believe that it is useful to present Adjusted EBITDA because it adds back the portion of EBITDA attributable to these third-party interests
and clarifies for investors our portion of EBITDA generated by continuing operations. We report Adjusted EBITDA as a measure of financial performance. Adjusted EBITDA is a key measure used by our management to assess the operating performance of our
hospital operations and to make decisions on the allocation of resources. Adjusted EBITDA is also used to evaluate the performance of our executive management team and is one of the primary targets used to determine short-term cash incentive
compensation. In addition, our management utilizes Adjusted EBITDA in assessing our consolidated results of operations and operational performance and in comparing our results of operations between periods. We believe it is useful to provide
investors and other users of our financial statements this performance measure to align with how management assesses our results of operations. Adjusted EBITDA also is comparable to a similar metric called Consolidated EBITDA, as defined in our
senior secured credit facility, which is a key component in the determination of our compliance with some of the covenants under our senior secured credit facility (including our ability to service debt and incur capital expenditures), and is used
to determine the interest rate and commitment fee payable under the Credit Facility (although Adjusted EBITDA does not include all of the adjustments described in the senior secured credit facility). For further discussion of Consolidated EBITDA and
how that measure is utilized in the calculation of our debt covenants, see the Capital Resources section of Part II, Item 7 of our Annual Report on Form
10-K
filed with the SEC on February 21, 2017.
Adjusted EBITDA is not a measurement of financial performance under U.S. GAAP. It should not be considered in isolation or as a substitute for net
income, operating income, or any other performance measure calculated in accordance with U.S. GAAP. The items excluded from Adjusted EBITDA are significant components in understanding and evaluating financial performance. We believe such adjustments
are appropriate as the magnitude and frequency of such items can vary significantly and are not related to the assessment of normal operating performance. Additionally, our calculation of Adjusted EBITDA may not be comparable to similarly titled
measures reported by other companies.
A-1
The following table reflects the reconciliation of Adjusted EBITDA, as defined, to net (loss) income
attributable to Community Health Systems, Inc. stockholders as derived directly from the consolidated financial statements (in millions):
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Year Ended December 31,
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2016
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2015
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2014
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2013
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2012
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Net (loss) income attributable to Community Health Systems, Inc. stockholders
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$
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(1,721
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)
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$
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158
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$
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92
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$
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141
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$
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266
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Adjustments:
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(Benefit from) provision for income taxes
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(104
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)
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116
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82
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104
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164
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Depreciation and amortization
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1,100
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1,172
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1,106
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771
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714
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Net income attributable to noncontrolling interests
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95
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101
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111
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76
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80
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Loss from discontinued operations
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15
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36
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57
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25
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12
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Amortization of software to be abandoned
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-
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-
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75
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-
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-
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Interest expense, net
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962
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973
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972
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613
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621
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Loss from early extinguishment of debt
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30
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16
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73
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1
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115
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Impairment and (gain) loss on sale of businesses, net
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1,919
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68
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41
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12
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10
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Gain on sale of investments in unconsolidated affiliates
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(94
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)
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-
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-
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-
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-
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Expenses related to the acquisition and integration of HMA
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-
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1
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69
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15
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-
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Expense from government and other legal settlements and related costs
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16
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4
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105
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102
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31
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(Income) expense from fair value adjustments and legal expenses related to cases covered by the CVR
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(6
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)
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8
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(6
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)
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-
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-
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Expenses related to the sale of a majority interest in home care division
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1
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-
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-
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-
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-
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Expenses related to the
spin-off
of Quorum Health
Corporation
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12
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17
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-
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-
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-
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Net impact of industry-wide governmental settlement and payment update relating to prior periods
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-
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-
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-
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-
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(76
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)
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Adjusted EBITDA
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$
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2,225
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$
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2,670
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$
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2,777
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$
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1,860
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$
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1,937
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Income per Diluted Share from continuing operations, excluding adjustments, is a
non-GAAP
financial measure. Income per Diluted Share from continuing operations, excluding adjustments, equals income from continuing operations, as reported, on a per share (diluted) basis, adjusted to
exclude (1) loss from early extinguishment of debt, (2) accelerated amortization of software to be abandoned, (3) impairment and (gain) loss on sale of businesses, net, (4) acquisition and integration expenses from the
acquisition of HMA, (5) expenses related to government legal settlements and related costs (other than HMA legal proceedings underlying the CVR agreement), (6) income (expense) from fair value adjustments, net of legal expenses, related to the
HMA legal proceedings underlying the CVR agreement, (7) gain on the sale of investments in unconsolidated affiliates, (8) expenses incurred related to the
spin-off
of Quorum Health Corporation,
(9) expenses incurred related to the sale of a majority interest in the home care division and (10) for fiscal 2012, the impact of the resolution of an industry-wide governmental settlement and payment update relating to prior periods, as
previously disclosed. The Company uses income from continuing operations per share (diluted), excluding these adjustments, to evaluate performance of the Companys operations exclusive of certain items that we believe impact the comparability
of results from period to period. The Company believes that information about income from continuing operations per share (diluted), excluding these adjustments is useful to investors, particularly where the impact of the excluded items is
significant in relation to reported income from continuing operations, because the measure provides investors with an additional tool for comparing between periods of the operating performance of the Companys business and allows investors to
evaluate the impact of these items separately from the impact of the operations of the business.
Income from Continuing Operations per Share
(diluted), excluding adjustments, is not a measurement of financial performance under U.S. GAAP. It should not be considered in isolation or as a substitute for net income, operating income, income from continuing operations per share, or any other
measure calculated in accordance with U.S. GAAP. The items excluded from Income from Continuing Operations per Share (diluted), excluding
A-2
adjustments, are significant components in understanding and evaluating financial performance. This
non-GAAP
financial measure may not be comparable to
similarly titled measures reported by other companies.
The following table reconciles income from continuing operations, as reported, on a per share
(diluted) basis to income from continuing operations on a per share (diluted) basis, with the adjustments noted above (total per share amounts may not add due to rounding):
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Year Ended December 31,
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2016
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2015
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2014
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2013
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2012
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Income from continuing operations, as reported
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$
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(15.41
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)
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$
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1.68
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$
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1.32
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$
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1.77
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$
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3.09
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Adjustments:
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Loss from early extinguishment of debt
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0.17
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0.09
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0.40
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0.01
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0.81
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Amortization of software to be abandoned
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-
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-
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0.42
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-
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-
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Impairment and (gain) loss on sale of business, net
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16.07
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0.36
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0.22
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0.07
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0.07
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Expenses related to the acquisition and integration of HMA
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-
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-
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0.38
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0.09
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-
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Government settlement and related costs
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0.09
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0.02
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0.57
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0.67
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0.22
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Income (expense) from fair value adjustments, net of legal expenses related to cases covered by the CVR
agreement
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(0.04
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)
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0.05
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(0.03
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-
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-
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Gain on sale of investments in unconsolidated affiliates
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(0.54
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)
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-
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-
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-
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-
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Expenses related to the
spin-off
of Quorum Health
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Corporation
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0.10
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0.09
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-
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-
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-
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Expenses related to the sale of a majority interest in home care division
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0.01
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-
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-
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-
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-
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Net impact of industry-wide governmental settlement and payment update relating to prior periods
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-
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-
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-
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-
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(0.51
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)
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Income from continuing operations, excluding adjustments
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$
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0.46
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$
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2.29
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$
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3.29
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$
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2.62
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$
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3.68
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A-3
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ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS
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COMMUNITY HEALTH SYSTEMS, INC.
4000 MERIDIAN BOULEVARD
FRANKLIN, TN 37067
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If you would like to reduce the costs as well as the environmental impact of mailing proxy materials, we encourage you to consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or
the Internet. To sign up for electronic delivery, please follow the instructions below to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years.
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VOTE BY INTERNET -
www.proxyvote.com
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Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 p.m. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you access the web
site and follow the instructions to obtain your records and to create an electronic voting instruction form.
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VOTE BY PHONE - 1-800-690-6903
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Use any touch-tone telephone to transmit your voting instructions up until 11:59 p.m. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you call and then follow the
instructions.
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VOTE BY MAIL
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Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717.
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VOTE IN PERSON
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Many stockholder meetings have attendance requirements including, but not limited to, the possession of an attendance ticket issued by the entity holding the meeting. Please check the meeting materials for any special requirements
for meeting attendance. At the meeting, you will need to request a ballot to vote these shares.
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TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
E24570-P86570 KEEP THIS
PORTION FOR YOUR RECORDS
DETACH
AND RETURN THIS PORTION ONLY
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
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COMMUNITY HEALTH SYSTEMS, INC.
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The Board of Directors recommends you vote FOR the
election of the following nominees:
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1.
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Election of Directors
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For
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Against
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Abstain
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Nominees:
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1a. John A. Clerico
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☐
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☐
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☐
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1b. James S. Ely III
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☐
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☐
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☐
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The Board of Directors recommends you vote FOR the
following proposal:
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For
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Against
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Abstain
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1c. John A. Fry
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☐
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☐
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☐
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2.
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Proposal to approve on an advisory (non-binding) basis the compensation of the Companys named executive officers.
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☐
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☐
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☐
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1d. Tim L. Hingtgen
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☐
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☐
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☐
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The Board of Directors recommends you vote 1YEAR on the following proposal:
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1 Year
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2 Years
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3 Years
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Abstain
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1e. William Norris Jennings, M.D.
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☐
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☐
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☐
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3.
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Proposal to approve on an advisory (non-binding) basis the frequency of future advisory votes on the compensation of the Companys named executive officers.
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☐
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☐
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☐
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☐
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1f. Julia B. North
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☐
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☐
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☐
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1g. Wayne T. Smith
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☐
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☐
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☐
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The Board of Directors recommends you vote FOR the following proposal:
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For
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Against
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Abstain
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1h. H. James Williams, Ph.D.
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☐
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☐
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4.
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Proposal to ratify the selection of Deloitte
& Touche LLP as the Companys independent registered public accounting firm for the fiscal year ending December 31, 2017.
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☐
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☐
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☐
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For address changes and/or comments, please check this box and write them on the back where indicated.
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☐
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The Board of Directors recommends you vote AGAINST the following proposal:
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For
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Against
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Abstain
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5.
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Stockholder proposal regarding vesting of equity awards in a
change in control.
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☐
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☐
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☐
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NOTE:
In their discretion, the proxies are authorized to vote upon such other business as may properly come before the Meeting or any postponement or adjournment thereof.
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Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign
personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name by authorized officer.
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Signature [PLEASE SIGN WITHIN BOX]
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Date
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Signature (Joint Owners)
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Date
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Important Notice Regarding the Availability of Proxy Materials for the
Annual Meeting of Stockholders:
The Notice and Proxy Statement and Annual Report to Stockholders are available at www.proxyvote.com.
E24571-P86570
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COMMUNITY HEALTH SYSTEMS, INC.
Annual Meeting of Stockholders
May 16, 2017 8:00 AM
This
proxy is solicited by the Board of Directors
The
undersigned hereby appoints Wayne T. Smith and Benjamin C. Fordham, and each of them, with full power of substitution and power to act alone, as proxies to vote all the shares of Common Stock which the undersigned would be entitled to vote if
personally present and acting at the Annual Meeting of Stockholders of Community Health Systems, Inc. (the Company), to be held at the Franklin Marriott Cool Springs, 700 Cool Springs Boulevard, Franklin, Tennessee 37067 on Tuesday, May
16, 2017, at 8:00 a.m., local time, and at any adjournments or postponements thereof (the Meeting).
This proxy, when properly executed, will be voted in the manner directed herein. If no such direction is made, this proxy will be voted
in accordance with the Board of Directors recommendations.
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Address Changes/Comments:
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(If you noted any Address Changes/Comments above, please mark corresponding box on the reverse side.)
Continued and to be signed on reverse side
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