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 (Amendment No.  )
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HEALTHCARE SERVICES GROUP, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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HEALTHCARE SERVICES GROUP, INC.
3220 Tillman Drive
Suite 300
Bensalem, Pennsylvania 19020
 
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
May 31, 201628, 2019 
 
To the Shareholders of
HEALTHCARE SERVICES GROUP, INC.

NOTICE IS HEREBY GIVEN that the Annual Meeting (the "Annual Meeting"“Annual Meeting”) of Shareholders of Healthcare Services Group, Inc. (the "Company"“Company”) will be held at the Courtyard Philadelphia Bensalem, 3280 Tillman Drive, Bensalem, Pennsylvania 19020, on May 31, 2016,28, 2019, at 10:00 A.M. (EDT), for the following purposes:

1
To elect ten directors;
2
To approve and ratify the selection of Grant Thornton LLP as the independent registered public accounting firm of the Company for its current fiscal year ending December 31, 2016;
2019; 
3
AnTo consider an advisory vote on a non-binding resolution to approve the compensation of certain of our executive officers disclosed in this proxy statement;Proxy Statement; and
4
To consider and act upon such other business as may properly come before the Annual Meeting and any adjournment or postponement.

Only shareholders of record at the close of business on April 1, 20162019 will be entitled to notice of and to vote at the Annual Meeting.

Important Notice Regarding the Availability of
Proxy Materials for the Shareholders
meeting to be held on May 31, 201628, 2019

The proxy statement and annual report to shareholders are available under "2016 Proxy Materials"“2019 Investor Materials” at www.proxydocs.com/hcsg.

Please noteWhile we are utilizing the Notice and Access method of providing proxy materials to all record and beneficial owners of our common stock via the Internet. We believe this approach provides increased flexibility with respect to the manner in whichencourage shareholders receive the information while lowering our costs of delivery and reducing the environmental impact of printing paper copies. The Notice of Internet Availability of Proxy Materials, which contains instructions on how to access the notice of annual meeting, proxy statement and the Annual Report to Shareholders on the Internet, is first being mailed to our shareholders on or about April 18, 2016. This notice will also contain instructions on how to receive a paper copy of your proxy materials. Whether or not you plan to attend the meeting, please vote in accordance with the instructions provided in the Notice of Internet Availability of Proxy Materials.

If you request and receive paper copies of the proxy materials, pleaseAnnual Meeting, shareholders can sign and promptly mail the enclosed proxy, whether or not you expect to attend the Annual Meeting, in order that your shares may be voted for you. A return envelope is provided for your convenience.

By Order of the Board of Directors,
DJANIELUDE  P. MVCCARTNEYISCONTO
Chairman
 
Dated:April 18, 201619, 2019
Bensalem, Pennsylvania



Table of Contents

1
4
8
Board Qualifications
8
Board Leadership
9
Board Committees
9
Code of Ethics
11
Board Role in Risk Oversight
11
Directors' Compensation and Fees
12
Procedures for Contacting Directors
12
Other Executive Officers
13
Section 16(a) Compliance
13
Sarbanes-Oxley Act Compliance
13
14
15
16
Summary Compensation and Plan-Based Awards
24
Outstanding Equity Awards
26
Option Exercise and Stock Vested
27
Deferred Compensation
27
Pay Ratio Disclosure
27
28
30
Director Independence
30
Compensation interlocks and Insider Participation
30
31
32
33



HEALTHCARE SERVICES GROUP, INC.
3220 Tillman Drive
Suite 300
Bensalem, Pennsylvania 19020
 
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
May 31, 201628, 2019 
 
SUMMARY OF THIS PROXY STATEMENT

This proxy statementProxy Statement contains information related to the annual meeting of shareholders (the "Annual Meeting"“Annual Meeting”) of Healthcare Services Group, Inc. (the "Company," "we," "us"“Company,” “we,” “us” or "our"“our”), to be held on Tuesday, May 31, 2016,28, 2019, beginning at 10:00 a.m. (EDT), at the Courtyard Philadelphia Bensalem, 3280 Tillman Drive, Bensalem, Pennsylvania 19020, and at any postponements or adjournments thereof.

QUESTIONS AND ANSWERS ABOUT OUR ANNUAL MEETING

What is the Purpose of the Annual Meeting

At the Company’s Annual Meeting, shareholders will hear an update on the Company’s operations, have a chance to meet some of our directors and executives and will act on the following matters:
1
To elect ten directors to the Company's Board of Directors to serve for a one year term and until the directors' successors are elected and qualified ("Proposal No. 1");directors;
2
To approve and ratify the selection of Grant Thornton LLP as the independent registered public accounting firm of the Company for its current fiscal year ending December 31, 2016 ("Proposal No. 2");2019;
3
AnTo consider an advisory vote on a non-binding resolution to approve the compensation of certain of our executive officers disclosed in this proxy statement ("Proposal No. 3");Proxy Statement; and
4
To consider and act upon such other business as may properly come before the Annual Meeting and any adjournment or postponement.

Who May Vote; Date of Mailing

Only holders of record of our Common Stock, $.01 par value (the "Common Stock"“Common Stock”) at the close of business on April 1, 20162019 (the “Record Date”), are entitled to notice of and to vote at the Annual Meeting. On the Record Date, there were issued and outstanding approximately 72,406,69474,058,000 shares of our Common Stock.

Each share of Common Stock entitles the holder thereof to one vote. This Proxy Statement is being mailed to shareholders on or about April 18, 2016.26, 2019.

What constitutes a quorum?

In order to carry on the business of the Annual Meeting, we must have a quorum. The presence, in person or by proxy, of the holders of a majority of the outstanding shares of our Common Stock is required to constitute a quorum at the Annual Meeting.

How many votes are required to approve each proposal?

Election of Directors

The affirmative vote of a plurality of the shares of Common Stock entitled to vote and present in person or by proxy at the Annual Meeting is required for the election to our Board of Directors (the "Board") of each of the nominees for director. Shareholders do not have the right to cumulate their votes in the election of directors.

1
Proxy Statement Summary

Ratification of Independent Registered Public Accounting Firm and Approval of Executive Compensation

The affirmative vote of the holders of a majority of the votes cast at the Annual Meeting in person or by proxy and entitled to vote is required for approval of Proposal No. 2 and Proposal No. 3.


1


How are votes counted?

You may either vote 'FOR'‘FOR’ or 'WITHHOLD'‘WITHHOLD’ authority to vote for each nominee for election to the Board of Directors.Board. You may vote 'FOR,' 'AGAINST'‘FOR,’ ‘AGAINST’ or 'ABSTAIN'‘ABSTAIN’ on Proposal No. 2 and Proposal No. 3. Abstentions will be counted as present for purposes of determining the existence of a quorum, but will have no effect on the vote of the particular proposal. If you sign and submit a proxy card without voting instructions, your shares will be voted 'FOR'‘FOR’ each director nominee, ,'FOR'‘FOR’ Proposal No. 2 and Proposal No. 3 and 'FOR'‘FOR’ or 'AGAINST'‘AGAINST’ any other proposal as recommended by the Board of Directors.Board.

What is a broker non-vote?

If shareholders do not give their brokers instructions as to how to vote shares held in street name, the brokers have discretionary authority to vote those shares on ‘routine’ matters, such as the ratification of the independent registered public accounting firm, but not on 'non-routine'‘non-routine’ proposals, such as the election of directors and the advisory vote regarding executive compensation. As a result, if you hold your shares in street name and do not provide voting instructions to your broker, your shares will not be voted on any proposal on which your broker does not have discretionary authority to vote. Shares held by brokers who do not have discretionary authority to vote on a particular matter and who have not received voting instructions from their customers will be counted as present for the purpose of determining whether there is a quorum at the Annual Meeting, but will not be counted or deemed to be present in person or by proxy for the purpose of determining whether our shareholders have approved that matter.

How to Vote

You may vote in person at the Annual Meeting or by proxy. We recommend that you vote by proxy even if you plan to attend the Annual Meeting. You can always change your vote at the Annual Meeting.

How Proxies Work

Our Board of Directors is asking for your proxy. Giving us your proxy means you authorize us to vote your shares at the Annual Meeting in the manner you direct. You may vote for or against the proposals or abstain from voting.

Proxies submitted will be voted by the individuals named on the proxy card in the manner you indicate. If you give us your proxy but do not specify how you want your shares voted, they will be voted in accordance with the Board of DirectorsBoard's recommendations.

You may receive more than one proxy or voting card depending on how you hold your shares. If you hold shares through someone else, such as a stockbroker, you may get materials from them asking how you want to vote. The latest proxy card we receive from you will determine how we will vote your shares.

Revoking a Proxy

A proxy may be revoked by delivery of a written statement to the Secretary of the Company stating that the proxy is revoked, by a subsequent proxy executed by the person executing the prior proxy and presented to the Annual Meeting, or by voting in person at the Annual Meeting.

Attending in Person

Only shareholders, their proxy holders, and our invited guests may attend the Annual Meeting. For security purposes, all persons attending the Annual Meeting must bring identification with photo. If you wish to attend the Annual Meeting in person but you hold your shares through someone else, such as a stockbroker, you must bring proof of your ownership to the Annual Meeting. For example, you could bring an account statement showing that you owned shares of the CompanyCompany’s Common Stock as of the Record Date as acceptable proof of ownership.

2
Proxy Statement Summary

Expenses; Proxy Solicitation

All expenses in connection with this solicitation will be borne by the Company. It is expected that solicitation will be made primarily by mail, but regular employees or representatives of the Company may also solicit proxies by telephone, facsimile, email or in person, without additional compensation, except for reimbursement of out-of-pocket expenses.

2
3
Proxy Statement Summary

PROPOSAL NO. 1
ELECTION OF DIRECTORS

At the Annual Meeting, ten directors of the Company are to be elected, each to hold office for a term of one year. All nominees currently serve as Directors. Unless authority is specifically withheld, management proxies will be voted FOR the election of the nominees named below to serve as directors until the next annual meeting of shareholders and until their successors have been chosen and qualified. Should any nominee not be a candidate at the time of the Annual Meeting (a situation which is not now anticipated), proxies will be voted in favor of the remaining nominees and may also be voted for substitute nominees. If a quorum is present, the candidate or candidates receiving the highest number of votes will be elected. Brokers that do not receive shareholder instructions are not entitled to vote for the election of directors because an uncontested election is considered a “non-routine” matter. Hence, shareholders who hold their shares through brokerage accounts and who would like to vote in favor of the director nominees will need to instruct their brokerage firm to vote for the Company’s nominees.


The Board of Directors recommend a vote “FOR” all nominees.

4
Proposal No. 1

The nominees are as follows:
Name, Age and Principal Occupations and Public Directorships for the past five yearsDirector Since
1Robert L. Frome, Esq., 81, Robert L. Frome, Esq., 81, is Counsel to the law firm of Olshan Frome Wolosky LLP and prior thereto was a partner at such Firm for more than five years.1983
2Robert J. Moss, Esq., 81, is the retired President and CEO of Moss Associates, a law firm. Previously, Mr. Moss served as a Court Officer of the First Judicial District of Pennsylvania from 2006 to 2007.1992
1
3John M. Briggs, CPA, 68, serves as the Company’s lead independent director. Mr. Briggs was the Treasurer of the Philadelphia Affiliate of Susan G. Komen for the Cure from 2005 through 2011. Additionally, he is the founder and formerly a Partner of Briggs, Bunting & Dougherty, LLP, a registered public accounting firm. Mr. Briggs is currently a board member of Crossmark Global Investments of Regulated Investment Funds.1993
1,2
4Dino D. Ottaviano, 71, is the retired Principal of D2O Marketing, Inc., a provider of internet productivity tools founded in 2006. Previously, Mr. Ottaviano was employed for 23 years with Transcontinental Direct (successor to Communication Concepts, Inc.), a publicly held outsourcing printer, retiring in 2002 as Vice President of Business Development.2007
1
5Theodore Wahl, 45, has been the President and Chief Executive Officer, since May 2015. Mr. Wahl joined the Company in 2004. Prior to his appointment to President and Chief Executive Officer, Mr. Wahl served as President and Chief Operating Officer, Executive Vice President & Chief Operating Officer, Vice President of Finance, Regional Manager, Regional Sales Director, District Manager and Facility Manager. Prior to joining the Company, Mr. Wahl was a Senior Manager with Ernst & Young’s Transaction Advisory Group.2011
6Michael E. McBryan, 54, has been the Executive Vice President and Chief Revenue Officer since April 2012. Mr. McBryan joined the Company in 1988. Prior to becoming Executive Vice President and Chief Revenue Officer, Mr. McBryan served as Senior Vice President, Divisional Vice President, Regional Sales Director, District Manager and Facility Manager.2011
7Diane S. Casey, RN, 65, has been a Clinical Nursing Coordinator (CNC) of Endoscopy at Huntingdon Valley Surgery Center, an AAAHC accredited healthcare facility, where she has worked for more than the past five years. Previously, Ms. Casey was employed at Holy Redeemer Health Systems in various surgical nursing and management positions.2011
3
8John J. McFadden, 57, has been the Principal of Global Circulation Services, a provider of marketing and advertising services to Media and Publishing companies founded since 2008. Mr. McFadden previously worked at The McGraw-Hill Companies (parent company of Standard and Poor’s) where he held management positions within their global circulation, sales and outsourcing services departments for approximately 15 years.2012
3
9Jude Visconto, 45, has been a Principal of American Property Holdings, a real estate investment firm focused on the acquisition, development and management of multi-family/senior housing and commercial assets, for more than the past five years. Mr. Visconto is an active member of the real estate community and participates in a variety of industry-related associations including The American Senior Housing Association, The Association of the National Investment Center for Senior Housing and Care, and The National Association of Realtors.2015
4
10Daniela Castagnino, 44, is an Information Specialist at United Spinal Association, a national 501(c)(3) non-profit membership organization dedicated to enhancing the quality of life of all people living with spinal cord injuries and disorders (SCI/D), for more than the past five years. Previously, Ms. Castagnino was an international consultant for Lazos Profesionales Asociación Civil and the Inter-American Development Bank.2018

1.Member of Audit Committee.
2.Lead Independent Director.
3.Member of Nominating, Compensation and Stock Option Committee.
4.Chairman of the Board of the Company.

If Messrs. Briggs, Moss and Ottaviano are re-elected as Directors of the Company, it is anticipated that such individuals will continue to comprise the Audit Committee following the Annual Meeting with Mr. Briggs serving as the chairman of such committee.

If Ms. Casey and Mr. McFadden are re-elected as Directors of the Company, it is anticipated that such individuals will continue to comprise the Nominating, Compensation and Stock Option Committee following the Annual Meeting with Ms. Casey serving as the chairwoman of such committee.

5
Proposal No. 1

PROPOSAL NO. 2
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The accounting firm of Grant Thornton LLP was selected by the Audit Committee of the Board as the Independent Auditors of the Company for the fiscal year ending December 31, 2019. Said firm has no other relationship to the Company. The Board recommends the ratification of the selection of the firm of Grant Thornton LLP to serve as the Independent Auditors of the Company for the year ending December 31, 2019. A representative of Grant Thornton LLP, which has served as the Company’s Independent Auditors since December 1992, will be present at the forthcoming shareholders’ meeting with the opportunity to make a statement if so desired and such representative will be available to respond to appropriate questions. The approval of the proposal to ratify the appointment of Grant Thornton LLP requires the affirmative vote of a majority of the votes cast by all shareholders represented and entitled to vote thereon. An abstention, therefore, will not have the same legal effect as an “against” vote and will not be counted in determining whether the proposal has received the required shareholder vote. However, brokers that do not receive instructions on this proposal are entitled to vote for the selection of the independent registered public accounting firm.


The Board of Directors recommend a vote “FOR” the approval and ratification of the selection of Grant Thornton LLP as the independent registered public accounting firm of the Company for its current fiscal year ending December 31, 2019.
6
Proposal No. 2

PROPOSAL NO. 3
ADVISORY VOTE ON EXECUTIVE COMPENSATION

The Board of Directors recognizes the significant interest of shareholders in executive compensation matters. Pursuant to amendments to Section 14A of the Securities Exchange Act, as amended (the “Exchange Act”) and the shareholder vote on the frequency of the advisory vote on executive compensation at our 2017 Annual Meeting of Shareholders, we are providing our shareholders with an annual opportunity to cast an advisory vote (commonly referred to as “say-on-pay”) to approve the compensation of our Named Executive Officers.

We are asking our shareholders to provide advisory approval of the compensation of our Named Executive Officers (which consist of our President and Chief Executive Officer, Chief Financial Officer, and our other three highest paid executive officers), as such compensation is disclosed in the Compensation Discussion and Analysis, compensation tables and narrative discussion set forth in this Proxy Statement. Our executive compensation programs are designed to enable us to attract, motivate and retain executive talent, who are critical to our success. Our compensation philosophy and framework have resulted in compensation for our Named Executive Officers that is tied to the Company’s financial results and the other performance factors described in the section of this Proxy Statement entitled Compensation Discussion and Analysis. These programs focus on rewarding the types of performance that increase shareholder value, link executive compensation to the Company’s long-term strategic objectives and align executive officers’ interests with those of our shareholders. The Company believes that its executive compensation programs, which emphasize long-term equity awards and variable compensation, satisfy these goals. A substantial portion of each executive’s total compensation is intended to be variable and delivered on a pay-for-performance basis.

Our Board of Directors believes that the information provided above and within the “Executive Compensation” section of this Proxy Statement demonstrates that our executive compensation program was designed appropriately and is working to ensure that management’s interests are aligned with our shareholders’ interests and support long-term value creation.


The Board of Directors recommend a vote “FOR” the adoption of the following non-binding resolution:

RESOLVED, that the shareholders of the Company approve, on an advisory basis, the compensation of the Company’s Named Executive Officers, as disclosed in the Compensation Discussion and Analysis, compensation tables and narrative discussion set forth in this Proxy Statement.

This say-on-pay vote is advisory, and therefore not binding on the Company, the Nominating, Compensation and Stock Option Committee or our Board of Directors.
7
Proposal No. 3

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The Company operates within a comprehensive plan of corporate governance for the purpose of defining responsibilities, setting high standards of professional and personal conduct and assuring compliance with such responsibilities and standards. The Company regularly monitors developments in the area of corporate governance. These include corporate governance standards and disclosure requirements resulting from the Sarbanes-Oxley Act of 2002 ("Sarbanes-Oxley"(“Sarbanes-Oxley”). In addition, the NASDAQ Stock Market, LLC ("NASDAQ"(“NASDAQ”) also has corporate governance and listing requirements. Our corporate governance policies are available on our website at http://investor.hcsgcorp.com/governance.cfm.corporate-governance.

Director Independence

In accordance with the listing requirements of NASDAQ, a majorityBOARD OF DIRECTORS.    The business of the current membersCompany is managed under the direction of the Company'sBoard. The Board of Directors are independent, namely: John M. Briggs, Diane S. Casey, Robert L. Frome, John J. McFadden, Robert J. Moss, Dino D. Ottaviano and Jude Visconto. Accordingly, if Messrs. Briggs, Frome, McFadden, Moss, Ottaviano and Visconto and Ms. Casey are re-elected as members ofmeets on a regularly scheduled basis during the Board of Directors, a majority of the members of the Company's Board of Directors will continueCompany’s fiscal year to be independent.

Mr. Frome is a member of the law firm of Olshan Frome Wolosky, LLP, which has been retained byreview significant developments affecting the Company during the last fiscal year. Fees paidand to act on matters requiring Board approval. It also holds special meetings when an important matter requires Board action between scheduled meetings and also acts by the Company to such firmunanimous written consent when necessary and appropriate. The Board met four times during the fiscal year ended December 31, 2015 were less than $120,000.2018. During 2018, each member of the Board attended or participated in 75% or more of the aggregate of (i) the total number of meetings of the Board held during 2018, and (ii) the total number of meetings held by each committee of the Board on which such member served during 2018.

Board Qualifications

We believe that the collective skills, experiences and qualifications of our directors provide our Board with the expertise and experience necessary to advance the interests of our shareholders. While the Nominating, Compensation and Stock Option Committee of our Board has not established any specific, minimum qualifications that must be met by each of our directors, it uses a variety of criteria to evaluate the qualifications and skills necessary for each member of the Board. In addition to the individual attributes of each of our current directors described below, we believe that our directors should have the highest professional and personal ethics and values, consistent with our longstanding values and standards. They should have broad experience in the industry the Company serves at the policy-making level in business, exhibit commitment to enhancing shareholder value and have sufficient time to carry out their duties and to provide insight and practical wisdom based on their past experience.

Messrs. Wahl and McBryan, and Mmes. Casey and Castagnino have extensive experience in the healthcare services industry. Each of the aforementioned persons’ operational experience, in addition to Mr. Wahl’s financial expertise, enables them to provide guidance with respect to our operations. Also, we believe since Mmes. Casey and Castagnino have not been employees of the Company and have served their careers in patient care and advocacy, respectively, they bring a patient care perspective to the Company. For instance, Mmes. Casey and Castagnino may become aware of new developments related to the healthcare services industry before the Company’s management learns of such developments and their impact on patient-related issues. Additionally, Ms. Castagnino's experience with non-governmental and not-for profit institutions provides valuable insight into a customer segment that supports the fees paidCompany's growth strategy.

Mr. Visconto has real estate experience as a Principal of American Property Holdings, with a specific focus on the acquisition, development and management of multi-family, senior housing and commercial assets. Mr. Visconto also has extensive experience with licensed operators, management companies and property owners, all of which align with our customer base.

Messrs. Frome and Moss have extensive legal experience. In addition, Mr. Frome has also served as a member of the board of directors of other public companies and has extensive corporate finance, Securities and Exchange Commission (“SEC”) compliance and mergers and acquisitions experience, which experience aids his service to the Board. Both Mr. Frome and Mr. Moss also have extensive executive experience as they both served as managing partners of their respective firms.

Mr. Briggs’ years of experience as a certified public accountant provide him with extensive financial and accounting expertise obtained from over thirty years in public accounting. Mr. Briggs qualifies as an audit committee financial expert under SEC guidelines. Mr. Briggs also brings executive experience to the Board as he served as a partner at his accounting firm.

Mr. Ottaviano, through his experience as a top-level marketing and operations executive for many years for two different companies, one of which was a public company, has a comprehensive understanding of business operations, including business development, as well as the compliance obligations of public companies.

Mr. McFadden has sales and marketing experience both as a Principal of his consulting company and through his experience at The McGraw Hill Companies that provide him with an understanding of a large public company’s operations, as well as the compliance obligations of a public company.

8
Directors, Executive Officers and Corporate Governance

Board Leadership

Jude Visconto was appointed Chairman of the Board of Directors in May, 2017 and has served as an independent director since May 2015. The Board believes that Mr. Visconto’s financial background and management experience are qualifications for the role of Chairman of the Board. In addition, Mr. Visconto’s more recent business experience is expected to bring additional perspective to the Board as the Company continues its growth and evolution.

If Mr. Visconto is re-elected to the Board, it is the intention of the Board that he continue to serve as Chairman of the Board. As Chairman of the Board, Mr. Visconto’s duties include: (i) approving agendas, schedules and supporting information provided to the Board; (ii) ensuring the Board has full, timely and relevant information to support its decision-making requirements; (iii) performing the duties of the Chairman at Board meetings; (iv) consulting on the effectiveness of Board committees; (v) at his sole discretion, when necessary and appropriate, calling meetings of the Board’s non-employee directors; (vi) consulting as to the timeliness of the flow of information from the Company that is necessary for the directors to effectively perform their duties; (vii) serving as principal liaison between the non-employee, independent directors and the President and Chief Executive Officer; (viii) if requested by shareholders, being available for consultation and direct communication; and (ix) other duties requested by the Board. In addition, Mr. Visconto presides at executive sessions of the Board without the presence of management. We believe that including an independent chairman in our Board structure enhances the effectiveness of our Board. This structure strengthens our corporate governance by promoting active engagement, objectivity, independence and oversight of management.

The independent directors of the Board have also unanimously re-appointed John M. Briggs as the lead independent director. In the absence of the Chairman, the lead independent director will assume the responsibilities of the Chairman.

Our Board conducts an annual evaluation in order to determine whether it and its committees are functioning effectively. As part of this annual self-evaluation, the Board evaluates whether the current leadership structure continues to be optimal for the Company and our shareholders.

Board Committees

The Board has established an Audit Committee and a Nominating, Compensation and Stock Option Committee to devote attention to specific subjects and to assist in the discharge of its responsibilities. The functions of those committees, their current members and the number of meetings held during 2018 with respect to the Audit Committee and the Nominating, Compensation and Stock Option Committee are described below:

AUDIT COMMITTEE.  The Audit Committee’s primary responsibilities, as described in the Amended and Restated Audit Committee Charter (a copy of which is available on the Company’s website, www.hcsg.com) include:

a.appointment, compensation and oversight of the Company’s Independent Registered Public Accounting Firm, who report directly to the Audit Committee, including (i) prior review of the Independent Registered Public Accounting Firm’ plan for the annual audit, (ii) pre-approval of both audit and non-audit services to be provided by the Independent Registered Public Accounting Firm and (iii) annual assessment of the qualifications, performance and independence of the Independent Registered Public Accounting Firm;

b.overseeing and monitoring the Company’s accounting and financial reporting processes and internal control system, audits of the Company’s financial statements and the quality and integrity of the financial reports and other financial information issued by the Company;

c.providing an open avenue of communication among the Independent Registered Public Accounting Firm and financial and other senior management and the Board;

d.reviewing with management and, where applicable, the Independent Registered Public Accounting Firm, prior to release, required annual, quarterly and interim filings by the Company did not exceed 5%with the SEC and the type and presentation of information to be included in earnings press releases;

9
Directors, Executive Officers and Corporate Governance

e.reviewing material issues, and any analysis by management or the Independent Registered Public Accounting Firm, concerning accounting principles, financial statement presentation, certain risk management issues, such firm’s total revenues.as the adequacy of the Company’s internal controls and significant financial reporting issues and judgments and the effect of regulatory and accounting initiatives on the Company’s financial statements;

Accordingly, Mr. Fromef.reviewing with the Company’s legal counsel any legal matters that could have a significant effect on the Company’s financial statements, compliance with applicable laws and regulations and inquiries from regulators or other governmental agencies;

g.reviewing and approving all related party transactions between the Company and any director, executive officer, other employee or family member;

h.reviewing and overseeing compliance with the Company’s Code of Ethics and Business Conduct;

i.establishing procedures regarding the receipt, retention and treatment of, and the anonymous submission by employees of the Company of, complaints regarding the Company’s accounting, internal controls or auditing matters; and

j.reporting Audit Committee activities to the full Board and issuing annual reports to be included in the Company’s Proxy Statement.

Each of Messrs. Moss, Ottaviano and Briggs is an independent director as such term is defined by Rule 5605(a)(2) of the NASDAQ listing standards.standards and Rule 10A-3 of the Exchange Act. Mr. Briggs has been designated an “audit committee financial expert” and he satisfies the attributes required of audit committee financial experts pursuant to Section 407 of Sarbanes-Oxley.

The Audit Committee met five times during fiscal year 2018. The report of the Audit Committee for the fiscal year ended December 31, 2018 is included herein under “Audit Committee Report” below.

NOMINATING, COMPENSATION AND STOCK OPTION COMMITTEE.  The Nominating, Compensation and Stock Option Committee (currently composed of Ms. Casey and Mr. McFadden) assists the Board by:

a.developing and recommending to the Board a set of effective corporate governance policies and procedures applicable to the Company;

b.identifying, reviewing and evaluating individuals qualified to become Board members and recommending that the Board select director nominees for each annual meeting of the Company’s shareholders;

c.discharging the Board’s responsibilities relating to the compensation of Company executives; and

d.administering the Company’s stock option plan and other equity-based compensation plans.

Each of Ms. Casey and Mr. McFadden are independent directors as such term is defined by Rule 5605(a)(2) of the NASDAQ listing standards. The Nominating, Compensation and Stock Option Committee met once during fiscal year 2018 and also acts by unanimous written consent when necessary and appropriate.

The Nominating, Compensation and Stock Option Committee has not adopted a policy or process by which shareholders may make recommendations to the Nominating, Compensation and Stock Option Committee of candidates to be considered by this Nominating, Compensation and Stock Option Committee for nomination for election as Directors. The Nominating, Compensation and Stock Option Committee has determined that it is not appropriate to have such a policy because such recommendations may be informally submitted to and considered by the Nominating, Compensation and Stock Option Committee under its Charter. Shareholders may make such recommendations by giving written notice to Healthcare Services Group, Inc., 3220 Tillman Drive, Suite 300, Bensalem, PA 19020, Attention: Corporate Secretary either by personal delivery or by United States mail, postage prepaid. The Charter of the Nominating, Compensation and Stock Option Committee is provided on the Company’s website, www.hcsg.com. The Nominating, Compensation and Stock Option Committee has not established a formal process for identifying and evaluating nominees for Director, although generally the Nominating, Compensation and Stock Option Committee may use multiple sources for identifying and evaluating nominees for Director, including referrals from current Directors and shareholders. The Nominating, Compensation and Stock Option Committee has identified certain qualifications it believes an individual should possess before it recommends such person as a nominee for election to the Board of Directors.

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Directors, Executive Officers and Corporate Governance

The Nominating, Compensation and Stock Option Committee believes that nominees for Director should possess the highest personal and professional ethics, integrity, values and judgment and be committed to representing the long-term interests of the Company’s shareholders. The Nominating, Compensation and Stock Option Committee does not have a formal policy with respect to considering diversity in identifying nominees for directors. The Nominating, Compensation and Stock Option Committee believes that racial and gender diversity are important factors in assessing potential board members, but not at the expense of particular qualifications and experience required to meet the needs of the Board. Furthermore, as part of the Nominating, Compensation and Stock Option Committee’s review of board composition, the board considers diversity of experience and background in an effort to ensure that the composition of directors ensures a strong and effective board. The Nominating, Compensation and Stock Option Committee seeks to ensure that the composition of the Board at all times adheres to the independence requirements of the NASDAQ listing standards and reflects a range of talents, skills, and expertise, particularly in the areas of management, leadership, and experience in the Company’s and related industries, sufficient to provide sound and prudent guidance with respect to the operations and interests of the Company.

The report of the Nominating, Compensation and Stock Option Committee regarding executive compensation for the fiscal year ended December 31, 2018 is included herein under “Nominating, Compensation and Stock Option Committee Report” below.

Code of Ethics and Business Conduct

We have also adopted a Code of Ethics and Business Conduct for directors, officers and employees of the Company. It is intended to promote honest and ethical conduct, full and accurate reporting and compliance with laws as well as other matters. A copy of the Code of Ethics and Business Conduct is posted on our website at www.hcsg.com.

Board Leadership

Effective May 26, 2015, the Board of Directors ("the Board") separated the positions of Chairman of the Board and Chief Executive Officer by appointing Theodore Wahl as President and Chief Executive Officer. Daniel P. McCartney continued as Chairman of the Board.

The independent directors of the Board have unanimously re-appointed John M. Briggs as the lead independent director. Our lead director's responsibilities are similar to those typically performed by an independent board chair and include: (i) approving agendas, schedules and supporting information provided to the Board; (ii) ensuring the Board has full, timely and relevant information to support its decision-making requirements; (iii) in the absence of the Chairman, performing the duties of the Chairman at Board meetings; (iv) consulting with the Chairman and the Board on the effectiveness of Board committees; (v) at its sole discretion, when necessary and appropriate, calling meetings of the Board's non-employee directors; (vi) consulting with the Chairman as to the timeliness of the flow of information from the Company that is necessary for the directors to effectively perform their duties; (vii) serving as principal liaison between the non-employee, independent directors and the President and Chief Executive Officer; (viii) if requested by shareholders, being available for consultation and direct communication; and (ix) other duties requested by the Board. In addition, Mr. Briggs presides at executive sessions of the Board without the presence of management.

We believe that including a lead independent director in our Board structure, combined with the separation of the Chairman of the Board and Chief Executive Officer positions, enhances the effectiveness of our Board. This structure strengthens our corporate governance by promoting active engagement, objectivity, independence and oversight of management.

Our Board conducts an annual evaluation in order to determine whether it and its committees are functioning effectively. As part of this annual self-evaluation, the Board evaluates whether the current leadership structure continues to be optimal for the Company and our shareholders.

Board Role in Risk Oversight

Our Board is responsible for overseeing the Company'sCompany’s risk management process. The Board focuses on the Company'sCompany’s general risk management strategy, including the most significant risks facing the Company, and ensures that appropriate risk mitigation

3


strategies are implemented by management. The Board is also apprised of particular risk management matters in connection with its general oversight and approval of corporate matters.

The Board has delegated to the Audit Committee oversight of certain aspects of the Company’s risk management process. Among its duties, the Audit Committee oversees the Company’s compliance with legal and regulatory requirements and the Company'sCompany’s system of disclosure controls and system of internal financial, accounting and legal compliance controls. The Board receives a quarterly update from the Audit Committee, which includes a review of items addressed during prior quarters. Our other Board committeescommittee also considerconsiders and addressaddresses risk as they perform their respectiveit performs its committee responsibilities. All committees report to the full Board as appropriate, including when a matter rises to the level of a material risk.

The Company’s management is responsible for day-to-day risk management under the direction of Jason J. Bundick, the Company'sCompany’s Executive Vice President, Chief Compliance Officer, General Counsel and Secretary. Our internal audit department serves as the primary monitoring and testing function for Company-wide policies and procedures, and manages the day-to-day oversight of the risk management strategy for the ongoing business of the Company. This oversight includes identifying, evaluating, and addressing potential risks that may exist at the enterprise, strategic, financial, operational, and compliance and reporting levels. The Company conducts an annual review of the Company'sCompany’s disclosure controls and procedures, code of ethics and billing and sales compliance. To the extent deemed necessary, the Company revises such procedures and policies. The Company also assesses environmental, social and governance risks and opportunities.

We believe the division of risk management responsibilities described above is an effective approach for addressing the risks facing the Company and that our Board leadership structure supports this approach.


4


PROPOSAL NO. 1
ELECTION OF DIRECTORS

At the Annual Meeting, ten directors of the Company are to be elected, each to hold office for a term of one year. All nominees currently serve as Director. Unless authority is specifically withheld, management proxies will be voted FOR the election of the nominees named below to serve as directors until the next annual meeting of shareholders and until their successors have been chosen and qualify. Should any nominee not be a candidate at the time of the Annual Meeting (a situation which is not now anticipated), proxies will be voted in favor of the remaining nominees and may also be voted for substitute nominees. If a quorum is present, the candidate or candidates receiving the highest number of votes will be elected. Brokers that do not receive shareholder instructions are not entitled to vote for the election of directors because an uncontested election is considered a “non-routine” matter. Hence, shareholders who hold their shares through brokerage accounts and who would like to vote in favor of the director nominees will need to instruct their brokerage firm to vote for the Company’s nominees.

The current directors and nominees are as follows:
11
Name, AgeDirectors, Executive Officers and Principal Occupations and Public Directorships for the past five years
Director
Since
Daniel P. McCartney, 64, Chairman of the Board of the Company for more than five years; Chief Executive Officer of the Company until May 2015 and more than five years prior thereto1977
Robert L. Frome, Esq., 78, Member of the law firm of Olshan Frome Wolosky LLP for more than five years. Mr. Frome currently serves as a member of the board of directors of Multi Soft II, Inc.1983
Robert J. Moss, Esq., 78, Retired for more than five years. Previously, Mr. Moss was the President of Moss Associates. Mr. Moss served as a Court Officer of First Judicial District of Pennsylvania from 2006 to 20071992
(1) 
John M. Briggs, CPA, 65, serves as the Company’s lead independent director. Mr. Briggs was the Treasurer of the Philadelphia Affiliate of Susan G. Komen for the Cure from 2005 through 2011. Additionally, he is the founder and formerly a Partner of Briggs, Bunting & Dougherty, LLP, a registered public accounting firm. Mr. Briggs is currently a Board member of the Capstone Group of Regulated Investment Funds1993
(1)(2) 
Dino D. Ottaviano, 68, Principal of D2O Marketing, Inc., a provider of internet productivity tools founded in 2006. Previously employed for 23 years with Transcontinental Direct (successor to Communication Concepts, Inc.), a publicly held outsourcing printer, retiring in 2002 as Vice President of Business Development2007
(1)(3) 
Theodore Wahl, 42, President and Chief Executive Officer, since May 2015. Mr. Wahl joined the Company in 2004. Prior to his appointment to President and Chief Executive Officer, Mr. Wahl served as President and Chief Operating Officer, Executive Vice President & Chief Operating Officer, Vice President of Finance, Regional Manager, Regional Sales Director, District Manager, Facility Manager, as well as in a corporate financial management position. Prior to joining the Company, Mr. Wahl was a Senior Manager with Ernst & Young’s Transaction Advisory Group. Mr. Wahl is the son-in-law of Mr. Daniel P. McCartney.2011
Michael E. McBryan, 51, Executive Vice President, since April 2012. Mr. McBryan joined the Company in 1988. Prior to becoming Executive Vice President, Mr. McBryan served as Senior Vice President, Divisional Vice President, Regional Sales Director, District Manager and Facility Manager2011
Diane S. Casey, RN, 62, Clinical Nursing Coordinator (CNC) of Endoscopy at Huntingdon Valley Surgery Center, an AAAHC accredited health care facility, where she has worked for more than five years. Ms. Casey also was employed by Holy Redeemer Health Systems for many years in various surgical nursing and management positions2011
(3)
John J. McFadden, 54, Principal of Global Circulation Services, a provider of marketing and advertising services to Media and Publishing companies founded in 2008. Mr. McFadden previously worked at The McGraw-Hill Companies (parent company of Standard and Poor’s) where he held management positions within their global circulation, sales and outsourcing services departments for approximately 15 years2012
(3)
Jude Visconto, 42, Principal of American Property Holdings, a real estate investment firm focused on the acquisition, development and management of multi-family/senior housing and commercial assets, for more than five years. Mr. Visconto is an active member of the real estate community and participates in a variety of industry-related associations including The American Senior Housing Association, The Association of the National Investment Center for Senior Housing and Care, and The National Association of Realtors2015
Corporate Governance

(1)
Member of Audit Committee.
(2)
Lead Independent Director.
(3)
Member of Nominating, Compensation and Stock Option Committee.

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Directors’ Compensation

Directors who are also our employees are not separately compensated for their service as directors. Our non-employee directors received the following aggregate amounts of compensation for the year ended December 31, 2018:
NameFees Earned or Paid in Cash
Option Awards 1,2
Total
John M. Briggs 3
$50,000 $52,410 $102,410 
Robert L. Frome 4
$4,000 $52,410 $56,410 
Robert J. Moss 5
$9,000 $52,410 $61,410 
Dino D. Ottaviano 6
$9,000 $52,410 $61,410 
Diane S. Casey 7
$5,000 $52,410 $57,410 
John J. McFadden 8
$5,000 $52,410 $57,410 
Jude Visconto 9
$44,000 $52,410 $96,410 
Daniela Castagnino 10
$2,000 — 2,000 
1.The amounts in this column do not reflect compensation actually received by the Director, nor do they reflect the actual value that will be recognized by the Director. Instead, the amounts represent the expense to be recognized for financial statement reporting purposes with respect to the grant date fair value of the 2018 option awards made to each Director. In accordance with FASB ASC Topic 718, the fair value of the options was estimated using the Black-Scholes option valuation model.
2.All option awards granted in 2018 become vested and exercisable ratably over a five year period on each yearly anniversary date of the grant.
3.Mr. Briggs had vested options to purchase 23,782 shares of Common Stock outstanding as of December 31, 2018.
4.Mr. Frome had vested options to purchase 32,510 shares of Common Stock outstanding as of December 31, 2018.
5.Mr. Moss had vested options to purchase 8,004 shares of Common Stock outstanding as of December 31, 2018.
6.Mr. Ottaviano had vested options to purchase 15,957 shares of Common Stock as of December 31, 2018.
7.Ms. Casey had vested options to purchase 5,001 shares of Common Stock as of December 31, 2018.
8.Mr. McFadden had vested options to purchase 15,006 shares of Common Stock as of December 31, 2018.
9.Mr. Visconto had vested options to purchase 3,002 shares of Common Stock as of December 31, 2018.
10.Ms. Castagnino had no vested options as of December 31, 2018.

Directors’ Fees

The Company pays each non-employee director $1,000 for each regular or committee meeting of the Board Qualificationsattended. In addition, Messrs. Visconto and Briggs receive a quarterly retainer of $10,000 with respect to Mr. Visconto’s services as Chairman of the Board of Directors and Mr. Briggs’s services as Chairman of the Audit Committee and as an audit committee financial expert. In addition, as indicated above under Directors’ Compensation, Directors also receive option awards.

We believe that
Procedures for Contacting Directors

The Board has established a process for shareholders to send communications to the collective skills, experiences and qualifications of our directors provides our BoardBoard. Shareholders may communicate with the expertiseBoard generally or to a specific director at any time by writing to: Healthcare Services Group, Inc., 3220 Tillman Drive, Suite 300, Bensalem, PA 19020, Attention: Corporate Secretary. The Company reviews all messages received, and experience necessaryforwards any message that reasonably appears to advancebe a communication from a shareholder about a matter of shareholder interest that is intended for communication to the interestsBoard. Communications are sent as soon as practicable to the director to whom they are addressed, or if addressed to the Board generally, to the chairman of our shareholders. While the Nominating, Compensation and Stock Option CommitteeCommittee. Because other appropriate avenues of our Board hascommunication exist for matters that are not established any specific, minimum qualificationsof shareholder interest, such as general business complaints or employee grievances, communications that must be met by eachdo not relate to matters of our directors, it uses a variety of criteria to evaluate the qualifications and skills necessary for each member of the Board. In additionshareholder interest are not forwarded to the individual attributes of each of our current directors described below, we believe that our directors should haveBoard.

12
Directors, Executive Officers and Corporate Governance

Non Director Executive Officers

Our non-director executive officers for the highest professional and personal ethics and values, consistent with our longstanding values and standards. They should have broad experience in the industry the Company serves at the policy-making level in business, exhibit commitment2018 fiscal year are listed below. For biographical information relating to enhancing shareholder value and have sufficient time to carry out their duties and to provide insight and practical wisdom based on their past experience.

Each of Messrs. McCartney, Wahl and McBryan, and Ms. Casey has extensive experience in the health care services industry. Each of the aforementioned persons’ operational experience, in addition to Mr. Wahl’s financial expertise, enables them to provide guidance with respect to our operations. Also, we believe since Ms. Casey has not been an employee of the Company and has served her entire career as a direct patient care provider, she brings a patient care perspectiveplease refer to the Company. For instance, Ms. Casey may become aware of new developments in the healthcare services industry before the Company’s management learns of such developmentsBoard nominees under Proposal 1 and their impact on patient-related issues.

Each of Messrs. Frome and Moss has extensive legal experience. In addition, Mr. Frome has also served as a member of the board of directors of other public companies and has extensive corporate finance, Securities and Exchange Commission (“SEC”) compliance and mergers and acquisitions experience, which experience aids his service to the Board. Both Mr. Frome and Mr. Moss also have extensive executive experience as they both have served as managing partners of their respective law firms.

Mr. Briggs’ years of experience as a certified public accountant provide him with extensive financial and accounting expertise obtained from over thirty years in public accounting. Mr. Briggs qualifies as an audit committee financial expert under SEC guidelines. Mr. Briggs also brings executive experience to the Board as he served as a partner at his accounting firm.

Mr. Ottaviano, through his experience as a top-level marketing and operations executive for many years for two different companies, oneQualifications section of which was a public company, has a comprehensive understanding of business operations, including business development, as well as the compliance obligations of public companies.

Mr. McFadden has sales and marketing experience both as a Principal of his consulting company and through his experience at The McGraw Hill Companies that provided him with an understanding of a large public company’s operations, as well as the compliance obligations of a public company.

Mr. Visconto has real estate experience as a Principal of American Property Holdings, with a specific focus on the acquisition, development and management of multi-family, senior housing and commercial assets. Mr. Visconto also has extensive experience with licensed operators, management companies and property owners, all of which align with our customer base.

The Directors recommend a vote "FOR" all nominees.

If Messrs. Briggs, Moss and Ottaviano are re-elected as Directors of the Company it is anticipated that such individuals will comprise the Audit Committee following the Annual Meeting with Mr. Briggs serving as the chairman of such committee.

If Messrs. Ottaviano and McFadden and Ms. Casey are re-elected as Directors of the Company it is anticipated that such individuals will comprise the Nominating, Compensation and Stock Option Committee following the Annual Meeting with Mr. Ottaviano serving as the chairman of such committee.

6


this Proxy Statement.
Other Executive Officers
Name, Age and Principal Occupations
John C. Shea, MBA, CPA, 44,47, Executive Vice President and Chief Financial Officer since April 2012. Mr. Shea had previously served as Secretary, Vice President of Finance & Chief Accounting Officer. Mr. Shea joined the Company in 2009 as the Director of Regulatory Reporting. Prior to joining the Company, Mr. Shea was a Senior Manager with Ernst & Young’s Transaction Advisory Services.
Bryan D. McCartney, 54, Executive Vice President since April 2012. Mr. McCartney joined the Company in 1983. Prior to becoming Executive Vice President, Mr. McCartney served as Senior Vice President, Divisional Vice President, Regional Manager, District Manager and Facility Manager. Mr. McCartney is the brother of Mr. Daniel P. McCartney.
Jason J. Bundick, Esq., 39,42, Executive Vice President, Chief Compliance Officer, General Counsel & Secretary since December 2013. Mr. Bundick joined the Company in 2012 as the Company's Corporate Counsel. In April 2013, Mr. Bundick was appointed to serve as Chief Compliance Officer. Prior to joining the Company, Mr. Bundick was an attorney with the law firm of Drinker Biddle & Reath LLP for more than five years.
David Hurlock, 44, Executive Vice President and Chief Operating Officer since July 2017. Mr. Hurlock had previously served as Senior Vice President of Operations since January 2013. Mr. Hurlock joined the Company in 1997.
Andrew W. Kush, 41, Executive Vice President and Chief Administrative Officer since June 2017. Mr. Kush had previously served as Senior Vice President of Human Resources & Risk Management since January 2013. Mr. Kush joined the Company in 2010 as the Vice President of Human Resources. Prior to joining the Company, Mr. Kush was a Vice President of Risk Management with PNC Financial Services Group, Inc.

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BOARD OF DIRECTORS AND COMMITTEES

BOARD OF DIRECTORS.    The businessSection 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Company is managed underExchange Act requires the directionCompany’s Directors, executive officers and 10% shareholders to file with the SEC and NASDAQ initial reports of ownership and reports of changes in ownership of the Board. The Board meetsCompany’s Common Stock. Directors and executive officers are required to furnish the Company with copies of all Section 16(a) reports which they file.

To the Company’s knowledge, based solely on a regularly scheduled basis duringreview of the Company's fiscal yearcopies of these reports furnished to review significant developments affecting the Company and written representations that no other reports were required, during 2018 all Section 16(a) filing requirements applicable to act on matters requiring Board approval. It also holds special meetings when an important matter requires Board action between scheduled meetingsits directors and also actsexecutive officers were complied with, other than a filing by unanimous written consent when necessaryMr. Wahl which was two days late.

Sarbanes-Oxley Act Compliance

Sarbanes-Oxley sets forth various requirements for public companies and appropriate.directs the SEC to adopt additional rules and regulations.

Currently, the Company believes it is in compliance with all applicable laws, rules and regulations arising from Sarbanes-Oxley. The BoardCompany intends to comply with any additional rules and regulations adopted by the SEC pursuant to Sarbanes-Oxley no later than the time they become applicable to the Company.

13
Directors, Executive Officers and Corporate Governance

Audit Committee Report

The members of the Audit Committee from January 1, 2018 to December 31, 2018 were Messrs. Briggs, Moss and Ottaviano. The Audit Committee met five times during the fiscal year ended December 31, 2015. During 2015, each member2018. The Audit Committee is responsible for the appointment of the Board participated in at least 75%Independent Auditors for each fiscal year, recommending the discharge of allthe Independent Auditors to the Board and applicable committee meetings held duringconfirming the period for which he or she was a director or committee member. Directors are expected to attend all Board meetings and meetings of committees on which they serve, and each Annual Meeting of Shareholders. In 2015, allindependence of the directors attendedIndependent Auditors. It is also responsible for: reviewing and approving the scope of the planned audit, the results of the audit and the Independent Auditors’ compensation for performing such audit; reviewing the Company’s audited financial statements; and reviewing and approving the Company’s internal accounting controls and disclosure procedures, and discussing such controls and procedures with the Independent Auditors.

A copy of the Company's Annual Meeting of Shareholders.Amended and Restated Audit Committee Charter is available on the Company’s website at www.hcsg.com.

The Company’s Independent Registered Public Accounting Firm are responsible for auditing the financial statements, as well as auditing the Company’s internal controls over financial reporting. The activities of the Audit Committee are in no way designed to supersede or alter those traditional responsibilities. The Audit Committee’s role does not provide any special assurances with regard to the Company’s financial statements, nor does it involve a professional evaluation of the quality of the audits performed by the Independent Auditors.

In connection with the audit of the Company’s financial statements for the year ended December 31, 2018, the Audit Committee met with representatives from Grant Thornton LLP, the Company’s Independent Auditors, and the Company’s internal auditor. The Audit Committee reviewed and discussed with Grant Thornton LLP and the Company’s internal auditor, the Company’s financial management and financial structure, as well as the matters relating to the audit required by the Public Company Accounting Oversight Board has established anAuditing Standard.

The Audit Committee and a Grant Thornton LLP also discussed Grant Thornton LLP’s independence. In November 2018, the Audit Committee received from Grant Thornton LLP the written disclosures and the letter regarding Grant Thornton LLP’s independence required by Public Company Accounting Oversight Board Rule 3526.

In addition, the Audit Committee reviewed and discussed with management the Company’s audited financial statements for the fiscal year ended December 31, 2018, as well as management’s assessment of internal controls over financial reporting.

Based upon the review and discussions described above, the Audit Committee recommended to the Board of Directors, and the Board of Directors approved, that the Company’s financial statements audited by Grant Thornton LLP, as well as the audit of the Company’s internal controls over financial reporting be included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018.


AUDIT COMMITTEE
John M. Briggs, Chairman
Robert J. Moss
Dino D. Ottaviano
14
Audit Committee Report

Nominating, Compensation and Stock Option Committee to devote attention to specific subjectsReport

The compensation of the President and to assist it inChief Executive Officer of the discharge of its responsibilities. The functions of those committees, their current membersCompany is determined by the Nominating, Compensation and theStock Option Committee. Such Committee’s determinations regarding such compensation are based on a number of meetings held during 2015 with respectfactors including, in order of importance:
•Consideration of the operating and financial performance of the Company, primarily its income before income taxes.;
•Attainment of a level of compensation designed to retain a superior executive in a highly competitive environment; and
•Consideration of the individual’s overall contribution to the Audit Committee,Company.

In consultation with the President and Chief Executive Officer of the Company, the Nominating, Compensation and Stock Option Committee are described below:

AUDIT COMMITTEE.     The Audit Committee's primary responsibilities, as described indevelops guidelines and reviews the Amended and Restated Audit Committee Charter (a copy of which is available on the Company’s website, www.hcsg.com) include:

(a) appointment, compensation and oversightperformance of the Company's Independent Auditors, who report directly to the Audit Committee, including (i) prior reviewother executive officers of the Independent Auditors' plan forCompany, and sets the annual audit, (ii) pre-approval of both audit and non-audit services to be provided by the Independent Auditors and (iii) annual assessmentcompensation of the qualifications, performance and independenceexecutive officers of the Independent Auditors;

(b) overseeing and monitoring the Company's accounting and financial reporting processes and internal control system, audits of the Company's financial statements and the quality and integrity of the financial reports and other financial information issued by the Company;

(c) providing an open avenue of communication among the Independent Auditors and financial and other seniorCompany and/or any management and the Board;

(d) reviewing with management and, where applicable, the Independent Auditors, prior to release, required annual, quarterly and interim filingsfees paid by the Company withfor executives services when needed. In addition, the SecuritiesNominating, Compensation and Exchange Commission and the type and presentation of information to be included in earnings press releases;

(e) reviewing material issues, and any analysis by management or the Independent Auditors, concerning accounting principles, financial statement presentation, certain risk management issues, such as the adequacy of the Company's internal controls and significant financial reporting issues and judgments and the effect of regulatory and accounting initiatives on the Company's financial statements;

(f) reviewing with the Company's legal counsel any legal matters that could have a significant effect on the Company's financial statements, compliance with applicable laws and regulations and inquiries from regulators or other governmental agencies;

(g) reviewing and approving all related party transactions between the Company and any director, executive officer, other employee or family member;

(h) reviewing and overseeing compliance with the Company's Code of Ethics and Business Conduct;

(i) establishing procedures regarding the receipt, retention and treatment of, and the anonymous submission by employees of the Company of, complaints regarding the Company's accounting, internal controls or auditing matters; and

(j) reporting AuditStock Option Committee activitiesmakes recommendations to the full Board with respect to incentive-compensation plans and issuing annual reports to be included in the Company's proxy statement. Each of Messrs. Moss, Ottavianoequity-based plans, and Briggs are independent Directors as such term is defined by Rule 5605(a)(2) of the NASDAQ listing standards and Rule 10A-3 of the Securities Exchange Act of 1934, as amended (the "Exchange Act").


8


Mr. Briggs has been designated the "audit committee financial expert" and he satisfies the attributes required of audit committee financial experts pursuant to Section 407 of Sarbanes-Oxley. The Audit Committee met five times during fiscal year 2015. The report of the Audit Committeeestablishes criteria for the fiscal year ended December 31, 2015 is included herein under “Audit Committee Report” below.

NOMINATING, COMPENSATION AND STOCK OPTION COMMITTEE.granting of options in accordance with such criteria; and administers such plans. The Nominating, Compensation and Stock Option Committee (currently composedreviews major organizational and staffing matters. In consultation with the President and Chief Executive Officer of Messrs. Ottavianothe Company, the Nominating, Compensation and McFaddenStock Option Committee oversees the development and Ms. Casey) assistsgrowth of executive management personnel. With respect to director compensation, the Board by:

(a) developingNominating, Compensation and recommendingStock Option Committee designs a director compensation package of a reasonable total value based on comparisons with similar firms and aligned with long-term shareholder interests. Finally, the Nominating, Compensation and Stock Option Committee reviews director compensation levels and practices, and may recommend, from time to time, changes in such compensation levels and practices to the Board, a set of effective corporate governance policies and procedures applicable towith equity ownership in the Company;

(b) identifying, reviewing and evaluating individuals qualified to become Board members and recommending that the Board select director nominees for each annual meeting of the Company’s shareholders;

(c) discharging the Board’s responsibilities relating to the compensation of Company executives; and

(d) administering the Company’s stock option plan or other equity-based compensation plans.

Each of Messrs. Ottaviano and McFadden and Ms. Casey are Independent Directors as such term is defined by Rule 5605(a)(2) of the NASDAQ listing standards.encouraged. The Nominating, Compensation and Stock Option Committee’s charter provides that the Nominating, Compensation and Stock Option Committee met once during fiscal year 2015shall have the authority to obtain advice and also acts by unanimous written consent when necessaryseek assistance from internal and appropriate.external legal, accounting and other advisors.

The Nominating, Compensation and Stock Option Committee has not adopted a policy or processreviewed and discussed the Compensation Discussion and Analysis required by which shareholders may make recommendations to the Nominating, CompensationItem 402(b) of Regulation S-K with management and, Stock Option Committee of candidates to be considered by this Nominating, Compensationbased on such review and Stock Option Committee for nomination for election as Directors. The Nominating, Compensation and Stock Option Committee has determined that it is not appropriate to have such a policy because such recommendations may be informally submitted to and considered by the Nominating, Compensation and Stock Option Committee under its Charter. Shareholders may make such recommendations by giving written notice to Healthcare Services Group, Inc., 3220 Tillman Drive, Suite 300, Bensalem, PA 19020, Attention: Corporate Secretary either by personal delivery or by United States mail, postage prepaid. The Charter of the Nominating, Compensation and Stock Option Committee is provided on the Company's website, www.hcsg.com. The Nominating, Compensation and Stock Option Committee has not established a formal process for identifying and evaluating nominees for Director, although generally the Nominating, Compensation and Stock Option Committee may use multiple sources for identifying and evaluating nominees for Director, including referrals from current Directors and shareholders. The Nominating, Compensation and Stock Option Committee has identified certain qualifications it believes an individual should possess before it recommends such person as a nominee for electiondiscussions, recommended to the Board of Directors.

The Nominating, Compensation and Stock Option Committee believes that nominees for Director should possess the highest personal and professional ethics, integrity, values and judgment and be committed to representing the long-term interests of the Company’s shareholders. The Nominating, Compensation and Stock Option Committee does not have a formal policy with respect to considering diversity in identifying nominees for directors. The Nominating, Compensation and Stock Option Committee believes that racial and gender diversity are important factors in assessing potential board members, but not at the expense of particular qualifications and experience required to meet the needs of the Board. Furthermore, as part of the Nominating, Compensation and Stock Option Committee's review of board composition, the board considers diversity of experience and background in an effort to ensureDirectors that the composition of directors ensures a strongCompensation Discussion and effective board. The Nominating, Compensation and Stock Option Committee seeks to ensure that the composition of the Board at all times adheres to the independence requirements of the NASDAQ and reflects a range of talents, skills, and expertise, particularlyAnalysis be included in the areas of management, leadership, and experience in the Company’s and related industries, sufficient to provide sound and prudent guidance with respect to the operations and interests of the Company.

See below for the Report of the Nominating, Compensation and Stock Option Committee regarding executive compensation.

9


SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

this Proxy Statement.
The following table sets forth information as of April 1, 2016, regarding the beneficial ownership of Common Stock by each person or group known by the Company to own: (i) 5% or more of the outstanding shares of Common Stock, (ii) each director and director nominee of the Company, (iii) the Named Executive Officers as defined in Item 402(a)(3) of Regulation S-K and (iv) all current directors and executive officers of the Company as a group. The persons named in the table have sole voting and investment power with respect to all shares of Common Stock owned by them, unless otherwise noted.

NOMINATING, COMPENSATION AND STOCK OPTION COMMITTEE
Diane S. Casey, Chairwoman
John J. McFadden
Name and Beneficial Owner or Group (1)
 Amount and Nature of Beneficial Ownership 
Percent of Class (3)
BlackRock, Inc. (2)
 6,904,547
(4) 
 9.5% 
The Vanguard Group, Inc. (2)
 5,805,647
(5) 
 8.0% 
Neuberger Berman Group LLC (2)
 4,789,996
(6) 
 6.6% 
Daniel P. McCartney 2,604,273
(7) 
 3.6% 
Theodore Wahl 289,203
(8) 
 —
(19) 
Bryan D. McCartney 239,719
(9) 
 —
(19) 
Michael E. McBryan 146,481
(10) 
 —
(19) 
Robert L. Frome 63,858
(11) 
 —
(19) 
John M. Briggs 44,301
(12) 
 —
(19) 
Robert J. Moss 29,992
(13) 
 —
(19) 
John C. Shea 23,449
(14) 
 —
(19) 
Dino D. Ottaviano 13,588
(15) 
 —
(19) 
Jason J. Bundick 7,506
(16) 
 —
(19) 
John J. McFadden 6,003
(17) 
 —
(19) 
Diane S. Casey —

 —

Jude Visconto —
  —

Directors and Executive Officers as a group (13 persons) 3,468,373
(18) 
 4.8%
       
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(1)
Unless otherwise indicated, the address of all persons is c/o Healthcare Services Group, Inc., 3220 Tillman Drive, Suite 300, Bensalem, PA 19020.Nominating, Compensation and Stock Option Committee Report
(2)
The address of Neuberger Berman Group LLC is 605 Third Avenue, New York, NY 10158.
The address of Blackrock, Inc. is 55 East 52nd Street, New York, NY 10055.
The address of The Vanguard Group, Inc. is 100 Vanguard Blvd., Malvern, PA 19355.
(3)
Based on 72,406,694 shares of Common Stock outstanding at April 1, 2016.
(4)
According to Schedule 13G filed by BlackRock, Inc. on January 26, 2016, it has total beneficial ownership of 6,904,547 shares. Such beneficial ownership includes sole voting power with respect to 6,747,140 shares, and sole dispositive power with respect to 6,904,547 shares.
(5)
According to Schedule 13G filed by The Vanguard Group, Inc. on February 11, 2016, it has total beneficial ownership of 5,805,647 shares. Such beneficial ownership includes sole voting power with respect to 158,026 shares, shared voting power with respect to 3,800 shares, sole dispositive power with respect to 5,648,868 shares and shared dispositive power with respect to 156,779 shares.
(6)
According to Schedule 13G filed by Neuberger Berman Group LLC, Neuberger Berman LLC and Neuberger Berman Investment Advisors LLC on February 9, 2016, such entities have, in the aggregate, total beneficial ownership of 4,789,996 shares, which includes shared voting power with respect to 4,737,721 shares.

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(7)
Includes incentive stock options to purchase 58,754 shares and nonqualified stock options to purchase 116,747 shares all currently exercisable and 71,258 shares credited to Mr. McCartney's account (but unissued) in connection with the Company's Deferred Compensation Plan.
(8)
Includes incentive stock options to purchase 37,483 shares, and nonqualified stock options to purchase 26,267 shares, all currently exercisable, and 8,738 shares credited to Mr. Wahl's account (but unissued) in connection with the Company's Deferred Compensation Plan. Additionally, includes 81,901 and 26,168 shares held by Mr. Wahl's wife and minor children, respectively.
(9)
Includes incentive stock options to purchase 30,046 shares and nonqualified stock options to purchase 59,954 shares, all currently exercisable, and 20,696 shares credited to Mr. McCartney's account (but unissued) in connection with the Company's Deferred Compensation Plan. Additionally, includes 22,798 shares held by Mr. McCartney's children.
(10)
Includes incentive stock options to purchase 30,046 shares and nonqualified stock options to purchase 59,954 shares, all currently exercisable, and 29,811 shares credited to Mr. McBryan's account (but unissued) in connection with the Company's Deferred Compensation Plan.
(11)
Includes nonqualified stock options to purchase 33,357 shares, all currently exercisable.
(12)
Includes nonqualified stock options to purchase 18,779 shares, all currently exercisable.
(13)
Includes nonqualified stock options to purchase 29,992 shares, all currently exercisable.
(14)
Includes incentive stock options to purchase 14,580 shares, all currently exercisable and 2,682 shares credited to Mr. Shea's account (but unissued) in connection with the Company's Deferred Compensation Plan.
(15)
Includes nonqualified stock options to purchase 13,351 shares, all currently exercisable.
(16)
Includes incentive stock options to purchase 5,100 shares, all currently exercisable and 431 shares credited to Mr. Bundick's account (but unissued) in connection with the Company's Deferred Compensation Plan.
(17)
Includes nonqualified stock options to purchase 6,003 shares, all currently exercisable.
(18)
Includes 551,417 shares underlying stock options granted to this group. All stock options reflected in the security ownership table are currently exercisable; also includes 133,886 shares credited to the accounts of certain executive officers (but unissued) in connection with the Company's Deferred Compensation Plan.
(19)
Less than 1% of the outstanding shares.



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MANAGEMENTEXECUTIVE COMPENSATION

Compensation Discussion and Analysis

Compensation Objectives

We refer to our President and Chief Executive Officer, the Chief Financial Officer, our former Chief Executive Officer and each of our other three most highly compensated executive officers as our Named Executive Officers ("NEOs"(“NEOs”). As more fully described below, the base salary of Mr. Daniel McCartney was primarilyIn 2018 our NEOs were as follows:

Named Executive OfficerRole
Theodore WahlPresident & Chief Executive Officer & Director
John C. SheaExecutive Vice President & Chief Financial Officer
Michael E. McBryanExecutive Vice President & Chief Revenue Officer & Director
David HurlockExecutive Vice President & Chief Operating Officer
Andrew W. KushExecutive Vice President & Chief Administrative Officer

Compensation Objectives

NEO compensation is based on a minimum base salary plus an additional amount based on the Company’s income from operations before income taxescombination of company and in 2015, 2014individual contributions to our performance, along with each NEO's level and 2013, the salaries and bonuses, where applicable, of Messrs. Wahl, Shea, Bryan McCartney, McBryan and Bundick were based on their performance and levelscope of responsibility. Our Nominating, Compensation and Stock Option Committee (“NCSO Committee”) believes that the compensation paid is consistent with theour overarching principle that compensation plans of senior operational officers should be closely aligned with our performance on both a short-term and long-term basis to create value for shareholders, and that such compensation should assist us in attracting and retaining key executives critical to our long-term success.

In establishing compensation for executive officers, the following are the objectives of the Company and the Nominating, Compensation and Stock OptionNCSO Committee:
•Attract and retain individuals of superior ability and managerial talent;
Ensure•Aim to ensure officer compensation is aligned with our corporate strategies, business objectives and the long-term interests of our shareholders; and
•Enhance the officers'officers’ incentive to maximize shareholder value, as well as promote retention of key personnel, by providing a portion of total compensation for management in the form of direct ownership in the Company through stock options and other stock-based compensation plans.

To support these objectives, the Company’s executive compensation program has the following characteristics:
What we do:What we don’t do:
þSignificant share ownership requirements for senior executivesoNo employment agreements containing special severance payments such as golden parachutes
þDouble-trigger requirements for vesting of time-based awards on a change in controloNo hedging or engaging in derivative transactions related to Company shares
þA cap on the annual incentive payout for the Chief Executive OfficeroNo gross-up payments to cover income taxes related to executive compensation
þMajority of NEO compensation is “at-risk”oNo repricing or backdating of stock options
þOperate a clawback policy that applies to “at-risk” variable compensation (new for 2019)oNo retirement programs that are specific to executive officers
þBalance "at risk" compensation across short-term and long-term time horizons
þCompany engages an independent compensation consultant

Compensation Oversight

Among its duties, the NCSO is accountable for discharging the Board’s responsibilities relating to the compensation of Company executives. Accordingly, the NCSO Committee conducts an annual review of the aggregate level of our executive compensation, as well as the mix of elements used to compensate our executive officers.

To achieve these objectives, our overall compensation program aims to pay our NEOs competitively, consistent with our success and their contribution to that success. To accomplish this we rely on programs that provide compensation in the form of
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both cash and equity. Although our Nominating, Compensation and Stock OptionNCSO Committee has not adopted any formal guidelines for allocating total compensation between cash and equity, the Nominating, Compensation and Stock OptionNCSO Committee considers the balance between providing short-term and long-term incentives which are designed to help align the interests of management with the interests of shareholders.

We have not retained a compensation consultant to review our policies and procedures with respect to executive compensation, although the Nominating, Compensation and Stock Option Committee may elect to retain such a consultant in the future if it determines that so doing would be helpful in developing, implementing or maintaining compensation plans.

The Nominating, Compensation and Stock Option Committee conducts an annual review of the aggregate level of our executive compensation, as well as the mix of elements used to compensate our executive officers. In addition, the Nominating, Compensation and Stock Option Committee has historically taken into account input from other independent members of our Board and, to the extent available, publicly available data relating to the compensation practices and policies of other companies within and outside our industry. As part of the review of the Company’s compensation, the compensation policies of the following companies have been examined: AMN Healthcare Services, Inc. (a healthcare staffing company), Crothall Services Group (a provider of hospital housekeeping, hospital facilities management, and hospital environmental services) and ARAMARK Corporation (a food, hospitality and facility service company). The Nominating, Compensation and Stock Option Committee believes that gathering information about the compensation practices of these companies is an important part of our compensation-related decision-making process. However, since none of these companies are specifically engaged in the Company's business and the Company is unaware of any other public company which provides housekeeping and food services solely to the health care industry and primarily to the long term care segment of the industry, the Company believes that compensation comparisons with the aforementioned companies are not apt. Accordingly, while the Nominating, Compensation and Stock Option Committee is aware of the compensation practices of the companies set forth above, the Nominating, Compensation and Stock Option Committee has not necessarily relied on comparisons with such entities for purposes of making compensation decisions for Company executive officers and the Company does not benchmark compensation against the compensation of such other companies.

The overwhelming majority of votes cast at the 2015 Annual Meeting of Shareholders approved, on an advisory basis, the compensation of the Company's NEOs ("say-on-pay"). The Nominating, Compensation and Stock Option Committee considered that support in its efforts to align the Company's executive compensation policies with long-term shareholder interests.

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Determination of Compensation Awards

The compensation of the President and Chief Executive Officer of the Company is determined by the Nominating, Compensation and Stock Option Committee. The compensation of the former Chief Executive Officer was also determined by the Nominating, Compensation and Stock OptionNCSO Committee. Such determinations regarding compensation are based on a number of factors including, in order of importance:
•Consideration of the operating and financial performance of the Company, primarily its income before income taxes during the preceding fiscal year, as compared with prior operating periods;;
•Attainment of a level of compensation designed to retain a superior executive in a highly competitive environment; and
•Consideration of the individual’s overall contribution to the Company.

The NCSO Committee has also historically taken into account input from other independent members of our Board in determining the compensation of the President and Chief Executive Officer. Compensation for the other NEOs (referred to in the summary compensation table) other thanis recommended by the President and Chief Executive Officer and the former Chief Executive Officer, is determinedreviewed by the President and Chief Executive Officer in consultation with the Nominating, Compensation and Stock OptionNCSO Committee, taking into account the same factors considereddescribed above.

The Company engages an independent compensation consultant who provides advice as requested in determiningareas such as peer group composition, market benchmarking and executive compensation policy design.

Beyond the President and Chief Executive Officer's compensation as described above. Section 162(m) ofNEOs the U.S. Internal Revenue Code of 1986, as amended (the "Code") limits deductibility of compensation in excess of $1 million paid to the Company's NEOs unless this compensation qualifies as "performance-based." Based on the applicable tax regulations, any taxable compensation derived from the exercise of stock options by senior executives under the Company's stock option plans should qualify as performance-based. The Company's 2012 Equity Incentive Plan (the "2012 Plan") contains limits as to how many stock options may be granted to a recipient in any calendar year and was approved by the Company's shareholders. Therefore, compensation received as a result of stock options granted under the 2012 Plan qualify as "performance-based" for purposes of Section 162(m) of the Code. As described under "Grant of Plan-Based Awards," stock options and restricted stock were granted in fiscal year 2015 to the NEOs.

The Company applies a consistent approach to compensation for all employees, including senior management. This approach is based on the belief that the achievements of the Company result from the coordinated efforts of all employees working toward common objectives.

Review of Compensation

In conducting the annual review of compensation, publicly available data relating to the compensation practices and policies of other companies within and outside our industry is collected to the extent it is available. The NCSO Committee believes that gathering information about the compensation practices of other companies is an important part of our compensation-related decision-making process.

Given the challenge that there are no other U.S. publicly-traded companies specifically engaged in the Company’s business, which provides housekeeping and food services solely to the healthcare industry and primarily to the long-term care segment of the industry, our comparator group has been developed looking at a broader cross-section of service industry companies. The following companies have been selected as reasonable comparators for talent as they operate in similar industries, are of similar size and scope, and/or have similar employee bases. That group consists of the following:

lABM Industries IncorporatedlJ&J Snack Foods Corp.
lAmedisys, Inc.lServiceMaster Global Holdings, Inc.
lAMN Healthcare Services, Inc.lSnyder’s-Lance, Inc.
lChemed CorporationlThe Brink’s Company
lClean Harbors, Inc.lThe Providence Service Corporation
lCoreCivic, Inc.lUniFirst Corporation

Based on the Company’s size relative to the peer group (58th percentile for both revenue and market cap), the NCSO Committee referenced a range around the peer group 50th percentile when reviewing total compensation levels for the President and Chief Executive Officer.

Given the challenges noted above in identifying directly comparable companies, if and when collected, market data is just one factor that the NCSO Committee considers in reaching decisions. Such other factors considered include individual performance, the trends in Company performance relative to broader market indices, the industry in which we operate, tax implications, and achievements in the Company’s social and sustainability efforts.

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Shareholder Views

During the course of 2017, 2018 and 2019, the NCSO Committee made a number of changes to the Company’s executive compensation programs in response to feedback. These conclusions, and where applicable resulting changes, of the review, are summarized below:

Compensation Program ReviewHighlightsRationale
Formalization of annual incentive program

(Effective FY 2017)
sPrimary performance metric of income before income taxes for President and CEO, and the other NEOssDesire to increase transparency and demonstrate objectivity in determining annual incentive payments
sAdditional quantifiable operational performance metrics used to validate outcomes for other NEOss
Feedback suggested consideration of annual incentive arrangements that were not wholly discretionary

sIndividual opportunities defined as percentage of the Company’s income before income taxessIncome before income taxes is an important financial metric to the Company and our shareholders
sMaximum payment for the President and CEO of two-times salary
sThe ability for the President and CEO to take bonus in the form of stock, reinforces our ownership culture as we transition away from a founder President and CEO
sPresident and CEO can elect to receive part of the annual incentive in stock
Assessment of Long-Term Equity Award Approach

(Under ongoing review and discussion)
sThe NCSO Committee believes that the use of stock options continues to provide direct alignment to sustainable shareholder value creation, aligning our NEOs’ interests with those of our shareholders, reinforced by the use of restricted stock units which also helps retain our successful leadership teamsIn light of feedback, the NCSO Committee has reviewed the current practice of awarding long-term equity as a mix of stock options and restricted stock units
sGiven the Company currently does not provide guidance or set targets externally, the NCSO Committee determined the current approach remains optimal
sFurthermore, the NCSO Committee believes a five-year vesting period for all awards further enhances the focus on long-term sustainable performance
Share Ownership Guidelines

(Effective FY2018)
sAdopted share ownership guidelines and a retention requirement for executive officers with effect from January 1, 2018sDue to a pre-existing ‘ownership culture’, which meant there were significant levels of stock ownership among the leadership team, the NCSO Committee had not historically seen the need to adopt formal guidelines
sPresident and CEO required to hold stock worth six-times base salary
sHowever, to be responsive to shareholder feedback the NCSO has formalized a guideline from 2018
sOther NEOs required to hold stock worth two-times base salary
sRetention requirements apply if guideline not achieved within five yearssAll NEOs already exceed their respective stock ownership guideline
Adoption of double trigger requirements on a change in control

(Effective FY2018)
sOn a change in control, stock awards will now be subject to double trigger requirementssReview of market practices, investor guidelines and shareholder feedback indicated a shift to double-trigger would be appropriate
Adoption of a clawback policy

(Effective FY2019)
s“At-risk” compensation (performance-based compensation and equity awards) will now be subject to clawback at the discretion of the NCSO CommitteesReview of market practices, investor guidelines and shareholder feedback indicated the adoption of a clawback policy would be appropriate
sA clawback could be affected in the event of a restatement of Company financial statementssDesire to provide greater risk mitigation power to the Board of Directors

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The NCSO Committee was pleased to see that the overwhelming majority of votes cast at the 2018 Annual Meeting of Shareholders approved, on an advisory basis, the compensation of the Company’s NEOs (“say-on-pay”). The NCSO Committee considered that support in its efforts to align the Company’s executive compensation policies with long-term shareholder interests.

Since the Annual Meeting of Shareholders the Committee has continued to keep under review our ability to set meaningful long-term performance targets, and accordingly our ability to use long-term performance-based equity. The Committee remains of the view that stock options and restricted stock units best achieve our compensation objectives and successfully align pay with performance. This is evidenced through the fact that over the last three years (the tenure of our current CEO) the outcome under the annual incentive plan and value of equity awarded has generally trended in line with performance.

The chart below shows the value of equity granted to the CEO in each of 2016, 2017, and 2018 versus the change in Total Shareholder Return and Operating Income (indexed to 100%) over the period. When the value of equity is calculated as of the vesting date or as of April 1, 2019, there is a stronger correlation with performance than when Summary Compensation (grant date fair value) totals are used. This demonstrates the alignment of pay and performance as the value of long-term awards decreases as the stock price does.

proxy-2019chart.jpg

Note: Equity data collected from applicable proxy filings. Financial data are sourced from the S&P Capital IQ financial database. “SCT” values represent the grant-date fair value of the awards as disclosed in the applicable proxy filing. “Value at vesting” reflects the intrinsic value for award tranches that have vested as of 12/31/2018 using the close price for the estimated day of vesting; for award tranches that are unvested as of 12/31/2018, the closing stock price as of 04/01/2019 is used. “Value (4/1/2019)” reflects the intrinsic value of the entire award using the closing stock price as of 04/01/2019.

This analysis reinforces the Committee’s view that pay and performance remain suitably aligned despite the absence of a long-term plan with formal performance requirements beyond share price appreciation which is an implicit requirement under the stock option plan. The Committee will continue to keep this position and the alignment of pay and performance under review.

Elements of Compensation

Base Salary. Base salaries for our executives are established based on the scope of their responsibilities and individual experience, taking into account competitive market compensation paid by companies in our industry. Base salaries are reviewed annually, and may be adjusted from time to time to realign salaries with market levels. With respect to certaintake account of changes in responsibilities, individual performance, experience, practices in our compensation comparator group, and the state of our executive officers, this adjustment takes into account individual responsibilities, performance and experience.industry more broadly.

In 2015,
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For our NEOs, salaries that were paid in 2018 were approved on 12/14/2017. Mr. Daniel McCartney's minimumWahl's base salary was approximately $19,000, with the balance of his base salary derived from the Performance-Based Compensation criteria described in the paragraph below. The annual salary for Mr. Wahl was approximately $1,000,000 and was reflective of his responsibilities as President and Chief OperatingExecutive Officer as determined before his promotion to Presidentwas unchanged from 2017 and Chief Executive Officer. The annualhas not received an increase for the last three years. Mr. Shea's base salary for Mr. John Shea was approximately $450,000 and was reflective of his responsibilities as Chief Financial Officer. The annualOfficer was increased from 2017 to align his compensation with that of other Chief Financial Officers within the Company's peer group. Mr. Shea's base salary previously had been unchanged since 2015. Mr. McBryan's compensation structure, including base salary, as Chief Revenue Officer was adjusted from 2017 to transition his compensation from a majority bonus structure to a base salary and a target performance-based compensation structure that was more aligned with the Company's other executive officers.

Messrs. Hurlock and Kush both received increases in their base salaries to reflect internal promotions to Chief Operating Officer and Chief Administrative Officer during 2017, respectively. Previously Mr. Hurlock was a Senior Vice President of Mr. Michael McBryanOperations, and Mr. Bryan McCartney are approximately $106,000 with Performance-Based Compensation that is based onKush was a Senior Vice President of Human Resources & Risk Management for the criteria noted below and are reflective of their responsibilities as Executive Vice Presidents. The annual salary for Mr. Jason Bundick was approximately $311,000 with Performance-Based Compensation that is based on the criteria noted below and was reflective of his responsibilities as Chief Compliance Officer, General Counsel and Secretary.Company.

Performance-Based Compensation. We structure our annual incentive program to reward certain executive officers based on ourthe Company’s performance and our evaluation of the individual executive'sexecutive’s contribution to that performance. This allows executive officers to receive sucha significant portion of their compensation based on the results that they helped us to achieve in the previous year. The incentive payment, based upon the Company's prior year performance, becomes the major portionachieve. Performance-based compensation for certain NEOs' salaries for the following year. Mr. Daniel P. McCartney's incentive payment for 2015 was based onour executive officers is defined as a rate of 1.58%percentage of the Company’s operating income. This reflects the importance of operating income from operations before income taxesin assessing our overall performance, providing line of sight to both top-line growth and the appropriate management of costs. This aligns with our strategic focus and Company Vision - To Be THE Choice For Our Customers - resulting in accordance with generally accepted accounting principlesretention of and growth in relationships through good customer service, expansion of our services, effective execution in all that we do, and cost management. For NEOs other than the fiscal year immediately preceding the year for which such annual salary is calculated. In the 2014 and 2013 periods, the Company used rates of 1.48% and 1.40%, respectively, for purposes of calculating Mr. Daniel McCartney's incentive payments. The Company used a 3% rate for more than 20 years. Prior to 2006, such rate was deemed to be representative of performance-based compensation for the ChairmanPresident and Chief Executive Officer, as well as providingpercentages can be modified up or down based on other aspects of quantifiable financial and operational performance for a compensation level which reflectsthe executive officers are accountable for. Examples of the performance of the Company. In 2007, the Company reduced the rate to 2.3% as it believed that this reduced rate was a fair and appropriate measure by reason of the continued increase in the Company's income before income taxes. Based on the continued increase in the Company's income before income taxes, the Company believed that further rate reductions including from 1.70% to 1.40% in 2013 after the reduction

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from 1.85% to 1.70% in 2012 was appropriate. Moreover, the Nominating, Compensation and Stock Option Committee historically established the rate to more align Daniel McCartney's compensation with the compensation of the Company's other managerial employees. The Nominating, Compensation and Stock Option Committee historically tied the compensation of Mr. Daniel McCartneytaken into the Company's financial performance because he has had responsibility for all key strategic and policy decisions impacting the Company. Mr. Bryan McCartney and Mr. McBryan are also subject to incentive compensation payments which are based on certain financial and non-financial performance measurements includingaccount include facility growth, profitability, client retention and satisfaction. Their incentive compensation is reflectivesatisfaction, and overall management of their functional area. No judgment is applied in determining the total value of performance-based compensation for the Chief Executive Officer given his direct accountability to shareholders for our overall responsibilityfinancial performance.

In 2018 the long-term and post-acute care industry encountered difficult market conditions and unanticipated developments that adversely affected overall industry fundamentals. The provider community struggled to adapt to a rapidly changing environment fueled by declining census, tightening labor markets, Medicare Advantage pressures, and state-level Medicaid rates that frequently did not cover the cost of the managementcare. These industry dynamics directly impacted certain of our operationscustomer's capacity to pay the entirety of amounts owed to us and as a result, unfavorably impacted our 2018 financial results, in particular operating income which decreased 25% to $99.9 million, primarily due to the deliveryincrease in our allowance for doubtful accounts. Notwithstanding the industry challenges, from an overall operational and financial stewardship point of view, the expectedBoard and NCSO believed that in 2018, management performed well in a challenging environment involving high levels of industry stress and difficult market conditions. The leadership team showed proactivity in managing the situation, and innovation in identifying solutions to set the Company up for future success.

Key 2018 accomplishments included the following:
•Increased revenues 7.6%, adding over 400 new service agreements
•Achieved customer retention rate of greater than 90%
•Increased year-over-year housekeeping and dining operating segment income by 13.4% and 31.6%, respectively 
•Continued transition of customer payment terms from monthly to semimonthly or weekly, resulting in over 40% of customers on increased payment frequency model
•Increased quality and quantity of management candidates in both segments and across majority of operating divisions
•Reduced workers compensation claim frequency, scope and severity, resulting in favorable loss development trends and decreased expense
•Designed and implemented Workday® Cloud ERP financial management module
•Generated record operating cash flow of over $80 million, including over $52 million in the second half of 2018
•Paid out record cash dividends of over $57 million
•Demonstrated exceptional financial discipline and non-financial performance associatedefficiency with our services. Mr. Bundick ROA of 12.1%, ROE of 18.9% and ROIC of 22.7% 

For the President and Chief Executive Officer performance-based compensation is subject to incentivean overall maximum of two-times base salary. The total performance-based compensation earned by Mr. Wahl for 2018 was $749,325. Mr. Wahl elected to receive two-thirds of this ($499,532) in the form of shares of Company stock in early 2019, further demonstrating the strong ownership culture that exists. The balance of $249,793 was paid in cash.

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Performance-based compensation outcomes for the other NEOs were validated against the operational performance achievements towards which they contributed towards. The NCSO Committee agreed with the President and Chief Executive Officer's assessment that the outcome was an appropriate reflection of performance in the year, and so no upward or downward modification was applied. Accordingly the following payments which is based on certain financial and non-financial performance measurements including Company and personal performance.were approved for our NEOs in respect of 2018 performance:

Named Executive Officer2018 Cash Performance-Based Compensation2018 Equity Performance-Based Compensation2018 Performance Based Compensation (% of salary)
Theodore Wahl$249,793 $499,532 75%  
John C. Shea$99,911 $— 19%  
Michael E. McBryan$149,867 $— 18%  
David Hurlock$199,822 $— 46%  
Andrew W. Kush$199,822 $— 53%  

Discretionary Long-Term Equity Incentive Awards. The Nominating, Compensation and Stock OptionNCSO Committee is responsible for determiningapproving the population of individuals who will be granted stock options,equity awards, the number of stock optionsequity awards each individual will receive, the option price per share (if applicable), and the vesting and exercise period (if applicable) of each stock option.award. Guidelines for the number of stock optionsequity awards granted to each executive officer are determined using a procedure approved by the Nominating, Compensation and Stock OptionNCSO Committee based upon several factors, including the executive officer'sofficer’s salary level, individual contributions to the Company’s performance and the value of the stock optionequity award at the time of grant. We grant stock optionsequity awards at the fair market value of the underlying stock on the date of grant. In January 2016, 2015

Long-term equity incentive awards are currently granted as a combination of stock options and 2014, the Nominating, Compensation and Stock Option Committee granted options to purchase an aggregate of approximately 103,000, 92,000 and 96,000 shares of Common Stock, respectively, to our current NEOs and directors. Additionally, in January 2016, 2015 and 2014, the Nominating, Compensation and Stock Option Committee granted restricted stock units. Given the Company does not provide guidance or set targets externally, the NCSO Committee determined that this approach remains appropriate. The NCSO Committee believes that the use of stock options and restricted stock units provides a clear incentive to the NEOs to deliver long-term sustainable and profitable growth which translates into value creation for our shareholders, in a responsible way. The vesting of awards is phased over a period of an aggregate of 39,400, 22,275 and 12,225 shares, respectively,five-years to our current NEOs. Such awards are detailed for the respective NEOs in the table reporting on Grant of Plan-Based Awards included inreinforce this proxy statement. long-term focus.

In making its decision to grant these awards, the Nominating, Compensation and Stock OptionNCSO Committee considered the competitive challenges to our business and the commitments of time, energyresulting focus, efforts and expertise our executive officers have expended to meet these challenges and foster the growth and financial position of the Company. In determining the award values the NCSO takes into account a range of factors including not just competitive market data, but also the performance of the company more generally and the contributions of individuals to our performance accomplishments in the prior year.

The Nominating, Compensationfollowing awards were approved and granted during 2018 to our NEOs:

Named Executive OfficerStock Options (#)Stock Option
Grant Date Fair Value		Restricted Stock Units (#)Restricted Stock Units
Grant Date Fair Value
Total Grant Date Fair Value1
Theodore Wahl50,000 $524,000 30,000 $1,561,800 $2,085,800 
John C. Shea10,000 $104,800 6,000 $312,360 $417,160 
Michael E. McBryan10,000 $104,800 6,000 $312,360 $417,160 
David Hurlock10,000 $104,800 6,000 $312,360 $417,160 
Andrew W. Kush10,000 $104,800 6,000 $312,360 $417,160 
1.All awards granted vest and are exercisable ratably over a five-year period on each yearly anniversary of the grant date of the award.

In January 2019, 2018 and 2017, the NCSO Committee granted options to purchase an aggregate of approximately 130,000, 125,000 and 95,000 shares of Common Stock, Optionrespectively, to our current NEOs and directors. In January 2019, 2018 and 2017, the NCSO Committee granted restricted stock units of an aggregate of approximately 76,500, 54,000, and 59,000 shares, respectively, to our NEOs. See the table entitled Grant of Plan-Based Awards included in this Proxy Statement for more information on the 2018 grants. The NCSO Committee has also granted stock optionsawards to all other levels of Company management and key employees and believes that the grant of the stock options to the NEOs is aligned with the grants to such management and key employees and also aligns the interest of management with shareholders. As indicated under "Compensation Objectives" above, the Nominating, Compensation and Stock Option Committee has not adopted any formal guidelines for allocating total compensation between cash and equity.providing collective alignment.

Deferred Compensation Plan.    We have a Supplemental Executive Retirement Plan (the "SERP"“SERP”) for certain executives and key employees. The SERP is not qualified under Section 401 of the Code. Effective 2010, theInternal Revenue Code of 1986, as amended. The SERP was amended to allow
21

allows participants to defer up to 25% of their earned income on a pre-tax basis. As of the last day of each plan year, each participant will receive a 25% match of up to 15% of their deferral in the form of our Common Stock based on the then current market value. SERP participants fully vest in our matching contribution three years from the first day of the initial year of participation. The income deferred and our matching contributions are unsecured and subject to the claims of our general creditors.

Under the SERP, we are authorized to issue up to 1,013,000 shares of our Common Stock to our employees. Pursuant to such authorization, 421,000approximately 385,000 shares are available for future grant at December 31, 2015 (after deducting2018. As of December 31, 2018 and since the 2015 funding of 15,000 shares delivered in 2016). In the aggregate, since initiation of the SERP, the Company'sCompany’s 25% match has resulted in 591,000approximately 627,000 shares (including the 2015 funding of shares delivered in 2016) being issued to the trustee. At the time of issuance, such shares wereare accounted for at cost, as treasury stock. At December 31, 2015,2018, approximately 359,000277,000 of such shares are vested and remain in the respective active participants’ accounts.

Employee Stock Purchase Plan.    We have an Employee Stock Purchase Plan ("ESPP"(“ESPP”) for all eligible employees. All full-time and certain part-time employees who have completed two years of continuous service with us are eligible to participate. On April 12, 2011,In August 2016, the Board of Directors extended the ESPP for an additional five offerings through 2016.2021. Annual offerings commence and terminate on the respective year'syear’s first and last calendar day. Under the ESPP, we are authorized to issue up to 4,050,000 shares of our Common Stock to our employees. Pursuant to such authorization, we have 2,362,0002,202,000 shares available for future grant at December 31, 2015.2018. Furthermore, under the terms of the ESPP, eligible employees may contribute through payroll deductions up to $21,250 (85% of IRS limitation) of their compensation toward the purchase of the Company'sCompany’s Common Stock. No employee may purchase Common Stock which exceeds $25,000 in fair market value (determined on the date of grant) for each calendar year. The price per share is equal to the lower of 85% of the fair market price on the first day of the offering period, or 85% of the fair market price on the day of purchase.

Other Elements of Compensation and Perquisites.

Medical Insurance. We provide to each NEO and their respective spouses and children such health, dental and optical insurance as we may from time to time make available to our other executives of the same level of employment.management employees. This insurance requires an employee co-payment of the insurance premium.

14


Life and Disability Insurance.We provide to each NEO such disability and/or life insurance as we in our sole discretion may from time to time make available to our other executive employees of the same level of employment.management employees.

Automobile Allowance. We provide some NEOs with an automobile allowance during the term of their employment with us as we in our sole discretion may from time to time make available to our other executive employees of the same level of employment.management employees.

Sporting Event Tickets. We obtain season tickets for several Philadelphia sports teams. Although these tickets are intended to be used for entertaining clients, unused tickets are made available to employees, including the NEOs, for personal use.

Compensation Risks

We believe that risks arising from our compensation policies and practices for our employees are not reasonably likely to have a material adverse effect on the Company. In addition, the Nominating, Compensation and Stock OptionNCSO Committee believes that the mix and design of the elements of executive compensation do not encourage management to assume excessive risks.

The Company has structured its compensation program so that certain employees are incentivized primarily on their ability to achieve revenue and profit objectives of the customer accounts under their supervision and generate new business. Additionally, incentive compensation is earned on the achievement of certain non-financial objectives at levels across the Company, such as recruiting and developing future management personnel, reviewing subordinate employees, maintaining good client relations and compliance with Company operational reporting requirements. The Company believes that elements of this incentive policy may be subject to abuse. Specifically, the Company recognizes that incentivizing employees for new business generation could result in employees entering into agreements without conducting proper due diligence or an appropriate analysis of the creditworthiness of the prospective client. Similarly, employees may be tempted to hire employees prior to their quarterly review in order to meet their recruitment goals. The Company recognizes that managers may be tempted to give better performance reviews of their subordinates in order to boost the appearance of their own performance. Also, the Company recognizes that in preparing budgets upon which an employee will be reviewed, an employee may seek to be too conservative in his or her estimates in order to more easily achieve performance targets. The Company has carefully designed its compensation policies and practices to diminish the potential abuses inherent in such programs to avoid unnecessary risks to the Company and its shareholders.


15
22

One of the ways in which the NCSO Committee believes the chance of inappropriate risk-taking is indirectly mitigated is the high levels of stock ownership among our senior leaders. In response to feedback, the NCSO Committee has adopted a formal stock ownership program, detailed below.

Stock Ownership Guidelines

As of January 1, 2018, the NCSO Committee adopted stock ownership guidelines for the Company’s executive officers. The guidelines provide that for the Company’s executive officers in place as of January 1, 2018, the executive officers should hold an amount of Company stock with a value that is at least equal to a specified multiple of their base salary within five years of the adoption of the guidelines. Future executive officers must attain the guideline ownership within five years of the date that the executive officer becomes an executive officer. In accordance with this policy, the President and Chief Executive Officer is required to hold stock with a value of at least six times his base salary, while the Company’s other executive officers are required to hold stock with a value of at least two times their base salary.

Stock ownership includes shares owned outright, unvested restricted stock and restricted stock units, and stock equivalents held under deferred compensation arrangements. Additionally, one-half of the guidelines may be met by vested, in-the-money stock options held by the executive. If an executive does not meet their ownership requirement on the applicable measurement date, the executive must retain all net shares from the exercise of stock options and the vesting of restricted stock and restricted stock units until compliance is achieved. As of December 31, 2018, all NEOs had stock holdings that were in compliance with the stock ownership guidelines.

Named Executive Officer
Ownership Requirement
(% of salary)
Current Ownership
(% of salary)
Current Ownership
(% of requirement)
Theodore Wahl600%1,431%  239%  
John C. Shea200%253%  127%  
Michael E. McBryan200%493%  246%  
David Hurlock200%287%  144%  
Andrew W. Kush200%355%  178%  

Change of Control

In April 2018, the Board, through the adoption of the second Amended and Restated 2012 Equity Incentive Plan, amended the terms of the 2012 Equity Incentive Plan to include a “double trigger” approach to vesting of stock awards upon a change in control, rather than providing vesting solely upon such change in control (a “single trigger” approach). Under a double trigger approach, vesting would occur if a change in control occurs and the outstanding equity awards are not fully assumed, or where the outstanding equity awards are fully assumed by the resulting entity and the participant is subsequently terminated or resigns for good reason. We believe a double trigger approach provides adequate employment protections and reduces, for the stockholders’ benefit, potential transaction costs associated with the awards.

Clawback Policy

In April 2019, the Board of Directors approved and implemented a clawback policy that provides the NCSO Committee with the discretion to clawback performance-based and equity compensation in the event of restatement of Company financial statements. The NCSO Committee will review all performance-based and equity compensation awarded to or earned by or officers subject to Section 16(b) to the Securities Exchange Act 1934 during the three-year period prior to any to restatement of the Company’s financial results. If the Committee determines such officer engaged in intentional or unlawful misconduct which materially contributed to the need for such restatement, the Committee may determine that a clawback is appropriate.
23

Summary Compensation Table

The following table sets forth certain information regarding compensation paid or accrued during the Company’s prior three fiscal years, as applicable, for the Company’s President and Chief Executive Officer, Chief Financial Officer, former Chief Executive Officer and the three highest paid executive officersNEOs serving at the end of 2015 (the NEOs).2018.
Salary 
Stock Awards1
Option Awards1
Non-Equity Incentive Plan Compensation2
Nonqualified Deferred Compensation Earnings
All Other Compensation3
Total 
Name and Principal PositionYear($) ($) ($) ($)($) ($) ($) 
Theodore Wahl20181,005,108 2,073,709 524,000 249,793 37,692 10,796 3,901,098 
President & Chief Executive Officer & Director20171,005,108 1,799,983 255,600 333,084 37,692 10,095 3,441,562 
20161,005,108    512,100 111,900 — 37,692 10,900 1,677,700 
John C. Shea2018523,558 312,360 104,800 99,911 22,798 12,340 1,075,767 
Executive Vice President & Chief Financial Officer2017450,000 380,017 14,058 66,483 18,718 5,822 935,098 
2016450,000 73,401 12,309 — 16,875 5,832 558,417 
Michael E. McBryan2018811,413 320,443 104,800 149,867 36,975 20,312 1,443,810 
Executive Vice President & Chief Revenue Officer & Director2017102,492 123,063 127,800 888,000 37,143 12,150 1,290,648 
2016102,492   106,688 111,900 888,000 37,143 12,100 1,258,323 
David Hurlock4
2018434,135 316,149 104,800 199,822 22,585 9,900 1,087,391 
Executive Vice President & Chief Operating Officer2017286,058 380,011 63,900 189,644 17,302 12,700 949,615 
Andrew W. Kush5
2018374,038 312,360 104,800 199,822 21,007 10,112 1,022,139 
Executive Vice President & Chief Administrative Officer2017324,518 334,730 51,120 199,448 12,562 — 922,378 
1.The total amounts in these columns do not reflect compensation actually received by the NEO, nor do they reflect the actual value that will be recognized by the NEO. Instead, the amounts reflect the aggregate grant date fair value of restricted stock and restricted stock unit awards, incentive awards received in stock, ESPP awards and stock option awards computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718. A more detailed discussion of the assumptions used in calculating these values may be found in Note 10 of the Notes to the Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2018. Refer also to the Compensation Discussion and Analysis for further information.
2.Amounts shown in this column represent annual performance-based cash payments under the annual incentive program, as described in the Compensation Discussion and Analysis.
3.Includes automobile allowance, contributions paid by the Company towards employee’s health insurance premiums and personal use of tickets for sporting events.
4.Mr. Hurlock became an executive officer in 2017. Prior thereto, he was a Senior Vice President of Operations.
5.Mr. Kush became an executive officer in 2017. Prior thereto, he was the Senior Vice President of Human Resources & Risk Management.

24
    Salary
  
Bonus 
Stock Awards (5)
 
Option Awards (5)
 Nonqualified Deferred Compensation Earnings 
All Other Compensation (6)
 Total 
Name and Principal Position Year ($) ($) ($) ($) ($) ($) ($)
Theodore Wahl 2015 1,005,376
 —
 227,250
 99,600
 37,702
 8,616
 1,378,544
President & Chief 2014 998,142
   
—
 105,075
 123,600
 38,150
 8,616
 1,273,583
Executive Officer & Director 2013 996,255
   
—
 23,500
 102,150
 37,360
 8,616
 1,167,881
John C. Shea 2015 450,000
   
—
 49,995
 10,956
 16,875
 3,776
 531,602
Chief Financial Officer 2014 447,736
 —
 17,513
 51,500
 17,113
 3,776
 537,638
  2013 389,039
 —
 8,225
 34,050
 14,589
 976
 446,879
Bryan D. McCartney 2015 106,434
 868,406
 75,750
 99,600
 36,557
 13,000
 1,199,747
Executive Vice President 2014 102,492
   
705,766
 58,546
 123,600
 30,310
 13,000
 1,033,714

 2013 102,492
   
723,267
 32,767
 102,150
 30,966
 13,000
 1,004,642
Michael E. McBryan 2015 106,434
   
868,406
 75,750
 99,600
 36,553
 13,000
 1,199,743
Executive Vice President & 2014 102,492
 708,766
 58,171
 123,600
 30,422
 13,000
 1,036,451
Director 2013 102,492
 723,267
 30,043
 102,150
 30,966
 13,000
 1,001,918
Daniel P. McCartney 2015 520,526
(1) 
—
 227,250
 99,600
 19,520
 17,804
 884,700
Chairman of the Board & 2014 1,005,108
(2) 
—
 105,075
 123,600
 38,416
 18,705
 1,290,904
former Chief Executive Officer 2013 1,005,108
(3) 
—
 23,500
 102,150
 37,692
 17,805
 1,186,255
Jason J. Bundick 2015 311,250
(6) 
99,671
 18,938
 33,200
 10,273
 2,800
 476,132
General Counsel & Secretary 2014 262,205
 69,089
 9,807
 41,200
 4,204
 2,800
 389,305
  2013 249,423
 —
 —
 23,835
 —
 —
 273,258
                 
(1)
Represents a base salary of $19,000 and 1.58% of 2014 reported income before income taxes ($31,708,000), all of which was paid in 2015.
(2)
Represents a base salary of $19,000 and 1.48% of 2013 reported income before income taxes ($66,489,000), all of which was paid in 2014.
(3)
Represents a base salary of $19,000 and 1.40% of 2012 reported income before income taxes ($70,264,000), all of which was paid in 2013.
(4)
The amounts in these columns do not reflect compensation actually received by the NEO, nor do they reflect the actual value that will be recognized by the NEO. Instead, the amounts reflect the aggregate grant date fair value of stock and option awards granted under either our ESPP or stock option plan computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718. ESPP awards are valued at the difference between the fair market value of the Company's common stock at the award date and the respective ESPP purchase price. Restricted stock awards are valued utilizing the grant date fair value. Stock options are valued utilizing the Black-Scholes option valuation model on the date of grant. A more detailed discussion of the assumptions of our ESPP and stock option plan may be found in Note 9 of the Notes to the Financial Statements in our Form 10-K for the year ended December 31, 2015.
(5)
Includes automobile allowance, contributions paid by the Company towards employee's health insurance premiums and personal use of tickets for sporting events.
(6)
Mr. Bundick became a NEO in 2015. Prior thereto, he was an executive officer of the Company.


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Grant of Plan-Based Awards

The following table sets forth information concerning grants of plan-based awards made by us during the year ended December 31, 2015,2018, to each of the NEOs.

 
Grant
Date
 
Date
Award
Approved
 
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 Options
Awards
 
Grant Date
Fair Value of
Stock and
Option
Awards
Grant
Date
Date
Award
Approved
Estimated Future Payouts Under Equity Incentive Plan Awards1
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 Options
Awards
Grant Date
Fair Value of
Stock and
Option
Awards
Name (#) (#) ($/sh) ($)NameTarget (#)(#) (#) ($/sh) ($) 
Theodore Wahl 1/5/2015 12/16/2014 7,500
 15,000
 $30.30
 326,850
Theodore Wahl1/4/201812/12/2017— 30,000 50,000 $52.06 $2,085,800 
12/31/201812/12/201716,088 — — $31.05 $499,532 
John C. Shea 1/5/2015 12/16/2014 1,650
 1,650
 $30.30
 60,951
John C. Shea1/4/201812/12/2017— 6,000 10,000 $52.06 $417,160 
Bryan D. McCartney 1/5/2015 12/16/2014 2,500
 15,000
 $30.30
 175,350
Michael E. McBryan 1/5/2015 12/16/2014 2,500
 15,000
 $30.30
 175,350
Michael E. McBryan1/4/201812/12/2017— 6,000 10,000 $52.06 $417,160 
Daniel P. McCartney 1/5/2015 12/16/2014 7,500
 15,000
 $30.30
 326,850
Jason Bundick 1/5/2015 12/16/2014 625
 5,000
 30.30
 52,138
        
David HurlockDavid Hurlock1/4/201812/12/2017— 6,000 10,000 $52.06 $417,160 
Andrew W. KushAndrew W. Kush1/4/201812/12/2017— 6,000 10,000 $52.06 $417,160 
1.Represents the shares received during 2019 as a result of Mr. Wahl's election to receive a portion of his 2018 performance based compensation in Company stock. The grant date of such shares is reflected as the date in which the total amount of such performance based compensation is earned by Mr. Wahl.

Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards Table

The Company has not entered into employment contracts with any of the NEOs. No previously granted options or other equity-based awards were re-priced or otherwise materially modified during the fiscal year ended December 31, 2015.2018. As set forth above in the "Compensation“Compensation Discussion and Analysis,"” the Company believes that part of the compensation for the NEOs should be in the form of long-term equity grants so as to align the interests of the Named Executive OfficersNEOs with the Company'sCompany’s shareholders. In accordance with these objectives, Messrs.Mr. Wahl Shea, Bryan McCartney, McBryan, Daniel McCartney, and Bundick received stock options to purchase 50,000 shares of 15,000, 1,650, 15,000, 15,000, 15,000 and 5,000 shares, respectively,Common Stock and restricted stock awardsunits of 7,500, 1,650, 2,500, 2,500, 7,50030,000. Messrs. Shea, McBryan, Hurlock, and 625Kush each received stock options to purchase 10,000 shares respectively.of Common Stock, and restricted stock units of 6,000. These stock options and restricted stock awardsunits vest over five years, as an incentive to the NEOs to increase the long-term value of the Company and thereby increase the value of its Common Stock.


17
25


Outstanding Equity Awards at December 31, 20152018 

The following tables set forth information concerningtable summarizes the outstanding equity awards of each of the NEOs as of December 31, 2015:2018:
Option AwardsStock Awards
Name
Grant Date1
Vested, ExercisableUnvestedOption Exercise
Price		Option
Expiration Date
Unvested2
Market Value of Unvested3
Theodore Wahl1/4/201011,250 — $14.3067 1/4/2020— $— 
1/6/201115,000 — $16.1100 1/6/2021— $— 
1/5/201215,000 — $17.5000 1/5/2022— $— 
1/4/201315,000 — $23.5000 1/4/2023— $— 
1/3/201412,000 3,000 $28.0200 1/3/2024750 $30,135 
1/5/20159,000 6,000 $30.3000 1/5/20253,000 $120,540 
1/4/20166,000 9,000 $34.1400 1/4/20269,000 $361,620 
1/4/20176,000 24,000 $39.3800 1/4/202724,000 $964,320 
1/4/2018— 50,000 $52.0600 1/4/202830,000 $1,205,400 
John C. Shea1/5/20125,000 — $17.5000 1/5/2022— $— 
1/4/20135,000 — $23.5000 1/4/2023— $— 
1/3/20145,000 1,250 $28.0200 1/3/2024125 $5,023 
1/5/2015990 660 $30.3000 1/5/2025660 $26,519 
1/4/2016660 990 $34.1400 1/4/20261,290 $51,832 
1/4/2017330 1,320 $39.3800 1/4/20277,720 $310,190 
1/4/2018— 10,000 $52.0600 1/4/20286,000 $241,080 
Michael E. McBryan1/6/201115,000 — $16.1100 1/6/2021— $— 
1/5/201215,000 — $17.5000 1/5/2022— $— 
1/4/201315,000 — $23.5000 1/4/2023— $— 
1/3/201412,000 3,000 $28.0200 1/3/2024375 $15,068 
1/5/20159,000 6,000 $30.3000 1/5/20251,000 $40,180 
1/4/20166,000 9,000 $34.1400 1/4/20261,875 $75,338 
1/4/20173,000 12,000 $39.3800 1/4/20272,500 $100,450 
1/4/2018— 10,000 $52.0600 1/4/20286,000 $241,080 
David Hurlock 1/4/20135,000 — $23.5000 1/4/2023— $— 
1/3/20145,000 1,250 $28.0200 1/3/2024125 $5,023 
1/5/20154,500 3,000 $30.3000 1/5/2025450 $18,081 
1/4/20163,000 4,500 $34.1400 1/4/2026900 $36,162 
1/4/20171,500 6,000 $39.3800 1/4/20271,200 $48,216 
9/7/2017— — $50.1000 — 5,124 $205,882 
1/4/2018— 10,000 $52.0600 1/4/20286,000 $241,080 
Andrew W. Kush 1/6/20112,000 — $16.1100 1/6/2021— $— 
1/5/20125,000 — $17.5000 1/5/2022— $— 
1/4/20135,000 — $23.5000 1/4/2023— $— 
1/3/20144,000 1,000 $28.0200 1/3/202470 $2,813 
1/5/20153,000 2,000 $30.3000 1/5/2025250 $10,045 
1/4/20162,400 3,600 $34.1400 1/4/2026600 $24,108 
1/4/20171,200 4,800 $39.3800 1/4/20276,800 $273,224 
1/4/2018— 10,000 $52.0600 1/4/20286,000 $241,080 
1.Options and stock awards vest 20% per year on the anniversary of the grant date for each of the five years subsequent to the grant date.
2.Unless otherwise noted herein, restricted stock awards and restricted stock units vest at the rate of 20% annually, commencing on the first anniversary from the grant date, subject to accelerated vesting upon certain terminations of employment following certain corporate transactions involving the Company. The shares of common stock underlying the restricted stock awards and restricted stock units will be issued upon vesting.
3.Valued based on the closing price of a share of the Company’s common stock on December 31, 2018 as reported on the NASDAQ Global Select Market ($40.18).


26

  Option Awards Stock Awards
  
Number of Securities
Underlying Unexercised Options
Exercisable
 
Number of Securities
Underlying Unexercised Options
Unexercisable
 
Option
Exercise
Price
 
Option
Expiration
Date
 
Number of
Shares or Units of
Stock That Have Not Vested (1)
 
Market Value
of Shares or
Units of Stock
That Have Not
Vested (2)
Name (#) (#) ($)  (#) ($)
Theodore Wahl 7,500
 —
 $10.3867
 1/5/2019
 —
 —
  11,250
 —
 $14.3067
 1/4/2020
 —
 —
  15,000
 —
 $16.1100
 1/6/2021
 —
 —
  12,000
 3,000
 $17.5000
 1/5/2022
 —
 —
  9,000
 6,000
 $23.5000
 1/4/2023
 —
 —
  6,000
 9,000
 $28.0200
 1/3/2024
 —
 —
  3,000
 12,000
 $30.3000
 1/5/2025
 —
 —
  —
 15,000
 $34.1400
 1/4/2026
 —
 —
  —
 —
 —
 —
 600
 20,922
  —
 —
 —
 —
 3,000
 104,610
  —
 —
 —
 —
 7,500
 261,525
John C. Shea 750
 —
 $14.3067
 1/4/2020
 —
 —
  4,000
 —
 $16.1100
 1/6/2021
 —
 —
  4,000
 1,000
 $17.5000
 1/5/2022
 —
 —
  3,000
 2,000
 $23.5000
 1/4/2023
 —
 —
  2,500
 3,750
 $28.0200
 1/3/2024
 —
 —
  330
 1,320
 $30.3000
 1/5/2025
 —
 —
  —
 1,650
 $34.1400
 1/4/2026
 —
 —
  —
 —
 —
 —
 210
 7,323
  —
 —
 —
 —
 500
 17,435
  —
 —
 —
 —
 1,650
 57,536
Bryan D. McCartney 22,500
 —
 $13.9267
 1/3/2018
 —
 —
  22,500
 —
 $14.3067
 1/4/2020
 —
 —
  15,000
 —
 $16.1100
 1/6/2021
 —
 —
  12,000
 3,000
 $17.5000
 1/5/2022
 —
 —
  9,000
 6,000
 $23.5000
 1/4/2023
 —
 —
  6,000
 9,000
 $28.0200
 1/3/2024
 —
 —
  3,000
 12,000
 $30.3000
 1/5/2025
 —
 —
  —
 15,000
 $34.1400
 1/4/2026
 —
 —
  —
 —
 —
 —
 600
 20,922
  —
 —
 —
 —
 1,500
 52,305
  —
 —
 —
 —
 2,500
 87,135
Michael E. McBryan 22,500
 —
 $13.9267
 1/3/2018
 —
 —
  22,500
 —
 $14.3067
 1/4/2020
 —
 —
  15,000
 —
 $16.1100
 1/6/2021
 —
 —
  12,000
 3,000
 $17.5000
 1/5/2022
 —
 —
  9,000
 6,000
 $23.5000
 1/4/2023
 —
 —
  6,000
 9,000
 $28.0200
 1/3/2024
 —
 —
  3,000
 12,000
 $30.3000
 1/5/2025
 —
 —
  —
 15,000
 $34.1400
 1/4/2026
 —
 —
  —
 —
 —
 —
 600
 20,922
  —
 —
 —
 —
 1,500
 52,305
  —
 —
 —
 —
 2,500
 87,135
             




18


  Option Awards Stock Awards
  
Number of Securities
Underlying Unexercised Options
Exercisable
 
Number of Securities
Underlying Unexercised Options
Unexercisable
 
Option
Exercise
Price
 
Option
Expiration
Date
 
Number of
Shares or Units of
Stock That Have Not Vested (1)
 
Market Value
of Shares or
Units of Stock
That Have Not
Vested (2)
Name (#) (#) ($)  (#) ($)
Daniel P. McCartney 37,500
 —
 $13.9267
 1/3/2018
 —
 —
  37,500
 —
 $10.3867
 1/5/2019
 —
 —
  37,501
 —
 $14.3067
 1/4/2020
 —
 —
  25,000
 —
 $16.1100
 1/6/2021
 —
 —
  20,000
 5,000
 $17.5000
 1/5/2022
 —
 —
  9,600
 6,000
 $23.5000
 1/4/2023
 —
 —
  6,000
 9,000
 $28.0200
 1/3/2024
 —
 —
  3,000
 12,000
 $30.3000
 1/5/2025
 —
 —
  —
 15,000
 $34.1400
 1/4/2026
 —
 —
  —
 —
 —
 —
 600
 20,922
  —
 —
 —
 —
 3,000
 104,610
  —
 —
 —
 —
 7,500
 261,525
Jason Bundick 2,100
 1,400
 $23.5000
 1/4/2023
 —
 —
  2,000
 3,000
 $28.0200
 1/3/2024
 —
 —
  1,000
 4,000
 $30.3000
 1/5/2025
 —
 —
  —
 6,000
 $34.1400
 1/4/2026
 —
 —
  —
 —
 —
 —
 280
 9,764
  —
 —
 —
 —
 625
 21,794
             

(1)
Unless otherwise noted herein, restricted stock awards vest at the rate of 20% annually, commencing on the first anniversary from the grant date, subject to accelerated vesting upon certain terminations of employment following certain corporate transactions involving the Company. The shares of common stock underlying the restricted stock awards will be issued upon vesting.
(2)
Valued based on the closing price of a share of the Company's Common Stock on December 31, 2015 as reported on the NASDAQ Global Select Market ($34.87).

Option Exercises and Stock Vested during 2015During 2018 

The following table sets forth information concerning the option exercises and stock awards vested of each of the NEOs during the year ended December 31, 2015:2018: 

 Stock Option AwardsRestricted Stock and Restricted Stock Units
Number of Shares Acquired On ExerciseValue Realized on ExerciseNumber of Shares Acquired On VestingValue Realized on Vesting
Name(#) ($) (#) ($) 
Theodore Wahl7,500 282,400 11,450 597,992 
John C. Shea— — 2,885 150,619 
Michael E. McBryan— — 2,325 121,655 
David Hurlock— — 2,302 106,549 
Andrew W. Kush— — 2,095 109,223 

  Option Awards Stock Awards
  Number of Shares Acquired On Exercise Value Realized on Exercise Number of Shares Acquired On Vesting Value Realized on Vesting
Name (#) ($) (#) ($)
Theodore Wahl —
 —
 950
 29,289
John C. Shea —
 —
 195
 6,012
Bryan D. McCartney 22,500
 836,325
 575
 17,727
Michael E. McBryan 22,500
 836,325
 575
 17,727
Daniel P. McCartney —
 —
 950
 29,289
Jason Bundick —
 —
 70
 2,158
         


19


Nonqualified Deferred Compensation

The following table sets forth information concerning the non-qualified deferred compensation of each of the NEOs during the year ended December 31, 2015,2018, as well as the aggregate balance of non-qualified deferred compensation as of December 31, 2015.2018.

  Executive Contributions in Last FY Registrant Contributions in Last FY Aggregate Earnings in Last FY Aggregate Balance at Last FYE
Name ($) ($) ($) ($)
Theodore Wahl 150,807
 37,702
 (1,198) 1,196,242
John C. Shea 67,500
 16,875
 7,871
 394,571
Bryan D. McCartney 243,710
 36,557
 132,778
 3,316,851
Michael E. McBryan 243,684
 36,553
 135,877
 3,592,301
Daniel P. McCartney 78,079
 19,520
 316,014
 6,055,029
Jason Bundick 41,092
 10,273
 (4,223) 64,643
         
Directors' Compensation

NameExecutive Contributions in Last FYRegistrant Contributions in Last FYAggregate Loss in Last FYAggregate Balance at Last FYE
Theodore Wahl$150,766 $37,692 $(246,453)$2,081,443 
John C. Shea$91,193 $22,798 $(88,098)$775,870 
Michael E. McBryan$246,501 $36,975 $(608,905)$5,236,204 
David Hurlock$90,341 $22,585 $(129,229)$1,074,958 
Andrew W. Kush$84,026 $21,007 $(57,515)$423,943 
Directors who are also
Pay Ratio Disclosure

At December 31, 2018, we had over 53,000 employees, all located in the United States. Our diverse employee population varies significantly in experience, education, specialized training and status (full-time, part-time or temporary). Regardless of the employee’s role in the organization or their location, the process for setting employee compensation is the same: local market competitive data is reviewed to set base pay rates. Individual compensation is then adjusted from these base pay rates to reflect the individual’s role and responsibilities, as well as his or her experience, education, specialized training and overall performance.

We determined the total annual compensation for our employees are not separately compensated for their service as directors. Our non-employee directors received the following aggregate amounts of compensation for the year ended December 31, 2015:
  Fees Earned or Paid in Cash 
Option Awards (8)(9)
 Total
Name ($) ($) ($)
John Briggs (1)
 51,000
 33,207
 84,207
Robert L. Frome (2)
 5,000
 33,207
 38,207
Robert J. Moss (3)
 11,000
 33,207
 44,207
Dino D. Ottaviano (4)
 14,000
 33,207
 47,207
Diane S. Casey (5)
 8,000
 33,207
 41,207
John J. McFadden (6)
 8,000
 33,207
 41,207
Jude Visconto (7)
 2,000
 —
 2,000
       
(1)
Mr. Briggs had vested options to purchase 13,778 shares of Common Stock outstanding as of December 31, 2015.
(2)
Mr. Frome had vested options to purchase 28,356 shares of Common Stock outstanding as of December 31, 2015.
(3)
Mr. Moss had vested options to purchase 24,991 shares of Common Stock outstanding as of December 31, 2015.
(4)
Mr. Ottaviano had vested options to purchase 9,350 shares of Common Stock as of December 31, 2015.
(5)
Ms. Casey had vested options to purchase 6,003 shares of Common Stock as of December 31, 2015.
(6)
Mr. McFadden had vested options to purchase 3,002 shares of Common Stock as of December 31, 2015.
(7)
Mr. Visconto was elected2018 using data from our payroll records for the month of December 2018, which we then extrapolated for the full year of 2018. The components of total annual compensation for our employees are the same as those used to determine the total compensation of our NEOs for the Board in May 2015.
(8)
Represents the dollar amount recognized for financial statement reporting purposes with respect to the grant date fair value of option grants made to each director during the 2015 fiscal year. The fair value was estimated using the Black-Scholes option valuation model in accordance with FASB ASC Topic 718.
(9)
All stock option awards granted in 2015 become vested and exercisable ratably over a five year period on each yearly anniversary date of the option grant.

Directors’ Fees

The Company pays each director who is not an employee of the Company $1,000Summary Compensation table. We did not annualize the compensation for each regularemployees in temporary positions or committee meetingmake any full-time equivalent adjustments. The results were then ranked, excluding the President and Chief Executive Officer, from lowest to highest, and the median employee was identified. We then compared the total annual compensation of the Board of Directors attended. In addition, Mr. Briggs receives a quarterly retainer of $10,000 with respectmedian employee to his chairmanshipthat of the Audit CommitteePresident and service as the Audit Committee Financial Expert.

20



Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a)Chief Executive Officer. The total annual compensation of the Exchange Act requires the Company’s Directors, executive officers and 10% shareholders to file with the SEC and NASDAQ initial reports of ownership and reports of changes in ownership of the Company’s Common Stock. Directors and executive officers are required to furnish the Company with copies of all Section 16(a) reports which they file.

To the Company’s knowledge, based solely on review of the copies of these reports furnished to the Company and written representations that no other reports were required, during 2015 all Section 16(a) filing requirements applicable to its directors and executive officers were complied with.

Sarbanes-Oxley Act Compliance

Sarbanes-Oxley sets forth various requirements for public companies and directs the SEC to adopt additional rules and regulations.

Currently, the Company believes it is in compliance with all applicable laws, rules and regulations arising from Sarbanes-Oxley. The Company intends to comply with any additional rules and regulations adopted by the SEC pursuant to Sarbanes-Oxley no later than the time they become applicable to the Company.

21


AUDIT COMMITTEE REPORT

The members of the Audit Committee from January 1, 2015 to December 31, 2015 were Messrs. John M. Briggs, Robert J. Moss and Dino Ottaviano. The Audit Committee met five times during the fiscal year ended December 31, 2015. The Audit Committee is responsible for the appointment of the Independent Auditors for each fiscal year, recommending the discharge of the Independent Auditors to the Board and confirming the independence of the Independent Auditors. It is also responsible for: reviewing and approving the scope of the planned audit, the results of the audit and the Independent Auditors' compensation for performing such audit; reviewing the Company's audited financial statements; and reviewing and approving the Company's internal accounting controls and disclosure procedures, and discussing such controls and procedures with the Independent Auditors.

The Audit Committee adopted an Amended and Restated Audit Committee Charter on February 12, 2004, a copy of which is available on the Company's website at www.hcsg.com.

The Company’s Independent Auditors are responsible for auditing the financial statements, as well as auditing the Company’s internal controls over financial reporting. The activities of the Audit Committee are in no way designed to supersede or alter those traditional responsibilities. The Audit Committee’s role does not provide any special assurances with regard to the Company’s financial statements, nor does it involve a professional evaluation of the quality of the audits performed by the Independent Auditors.

In connection with the audit of the Company’s financial statementsmedian employee for the year ended December 31, 2015,2018 was $22,338. For the Audit Committee met with representatives from Grant Thornton LLP, the Company’s Independent Auditors, and the Company’s internal auditor. The Audit Committee reviewed and discussed with Grant Thornton LLP and the Company’s internal auditor, the Company’s financial management and financial structure, as well as the matters relating to the audit required by the Public Company Accounting Oversight Board Auditing Standard.

The Audit Committee and Grant Thornton LLP also discussed Grant Thornton LLP’s independence. In November 2015, the Audit Committee received from Grant Thornton LLP the written disclosures and the letter regarding Grant Thornton LLP’s independence required by Public Company Accounting Oversight Board Rule 3526.

In addition, the Audit Committee reviewed and discussed with management the Company’s audited financial statements for the fiscal year ended December 31, 2015, as well as management’s assessment2018, the ratio of internal controls over financial reporting.

Based upon the review and discussions described above, the Audit Committee recommended to the Board of Directors, and the Board of Directors approved, that the Company’s financial statements audited by Grant Thornton LLP, as well as the audit of the Company’s internal controls over financial reporting be included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015.


AUDIT COMMITTEE
John M. Briggs, Chairman
Robert J. Moss
Dino D. Ottaviano



22


NOMINATING, COMPENSATION AND STOCK OPTION COMMITTEE REPORT

The compensation of theour President and Chief Executive OfficerOfficer’s total annual compensation to that of our median employee was approximately 175:1.

The SEC rules for identifying the median employee and calculating the pay ratio based on that employee’s total annual compensation allow companies to adopt a variety of methodologies, to apply certain exclusions and to make reasonable estimates and assumptions that reflect their compensation practices. As such, the pay ratio reported by other companies may not be comparable to the pay ratio reported above, as other companies may have different employment and compensation practices and may utilize different methodologies, exclusions, estimates and assumptions in calculating their own pay ratios.
27

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information as of April 1, 2019, regarding the beneficial ownership of Common Stock by each person or group known by the Company to own: (i) 5% or more of the outstanding shares of Common Stock, (ii) each director and director nominee of the Company, is determined by(iii) the Nominating, CompensationNamed Executive Officers as defined in Item 402(a)(3) of Regulation S-K and Stock Option Committee. The compensation of the former Chief Executive Officer was also determined by the Nominating, Compensation(iv) all current directors and Stock Option Committee, Such Committee’s determinations regarding such compensation are based on a number of factors including, in order of importance:
Consideration of the operating and financial performance of the Company, primarily its income before income taxes during the preceding fiscal year, as compared with prior operating periods;
Attainment of a level of compensation designed to retain a superior executive in a highly competitive environment; and
Consideration of the individual’s overall contribution to the Company.

In consultation with the President and Chief Executive Officer of the Company, the Nominating, Compensation and Stock Option Committee develops guidelines and reviews the compensation and performance of the other executive officers of the Company as well as any management fees paida group. The persons named in the table have sole voting and investment power with respect to all shares of Common Stock owned by them, unless otherwise noted.

Name and Beneficial Owner or Group1
Amount and Nature of Beneficial Ownership
Percent of Class2
BlackRock, Inc.3
8,497,753 411.5 %
The Vanguard Group, Inc.3
7,393,187 510.0 %
Janus Henderson Group, plc.3
4,255,811 65.7 %
William Blair Investment Management, LLC.3
4,176,253 75.6 %
T. Rowe Price Associates, Inc.3
3,697,909 85.0 %
Theodore Wahl382,520 9- 22
Michael E. McBryan144,854 10- 22
Robert L. Frome58,011 11- 22
John M. Briggs47,418 12- 22
David Hurlock41,813 13- 22
Andrew W. Kush36,092 14- 22
John C. Shea33,838 15- 22
Robert J. Moss13,005 16- 22
Dino D. Ottaviano21,501 17- 22
John J. McFadden20,006 18- 22
Diane S. Casey10,002 19- 22
Jude Visconto6,003 20- 22
Daniela Castagnino-- 22
Directors and Executive Officers as a group (14 persons)836,357 211.1 %
1.Unless otherwise indicated, the Company for executive services,address of all persons is c/o Healthcare Services Group, Inc., 3220 Tillman Drive, Suite 300, Bensalem, PA 19020.
2.Based on 74,058,000 shares of Common Stock outstanding at April 1, 2019.
3.The address of Blackrock, Inc. is 55 East 52nd Street, New York, NY 10055.
The address of The Vanguard Group, Inc. is 100 Vanguard Blvd., Malvern, PA 19355.
The address of Janus Henderson Group, plc. is 201 Bishopsgate EC2M 3AE, United Kingdom.
The address of William Blair Investment Management, LLC. is 150 North Riverside Plaza, Chicago, IL 60606.
The address of T. Rowe Price Associates, Inc. is 100 E. Pratt Street, Baltimore, MD 21202.
4.According to a Schedule 13G filed by BlackRock, Inc. on January 28, 2019, it has total beneficial ownership of 8,497,753 shares. Such beneficial ownership includes sole voting power with respect to 8,163,477 shares, and setssole dispositive power with respect to 8,497,753 shares.
5.According to a Schedule 13G filed by The Vanguard Group, Inc. on January 10, 2019, it has total beneficial ownership of 7,393,187 shares. Such beneficial ownership includes sole voting power with respect to 153,124 shares, shared voting power with respect to 15,255 shares, sole dispositive power with respect to 7,231,908 shares and shared dispositive power with respect to 161,279 shares.
28
Security Ownership of Certain Beneficial Owners and Management

6.According to a Schedule 13G filed by Janus Henderson Group, plc. on February 12, 2019, it has total beneficial ownership of 4,255,811 shares. Such beneficial ownership includes shared voting and dispositive power with respect to 4,255,811 shares.
7.According to a Schedule 13G filed by William Blair Investment Management, LLC. on February 13, 2019, it has total beneficial ownership of 4,176,253 shares. Such beneficial ownership includes sole voting power with respect to 3,814,247 shares, and sole dispositive power with respect to 4,176,253 shares.
8.According to a Schedule 13G filed by T. Rowe Price Associates, Inc. on February 14, 2019, it has total beneficial ownership of 3,697,909 shares. Such beneficial ownership includes sole voting power with respect to 679,556 shares, and sole dispositive power with respect to 3,697,909 shares.
9.Theodore Wahl’s beneficial ownership includes incentive stock options to purchase 54,056 shares, and nonqualified stock options to purchase 60,194 shares, all currently exercisable, and 12,391 shares credited to Mr. Wahl’s account (but unissued) in connection with the compensationCompany’s SERP. Additionally, it includes 83,725 and 32,045 shares held by Mr. Wahl’s wife and minor children, respectively.
10.Michael E. McBryan’s beneficial ownership includes incentive stock options to purchase 23,846 shares and nonqualified stock options to purchase 65,154 shares, all currently exercisable, and 36,397 shares credited to Mr. McBryan’s account (but unissued) in connection with the Company’s SERP.
11.Robert L. Frome’s beneficial ownership includes nonqualified stock options to purchase 37,510 shares, all currently exercisable.
12.John M. Briggs’ beneficial ownership includes nonqualified stock options to purchase 28,782 shares, all currently exercisable.
13.David Hurlock’s beneficial ownership includes incentive stock options to purchase 15,253 shares and nonqualified stock options to purchase 11,497 shares, all currently exercisable and 6,900 shares credited to Mr. Hurlock’s account (but unissued) in connection with the Company’s SERP.
14.Andrew W. Kush’s beneficial ownership includes incentive stock options to purchase 22,419 shares and nonqualified stock options to purchase 6,581 shares, all currently exercisable and 2,642 shares credited to Mr. Kush’s account (but unissued) in connection with the Company’s SERP.
15.John C. Shea’s beneficial ownership includes incentive stock options to purchase 19,809 shares, all currently exercisable and 4,334 shares credited to Mr. Shea’s account (but unissued) in connection with the Company’s SERP.
16.Robert J. Moss’ beneficial ownership includes nonqualified stock options to purchase 13,005 shares, all currently exercisable.
17.Dino D. Ottaviano’s beneficial ownership includes nonqualified stock options to purchase 20,957 shares, all currently exercisable.
18.John J. McFadden’s beneficial ownership includes nonqualified stock options to purchase 20,006 shares, all currently exercisable.
19.Diane S. Casey’s beneficial ownership includes nonqualified stock options to purchase 10,002 shares, all currently exercisable.
20.Jude Visconto’s beneficial ownership includes nonqualified stock options to purchase 6,003 shares, all currently exercisable.
21.Includes 432,185 shares underlying stock options granted to this group. All stock options reflected in the security ownership table are currently exercisable; also includes 63,701 shares credited to the accounts of the executive officers (but unissued) in connection with the Company’s SERP.
22.Less than 1% of the outstanding shares.
29
Security Ownership of Certain Beneficial Owners and Management

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The Company’s Audit Committee is responsible for reviewing and approving all related party transactions involving the Company and/and any director, executive officer, other employee or family member thereof. The Audit Committee does not have a formal written policy which sets forth its policies and procedures with respect to reviewing a related party transaction. The Audit Committee, however, will not approve any management fees paidtransaction unless the transaction is on terms comparable to those available to unaffiliated third parties and have terms reasonably expected to benefit the Company.

Matthew J. McKee, MBA, the brother-in-law of Theodore Wahl, joined the Company in 2004 and is currently employed by the Company as Chief Communications Officer. During 2018, Mr. McKee earned total compensation for executives services. such service of approximately $677,000, consisting of $296,000 in base salary, $93,000 of incentive compensation, $182,000 of stock awards, $79,000 in option awards, $15,000 in nonqualified deferred compensation earnings and $12,000 of other compensation. Management believes that the compensation earned by Mr. McKee is comparable to the compensation the Company would pay to a non-relative employee in a similar position.

Director Independence

In addition,accordance with the Nominating, Compensationlisting requirements of NASDAQ, a majority of the current members of the Company’s Board of Directors are independent, namely: John M. Briggs, Diane S. Casey, Robert L. Frome, John J. McFadden, Robert J. Moss, Dino D. Ottaviano, Daniela Castagnino and Stock Option Committee makes recommendations toJude Visconto. Accordingly, if Messrs. Briggs, Frome, McFadden, Moss, Ottaviano, and Visconto and Mmes. Casey and Castagnino are re-elected as members of the Board of Directors, with respect to incentive-compensation plans and equity-based plans, and establishes criteria for the granting of options in accordance with such criteria; and administers such plans. The Nominating, Compensation and Stock Option Committee reviews major organizational and staffing matters. In consultation with the President and Chief Executive Officera majority of the Company,members of the Nominating, Compensation and Stock Option Committee oversees the development and growth of executive management personnel. With respect to director compensation, the Nominating, Compensation and Stock Option Committee designs a director compensation package of a reasonable total value based on comparisons with similar firms and aligned with long-term shareholder interests. Finally, the Nominating, Compensation and Stock Option Committee reviews director compensation levels and practices, and may recommend, from time to time, changes in such compensation levels and practices to theCompany’s Board of Directors with equity ownership in the Company encouraged. The Nominating, Compensation and Stock Option Committee’s charter provides that the Nominating, Compensation and Stock Option Committee shall have the authoritywill continue to obtain advice and seek assistance from internal and external legal, accounting and other advisors.be independent.

The Nominating, Compensation and Stock Option Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussions, recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement.


NOMINATING, COMPENSATION AND STOCK OPTION COMMITTEE
Dino D. Ottaviano, Chairman
Diane S. Casey
John J. McFadden


23


Compensation Committee Interlocks and Insider Participation

No member of the Nominating, Compensation and Stock Option Committee was an officer or employee of the Company or any subsidiary of the Company during the fiscal year ended December 31, 2015.2018. No member of the Nominating, Compensation and Stock Option Committee was a member of the compensation committeescommittee of another entity during the fiscal year ended December 31, 2015.2018. None of our executive officers was a director or a member of suchthe Nominating, Compensation and Stock Option Committee or a director, of another entity during the fiscal year ended December 31, 2015.2018. There were no transactions between any member of the Nominating, Compensation and Stock Option Committee and the Company during the fiscal year ended December 31, 20152018 requiring disclosure pursuant to Item 404 of Regulation S-K promulgated under the Exchange Act.

Certain Relationships and Related Party Transactions

The Company's Audit Committee is responsible for reviewing and approving all related party transactions involving the Company and any director, executive officer, other employee or family member thereof. The Audit Committee does not have a formal written policy which sets forth its policies and procedures with respect to reviewing a related party transaction. The Audit Committee, however, will not approve any transaction unless the transaction is on terms comparable to those available to unaffiliated third parties and have terms reasonably expected to benefit the Company.

Kevin P. McCartney, the brother of Daniel McCartney and Bryan McCartney, joined the Company in 1998 and is currently employed by the Company as a Divisional Vice President. Kevin McCartney's compensation earned from the Company during fiscal year 2015 consisted of approximately $136,000 in base salary, $95,000 of incentive compensation and $10,000 in automobile allowance. Additionally, Kevin McCartney earned compensation of approximately $6,000 and $1,000, respectively, from the value realized on Deferred Compensation Plan contributions made on his behalf by the Company and his participation in the Company's Employee Stock Purchase Plan. All of such compensation earned by Kevin McCartney is in accordance with the Company's compensation plan for all management personnel in similar positions.

Stephen Newns, the brother-in-law of Daniel McCartney and Bryan McCartney, joined the Company in 1995 and is currently employed by the Company as a Divisional Vice President. Mr. Newns' compensation earned from the Company during fiscal year 2015 consisted of approximately $104,000 in base salary, $59,000 of incentive compensation and $10,000 in automobile allowance. All of such compensation earned by Mr. Newns is in accordance with the Company's compensation plan for all management personnel in similar positions.

Matthew J. McKee, MBA, the son-in-law of Daniel McCartney and the brother-in-law of Theodore Wahl joined the Company in 2004 and is currently employed by the Company as Vice President of Strategy. Mr. McKee's compensation earned from the Company during fiscal year 2015 consisted of approximately $180,000 in base salary, $50,000 of incentive compensation and $9,000 in automobile allowance. Additionally, Mr. McKee earned compensation of approximately $5,000 from the value realized on Deferred Compensation Plan contributions made on his behalf by the Company. Management believes that the compensation earned by Mr. McKee is comparable to the compensation the Company would pay to a non-relative employee in a similar position.

James R. Bleming, the brother-in-law of Bryan McCartney, joined the Company in 1992 and is currently employed by the Company as a Divisional Vice President. Mr. Bleming's compensation earned from the Company during fiscal year 2015 consisted of approximately $121,000 in base salary, $24,000 of incentive compensation and $10,000 in automobile allowance. Additionally, Mr. Bleming earned compensation of approximately $5,000 and $2,000, respectively, from the value realized on Deferred Compensation Plan contributions made on his behalf by the Company and his participation in the Company's Employee Stock Purchase Plan. All of such compensation earned by Mr. Bleming is in accordance with the Company's compensation plan for all management personnel in similar positions.

Procedures for Contacting Directors

The Board has established a process for shareholders to send communications to the Board. Shareholders may communicate with the Board generally or a specific director at any time by writing to: Healthcare Services Group, Inc., 3220 Tillman Drive, Suite 300, Bensalem, PA 19020, Attention: Investor Relations. The Company reviews all messages received, and forwards any message that reasonably appears to be a communication from a shareholder about a matter of shareholder interest that is intended for communication to the Board of Directors. Communications are sent as soon as practicable to the director to whom they are addressed, or if addressed to the Board generally, to the chairman of the Nominating, Compensation and Stock Option Committee. Because other appropriate avenues of communication exist for matters that are not of shareholder interest, such as general business complaints or employee grievances, communications that do not relate to matters of shareholder interest are not forwarded to the Board.


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Certain Relationships and Related Transactions, and Director Independence


PROPOSAL NO. 2PRINCIPAL ACCOUNTANT FEES AND SERVICES
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The accounting firm of Grant Thornton LLP was selected by the Audit Committee of the Board as the Independent Auditors of the Company for the fiscal year ending December 31, 2016.2019. Said firm has no other relationship to the Company. The Board recommends the ratification of the selection of the firm of Grant Thornton LLP to serve as the Independent Auditors of the Company for the year ending December 31, 2016. A representative of Grant Thornton LLP, which has served as the Company’s Independent Auditors since December 1992, will be present at the forthcoming shareholders’ meeting with the opportunity to make a statement if he so desires and such representative will be available to respond to appropriate questions. The approval of the proposal to ratify the appointment of Grant Thornton LLP requires the affirmative vote of a majority of the votes cast by all shareholders represented and entitled to vote thereon. An abstention or withholding of authority to vote, therefore, will not have the same legal effect as an “against” vote and will not be counted in determining whether the proposal has received the required shareholder vote. However, brokers that do not receive instructions on this proposal are entitled to vote for the selection of the independent registered public accounting firm.

The following table sets forth the fees billed to the Company by Grant Thornton LLP during fiscal years 20152018 and 2014:2017:
20182017
Audit fees 1
$1,498,000 $988,000 
Audit-related fees 2
— — 
Tax fees 3
28,000 40,000 
All other fees 4
— — 
$1,526,000 $1,028,000 

1.Audit fees billed by Grant Thornton LLP related to the audits of the Company’s annual financial statements and internal control over financial reporting; the review of the Company’s financial statements included in the quarterly reports on Form 10-Q; review of documents filed with the SEC; and reimbursement for direct out-of-pocket expenses.
2.Audit-related fees relate to professional services that are reasonably related to the performance of the audit or review of the Company’s financial statements.
3.Tax fees billed by Grant Thornton LLP for services relating to tax compliance, tax advice and tax planning.
4.All other fees relate to professional services not included in the categories above, including services related to other regulatory reporting requirements.


 2015 2014
Audit fees (1)
$740,000
 $746,000
Tax fees (2)
41,000
 25,000
All other fees—
 —
 $781,000
 $771,000
    

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(1)
Audit fees billed by Grant Thornton LLP related to the audits of the Company's annual financial statementsPrincipal Accountant Fees and internal control over financial reporting; the review of the Company's financial statements included in the quarterly reports on Form 10-Q; review of documents filed with the SEC; and reimbursement for direct out-of-pocket expenses.Services
(2)
Tax fees billed by Grant Thornton LLP for services relating to tax compliance, tax advice and tax planning.



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PROPOSAL NO. 3
ADVISORY VOTE ON EXECUTIVE COMPENSATION

Background

The Board of Directors recognizes the significant interest of shareholders in executive compensation matters. Pursuant to amendments to Section 14A of the Exchange Act (which were added by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010), we are providing our shareholders with an annual opportunity to cast an advisory vote (commonly referred to as "say-on-pay") to approve the compensation of our Named Executive Officers.

Summary

We are asking our shareholders to provide advisory approval of the compensation of our Named Executive Officers (which consist of our President and Chief Executive Officer, former Chief Executive Officer, Chief Financial Officer, and our other three highest paid executives), as such compensation is disclosed in the Compensation Discussion and Analysis, compensation tables and narrative discussion set forth in this Proxy Statement. Our executive compensation programs are designed to enable us to attract, motivate and retain executive talent, who are critical to our success. Our compensation philosophy and framework have resulted in compensation for our Named Executive Officers that is tied to the Company’s financial results and the other performance factors described in the section of this Proxy Statement entitled Compensation Discussion and Analysis. These programs focus on rewarding the types of performance that increase shareholder value, link executive compensation to the Company’s long-term strategic objectives and align executive officers’ interests with those of our shareholders. The Company believes that its executive compensation programs, which emphasize long-term equity awards and variable compensation, satisfy these goals. A substantial portion of each executive’s total compensation is intended to be variable and delivered on a pay-for-performance basis.

Recommendation

Our Board of Directors believes that the information provided above and within the "Management Compensation" section of this Proxy Statement demonstrates that our executive compensation program was designed appropriately and is working to ensure that management’s interests are aligned with our shareholders’ interests and support long-term value creation.

The Board of Directors recommends that the shareholders vote "FOR" the adoption of the following non-binding resolution:

RESOLVED, that the shareholders of the Company approve, on an advisory basis, the compensation of the Company’s Named Executive Officers, as disclosed in the Compensation Discussion and Analysis, compensation tables and narrative discussion set forth in this Proxy Statement.

This say-on-pay vote is advisory, and therefore not binding on the Company, the Nominating, Compensation and Stock Option Committee or our Board of Directors.


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OTHER MATTERS

So far as is now known, there is no business other than that described above to be presented for action by the shareholders at the Annual Meeting, but it is intended that the proxies will be exercised upon any other matters and proposals that may legally come before the Annual Meeting, or any adjournment or postponement thereof, in accordance with the discretion of the persons named therein.

DEADLINE FOR SHAREHOLDER PROPOSALS

Under our Second Amended and Restated By-laws, a shareholder who wishes to nominate an individual for election to the Board of Directors directly at an annual meeting, or to propose any business to be considered at an annual meeting, must deliver advance notice of such nomination or business to the Company. The shareholder must be a shareholder as of the date the notice is delivered and at the time of the annual meeting and must be entitled to vote at the meeting. The notice must be in writing and contain the information specified in our Second Amended and Restated By-laws for a director nomination or other business. With respect to the 20172020 annual meeting, such notice must be delivered to, or mailed and received by, the Secretary of the Company at the principal executive offices no later than the close of business on December 19, 201626, 2019 (the 120th day prior to the first anniversary of the mailing date of the proxy statement for the preceding year'syear’s annual meeting). Shareholders who desire to present a proposal to be included in our proxy statement for our 20172020 annual meeting must submit the proposal to us no later than December 19, 201626, 2019 and must otherwise comply with the requirements of Rule 14a-8 of the Securities Exchange Act of 1934.Act. Any such proposal must be sent in writing to the Secretary of the Company at the principal executive offices.



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Other Matters


ANNUAL REPORT

The 20152018 Annual Report to Shareholders, including financial statements, is available under "2016“2018 Proxy Materials"Materials” at www.proxydocs.com/HCSG. Certain information contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015,2018, filed on February 19, 2016,March 18, 2019, is incorporated by reference to this proxy statement.Proxy Statement.
 
By Order of the Board of Directors,
DANIEL P. MCCARTNEYJUDE VISCONTO
Chairman
 
Dated:April 18, 201619, 2019
Bensalem, Pennsylvania

A copy of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015,2018, as filed with the Securities and Exchange Commission, may be obtained without charge by any shareholder of record on the record date upon written request addressed to: Secretary, Healthcare Services Group, Inc., 3220 Tillman Drive, Suite 300, Bensalem, PA 19020 or by visiting the Company’s website at www.hcsg.com.




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Annual Report


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