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Notice of Annual Meeting of Stockholders
To Our Stockholders:
You are invited to attend the Select Medical Holdings Corporation 20192021 Annual Meeting of Stockholders.
The Annual Meeting will be held in a virtual meeting format only. You will be able to attend the Annual Meeting online, vote your shares electronically if you wish, and submit your questions during the virtual meeting by visiting the website and entering the password below.
| | Date: | | | April 29, 2021 | |
| Time: | | 11:00 a.m. EDT | | ||
| Website: | | www.meetingcenter.io/225455020 | | ||
| Password: | | | SEM2021 | |
Only stockholders who owned stock of record at the close of business on March 4, 20193, 2021 can vote at this meeting or any adjournments that may take place.
To be admitted to the Annual Meeting, you must enter the control number found on your proxy card or voting instruction form and the password.
The purposes of the 20192021 Annual Meeting are:
(1)
to elect fourthree Class IIII directors, each for a term of three years or until their respective successors have been elected and qualified;
(2)
(2)
to hold a non-binding advisory vote on the compensation of our named executive officers;
(3)
(3)
to ratify the appointment of PricewaterhouseCoopers LLP as the Company'sCompany’s independent registered public accounting firm for the fiscal year ending December 31, 2019;2021; and
(4)
(4)
to transact any other business that may properly come before the meeting.
We consider your vote important and encourage you to vote as soon as possible.
By Order of the Board of Directors,
/s/ Michael E. Tarvin
Michael E. Tarvin
Executive Vice President, General Counsel and Secretary
Michael E. Tarvin
Executive Vice President, General Counsel and Secretary
March 6, 20195, 2021
4714 Gettysburg Road
Mechanicsburg, Pennsylvania 17055
Phone: (717) 972-1100
www.selectmedicalholdings.com
PROXY STATEMENT
The Board of Directors of Select Medical Holdings Corporation (the "Company"“Company”) is soliciting proxies to be voted at the Annual Meeting of Stockholders of the Company to be held virtually on April 30, 2019,29, 2021, at 3:11:00 p.m.a.m. local time, including any adjournments or postponements thereof (the "Meeting"“Meeting” or "Annual Meeting"“Annual Meeting”). We intend to mail a Notice of Internet Availability of Proxy Materials (sometimes referred to as the "Notice"“Notice”), and to make this Proxy Statement available to our stockholders of record entitled to vote at the Annual Meeting, on or about March 6, 2019.
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Your vote is very important. In accordance with the rules and regulations adopted by the Securities and Exchange Commission (the "SEC"“SEC”), instead of mailing a printed copy of the Company'sCompany’s proxy materials to each stockholder of record, the Company may furnish proxy materials including this Proxy Statement, the proxy card and the Company'sCompany’s Annual Report on Form 10-K for the year ended December 31, 20182020 (the "Annual Report"“Annual Report”) to the Company'sCompany’s stockholders by providing access to such documents on the Internet. Stockholders will not receive printed copies of the proxy materials unless requested. Instead, the Notice will instruct stockholders as to how they may access and review all of the proxy materials. The Notice also instructs stockholders how to submit a proxy through the Internet. If you would like to receive a paper copy or e-mail copy of your proxy materials, you should follow the instructions for requesting such materials included in the Notice. The Company will pay the entire cost of preparing, assembling, printing, mailing and distributing these proxy materials and soliciting votes. If you choose to access the proxy materials and/or vote over the Internet, you are responsible for any Internet access charges you may incur.
You may revoke your proxy at any time before it is voted by written notice to the Executive Vice President, General Counsel and Secretary of the Company, by submission of a proxy bearing a later date or by casting a ballot atonline during the Annual Meeting. Properly executed and delivered proxies that are received before the Annual Meeting'sMeeting’s adjournment will be voted in accordance with the directions provided or, if no directions are provided, your shares will be voted by one of the individuals named on your proxy card as recommended by the Board of Directors. If you wish to give a proxy to someone other than those named on the proxy card, you should cross out those names and insert the name(s) of the person(s), not more than three, to whom you wish to give your proxy.
If you want to vote in person at the Annual Meeting and you hold shares of Company common stock in street name, you must obtain a proxy card from your broker and bring that proxy card to the Annual Meeting, together with a copy of a brokerage statement reflecting your stock ownership as of the record date, which is March 4, 2019.
Who can vote? Stockholders as of the close of business on March 4, 20193, 2021 are entitled to vote. On that day, 135,276,199134,838,706 shares of common stock were outstanding and eligible to vote, and there were 123129 registered holders. Each share is entitled to one vote on each matter presented at the Annual Meeting. A list of stockholders eligible to vote will be available at the offices of Select Medical Holdings Corporation, 4714 Gettysburg Road, Mechanicsburg, Pennsylvania beginning April 20, 2019.16, 2021. Stockholders may examine this list during normal business hours for any purpose relating to the Annual Meeting. A list of stockholders eligible to vote will also be available electronically during the Annual Meeting at www.meetingcenter.io/
225455020 when you enter the control number provided found on your proxy card or voting instruction form.
How does the Board of Directors recommend I vote? The Board of Directors recommends a vote FOR each Board of Directors nominee, FOR the approval of the executive compensation resolution and FOR ratification of the appointment of PricewaterhouseCoopers LLP as the Company'sCompany’s independent registered public accounting firm.
What is the difference between "stockholder“stockholder of record"record” and holder of stock in "street name"“street name”? If your shares are registered directly in your name with our Transfer Agent and Registrar, Computershare Inc., you are a stockholder of record with respect to those shares. If your shares are held in an account at a brokerage firm, bank, broker-dealer or other similar organization, then you are a holder of stock in street name. As a holder of stock in street name, you have the right to instruct your broker, bank, trustee or nominee how to vote your shares. If you do not provide the organization that holds your shares with specific voting instructions, then under applicable rules, the organization that holds your shares may generally vote your shares in their discretion on "routine"“routine” matters but cannot vote on "non-routine"“non-routine” matters. If the organization that holds your shares does not receive instructions from you on how to vote your shares on a non-routine matter, that organization does not have the authority to vote on the matter with respect to your shares. This is generally referred to as a "broker“broker non-vote."”
Which proposals are "routine"“routine” and "non-routine"“non-routine”? The ratification of the appointment of PricewaterhouseCoopers LLP as the Company'sCompany’s independent registered public accounting firm (Proposal 3) is considered a routine matter under applicable rules. A broker or other nominee may generally vote on routine matters, and therefore no broker non-votes are expected in connection with Proposal 3. Each of the other proposals, including the election of directors (Proposal 1), the non-binding advisory vote on the
compensation of our name executive officers (Proposal 2) and any additional stockholder proposals are considered non-routine matters under applicable rules. A broker or other nominee cannot vote without instructions on non-routine matters, and therefore broker non-votes may exist in connection with Proposals 1 and 2.
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What shares are included in the proxy card? Each proxy card you receive represents all the shares of common stock registered to you in that particular account. You may receive more than one proxy card if you hold shares that are either registered differently or in more than one account. Each share of common stock that you own entitles you to one vote.
How do I vote by proxy? Most stockholders have three ways to vote by proxy: by telephone, via the Internet or by returning the proxy card. To vote by telephone or via the Internet, follow the instructions set forth on each proxy card you receive. Additionally, stockholders who attend the Annual Meeting online may vote their shares at that time up to and during the Annual Meeting by following the instructions at www.envisionreports.com/SEM. To vote by mail, sign and date each proxy card you receive, mark the boxes indicating how you wish to vote and return the proxy card in the postage-paid envelope provided. Do not return the proxy card if you vote via the Internet or by telephone.
How are votes counted? The Annual Meeting will be held if a quorum, consisting of a majority of the outstanding shares of common stock entitled to vote, is represented at the Annual Meeting in persononline or by proxy. Broker non-votes, votes withheld and abstentions will be counted for purposes of determining whether a quorum has been reached. With respect to Proposal 1, because directors are elected by a majority vote, meaning the votes validly cast for such nominee'snominee’s election exceeds the votes validly cast against such nominee'snominee’s election in such election, in uncontested elections, abstentions and broker non-votes will not be counted as a vote cast either for or against such director'sdirector’s election. Because Proposals 2 and 3 require for approval the affirmative vote of a majority of the shares present in persononline or represented by proxy at the Annual Meeting and entitled to vote, any abstentions will have the effect of votes against and any broker non-votes will not have any effect on these proposals.
Who will count the vote? The Company'sCompany’s Transfer Agent and Registrar, Computershare Inc., will tally the vote.
Is my vote confidential? Yes. All stockholder meeting proxies, ballots and tabulations that identify individual stockholders are kept confidential and are not available for examination, except: (1) as required by law, (2) to allow for the tabulation of votes and certification of the vote and (3) to facilitate a successful proxy solicitation.
How can I participate in the Annual Meeting? The Annual Meeting will be a completely virtual meeting of stockholders, and will be conducted via live webcast on the Internet. You are entitled to participate in the Annual Meeting only if you were a stockholder of the Company as of the close of business on March 3, 2021, the record date for the meeting, or if you hold a valid proxy for the Annual Meeting.
You will be able to participate in the Annual Meeting online and submit your questions during the meeting by visiting www.meetingcenter.io/225455020. The password to the Annual Meeting is SEM2021. To participate in the Annual Meeting, you will need the control number that is included on your proxy card or on the instructions that accompanied your proxy materials. The Annual Meeting will begin promptly at 11:00 a.m. EDT.
Where can I find the voting results of the Annual Meeting? The Company intends to announce preliminary voting results at the Annual Meeting. Final voting results will be tallied by the Company'sCompany’s Transfer Agent and Registrar after the taking of the vote at the Annual Meeting. The Company will publish the final voting results in a Current Report on Form 8-K within four business days following the Annual Meeting.
Who is soliciting this proxy? Solicitation of proxies is made on behalf of the Board of Directors of the Company. The Company will pay the cost of preparing, assembling and mailing or otherwise making available the Notice of Internet Availability of Proxy Materials and the notice of the Annual Meeting, proxy statement and proxy card. In addition to the use of mail, proxies may be solicited by directors, officers and regular employees of the Company, without additional compensation, in person or by telephone or other electronic means. The Company will reimburse brokerage houses and other nominees for their expenses in forwarding proxy material to beneficial owners of the Company'sCompany’s common stock.
What if I can'tcan’t attend the meeting? If you are unable to attend the meeting in personvirtual Annual Meeting and you intend to vote, you must vote your shares by proxy, via the Internet or by telephone by the applicable deadline.
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CORPORATE GOVERNANCE
In accordance with the Delaware General Corporation Law and the Company'sCompany’s Restated Certificate of Incorporation and Amended and Restated Bylaws, the Company'sCompany’s business, property and affairs are managed under the direction of the Board of Directors. Although the Company'sCompany’s non-management directors are not involved in the day-to-day operating details, they are kept informed of the Company'sCompany’s business through written reports and documents provided to them regularly, as well as by operating, financial and other reports presented by the officers of the Company at meetings of the Board of Directors and committees of the Board of Directors.
Independence
In 2018,2020, the Board of Directors undertook a review of the independence of the Company'sCompany’s directors and considered whether any director has a material relationship with the Company that could compromise his or her ability to exercise independent judgment in carrying out his or her responsibilities. The Board of Directors has determined that eightseven of the Company's tenCompany’s nine current directors are "independent"“independent” as defined in the applicable listing standards of the New York Stock Exchange (the "NYSE"“NYSE”). The following directors were determined to be independent: Russell L. Carson, Bryan C. Cressey, James S. Ely III, William H. Frist, Harold L. Paz, Marilyn B. Tavenner, Thomas A. Scully and Leopold Swergold.
Daniel J. Thomas.
In making this determination, the Board of Directors considered the Company'sCompany’s investment in Concentra Group Holdings Parent, LLC, a joint venture. A fund affiliated with Bryan C. Cressey and William H. Frist and a separate fund affiliated with Russell L. Carson and Thomas A. Scully are also investors in Concentra Group Holdings Parent, LLC, and Mr. Cressey and Daniel J. Thomas each currently serves on the board of directors of Concentra Group Holdings Parent, LLC; however, the Board of Directors believes these are not material relationships with the Company and will not affect the ability of Mr. Cressey, Dr. Frist Mr.and Messrs. Carson, Cressey, Scully and Mr. ScullyThomas to be independent from management. The Board of Directors also considered Harold L. Paz's employment as an executive officer of Aetna, Inc., from which the Company receives payments in the ordinary course of business; however, the Board of Directors believes this is not a material relationship with the Company and will not affect the ability of Dr. Paz to be independent from management.
Lead Director
In 2015, the Board determined that it was in the best interests of the Company and its stockholders to designate an independent director to serve in a lead capacity (the "Lead Director"“Lead Director”). The independent directors of the Board of Directors recommended Russell L. Carson to serve as Lead Director, and the Board of Directors elected Mr. Carson to that position. The Lead Director'sDirector’s responsibilities include, but are not limited to: (i) consulting with the Chairman of the Board of Directors to include on the agenda for Board of Directors meetings any matters requested by the Lead Director; (ii) presiding at meetings of the Board of Directors in the absence of, or upon the request of, the Chairman of the Board of Directors, including presiding over all executive sessions of the independent directors; (iii) serving as liaison between the Chairman of the Board of Directors and the independent directors; (iv) approving meeting schedules to assure that there is sufficient time for discussion of all agenda items; (v) having the authority to call meetings of the independent directors; (vi) coordinating the agenda for moderating sessions of the independent directors of the Board of Directors; and (vii) being available for direct communication from significant stockholders. The role and responsibility of the Lead Director is set forth in the Company'sCompany’s Amended and Restated Corporate Governance Guidelines, which can be found on the Company'sCompany’s website at www.selectmedicalholdings.com. Please note that none of the information on the Company'sCompany’s website is incorporated by reference in this Proxy Statement.
Meetings of the Board of Directors and Stockholders
It is the policy of the Board of Directors to meet at least quarterly. The Board of Directors held foursix meetings in fiscal year 2018.2020. During fiscal year 2018,2020, each of the then-current directors attended allat least 75% of the meetings of the Board of Directors and all of the meetings of any committee of which they were a member. It is also the policy of the Board of Directors that the independent members of the Board of Directors meet at regularly scheduled executive sessions of the Board of Directors without management. As described above under the heading "“Lead Director,"” the Lead Director serves as the presiding director over such executive
sessions. In addition, the Company'sCompany’s directors are expected to attend annual meetings of stockholders, and alleight of the Company'sCompany’s nine directors who were serving as directors at the time of the 20182020 annual meeting attended the 20182020 annual meeting of stockholders.
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Corporate Governance Matters
The Board of Directors adopted corporate governance guidelines in September 2009, as amended from time to time, which can be found on the Company'sCompany’s website atwww.selectmedicalholdings.com. Under these guidelines, directors are expected to advise the Chairman of the Board of Directors and the Chairman of the Nominating and Corporate Governance Committee prior to accepting any other public company directorship or any assignment to the audit committee or compensation committee of the board of directors of any public company of which such director is a member. Directors are also expected to report changes in their business or professional affiliations or responsibilities, including retirement, to the Chairman of the Board of Directors and the Chairman of the Nominating and Corporate Governance Committee. A director is expected to offer to resign if the Nominating and Corporate Governance Committee concludes that the director no longer meets the Company'sCompany’s requirements for service on the Board of Directors. There are no pre-determined limitations on the number of other boards of directors on which the Company'sCompany’s directors may serve; however, the Board of Directors expects individual directors to use their judgment in accepting other directorships and to allow sufficient time and attention to Company matters. There are no set term limits for directors. As an alternative to term limits, the Nominating and Corporate Governance Committee will review each director'sdirector’s continuation on the Board of Directors every three years.
Communications with the Board of Directors
If you would like to communicate with all of the Company'sCompany’s directors, please send a letter to the following address: Select Medical Holdings Corporation, Attention: Board of Directors c/o Michael E. Tarvin, Executive Vice President, General Counsel and Secretary, 4714 Gettysburg Road, Mechanicsburg, Pennsylvania 17055. The Company'sCompany’s Secretary will forward such communication to each of the members of the Board of Directors.
If you would like to communicate with the independent members of the Board of Directors, including the Lead Director, please send a letter to the following address: Select Medical Holdings Corporation, Attention: Lead Director c/o Michael E. Tarvin, Executive Vice President, General Counsel and Secretary, 4714 Gettysburg Road, Mechanicsburg, Pennsylvania 17055. The Company'sCompany’s Secretary will forward such communication to the independent members of the Board of Directors.
Code of Conduct and Code of Ethics
The Company is committed to ethical business practices. In 1998, Select Medical Corporation, the Company'sCompany’s wholly owned subsidiary ("Select"(“Select”), voluntarily adopted a Code of Conduct. The Code of Conduct is reviewed and amended as necessary and is the basis for the Company'sCompany’s compliance program. The Code of Conduct provides guidelines for principles and regulatory rules that are applicable to the Company'sCompany’s patient care and business activities. These guidelines are implemented by a compliance officer, a compliance committee, and employee education and training. The Company has also established a reporting system, auditing and monitoring programs, and a disciplinary system as a means for enforcing the Code of Conduct'sConduct’s policies. This Code of Conduct applies to all of the Company'sCompany’s employees and directors. In September 2009, the Company adopted a Code of Ethics for Senior Financial Officers, which includes the code of ethics for the Company'sCompany’s principal executive officer, principal financial officer and principal accounting officer within the meaning of the SEC regulations adopted under the Sarbanes-Oxley Act of 2002. The Code of Conduct and Code of Ethics for Senior Financial Officers can be found on the Company'sCompany’s website at www.selectmedicalholdings.com. Any amendments to the Code of Conduct or Code of Ethics for Senior Financial Officers or waivers from the provisions of the Code of Conduct or the Code of Ethics for Senior Financial Officers for the Company'sCompany’s principal executive officer, principal financial officer and principal accounting officer will be disclosed on the Company'sCompany’s website promptly following the date of such amendment or waiver.
Board Leadership
The Board of Directors does not have a formal policy on whether the roles of Chief Executive Officer and Chairman of the Board of Directors should be separate. However, since its inception, the Company has had separate individuals serve in those positions. The Company'sCompany’s Board of Directors is led by Robert A. Ortenzio as Executive Chairman and David S. Chernow as Chief Executive Officer. The Board of Directors
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has carefully considered its leadership structure and believes at this time that the Company and its stockholders are best served by having the positions of Executive Chairman and Chief Executive Officer filled by different individuals. This allows the Chief Executive Officer to, among other things, focus on the Company'sCompany’s day-to-day business, while allowing the Executive Chairman to lead the Board of Directors in its fundamental role of providing advice and oversight of management. Further, the Board of Directors believes that having the Executive Chairman serve dual roles as chairman of the Board of Directors and as an executive officer of the Company promotes information flow between management and the Board of Directors, effective decision making and an alignment of corporate strategy. Moreover, the Board of Directors believes that its other structural features, including eightseven independent directors and eightseven non-management directors on a board consisting of tennine directors, an independent director serving as Lead Director, regular meetings of independent directors in executive session and key committees consisting wholly of independent directors, provide for substantial independent oversight of the Company'sCompany’s management. However, the Board of Directors recognizes that depending on future circumstances, other leadership models may become more appropriate. Accordingly, the Board of Directors will continue to periodically review its leadership structure.
Risk Oversight
The Company faces a number of risks, including regulatory risk, credit risk, liquidity risk, reputational risk, and risk from adverse fluctuations in interest rates.rates and cybersecurity risk. Management is responsible for the day-to-day management of risks faced by the Company, while the Board of Directors, as a whole and through its committees, has responsibility for the oversight of risk management. In its risk oversight role, the Board of Directors seeks to ensure that the risk management processes designed and implemented by management are adequate. The Board of Directors periodically consults with management regarding the Company'sCompany’s risks.
While the Board of Directors is ultimately responsible for risk oversight, the Company'sCompany’s four board committees assist the Board of Directors in fulfilling its oversight responsibilities in certain areas of risk. The Audit and Compliance Committee assists the Board of Directors in overseeing risk management in the areas of financial reporting, internal controls and compliance with legal and regulatory requirements, and periodically reviews with management, internal auditors and independent auditors the adequacy and effectiveness of the Company'sCompany’s policies for assessing and managing risk.risk, including the security of and risks related to computerized information systems and data privacy. The Compensation Committee assists the Board of Directors in oversight and management of risks related to the Company'sCompany’s compensation policies and programs. The Nominating and Corporate Governance Committee assists the Board of Directors in oversight and management of risk associated with board organization, membership and structure, succession planning for our directors and officers and corporate governance. The Quality of Care and Patient Safety Committee assists the Board of Directors in the oversight and management of risk associated with the Company'sCompany’s policies and procedures relating to the delivery of quality medical care to patients.
Cybersecurity Program Oversight
The proper confidentiality, integrity and availability of the Company’s information systems are critical to the business. The Company has structured its cybersecurity program around the National Institute of Standards and Technology (“NIST”) Cybersecurity Framework, which provides best practices to protect from, detect, identify, respond to, and recover from cyber-attacks. An assessment of the cybersecurity program leveraging the NIST framework is completed annually by an external third-party cybersecurity assessor. Our Chief Information Officer (“CIO”) provides annual written reports and quarterly briefings on our cybersecurity program to the Board of Directors and quarterly cybersecurity-related updates to the Audit and Compliance Committee. The reports to the Board of Directors include details and metrics on, among other things, the Company’s quarterly NIST framework assessment updates, internal and external threat intelligence, quarterly information security program progress, business associate risk assessments and ongoing monitoring, company-wide awareness training, device security compliance, routine resilience efforts including disaster recovery exercises, tabletop security incident response exercises, and cyber penetration tests.
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Committees of the Board of Directors
The Board of Directors currently has four standing committees. Charters for each of these committees can be found on the Company'sCompany’s website atwww.selectmedicalholdings.com.
Audit and Compliance Committee ——The Audit and Compliance Committee is governed by a written charter adopted in February 2010. The primary responsibility of the Audit and Compliance Committee is to oversee the Company'sCompany’s financial reporting process and compliance program on behalf of the Board of Directors and to regularly report the results of its activities to the Board of Directors. The Audit and Compliance Committee assists the Board of Directors in the oversight of (i) the integrity of the Company'sCompany’s financial statements and financial reporting process; (ii) the systems of internal accounting and financial controls; (iii) the performance of the Company'sCompany’s internal audit function and independent auditors; (iv) the
independent auditor'sauditor’s qualifications and independence; (v) the annual independent audit of the Company'sCompany’s financial statements; (vi) the selection and performance of the Company'sCompany’s compliance officer; (vii) the effectiveness of the structure and operations of the Company'sCompany’s compliance program; (viii) the Company'sCompany’s compliance with each of the Company'sCompany’s Code of Conduct and the Code of Ethics for Senior Financial Officers and other legal compliance and ethics programs established by management and the Board of Directors; and (ix) the Company'sCompany’s compliance with applicable legal and regulatory requirements.requirements; and (x) the Company’s policies in respect of risk assessment and risk management, including the security of and risks related to computerized information systems and data privacy. In so doing, the Audit and Compliance Committee is responsible for maintaining free and open communication among its members, the independent registered public accounting firm, the internal auditors and the Company'sCompany’s management. A detailed list of the Audit and Compliance Committee'sCommittee’s functions is included in its charter. The Audit and Compliance Committee charter is annually reviewed and ratified by the Audit and Compliance Committee and the Board of Directors.
The current members of the Audit and Compliance Committee are Messrs. Ely, Frist, SwergoldThomas and Ms. Tavenner. Mr. Ely currently serves as the chairman of the Audit and Compliance Committee. The composition of the Audit and Compliance Committee satisfies the independence and financial literacy requirements of the NYSE and the SEC. The financial literacy standards require that each member of the Audit and Compliance Committee be able to read and understand fundamental financial statements. In addition, at least one member of the Audit and Compliance Committee must qualify as an "audit“audit committee financial expert,"” as defined by the rules and regulations of the SEC, and have financial sophistication in accordance with the rules of the NYSE. The Board of Directors has determined that each of the Audit and Compliance Committee members qualifies as an "audit“audit committee financial expert"expert” as defined in Item 407(d)(5) of Regulation S-K. Also, each member of the Audit and Compliance Committee is independent, as independence for audit committee members is defined in the applicable NYSE listing standards. The Audit and Compliance Committee held sixfive meetings during fiscal year 2018.
2020.
Compensation Committee ——The Compensation Committee is governed by a written charter adopted in May 2013, as amended and restated in February 2018.2019. The Compensation Committee has overall responsibility for evaluating and approving the Company'sCompany’s executive officer and director compensation plans, policies and programs, as well as all equity-based compensation plans and policies. The Compensation Committee is also responsible for preparing the Compensation Discussion and Analysis report for inclusion in the Company'sCompany’s annual proxy statement filed with the SEC. The Compensation Committee charter is annually reviewed and ratified by the Compensation Committee and the Board of Directors.
The current members of the Compensation Committee are Messrs. Cressey, Scully and Swergold,Thomas, each of whom the Board of Directors has determined in its business judgment are independent as defined in the applicable NYSE listing standards. Mr. Cressey currently serves as the chairman of the Compensation Committee. The Compensation Committee held sixfive meetings during fiscal year 2018.
2020.
Nominating and Corporate Governance Committee ——The Nominating and Corporate Governance Committee is governed by a written charter adopted in February 2010. The Nominating and Corporate Governance Committee is appointed to (i) identify individuals qualified to serve on the Board of Directors and board committees; (ii) recommend to the Board of Directors nominees for election to the Board of Directors at annual meetings of stockholders; (iii) recommend to the Board of Directors nominees to serve on each of the board committees; (iv) lead the Board of Directors in its annual review of the
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performance of the Board of Directors and management; (v) monitor the Company'sCompany’s corporate governance structure; and (vi) develop and recommend to the Board of Directors any proposed changes to the Company'sCompany’s corporate governance guidelines. The Nominating and Corporate Governance Committee identifies individuals, including those recommended by stockholders, believed to be qualified as candidates for Board of Directors membership. The Nominating and Corporate Governance Committee has the authority to retain search firms to assist it in identifying candidates to serve as directors. Marilyn B. Tavenner was identified and recommended as a potential director nominee to the Nominating and Corporate Governance Committee by an executive officer of the Company. Upon the recommendation of the Nominating and Corporate Governance Committee and after taking into account the background, qualifications and other factors discussed below, the Board of Directors increased the size of the Board of Directors from nine directors to ten directors and voted in November 2018 to elect Ms. Tavenner as a director of the Company. In addition to any other qualifications the Nominating and Corporate Governance Committee may in its discretion deem appropriate, all director candidates, at a minimum, should possess the highest personal and professional
ethics, integrity and values and be committed to representing the best interests of the stockholders. In identifying candidates, the Nominating and Corporate Governance Committee will also take into account other factors it considers appropriate, which include ensuring a majority of directors satisfy the independence requirements of the NYSE, the SEC or other appropriate governing body and that the Board of Directors as a whole is comprised of directors who have the appropriate experience, expertise and perspective that will enhance the quality of the Board of Directors'Directors’ deliberations and decisions. While the Nominating and Corporate Governance Committee does not have a formal policy with regard to the consideration of diversity in identifying director nominees, the Nominating and Corporate Governance Committee and the Board of Directors believe it is essential that the Board of Directors is able to draw on a wide variety of backgrounds and professional experiences among its members. The Nominating and Corporate Governance Committee desires to maintain the Board of Directors'Directors’ diversity through the consideration of factors such as education, skills, relevant professional experience, gender, and racial and ethnic background. The Nominating and Corporate Governance Committee does not intend to nominate representational directors, but instead considers the entirety of each candidate'scandidate’s credentials in the context of these standards and the characteristics of the Board of Directors in its entirety. The Nominating and Corporate Governance Committee will conduct appropriate inquiries with respect to the backgrounds and qualifications of all director candidates. Once the Nominating and Corporate Governance Committee has completed its review of a candidate'scandidate’s qualifications and conducted the appropriate inquiries, the Nominating and Corporate Governance Committee will make a determination whether to recommend the candidate for approval by the Board of Directors. If the Nominating and Corporate Governance Committee decides to recommend the director candidate for nomination by the Board of Directors and such recommendation is accepted by the Board of Directors, the form of proxy solicited by the Company will include the name of the director candidate. The Nominating and Corporate Governance Committee charter is annually reviewed and ratified by the Nominating and Corporate Governance Committee and the Board of Directors.
The Nominating and Corporate Governance Committee considers stockholder nominees for directors in the same manner as nominees for director from other sources. Stockholder suggestions for nominees for director should be submitted to the Secretary or Assistant Secretary no later than the date by which stockholder proposals for action must be submitted and should include the following information: (i) the name and address of the stockholder making the recommendations, (ii) a representation that the stockholder is a holder of record, which should include the number of shares presently held and how long the shares have been held, (iii) a description of any and all arrangements or understandings between the stockholder making the recommendation and the director candidate, and (iv) all information regarding the director candidate that is required to be included in a proxy solicitation for the election of directors.
The current members of the Nominating and Corporate Governance Committee are Messrs. Ely and Carson, each of whom the Board of Directors has determined in its business judgment are independent as defined in the applicable NYSE listing standards. Mr. Ely currently serves as the chairman of the Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee held three meetings during fiscal year 2018.
2020.
Quality of Care and Patient Safety Committee ——The Quality of Care and Patient Safety Committee is governed by a written charter adopted in May 2012. The Quality of Care and Patient Safety Committee is appointed to assist the Board of Directors in fulfilling its oversight responsibilities relating to the review of the Company'sCompany’s policies and procedures relating to the delivery of quality medical care to patients. The Quality of Care and Patient Safety Committee maintains communication between the Board of Directors and the senior officers with management responsibility for medical care and reviews matters concerning or relating to the quality of medical care delivered to patients, efforts to advance the quality of medical care provided and
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patient safety. The Quality of Care and Patient Safety Committee charter is annually reviewed and ratified by the Quality of Care and Patient Safety Committee and the Board of Directors.
The current members of the Quality of Care and Patient Safety Committee are Dr. Frist Dr. Paz and Ms. Tavenner. Dr. Frist currently serves as the chairman of the Quality of Care and Patient Safety Committee. The Quality of Care and Patient Safety Committee held fourthree meetings during fiscal year 2018.2020.
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COMPENSATION COMMITTEE REPORT
The Compensation Committee of the Board of Directors is composed entirely of independent directors, and currently consists of Messrs. Cressey, Scully and Swergold.Thomas. Mr. Cressey currently serves as the chairman of the Compensation Committee. The Board of Directors has determined that Messrs. Cressey, Scully and SwergoldThomas are each independent under the NYSE listing standards currently in effect. The Compensation Committee administers the Company'sCompany’s executive and director compensation programs. The role of the Compensation Committee is to oversee the Company'sCompany’s compensation and benefit plans and policies, to administer the Company'sCompany’s equity plans (including reviewing and approving equity grants to officers and directors) and to review and approve annually all compensation decisions relating to directors and elected officers, including those for the Company'sCompany’s Chief Executive Officer and the other executive officers named in the Summary Compensation Table (collectively, the "named“named executive officers"officers” or the "NEOs"“NEOs”). The Compensation Committee works with management to develop relationships between pay levels, financial performance and returns to stockholders in order to align the Company'sCompany’s compensation structure with the Company'sCompany’s organizational objectives. The charter of the Compensation Committee authorizes the Compensation Committee to confer with management to the extent it deems necessary or appropriate to fulfill its responsibilities.
The Compensation Committee discharges the responsibilities of the Board of Directors relating to the compensation of the Company'sCompany’s executive officers and directors, including the NEOs. The Compensation Committee has overall responsibility for evaluating and approving executive officer and director compensation plans and policies. The specific responsibilities and functions of the Compensation Committee are delineated in the charter of the Compensation Committee.
Compensation Consultant
The Compensation Committee has the authority under its charter to engage the services of outside advisors, experts and others to assist the Compensation Committee. The Compensation Committee did not engage a compensation consultant during the 2018, 20172020, 2019 or 20162018 fiscal years.
Role of Executive Officers
At the request of the Compensation Committee, in 2018,2020, Robert A. Ortenzio, the Company'sCompany’s Executive Chairman and Co-Founder, and, from time to time, David Chernow, the Company'sCompany’s President and Chief Executive Officer, participated in Compensation Committee meetings and recommended levels of compensation for the other NEOs. Additionally, the Company'sCompany’s Chief Financial Officer and Chief Accounting Officer participate in Compensation Committee meetings from time to time to discuss performance targets and results with the Compensation Committee. However, the Compensation Committee makes the final determination regarding the compensation of the NEOs. Other than the executive officers noted above, no other executive officers participate in determining or recommending the amount or form of executive compensation.
Compensation Committee Interlocks and Insider Participation
No current member of the Compensation Committee is or has been at any time one of the Company'sCompany’s officers or employees. None of the Company'sCompany’s executive officers currently serves, or has served during the last completed fiscal year, as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving as a member of the Company'sCompany’s Board of Directors or Compensation Committee.
Compensation Committee Report
The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis section of this Proxy Statement with management, and based on the Compensation Committee'sCommittee’s review and discussion with management, the Compensation Committee recommended to the Company'sCompany’s Board of Directors that the Compensation Discussion and Analysis section be included in this Proxy Statement.
Members of the Compensation Committee:
Bryan C. Cressey,Chair
Thomas A. Scully
Leopold SwergoldDaniel J. Thomas
Thomas A. Scully
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EXECUTIVE COMPENSATION
COMPENSATION DISCUSSION AND ANALYSIS
COMPENSATION DISCUSSION AND ANALYSIS
Objectives of the Company'sCompany’s Executive Compensation Policy
Introduction. This Compensation Discussion and Analysis ("(“CD&A"&A”) provides an overview of the Company'sCompany’s executive compensation program, together with a description of the material factors underlying the decisions which resulted in the compensation provided for 20182020 to the Company'sCompany’s Executive Chairman and Co-Founder, Vice Chairman and Co-Founder, President and Chief Executive Officer, Executive Vice President and Chief Financial Officer and Executive Vice President, General Counsel and Secretary, as presented in the tables which follow this CD&A. This CD&A contains statements regarding certain performance targets and goals the Company has used or may use to determine appropriate compensation. These targets and goals are disclosed in the limited context of the Company'sCompany’s compensation program and should not be understood to be statements of management'smanagement’s expectations or estimates of financial results or other guidance. The Company specifically cautions investors not to apply these statements to other contexts.
Compensation Philosophy. The Company'sCompany’s compensation philosophy for NEOs is designed with the primary goals of rewarding the contributions of NEOs to the Company'sCompany’s financial performance and providing overall compensation sufficient to attract and retain highly skilled NEOs who are properly motivated to contribute to the Company'sCompany’s financial performance. The Company generally seeks to achieve its goals with respect to the NEOs'NEOs’ compensation by implementing and maintaining incentive plans for such executive officers that tie a substantial portion of each NEO'sNEO’s overall compensation to pre-determined financial goals relating to the Company'sCompany’s return on equity and earnings per share. The Compensation Committee also grants the NEOs restricted stock awards from time to time which, subject to limited exceptions, require the NEO'sNEO’s continued employment for a minimum of three years prior to vesting.
Committee Process. The Compensation Committee meets as often as necessary to perform its duties and responsibilities. During 2018,2020, the Compensation Committee met sixfive times. The Compensation Committee'sCommittee’s meeting agenda is normally established by the Company'sCompany’s Executive Chairman and Co-Founder in consultation with the chairman and members of the Compensation Committee. Members of the Compensation Committee receive the agenda and related materials in advance of each meeting. Depending on the meeting'smeeting’s agenda, such materials may include financial reports regarding the Company'sCompany’s performance, reports on achievement of individual and Company objectives and information regarding the Company'sCompany’s compensation programs.
The Compensation Committee periodically reviews overall compensation levels to ensure that performance-based compensation represents a sufficient portion of total compensation to promote and reward executive officers'officers’ contributions to the Company'sCompany’s performance. All members of the Compensation Committee have extensive experience in the healthcare industry, including a focus on structuring appropriate executive compensation for healthcare companies. In setting the compensation for the NEOs, the Compensation Committee members draw on their collective experience in the healthcare industry and knowledge of investors'investors’ goals and do not engage in benchmarking. For the 20182020 fiscal year, the Compensation Committee believed that its historical approach to executive compensation decisions was appropriate and therefore did not engage a compensation consultant.
Role of Executive Officers. At the request of the Compensation Committee, in 2018,2020, Robert A. Ortenzio, the Company'sCompany’s Executive Chairman and Co-Founder, and, from time to time, David Chernow, the Company'sCompany’s President and Chief Executive Officer, participated in Compensation Committee meetings and recommended levels of compensation for the other NEOs. Additionally, the Company'sCompany’s Chief Financial Officer and Chief Accounting Officer participated in Compensation Committee meetings in 20182020 to discuss performance targets and results with the Compensation Committee. However, the Compensation Committee makes the final determination regarding the compensation of the NEOs. Other than the executive officers noted above, no other executive officers participate in determining or recommending the amount or form of executive compensation.
Risk Assessment
The Compensation Committee meets periodically each fiscal year to review the Company'sCompany’s executive compensation policies and programs to ensure that they are appropriate. The Compensation Committee
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also determines each year whether incentive compensation will be awarded to the Company'sCompany’s non-executive employees. After considering the various forms of compensation paid to the Company'sCompany’s employees, the Compensation Committee has concluded that the Company'sCompany’s compensation policies and programs are not reasonably likely to have a material adverse effect on the Company. This conclusion is based on the following factors:
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A majority of the Company'sCompany’s employees do not receive any performance-based compensation;
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A significant portion of the compensation paid to the Company'sCompany’s employees who are eligible to receive performance-based compensation consists of base salary, which is not dependent upon the Company'sCompany’s performance;
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The Company'sCompany’s bonus program for executive officers includes safeguards that reduce the incentive to engage in risky behavior. For example, the Company'sSelect Medical Holdings Corporation Amended and Restated Executive Bonus Plan (the “Amended and Restated Executive Bonus Plan”) limits the amount of bonus compensation that participants may receive (regardless of how well the Company performs) and provides the Compensation Committee with the discretion to reduce the bonus awards otherwise payable to participants thereunder. In addition, the Company has adopted a compensation recoupment policy that allows the Company to recoup, and requires any participant in any incentive-based compensation plan of the Company to repay, all or any portion of any award paid to the employee that may be required to be recouped under federal or state laws, Company policies or listing requirements of any applicable securities exchange; and
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The Company'sCompany’s executive officers currently own, and historically have owned, a significant percentage of the outstanding common stock of the Company. Additionally, each NEO is required to own a multiple of such NEO'sNEO’s base salary, as described below under the heading "“Stock Ownership Guidelines."” Such ownership interest reduces the incentive for the Company'sCompany’s executive officers to engage in actions designed to achieve only short-term results.
Consideration of Stockholder Advisory Vote on Executive Compensation
In determining and approving the compensation of our NEOs, the Compensation Committee monitors the results of the Company'sCompany’s annual advisory vote on executive compensation. The Company'sCompany’s stockholders approved our executive compensation program at our last annual meeting (122,714,386(117,683,466 votes for approval, 2,301,2085,966,338 votes against, 74,073662,378 abstentions and 4,282,9733,972,396 broker non-votes). Although this vote is non-binding, the Compensation Committee viewed this endorsement of our executive compensation decisions and policies as an additional factor supporting the Compensation Committee'sCommittee’s conclusion that our existing approach to executive compensation has been successful for the Company.
At our 2017 annual meeting, the Company'sCompany’s stockholders also voted that the advisory vote on executive compensation should be held once every year, consistent with past practice. Consistent with that vote, the Board of Directors resolved to hold an advisory vote on executive compensation once every year in connection with the Company'sCompany’s annual meeting of stockholders.
Stock Ownership Guidelines
In 2015, the Board of Directors approved a policy, by which the Company requires its NEOs to own a number of shares of the Company'sCompany’s common stock having a value equal to a multiple of their base salary as follows:
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Multiple of Base Salary | | ||||||
|---|---|---|---|---|---|---|---|
Executive Chairman | | | | | 3.0x | | |
Vice Chairman | | | | | 3.0x | | |
Chief Executive Officer | | | | | 3.0x | | |
All Other Named Executive Officers | | | | | 1.5x | | |
These guidelines represent minimum guidelines; ownership of the Company'sCompany’s stock beyond these levels is encouraged. The required share ownership is re-calculated annually on December 31. Any newly appointed
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NEO will have three years from the date of appointment to his or her position to comply with these guidelines. Any NEO for whom the guidelines change, whether due to a change in position or otherwise, will have three years from the date of such change to comply with the new guidelines for such NEO.
In determining satisfaction of the required ownership guidelines, the calculation includes stock held directly by the executive officer or owned either jointly with, or separately by, his or her immediate family members residing in the same household, shares held in trust for the benefit of the executive officer or his or her immediate family members and all restricted stock with time-based vesting, whether vested or unvested. Stock ownership does not include stock options, stock appreciation rights or the non-vested portion of any performance-based restricted stock.
These guidelines may be waived at any time at the discretion of the Company'sCompany’s Nominating and Corporate Governance Committee if compliance would create severe hardship or prevent an executive from complying with a court order. It is expected that these instances will be rare.
As of December 31, 2018,2020, all of the NEOs satisfied the stock ownership guidelines applicable to them.
The Company believes that these guidelines ensure that NEOs hold a sufficient amount of the Company'sCompany’s common stock to further strengthen the long-term link between the results achieved for the Company'sCompany’s stockholders and the compensation provided to the NEOs. Further details of the Company'sCompany’s stock ownership requirements are set forth in the Company'sCompany’s Stock Ownership Guidelines, which can be found on the Company'sCompany’s website atwww.selectmedicalholdings.com.
Regardless of whether the applicable minimum ownership requirement has been met, each executive officer is prohibited from selling, assigning or otherwise transferring any shares received upon the exercise of any stock option or vesting of a time-based or performance-based restricted stock award for a one-year period beginning on the date the underlying stock option is exercised or the time-based or performance-based restricted stock award vests, in each case net of those shares required to pay the exercise price and any taxes due upon exercise or vesting.
Anti-Hedging Policy
In 2015, the Board of Directors adopted a policy to prohibit all employees and directors of the Company from purchasing any financial instrument that is designed to hedge or offset any decrease in the market value of the Company'sCompany’s securities, including, but not limited to, any prepaid forward contracts, options, puts, calls, equity swaps, collars, other derivative instruments or any other similar type of financial transaction entered into for such purpose. Further details of the Company'sCompany’s anti-hedging policy, as well as other policies that govern participation by the Company'sCompany’s employees and directors in securities transactions, are set forth in the Company'sCompany’s Amended and Restated Trading Policy, which can be found on the Company'sCompany’s website atwww.selectmedicalholdings.com.
Compensation Recoupment Policy
In 2015, the Board of Directors, in order to further align management'smanagement’s interests with the interests of stockholders and to support good governance practices, adopted a compensation recoupment policy that allows the Company to recoup, and requires any participant in any incentive-based compensation plan of the Company to repay, all or any portion of any award paid to the employee that may be required to be recouped under federal or state laws, Company policies or listing requirements of any applicable securities exchange. In addition, the policy provides that, in the event of a material restatement of the Company'sCompany’s financial results, the Board of Directors may review the circumstances that caused the restatement and consider issues of accountability for those who bore responsibility for the events leading to such restatement, including whether anyone responsible for such events engaged in misconduct. Depending on the outcome of that review, appropriate action at the discretion of the Board of Directors could include actions such as termination, reducing compensation for the year the restatement was made, seeking repayment of any bonus received for the period restated or any gains realized as a result of exercising an option awarded for the period restated or canceling any equity compensation awarded for the period restated. Further details of the Company'sCompany’s compensation recoupment policy are set forth in the Company'sCompany’s Amended and Restated
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Corporate Governance Guidelines, which can be found on the Company'sCompany’s website atwww.selectmedicalholdings.com.
The Board of Directors approved amendments to the Company'sCompany’s equity incentive plans, form restricted stock award agreement and executive bonus plan to further clarify that award recipients are subject to compensation recoupment in accordance with the compensation recoupment policy described above.
Prohibition of Out of the Money Stock Option or Stock Appreciation Right Buy-Outs
In 2015, the Board of Directors approved amendments to the Company'sCompany’s equity incentive plans to clarify the Company'sCompany’s existing policy that prohibited the purchase of out of the money stock options or stock appreciation rights for cash or the cancelling of out of the money stock options or stock appreciation rights in exchange for new awards or the lowering of the exercise price of out of the money stock options or stock appreciation rights without the prior approval of the Company'sCompany’s stockholders.
Elements of Compensation
Executive compensation for any Company fiscal year generally consists of a combination of the following elements, each of which is discussed in further detail in the sections that follow:
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Base Salary;
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Annual Performance-Based Bonuses;
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Equity Compensation;
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Perquisites and Personal Benefits; and
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General Benefits.
In addition to the compensation components listed above, each of the NEOs is party to either an employment agreement or a change in control agreement with Select that provides for post-employment severance payments and benefits in the event of employment termination under certain circumstances.
In determining the different elements of compensation to provide to the NEOs in any given year, the Compensation Committee does not adhere to a specific allocation between short-term and long-term compensation, or between cash and non-cash compensation. Instead, the Compensation Committee determines the elements of NEO compensation for any given year in a manner designed to further its goals of rewarding strong financial performance, providing overall compensation opportunities that are sufficient to attract and retain highly skilled NEOs and ensuring that our NEOs'NEOs’ interests are aligned with those of our stockholders. This may result in the NEOs receiving all cash compensation in some years (through base salary and annual performance-based bonuses) and a combination of cash and equity compensation in other years (through base salary, annual performance-based bonuses and long-term equity awards).
Base Salary
Base salaries are provided to the NEOs to compensate them for services rendered during the year. Consistent with the Company'sCompany’s philosophy of placing increasing emphasis on performance-based compensation, the Compensation Committee sets the base salaries for the NEOs at levels which it believes are competitive for the healthcare industry when combined with the Company'sCompany’s incentive programs. The Compensation Committee periodically reviews base salaries for the NEOs. There was no change in the annual base salaries for Messrs. Jackson, Robert A. Ortenzio and Rocco A. Ortenzio fromof the NEOs during the 2020 fiscal year 2017 to 2018. Mr. Chernow's annual base salary increased from $983,904 to $995,000, effective April 1, 2017, and Mr. Tarvin's annual base salary increased from $500,000 to $520,000, effective January 1, 2018. Mr. Chernow received this base salary increase to reflect his strong performance and to bring his annual base salary more in line with that of our Executive Chairman and Vice-Chairman. Mr. Tarvin received this base salary increase to reflect his strong performance and to align his annual base salary with what the Compensation Committee believed to be market for executive officers with similar skills and experience.year.
20182020 Named Executive Officer Annual Performance-Based Bonuses
Annual bonuses are included as part of the executive compensation program because the Compensation Committee believes that a significant portion of each NEO'sNEO’s compensation should be contingent on the Company'sCompany’s financial performance. Accordingly, the Company has historically maintained a bonus plan under which NEOs are eligible to receive annual bonuses based upon the achievement of specific pre-determined performance measures.
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