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.     )

Filed by the Registrant    x

Filed by a Party other than the Registrant ¨

Check the appropriate box:

HEALTH NET, INC.

(Name of the Registrant as Specified In Its Charter)

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

Payment of Filing Fee (Check the appropriate box):

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

Health Net, Inc. will hold its 20102012 Annual Meeting of Stockholders on Wednesday,Tuesday, May 12, 201022, 2012 at 10:00 a.m. (Pacific Time) at 21281 Burbank Boulevard in Woodland Hills, California 91367, for the following purposes:

The Board of Directors has fixed Wednesday, March 31, 2010,28, 2012, as the record date for the determination of the stockholders entitled to notice of, and to vote at, the Annual Meeting or any continuation, adjournments or postponements of the Annual Meeting.

At the Annual Meeting, each share of Common Stock, $.001 par value per share, of Health Net represented at the Annual Meeting will be entitled to one vote on each matter properly brought before the Annual Meeting. Jay M. Gellert and Angelee F. Bouchard have been appointed as proxy holders, with full rights of substitution, for the holders of Common Stock.

By Order of the Board of Directors,

Angelee F. Bouchard

Senior Vice President, General Counsel and

Secretary

April 21, 20106, 2012

YOUR VOTE IS IMPORTANT

All stockholders are cordially invited to attend the 20102012 Annual Meeting of Stockholders of Health Net, Inc. in person. However, to ensure your representation at the Annual Meeting, please mark, sign and date the enclosed proxy card and return it as soon as possible in the enclosed self-addressed, postage-paid envelope. Alternatively, you may vote your shares by telephone by calling 1-800-560-1965, or over the Internet athttp://www.eproxy.com/hnt. If you vote by telephone or over the Internet, your electronic vote authorizes the named proxies in the same manner as if you returned a signed and dated proxy card by mail. If you attend the Annual Meeting in person, you may vote at the meeting even if you have previously returned a proxy.

Table of Contents

PROXY STATEMENT

FOR THE 20102012 ANNUAL MEETING

OF STOCKHOLDERS

TO BE HELD

MAY 12, 2010May 22, 2012

MEETING AND VOTING INFORMATION

General

The accompanying proxy is solicited by the Board of Directors of Health Net, Inc. (“Health Net,” “we,” “us” or “our”) for use at our 20102012 Annual Meeting of Stockholders (the “Annual Meeting” or “2010“2012 Annual Meeting”) to be held on Wednesday,Tuesday, May 12, 201022, 2012 at 10:00 a.m. (Pacific Time) at 21281 Burbank Boulevard, Woodland Hills, California 91367, and at any continuation, adjournments or postponements thereof. Directions to attend the meeting can be found on our Internet Web site,website,www.healthnet.com.¹ We expect to mail this proxy statement and accompanying proxy card beginning on or about April 21, 20106, 2012 to all stockholders entitled to vote at the Annual Meeting. In this proxy statement, unless the context otherwise requires, the terms “Company,” “Health Net,” “we,” “us,” and “our” refer to Health Net, Inc. and its subsidiaries.

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting to Be Held on May 12, 201022, 2012

This proxy statement, including a proxy card sample, the notice of the Annual Meeting and our 20092011 Annual Report on Form 10-K are available on our Internet Web sitewebsite address athttp://www.healthnet.com/InvestorRelations/2010Proxy.2012Proxy This Web site address contains the following documents: the notice of the Annual Meeting, this proxy statement, including a proxy card sample, and the 2009 Annual Report on Form 10-K.. You are encouraged to access and review all of the important information contained in the proxy materials before voting.

We are offering a live webcast of the Annual Meeting on our Internet Web site,website,www.healthnet.com. The webcast of the Annual Meeting will consist of live sound, real-time access to printed material and the ability of stockholders to submit questions during the question and answer period. To participate in the webcast of the Annual Meeting, a stockholder should log on towww.healthnet.com on Wednesday,Tuesday, May 12, 201022, 2012 shortly before 10:00 a.m. (Pacific Time) and follow the instructions provided under the “Investor Relations” section of the Web site.website. Stockholders willnot be permitted to vote over the Internet during the Annual Meeting.

Who Can Vote; Outstanding Shares

Only holders of record of our Common Stock, $.001 par value per share (“Common Stock”), at the close of business on March 31, 201028, 2012 (the “Record Date”) are entitled to vote at the Annual Meeting. Each share of Common Stock represented at the Annual Meeting is entitled to one vote on each matter properly brought before the Annual Meeting. As of the Record Date, we had outstanding 100,216,66983,241,450 shares of Common Stock.

In accordance with Delaware law, a list of stockholders entitled to vote at the Annual Meeting will be available at the Annual Meeting, and for 10 days prior to the Annual Meeting in the Investor Relations department at our corporate office at 21650 Oxnard Street, Woodland Hills, California 91367, between the hours of 9:00 a.m. and 4:00 p.m. (Pacific time).

Quorum and Votes Required

Our bylaws require that the holders of a majority of the total number of shares entitled to vote be present in person or by proxy in order for the business of the Annual Meeting to be transacted. Abstentions and “broker non-votes” will be counted as present for purposes of determining the presence or absence of a quorum for the transaction of business at the Annual Meeting. “Broker non-votes” occur when a bank, broker or other nominee holding shares for a beneficial owner does not vote those shares on a particular proposal because it does not have discretionary voting power for that particular item and has not received instructions from the beneficial owner. Participation by a stockholder in the live webcast of the Annual Meeting will not be counted for purposes of determining the presence or absence of a quorum for the transaction of business at the Annual Meeting.

Stockholder approval of each proposal requires the following votes:

Voting by Proxy

If you hold your shares of Common Stock as a record holder, you may vote by specifying your choices by marking the appropriate spaces on the enclosed proxy card, signing and dating the card and returning it in the enclosed self-addressed, postage-paid envelope.envelope to be receivedby Monday, May 21, 2012. Alternatively, you may vote your shares by telephone by calling 1-800-560-1965, or over the Internet athttp://www.eproxy.com/hntbefore 12:00 p.m. (Central Time) on Monday, May 11, 201021, 2012. If you vote by telephone or over the Internet, your electronic vote authorizes the named proxies in the same manner as if you returned a signed and dated proxy card by mail.Voting over the Internet or telephone will not be permitted after 12:00 p.m. (Central Time) on Tuesday,Monday, May 11, 2010.21, 2012.

Note that if you hold shares of Common Stock in the Health Net, Inc. 401(k) Savings Plan (the “401(k) Plan”), you may vote your shares by telephone or by Internet as described above, but your voting instructions must be receivedbefore 12:00 p.m. (Central Time) on Thursday, May 17, 2012in order for the 401(k) Plan trustee to vote your shares.

Instructions on how to submit a proxy via the Internet and telephone are located on the attachment to the proxy card included with this proxy statement. The Internet and telephone voting procedures are designed to authenticate our stockholders by use of a control number located on the attachment to the proxy card included herewith. If you hold your shares through a bank, broker or other nominee, check the instructions provided by that entity to determine which voting options are available to you. Please be aware that any costs related to voting over the Internet, such as Internet access charges, will be your responsibility.

All properly signed proxies that are received before the polls are closed at the Annual Meeting and that are not revoked will be voted at the Annual Meeting according to the instructions indicated on the proxies or, if no direction is indicated, they will be votedvoted:

In their discretion, the proxy holders named in the proxy are authorized to vote on any other matters that may properly come before the Annual Meeting and any continuation, adjournments or postponements thereof.

Voting in Person

If you are a stockholder of record and plan to attend the Annual Meeting and wish to vote in person, you will be given a ballot at the Annual Meeting. Please note, however, that if your shares are held of record by a broker, bank or other nominee, and you wish to vote in person at the Annual Meeting, you must bring to the Annual Meeting a legal proxy from the record holder of the shares (your broker or other nominee) authorizing you to vote at the Annual Meeting.

Stockholders who wish to attend the Annual Meeting will be required to present verification of ownership of our common stock,Common Stock, such as a bank or brokerage firm account statement and will be required to present a valid government-issued picture identification, such as a driver’s license or passport, to gain admittance to the Annual Meeting.

No cameras, recording equipment, electronic devices, large bags, briefcases or packages will be permitted in the Annual Meeting.

Revocability of Proxies

Any stockholder giving a proxy has the power to revoke it at any time before the proxy is voted at the Annual Meeting. If you are a stockholder of record, you may revoke your proxy in any of the following three ways:

If you hold shares of Common Stock in the 401(k) Plan, you may revoke your proxy using any of the above three methods, but must do sobefore 12:00 p.m. (Central Time) on Thursday, May 17, 2012.

If your shares are held by a broker, bank or other nominee, you may change your vote by submitting new voting instructions to your broker, bank or other nominee. You must contact your broker, bank or other nominee to find out how to do so.

Solicitation

Our Board of Directors is soliciting proxies for the Annual Meeting from our stockholders. We will bear the entire cost of the solicitation of proxies, including preparation, assembly and mailing of this proxy statement, the proxy and any additional materials furnished to stockholders. Proxies may be solicited by directors, officers and a small number of our regular employees personally or by mail, telephone or telegraph,facsimile, but such persons will not be specially compensated for such service. We have retained MacKenzie Partners, Inc. to assist in the solicitation

of proxies for a fee of approximately $15,000$10,000 plus reasonable out-of-pocket costs and expenses. Copies of solicitation material will be furnished to brokerage houses, fiduciaries and custodians that hold shares of our Common Stock of record for beneficial owners for forwarding to such beneficial owners. We may also reimburse persons representing beneficial owners for their costs of forwarding the solicitation material to such owners.

Assistance

If you need assistance in completing your proxy card or have questions regarding the Annual Meeting, please contact our Investor Relations department at (800) 291-6911.1-800-291-6911.

Your vote is important. Please sign, date and return a proxy card (or vote your shares over the Internet or by telephone) promptly so your shares can be represented, even if you plan to attend the Annual Meeting in person. The voting results will be included in a Current Report on Form 8-K filed within the time required by the SEC.

INTRODUCTION

We are an integrateda publicly traded managed care organization that delivers managed health care services through health plans and government-sponsored managed care plans. Our mission is to help people be healthy, secure and comfortable. We operate and conduct our businesses through subsidiaries of Health Net, Inc., which is among the nation’s largest publicly traded managed health care companies. In this proxy statement, unless the context otherwise requires, the terms “Company,” “Health Net,” “we,” “us,” and “our” refer to Health Net, Inc. and its subsidiaries.

Our health plansWe provide and government contracts subsidiaries provideadminister health benefits through our health maintenance organizations (“HMOs”), insured preferred provider organizations (“PPOs”), point-of-service (“POS”) and indemnity plans to approximately 6.16.0 million individuals across the country through group, individual, Medicare, (including the Medicare prescription drug benefit commonly referred to as “Part D”), Medicaid, U.S. Department of Defense, including TRICARE, and Veterans Affairs programs. Our behavioral health services subsidiary, Managed Health Network, Inc. (“MHN”), provides behavioral health, substance abuse and employee assistance programs to approximately 6.55.0 million individuals, including our own health plan members. Our subsidiaries also offer managed health care products related to prescription drugs and offer managed health care product coordination for multi-region employers and administrative services for medical groups and self-funded benefits programs. In addition, we own health and life insurance companies licensed to sell PPO, POS and indemnity products, as well as auxiliary non-health products such as life and accidental death and dismemberment, dental, vision, behavioral health and disability insurance, including our Medicare Part D Pharmacy coverage under Medicare.

We were incorporated in 1990. Our current operations are the result of the April 1, 1997 merger transaction (the “FHS Combination”) involving Health Systems International, Inc. (“HSI”) and Foundation Health Corporation (“FHC”). We changed our name to Health Net, Inc. in November 2000. Prior to the FHS Combination, we were the successor to the business conducted by Health Net of California, Inc., now our HMO subsidiary in California, and HMO and PPO networks operated by QualMed, Inc. (“QualMed”), which combined with us in 1994 to create HSI.

The mailing address of our principal executive office is 21650 Oxnard Street, Woodland Hills, CA 91367, and our Internet Web sitewebsite address iswww.healthnet.com.

PROPOSALITEM 1—ELECTION OF DIRECTORS

General; Board Structure

Our certificate of incorporation provides for directors to be elected on an annual basis. Under our certificate of incorporation and bylaws, the Board of Directors will consist of between three and twenty members, with the exact number to be fixed from time to time by the Board of Directors. The number of members constituting the Board of Directors has been fixed by the Board of Directors at twelve.

Ournine and our Board of Directors currently consists of tennine members. Assuming the election of each of the director nominees at the Annual Meeting, the Board of Directors will continue to consist of tennine members.

Our bylaws contain certain mandatory retirement and resignation provisions that apply to members of our Board of Directors. Specifically, a director will be deemed to have retired and resigned from the Board of Directors effective immediately prior to the first annual meeting of stockholders occurring after such director attains seventy-two years of age. However, with respect to members of the Board of Directors who were serving as of February 4, 1999, this retirement and resignation applies once such director reaches seventy-five years of age. Additionally, the Board of Directors has the power to waive the application of these provisions on a case-by-case basis by affirmative vote of two-thirds of the directors after considering all of the applicable facts and circumstances. The Board of Directors has waived the application of such provisions with respect to Patrick Foley (who is seventy-eight years of age and was a member of the Board of Directors on February 4, 1999) and Thomas T. Farley (who is seventy-five years of age and also was a member of the Board of Directors on February 4, 1999) for one year. None of the other director nominees are affected by this mandatory retirement provision.

Our bylaws alsoCorporate Governance Guidelines generally provide that a director who has held officeshall serve for any perioda maximum of ninetwelve consecutive years after October 14, 2003, shall not be qualified to be elected as a director at the first annual meeting of stockholders

occurring after the end of such ninth consecutive year and shall be deemed to have retired and resigned from the Board of Directors effective immediately upon the completion of such ninth consecutive year in office;years; provided however, that the Board of Directors shall have the powermay make exceptions to waive the application of such provisions to a given directorthis term limitation on a case-by-case basis by an affirmative vote of two-thirds of the directors after considering all of the applicable facts and circumstances. Thiscircumstances (the “Term Limit Policy”). The commencement date for the Term Limit Policy is October 15, 2003 for non-employee directors who were members of the Board of Directors on such date. The term limit provision doeshas not affectimpacted any of the director nominees.

Director Nominees

At the Annual Meeting, stockholders will vote for tennine directors. Each director will be re-elected to hold office for a term of one year or until the 20112013 Annual Meeting of Stockholders. Each elected director will continue in office until such director’s successor is elected and has been qualified, or until such director’s earlier death, resignation or removal.

Pursuant to our bylaws, based on the recommendation of the Governance Committee, our Board of Directors has designated the following tennine nominees for election. Each of the nominees has consented to serve as a director if elected. There are no family relationships among any directors.of the nominees or executive officers. The following table sets forth certain information with respect to the nominees:nominees, as of March 28, 2012:

As set forth under “Meeting and Voting Information—Quorum and Votes Required,” in March 2010, the Board of Directors amended our bylaws to adoptinclude a majority voting standard for the election of directors in uncontested elections, such as this one. Accordingly, the persons receiving a majority of the votes cast by the shares present in person or represented by proxy at the Annual Meeting and entitled to vote shall be elected. Abstentions and broker non-votes will not be counted, and stockholders eligible to vote at the Annual Meeting do not have cumulative voting rights with respect to the election of directors. Unless otherwise instructed, the proxy holders will vote the proxies received by them “FOR”FOR” the election of each of the tennine nominees named above. Because only tennine nominees have been named, proxies cannot be voted for a number of persons greater than tennine or for individuals other than those named as nominees in this proxy statement.

It is expected that the nominees named above will stand for election at the 20102012 Annual Meeting of Stockholders, but if any of the nominees declines or is unable to do so, the proxies will be voted for another person or persons designated by the Governance Committee of our Board of Directors.

The Board of Directors recommends a vote

“FOR” each named nominee.

Information Concerning Current Members of the Board of Directors and Nominees

Ms. Citrino has served as our director since December 2009. Ms. Citrino has been a Senior Managing Director in the Corporate Advisory Services group at The Blackstone Group, a global investment and advisory firm, since 2004. Ms. Citrino has served as a director of Dollar Tree, Inc., a NASDAQ Stock Market (NASDAQ)-listed company, since 2005, and is a member of its Audit Committee. Previously, Ms. Citrino was employed at Morgan Stanley for over 20 years. While at Morgan Stanley, she served as the Global Head of Consumer Products Investment Banking, Co-Head of Health Care Services Investment Banking, and as a Mergers and Acquisitions Analyst.

With

Our Board of Directors has concluded that, in light of her distinguished career inas an investment banking,banker, Ms. Citrino should serve as one of our directors because she provides our Board of Directors with a wealth of knowledge regarding business operations and business strategy, and the health care industry as well as valuable financial and investment expertise. HerFurther, her extensive experience identifying and valuing businesses provides our Board of Directors with key insights and knowledge of what makes our companyCompany work efficiently and effectively.

Mr. Craver has served as our director since March 2004. Mr. Craver has served as Chairman, President and Chief Executive Officer of Edison International, an electric power provider, since August 2008, and held several other positions at the company since 1996. Mr. Craver also is a current director of the Edison Electric Institute and the Electric Power Research Institute, both industry trade organizations,organizations. He is also the Co-Chairman of the Electric Drive Transportation Association, and a director of the Autry National Center, aboth of which are non-profit organization.organizations.

Some of the previous positions held by Mr. Craver at Edison International were: Chief Executive Officer of Edison Mission Group, one of its principal subsidiaries that owns and operates competitive power generation facilities, and Edison Capital, a provider of capital and financial services, from January 2005 to April 2008; Chief Financial Officer from January 2000 to December 2004; and in other financial and executive management positions beginning in 1996. From 1984 to 1996, Mr. Craver held various financial management positions at First Interstate Bancorp, including Executive Vice President and Corporate Treasurer of the holding company and Executive Vice President and Chief Financial Officer of a banking subsidiary. Mr. Craver served in various capital markets trading, underwriting and marketing positions at Bankers Trust Company of New York from 1980 to 1984 and at Security Pacific National Bank from 1973 to 1980.

Mr. Craver brings to our Board of Directors extensive senior executive management and financial experience at public companies. Mr. Craver gained his finance and accounting expertise as Chief Financial Officer of Edison International and during his banking career. Because of his broad financial experience, Mr. Craver serves as one of our SEC “audit committee financial experts” and provides our Board of Directors with valuable insight into finance and accounting related matters, as well as general management experience in large, complex and highly-regulated public companies. For these reasons our Board of Directors has concluded that Mr. Craver should serve as one of our directors.

Ms. Escarra has served as our director since July 2006. Since March 2006, Ms. Escarra has served as President and Chief Executive Officer of Feeding America, a non-profit organization focused on hunger-relief.

Ms. Escarra’s distinguished professional experience includes a 30-year career at Delta Air Lines, Inc., most recently having served as Delta Air Line’s Executive Vice President and Chief Marketing Officer from May 2001 until October 2004. Ms. Escarra was a director of A.G. Edwards, Inc. from 2002 to 2007 and is the former Chair of the Board of the Atlanta Convention and Visitors Bureau.

With over thirty years of business and consumer marketing experience, including at a large public company, our Board of Directors has concluded that Ms. Escarra should serve as one of our directors as she provides our Board of Directors with valuable business expertise, especially on matters relating to

marketing and business strategy. With her extensive business experience, Ms. Escarra understands the challenges of operating a public company in a dynamic and ever-changing business environment. Her present service leading a large non-profit organization lends a unique social awareness perspective to our Board of Directors.

Mr. Farley has served as our director since April 1997, having previously served as a director of HSI from January 1994 to April 1997. Mr. Farley is currently a senior partner in the law firm of Petersen & Fonda, P.C. in Pueblo, Colorado and serves on the Board of Governors of the Colorado State University System. Additionally, Mr. Farley is a current director/advisor of Wells Fargo Bank of Pueblo and Sunset, and a member of the Board of Regents of Santa Clara University, a Jesuit institution. Mr. Farley is also a director of the Finance Council of the Catholic Diocese in Southern Colorado and of Catholic Charities in Southern Colorado.

Previously, Mr. Farley served as a director of QualMed from February 1991 until February 1995. Mr. Farley also was formerly President of the governing boards of Colorado State University, the University of Southern Colorado and Ft. Lewis College and Chairman of the Colorado Wildlife Commission. He served as Minority Leader of the Colorado House of Representatives from 1967 to 1975. Mr. Farley was a director of the Public Service Company of Colorado, a public gas and electric company, from 1983 to 1997, and is a former director of Colorado Public Radio.

Mr. Farley’s distinguished career in a broad range of areas, including education, health care, public service and the private sector, provides our Board of Directors with experience and knowledge regarding regulatory, governance and legal matters. Mr. Farley’s long-standing history with the Board of Directors additionally provides continuity to the board and considerable understanding of the strategic and operational issues we face.

Ms. Fitzgerald has served as our director since March 2001. Ms. Fitzgerald is a director of Diebold, Inc., a New York Stock Exchange (NYSE)(“NYSE”)-listed company specializing in providing integrated self-service delivery systems and security systems and services, and is Chair of Diebold’s governance committee and a member of its compensation committee. Ms. Fitzgerald also is a director and a member of the audit committee of Cross Country Healthcare, Inc., a NASDAQ-listed healthcare staffing company.

From March 2003 to December 2008, Ms. Fitzgerald served as President and Director of TranSpend, Inc., a privately held company focusing on total spend optimization. From July 2002 through October 2002, Ms. Fitzgerald served as President and Chief Executive Officer of QP Group, a procurement solutions company. From October 1994 to June 2000, Ms. Fitzgerald served as Chair and Chief Executive Officer of Computer Task

Group, Inc., an international information technology services firm. Prior to this, Ms. Fitzgerald worked at International Business Machines Corporation, a world leader in information technology, where she held a variety of positions over the course of an eighteen year career, most recently as Vice President of Professional Services. Ms. Fitzgerald also served on the Board of Directors of Kaleida Health System in Buffalo, New York from 1995 to 2002, and was Vice Chair from 2000 to 2002, and served on the Advisory Board of the University of Buffalo’s School of Management from 1993 to 2001. Ms. Fitzgerald served on the Boards of Directors of the Information Technology Services (“ITS”) Division of Information Technology Association of America (“ITAA”) and of ITAA from 1992 to 2002, and was Chair of the ITS Board from 1998 to 2002.

With her distinguished career as a senior executive in the information technology industry, Ms. Fitzgerald provides our Board of Directors with expertise in information technology, supply chain management, procurement solutions, human resources, strategic planning, operations management, marketing and healthcare. In addition, serving on the boards of Diebold and Cross Country Healthcare, Ms. Fitzgerald draws from extensive directorial and governance experience, which enables her to contribute valuable insight and guidance on important issues facing Health Net. Based on these reasons, our Board of Directors has determined that Ms. Fitzgerald should serve as one of our directors.

Mr. Foley has served as our director since April 1997.Mr. Foley served as a director of FHC from 1996 until the FHS Combination in April 1997. Mr. Foley served as Chairman, President and Chief Executive Officer of DHL Airways, Inc., an air express parcel delivery company, from September 1988 through July 1999. Prior to this, Mr. Foley worked at Hyatt Hotels Corporation for 26 years, where he held senior management positions, including Chairman and President from 1977 to 1988 and Chief Operating Officer from 1972 to 1977. From 1984 until 1988, Mr. Foley also served as Chief Executive Officer of Braniff Airlines.

With a distinguished career including more than 30 years of experience in the hotel and airline industries as well as service on the boards of several other public companies, including Continental Airlines, Del Monte Foods Company, Flextronics International Ltd., Greyhound Lines, Inc., Copart, Inc. and Glenborough Realty Trust, Inc., Mr. Foley provides our Board of Directors with demonstrated leadership skills, expertise in business and management and extensive directorial experience. AsFurther, as one of our longest standing directors, Mr. Foley also provides continuity to the board, institutional knowledge and a deep understanding of the strategic and operational issues we face. For these reasons, our Board of Directors has concluded that Mr. Foley should serve as one of our directors.

Mr. Gellert has served as our director since February 1999 and has served as our President and Chief Executive Officer since August 1998. Mr. Gellert has been a director of Ventas, Inc., a NYSE-listed company, since August 2001. Mr. Gellert also is currently Chairmana member of the Board of Directors of America’s Health Insurance Plans, a national association representing over one thousand health insurance companies.

Previously, Mr. Gellert served as our President and Chief Operating Officer from May 1997 until August 1998. From April 1997 to May 1997, Mr. Gellert served as our Executive Vice President and Chief Operating Officer. Mr. Gellert served as President and Chief Operating Officer of HSI from June 1996 until March 1997. He served on the Board of Directors of HSI from June 1996 to April 1997. Prior to joining HSI, Mr. Gellert directed Shattuck Hammond Partners Inc.’s strategic advisory engagements in the area of integrated delivery systems development, managed care network formation and physician group practice integration. Prior to joining Shattuck Hammond Partners Inc., Mr. Gellert was an independent consultant, and from 1988 to 1991, he served as President and Chief Executive Officer of Bay Pacific Health Corporation. From 1985 to 1988, he was Senior Vice President and Chief Operating Officer for California Healthcare System.

Our Board of Directors has determined that Mr. Gellert’sGellert should serve as one of our directors due to his distinguished career in the managed care industry and as a senior executive, which provides our Board of Directors with demonstrated leadership capabilities and expertise in business, management and the health care industry. As a senior executive of our Company since 1997 and our predecessor during 1996, Mr. Gellert brings in-depth operational knowledge and understanding of all facets of our business. In addition, as our President and Chief Executive Officer, he serves as a valuable bridge between management and the board, ensuring that both groups act with a common purpose. Mr. Gellert’s extensive knowledge of our operations and the markets in

which we compete, combined with his experience on the board of another NYSE-listed company, enables him to identify important matters for board review and deliberation.

Mr. Greaveshas served as our director since April 1997 and was elected Chairman of the Board of Directors in January 2004. Mr. Greaves serves as an Honorary Member of the Board of Trustees of California State University at Long Beach.

Mr. Greaves served as a director of HSI from January 1994 until the FHS Combination in April 1997. Mr. Greaves served as our Co-Chairman of the Board of Directors, Co-President and Co-Chief Executive Officer from January 1994 (upon consummation of the HSI Combination) until March 1995. Prior to January 1994, Mr. Greaves served as Chairman of the Board of Directors, President and Chief Executive Officer of H.N. Management Holdings, Inc., a predecessor to Health Net (“HN Management Holdings”), since its incorporation in June 1990. Prior to this, Mr. Greaves served as the President and Chief Executive Officer, from February 1982 until the incorporation of HN Management Holdings in June 1990, and additionally as Chairman, from September 1989 until the incorporation of HN Management Holdings in June 1990, of Health Maintenance Network of Southern California (the predecessor to H.N. Management Holdings). Mr. Greaves currently serves as Chairman of the Board of Directors of Health Net of California, Inc. (“HN California”), our subsidiary. Mr. Greaves also served a prior term as Chairman of the Board of Directors of HN California, and concurrently served as President and Chief Executive Officer of HN California. Prior to joining HN California, Mr. Greaves held various management roles at Blue Cross of Southern California, including Vice President of Human Resources and Assistant to the President, and held various management positions at Allstate Insurance Company from 1962 until 1968.

With a distinguished career of over forty years of management experience in key leadership roles, including as former Chief Executive Officer of our Company and its predecessors in interest, Mr. Greaves brings to our Board of Directors has concluded that Mr. Greaves possesses demonstrated leadership capabilities and in-depth knowledge of our history and all aspects of

our business.business and, therefore, he should serve as one of our directors. His extensive management experience and knowledge and understanding of our business and operations combine to provide our Board of Directors with valuable guidance and input on the many strategic and operational issues we face. In addition, having served on several boards of directors, Mr. Greaves has considerable governance experience that he contributes to board discussions and deliberations.

Mr. Willisonhas served as our director since December 2000. Mr. Willison currently serves as Chief Executive Officer of Grandpoint Capital Advisors, a middle market investment bank, a position he has held since January 2009. Mr. Willison also is a director of Move, Inc., a NASDAQ-listed company, Grandpoint Bank, a community bank in Los Angeles, and a trustee of SunAmerica’s Seasons and Series Trusts.

Mr. Willison served as Dean, UCLA Anderson School of Management (the “UCLA Anderson School”) from July 1999 to January 2007, and is currently a Professor in ManagementDean Emeritus of UCLA Anderson School of Management. From January 2009 until July 2010, Mr. Willison served as Chief Executive Officer of Grandpoint Capital Advisors, a middle market investment bank. Mr. Willison served as a director of IndyMac Bancorp, Inc. from July 2005 to July 2008. From April 1996 to October 1998, Mr. Willison served as President and Chief Operating Officer of H.F. Ahmanson, Inc. (Home Savings of America). Mr. Willison also served as Chairman, President and Chief Executive Officer of First Interstate Bank of California from February 1991 to April 1996.

Mr. Willison’s distinguished career in key leadership roles in the financial industries and as a professor and former Dean of the UCLA Anderson School of Management provides our Board of Directors with demonstrated leadership skills and expertise in business and finance. Mr. Willison’s governance experience on the boards of several publicly traded companies enables him to play a vital role in board discussions and deliberations regarding our business strategy and operations. In addition, as a director since 2000, Mr. Willison understands our history, business and the complex industry in which we compete. Therefore, for these reasons our Board of Directors has determined that Mr. Willison should serve as one of our directors.

Mr. Yeagerhas served as our director since March 2004. Mr. Yeager has served in numerous senior positions at Time Warner, Inc., a NYSE-listed media and entertainment company since Mayfrom 1995 includingto 2011. Mr. Yeager served as an advisor to Time Warner’s senior management sincefrom August 1, 2009 Senior Vice President, Finance since December 2000, and Chairman of the Time Warner’s Investment Committee and trustee of Time Warner’s U.K. Pension Plans since 2005.to August 2011.

From December 2000 to January 2009, Mr. Yeager led teams responsible for global strategic sourcing, supplier diversity, and investment of employee benefits assets, and served as the chair of the Time Warner Investment Committee. From May 1995 to December 2000, Mr. Yeager was Vice President, Finance and Development for Time Warner and led teams responsible for financial and business planning, mergers and acquisitions, treasury, capital structure planning and capital markets transactions, and for managing Time Warner’s relationships with commercial and investment banks and debt-rating agencies. Prior thereto, Mr. Yeager had a 27-year career with Ford Motor Company where he held executive and management positions in the Finance Staff, the Treasurer’s Office, theand Treasury departments, Product Development Group, theand Financial Services Group,groups, Ford of Europe, and Ford Motor Credit Company. Mr. Yeager began his career at Ford in 1968 as an Operations Research Analyst.

Our Board of Directors has concluded that Mr. Yeager’sYeager should serve as one of our directors due to his distinguished career working in finance, planning, treasury and capital markets and experience as a senior executive and advisor for large corporations, which provides our Board of Directors with extensive knowledge of complex financial and operational issues facing large organizations. Mr. Yeager’s expertise in dealing with accounting principles and financial reporting rules and regulations provides him with the financial acumen requisite to serve as one of our SEC “audit committee financial experts” and makes him well suited to serve on our Audit Committee. His years of business experience combined with his financial and business planning expertise play a vital role, especially in light of current market conditions, in board discussions and deliberations regarding our financial strategy.and business strategies.

EXECUTIVE OFFICERS

The following sets forth certain biographical information with respect to our executive officers, as of March 31, 2010, and all individuals who served as our executive officers during 2009.the date of this proxy statement.

Mr. Gellert. See “—“Item 1—Election of Directors—Information Concerning Current Members of the Board of Directors and Nominees” above.

Mr. Woys has served as our Executive Vice President, Chief Operating Officer since November 2007. Previously, Mr. Woys served as our Interim Chief Financial Officer from November 2006 until November 2007, and served as President, Government and Specialty Services from October 2005 until November 2007. Prior thereto, he served as President of Health Net Federal Services from February 2001 to October 2005. Mr. Woys served as Chief Operating Officer and President of Health Net Federal Services from November 1999 to February 2001. Mr. Woys served as Chief Operating Officer and Senior Vice President for Foundation Health Federal Services from February 1998 to November 1999. Mr. Woys served as Senior Vice President of Foundation Health Federal Services from January 1995 to February 1998. From January 1990 to January 1995, Mr. Woys served as Vice President and Chief Financial Officer of the Government Division of FHC. Mr. Woys served as Director of Corporate Finance/Tax for FHC from October 1986 to January 1990. Prior to Mr. Woys’ employment with FHC, he was employed by Price Waterhouse from 1982 to 1986 and by Arthur Andersen & Co. from 1980 to 1982.

Mr. Capezza has served as our Executive Vice President, Chief Financial Officer since November 1, 2007.2007, and as Treasurer since April 1, 2012. Prior to joining Health Net, Mr. Capezza served as Chief Financial Officer at Harvard Pilgrim Health Care from January 2002 to October 2007. From June 2000 to December 2001, Mr. Capezza served as Senior Vice President and Chief Financial Officer at Group Health Incorporated. Prior thereto, Mr. Capezza had a long career with Reliance Insurance Group, where he served as Senior Vice President and Chief Financial Officer at Reliance Reinsurance Corp. from February 1990 to May 2000. From 1985 to 1990, Mr. Capezza served as Vice President and Chief Financial Officer at Willcox Incorporated Reinsurance Intermediaries, and from 1983 to 1985, Mr. Capezza served as Vice President and Controller at Skandia America Reinsurance Company. From 1976 to 1983, Mr. Capezza served as General Practice Manager—Insurance Industry Specialist at Coopers & Lybrand, LLP.

Ms. Bouchardhas served as our Senior Vice President, General Counsel and Secretary since December 14, 2009, having joined Health Net as Vice President, Assistant General Counsel and Assistant Secretary in 2003. Prior to joining Health Net, Ms. Bouchard was an associate at the law firm of Latham & Watkins LLP from 1996 until 2003, during which time she specialized in capital markets transactions, mergers and acquisitions and public company representation.

Ms. Clareyhas served as our Senior Vice President, Chief Regulatory and External Relations Officer since June 2008. Previously, Ms. Clarey served as Chief Operating Officer of our Health Plan Division and Health Net of California from April 2006 through May 2008. In 2003, Ms. Clarey left us to serve as a member of the senior

leadership team for the campaign for Arnold Schwarzenegger for Governor of California, and after his election served as Governor Schwarzenegger’s Chief of Staff. Prior thereto, from March 2001 to November 2003, Ms. Clarey served as our Vice President of Government Relations. Prior to her service at Health Net, from 1998 through 2001 Ms. Clarey held senior management positions at Transamerica Corporation, and from 1991 to 1998 she served as deputy chief of staff to former California Governor Pete Wilson. Ms. Clarey is currentlya member of the State Personnel Board and a director of California Public Employees’ Retirement System, State Personnel Board andthe California Foundation on the Environment and the Economy.

Mr. Lynchserved as our President, Health Plan Division from November 2007 until November 8, 2008. On November 8, 2008, Mr. Lynch announced he would retire from the Company effective February 28, 2009. From November 2008 until February 28, 2009, Mr. Lynch served as our Special Advisor, Health Plan Division. Previously, Mr. Lynch served as our President, Regional Health Plans since January 2005. Prior thereto, Mr. Lynch served as Chief Operating Officer for our Western Region since June 2004. Mr. Lynch served as President, Health Net of Oregon from August 2001 to June 2004.

Ms. MayhewHefnerhas served as our Senior Vice President, Customer and Technology Services, which is our chief customer services officer, since January 2012. Prior thereto, Ms. Hefner served as our Chief Customer Services Officer since September 2010. In addition, since 2008, Ms. Hefner has also served as President and Chief Executive Officer of MHN, our subsidiary that offers behavioral health, substance abuse and employee assistance programs. Prior to assuming the role of President and Chief Executive Officer of MHN, Ms. Hefner was Chief Operating Officer for MHN from 2007. From August 1999 to 2007, Ms. Hefner held several vice president positions within Health Net.

Ms. Mayhewhas served as our Senior Vice President, Organization Effectiveness since April 1999. Prior to joining us, Ms. Mayhew served as Senior Vice President, Organization Development of Southern New England Telecommunications Company (“SNET”), a northeast regional information, entertainment and telecommunications company based in Connecticut. Prior thereto, Ms. Mayhew served in various capacities at SNET, including Vice President, Human Resources, since 1972.

Mr. Sell has served as our President, Western Region Health Plan since December 2009, having previously served as President of Health Net of California since November 2008. Prior to assuming the role of President of Health Net of California, Mr. Sell was President and Chief Executive Officer of Managed Health Network, Inc. (“MHN”), our subsidiary that offers behavioral health, substance abuse and employee assistance programs,MHN from December 2006 to November 2008, our Chief Sales Officer from March 2006 to December 2006, and our Vice President, Employer Services Group from January 2004 to March 2006. Mr. Sell served as a consultant with Booz Allen Hamilton prior to joining Health Net.

Mr. Sivori has served as our Health Care Services Officer since December 2009 and our President of Regional Health Plans and Health Net Pharmaceutical Services since November 2008. Previously, Mr. Sivori served as our President of Health Net Pharmaceutical Services from September 2001 to November 2008. Prior thereto, Mr. Sivori was appointed Senior Vice President and Chief Financial Officer of Integrated Pharmaceutical Services, now Health Net Pharmaceutical Services, from December 1998 until September 2001. Mr. Sivori originally joined FHC in August 1994 and held various senior management positions prior to December 1998.

Ms. Tianohas served as our President, Regional Health Plans, Health Net of the Northeast, Inc. since December 14, 2009, having previously served as our Senior Vice President, General Counsel and Secretary since February 1, 2007. Ms. Tiano served as Senior Vice President and General Counsel for WellChoice, Inc., the parent of Empire Blue Cross and Blue Shield of New York, from September 1995 to December 2005. Following WellChoice’s acquisition by WellPoint, Inc. in late 2005, Ms. Tiano served as Vice President and Deputy General Counsel for the East Region and National Accounts for WellPoint until November 1, 2006. Before WellChoice, Ms. Tiano was Vice President and General Counsel of MVP Health Plan in New York (“MVP”) from August 1992 to September 1995. Prior to MVP, Ms. Tiano was a partner in the New York office of Epstein Becker & Green.

Mr. Toughhas served as our President, Government Programs since January 16, 2010, our President of Health Plan and Government Programs since November 2008, the President of Health Net Federal Services since January 2006, and our President of our Government and Specialty Services division since February 2008. From 1978 to 1998, Mr. Tough spent 20 years at FHC, nine of which he served as President and Chief Operating Officer of our Government and Specialty Services groups. Upon leaving FHC in 1998, and prior to joining us in 2006, Mr. Tough started his own firm providing health care consulting services to a variety of companies, and served as President and Chief Executive Officer of the California Association of Health Plans and President, Western Region, MAXIMUS Health Care Services Group, a health care services organization.

Certain Relationships and Related Party Transactions

We have adopted a written Related Party Transaction Policy (the “Policy”), which Policy has been approved by the Audit Committee of the Board of Directors (“Audit Committee”) in accordance with its charter. The Policy outlines our policies and procedures for the review, approval or ratification of certain transactions in which any of our related parties had or will have a direct or indirect material interest. For purposes of the Policy, a “related party” means any of our directors or director nominees, our executive officers, holders of more than five percent (5%) of any class of our voting securities, or any member of the immediate family of any of the foregoing persons, hadany firm, corporation or will haveother entity in which any of the foregoing persons is employed or is a directpartner or indirect material interest.principal or in a similar position, or in which any number of the foregoing persons hold in the

aggregate a 10% or greater beneficial ownership interest, or any charitable, tax exempt or non-profit organization in which any of the foregoing persons is actively involved in fundraising or otherwise serves as a director, officer, trustee, or any similar capacity. The Policy provides, among other things, for any proposed related party transaction to be submitted to the Audit Committee, or under delegated authority to the Chair of the Audit Committee (the “Chair”), for approval. The factors to be considered by the Audit Committee, or Chair, as applicable, when reviewing such related party transaction shall include, but are not limited to, the following: (i) the benefits to Health Net;Net of the transaction; (ii) the impact on a director’s independence in the event the related party is a member of the Board of Directors, an immediate family member of a member of the Board of Directors or an entity in which a member of the Board of Directors is a partner, shareholder, trustee, director, executive officer or executive officer;similar position; (iii) the availability of other sources for comparable products or services; (iv) the terms of the transaction; and (v) the terms available to unrelated third parties or to employees generally.

The Policy also provides that if we find that a related party transaction is ongoing that did not receive prior approval by the Audit Committee, or Chair, as applicable, then such transaction will be promptly submitted to the Audit Committee or Chair for consideration of all of the relevant facts and circumstances available, and taking into account the same factors as described above, to determine whether the transaction should be ratified, amended or terminated. If a related party transaction is completed that did not receive prior approval, the Audit Committee or Chair, as applicable, shall evaluate the transaction, taking into account the same factors as described above, to determine if rescission of the transaction is appropriate. In the case of an ongoing or completed related party transaction that did not receive prior approval in accordance with the Policy, the General Counsel shall evaluate our controls and procedures to ascertain the reason(s) the transaction was not submitted for prior approval and whether any changes to these procedures are recommended. The Chair shall report to the Audit Committee at the next Audit Committee meeting any approval, ratification, amendment or rescission of a related party transaction made by such Chair under his or her delegated authority pursuant to the Policy.

On March 28, 2007, theThe Audit Committee, in accordance with the Policy, pre-approved a transaction with Jonathan Mayhew,has reviewed, approved and/or ratified the following transactions:

CORPORATE GOVERNANCE

Corporate Governance Guidelines and Code of Conduct

Members of our Board of Directors are elected by the holders of our Common Stock and represent the interests of all stockholders. Our Board of Directors meets periodically to review significant developments affecting us and to act on matters requiring its approval. Although the Board of Directors delegates selected matters to others, subject to its ultimate oversight, it reserves certain powers and functions to itself.

Our Board of Directors has established Corporate Governance Guidelines that it follows in matters of corporate governance. In addition, the Board of Directors has adopted a Code of Business Conduct and Ethics that applies to all of our employees, directors and officers, including our principal executive officer, principal financial officer and principal accounting officer. In addition, our Code of Business Conduct and Ethics provides that our “First Tier and Downstream Related Entities,” as defined by Medicare regulations, must abide by the Code of Business Conduct and Ethics if they do not have their own Code of Conduct and policies that comply with applicable laws and regulations. Our Corporate Governance Guidelines and Code of Business Conduct and Ethics are published on our Web sitewebsite atwww.healthnet.com. We intend to disclose any future amendments to certain provisions of our Code of Business Conduct and Ethics, or waivers of provisions required to be disclosed under the rules of the SEC or listing standards of the NYSE, at the same location on our website identified above.

Board Meetings and Committees; Annual Meeting Attendance

Our Board of Directors met a total of seventeeneleven times in 2009.2011. Each member of our Board of Directors was present for 75% or more of the combined total of (i) all meetings of the Board of Directors held in 2009 (during the period he/she served as a director)2011 and (ii) all meetings of all committees of the Board of Directors held in 20092011 on which he/she served (during the period he/she served).served. Our non-management directors meet in executive session without management on a regularly scheduled basis, but not less frequently than quarterly. The non-executive Chairman presides at such executive sessions, or in his absence, a non-management director designated by our non-executive Chairman. In addition, it is our policy that each of our directors attends the Annual Meeting. All of our current directors were in attendance at the 20092011 Annual Meeting.Meeting of Stockholders.

Director Independence

On an annual basis, with the assistance of the Governance Committee, our Board of Directors reviews the independence of all directors and affirmatively makes a determination as to the independence of each director. To assist in making this determination, the Board of Directors has adopted independence guidelines (the “Director Independence Standards”), which are designed to conform to, or be more exacting than, the independence requirements set forth in the listing standards of the NYSE. The director independence guidelinesDirector Independence Standards are published on our Web sitewebsite atwww.healthnet.com. In addition to applying these guidelines, the Board of Directors considers any and all additional relevant facts and circumstances in making an independence determination.

Our Board of Directors has determined that the following directors qualify as independent under NYSE listing standards: Mary Anne Citrino, Theodore F. Craver, Jr., Vicki B. Escarra, Thomas T. Farley, Gale S. Fitzgerald, Patrick Foley, Roger F. Greaves, Bruce G. Willison and Frederick C. Yeager. Under the NYSE listing standards, no director qualifies as independent unless the Board of Directors affirmatively determines that the director has no material relationship with us,the Company, either directly or as a partner, stockholder or officer of an organization that has a relationship with us.the Company, that would impair such director’s independence. The Board of Directors has affirmatively determined that each of Mary Anne Citrino, Theodore F. Craver, Jr., Vicki B. Escarra, Gale S. Fitzgerald, Patrick Foley, Roger F. Greaves, Bruce G. Willison and Frederick C. Yeager is an independent member of the Board of Directors under the listing standards of the NYSE and the Director Independence Standards and has no material relationship with the Company that would impair such director’s independence. In making such determination the Board of Directors considered the current and past relationships, if any, between Health Netthe Company and members of the Board of Directors or their immediate family members.

Additionally, the Board of Directors reviewed and considered the following transactions and relationships:

In determining that Mr. Greaves is independent, the Board of Directors considered the following additional factors: (i) 

In light of the significant time period since Mr. Greaves’ resignation and the fact that his receipt of health benefits is in no way contingent upon continued service to Health Net,the Company, the business purpose of the expense

reimbursements andto Mr. Greaves, the fact that Mrs. Greaves receives no salary compensation (only reimbursement of documented expenses) for her service to Celebration of Children and Heart & Soul, and the nature and amount of the reimbursements to Mr. Greaves for expenses incurred by his wife while, and in conjunction with, traveling

with him to business related meetings and events, the Board of Directors determined that these were not material relationships under NYSE listing standards and therefore determined Mr. Greaves to be independent under such standards.

Committees of the Board of Directors

Our bylaws establish the following standing committees of the Board of Directors: the Audit Committee, the Governance Committee, the Compensation Committee and the Finance Committee. Our bylaws further provide that additional committees may be established by resolution adopted by a majority of the Board of Directors. From time to time, the Board of Directors establishes various ad hoc committees by resolution. A majority of the Board of Directors selects the directors to serve on the committees of the Board of Directors upon recommendation of the Governance Committee.

Audit Committee.

The Audit Committee of our Board of Directors currently consists of Messrs. Yeager (Chairperson) and Craver (Chairman), Farley, Yeager and Ms. Fitzgerald. Each of the current members of the Audit Committee served on the Audit Committee from January 2009 to December 2009.during 2011. Our Board of Directors has determined that all current Audit Committee members are financially literate under the NYSE listing standards and that all current members of the Audit Committee are independent under NYSE listing standards and under the requirements of SEC Rule 10A-3. Messrs. Craver and Yeager have each been determined by the Board of Directors to be an “audit committee financial expert,” as defined by SEC rules adopted pursuant to the Sarbanes-Oxley Act of 2002. Our Audit Committee held elevennine meetings in 2009.2011.

Audit Committee Responsibilities.    The Audit Committee is governed by a charter, a current copy of which is available on our Web sitewebsite atwww.healthnet.com. Pursuant to the Audit Committee charter, the Audit Committee is responsible for, among other things:

and financial statement presentations; analyses prepared by management and/or the independent auditors setting forth significant financial reporting issues and judgments made in connection with the preparation of the financial statements; and the effect of regulatory and accounting initiatives on the financial statements;

Governance Committee.

The Governance Committee of our Board of Directors is currently comprised of Messrs. Willison (Chairman), Farley,Craver (Chairperson) and Foley and Ms. Escarra. Each of the current members of the Governance Committee served on the Governance Committee from January 2009 to December 2009.during 2011. Each of the current members of the Governance Committee is independent under NYSE listing standards. The Governance Committee held six meetings in 2009.2011.

Governance Committee Responsibilities.    The Governance Committee is governed by a charter, a current copy of which is available on our Web sitewebsite atwww.healthnet.com. Pursuant to the Governance Committee charter, the Governance Committee is responsible for, among other things:

serve as members of a committee, including the Governance Committee, and to recommend individual directors to fill any vacancy that might occur on a committee, including the Governance Committee;

In addition, the Governance Committee has responsibilityis responsible for considerationreviewing director compensation and recommendationmaking recommendations to the Board of Directors the compensation of the Board of Directors. Periodically, the Governance Committee reviews compensation survey data for peer board ofwith respect to director compensation and determines whether any adjustments to the Board of Directors’ compensation are appropriate, and if yes, recommends such adjustments to the Board of Directors.compensation. The Governance Committee has from time to time directed Semler Brossy Consulting Group, LLC (“Semler Brossy”Semler”), ourthe Governance and Compensation Committees’ compensation consultant, to provide certain services with respect to director compensation. Periodically, the Governance Committee reviews compensation survey data for compensation of peer boards of directors provided by Semler and determines whether any adjustments to the Board of Directors’ compensation are appropriate. If adjustments are appropriate, the Governance Committee recommends such adjustments to the Board of Directors. Historically, reviews and adjustments to the Board of Directors’ compensation generally have occurred less frequently than annually.

Consideration of Director Nominees.    The Governance Committee selects director nominees, including those nominated to fill vacancies on the Board of Directors, on the basis of the nominee’s possession of such knowledge, experience, skills, expertise and diversity so as to enhance the Board of Directors’ ability to manage and direct our affairs and business, including, when applicable, to enhance the ability of the committees of the Board of Directors to fulfill their duties and/or to satisfy any independence requirements imposed by law, regulation, NYSE listing standards and our bylaws and other corporate governance documents. In particular, the Governance Committee considers whether a director nominee exhibits the following attributes when reviewing and evaluating candidates:

The Governance Committee does not assign specific weights to particular criteria and no particular criterion is necessarily applicable to all candidates.

Identifying and Evaluating Director Nominees.    The Governance Committee identifies potential director nominees from many sources. In the event that a vacancy on the Board of Directors occurs between annual meetings of stockholders, the Governance Committee is responsible for identifying, screening and recommending candidates to the Board of Directors for Board membership. The Board of Directors may maintain a vacancy or vacancies if it cannot identify suitable candidates meeting the Board’s director qualification standards. The Governance Committee asks current directors and executive officers to notify the

Committee if they become aware of persons meeting the criteria described above who may be available to serve on the Board of Directors. From time to time, the Governance Committee also engages third party search firms that specialize in identifying director candidates.

The Governance Committee also considers director candidates recommended by stockholders. The Governance Committee’s evaluation process does not vary based on whether or not a candidate is recommended by a stockholder, although the Governance Committee may, in addition to the criteria described above, take into consideration the number of shares held by the recommending stockholder and the length of time that such shares have been held. To have a director candidate considered by the Governance Committee for inclusion on the slate of nominees, a stockholder must submit the recommendation in writing and must include the following information:

The stockholder’s recommendation and information described above must be sent to our Corporate Secretary at 21650 Oxnard Street, Woodland Hills, California 91367 and received by the Corporate Secretary not less than 120 days prior to the anniversary date of our most recent annual meeting of stockholders.

Once a person has been identified by the Governance Committee as a potential candidate, the Governance Committee may collect and review publicly available information regarding the person to assess whether the person should be considered further. If the Governance Committee determines that the candidate warrants further consideration, the ChairmanChairperson of the Governance Committee or another member of the Governance Committee contacts the candidate. Generally, if the person expresses a willingness to be considered and to serve on the Board of Directors, the Governance Committee requests information from the candidate, reviews the person’s accomplishments and qualifications, including in light of any other candidates that the Governance Committee might be considering, and conducts one or more interviews with the candidate. In certain instances, Governance Committee members may contact one or more references provided by the candidate or may contact other members of the business community or other persons that may have greater first-hand knowledge of the candidate’s accomplishments.

In connection with the 20102012 Annual Meeting and in accordance with the above guidelines, the Governance Committee nominated for re-election each of the following tennine nominees: Ms.Mses. Citrino, Escarra Ms.and Fitzgerald and Ms. Citrino and Messrs. Craver, Farley, Foley, Gellert, Greaves, Willison and Yeager.

Compensation Committee.

The Compensation Committee currently consists of Ms. Fitzgerald (Chair), Ms. EscarraMessrs. Willison (Chairperson) and Messrs. Foley Willison and Yeager.Mses. Citrino and Escarra. Each of the current members of the Compensation Committee served on the Compensation Committee from January 2009 through December 2009.during 2011. Each of the current members of the Compensation Committee is intended to qualifyqualifies as a “non-employee director” within the meaning of Section 16 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), an “outside director” for Section 162(m) purposes and is independent under NYSE listing standards. Mr. Greaves, in his capacity as Chairman of the Board, regularly attends Compensation Committee meetings but, since he is not a member of the Compensation Committee, he does not vote on any Compensation Committee actions. In 2009,2011, our Compensation Committee held seven meetings.

Compensation Committee Responsibilities.    The Compensation Committee is governed by a charter, a current copy of which is available on our Web sitewebsite atwww.healthnet.com. Pursuant to the Compensation Committee charter, the Compensation Committee is responsible for, among other things:

directors (as directed by the Board of Directors), determining and recommending for approval by the independent directors of the Board of Directors, the Chief Executive Officer’s compensation level based on this evaluation, which recommendation is subject to ratification, modification or rejection by the independent directors of the Board of Directors;

As provided in its charter, the Compensation Committee has the responsibility to review at least annually the performance of the Chief Executive Officer, the second-highest paid executive and the Senior Officers (the “Oversight Positions”). The Compensation Committee has the authority to approve the compensation for all Oversight Positions, other than the Chief Executive Officer and the second-highest paid executive. The Board of Directors has the responsibility to determine the compensation for the Chief Executive Officer and second-highest paid executive. When making such determination, the Board of Directors takes into consideration the

Compensation Committee’s recommendation regarding the compensation for the Chief Executive Officer and second-highest paid executive and may choose to ratify, modify or reject such recommendation. The annual performance review of the Oversight Positions occurs in the first quarter of the calendar year following the previous 12-month performance period, and suchperiod. Such review cannot be delegated to anyone other than the Compensation Committee. The Compensation Committee, reviews all relevant data when determining, and recommending tothough the annual performance evaluation of the Chief Executive Officer may be done as a committee or together with other independent directors, as directed by the Board of Directors.

The Board of Directors as the case may be, executive compensation including, but not limited to, salary survey/market data for the job; individual and Health Net’s overall performance compared to our business plan; relative performance to our peer group; industry factors during the performance period; and the executive’s compensation progression over time compared to their development, expected future contributions to our success and retention concerns. The Compensation Committee, also considersas applicable, determine the Chief Executive Officer’s recommendations with respect tocompensation levels for our named executive officers on an annual basis by considering a variety of factors described in the “How do we determine the amount for each element of executive officer compensation?” portion of the “Compensation Discussion and Analysis” section of this proxy statement.

For all employees other executives’ compensation. Thethan the Oversight Positions, the Chief Executive Officer and his direct reports have the responsibility to review and approve all compensation other than the Oversight Positions,decisions on an annual basis. ThisIn conducting their annual compensation review, the Chief Executive Officer and his direct reports consider the same factors that the Compensation Committee uses for its annual review, process includes the same relevant factorsas listed above. The Compensation Committee is not responsible for considering or determining compensation for the Board of Directors. The evaluation of the compensation of our Board of Directors which is the responsibility of the Governance Committee and Board of Directors as discussed above in the “Governance Committee” section of this proxy statement.

The Compensation Committee is committed to staying apprised of current issues and emerging trends, and ensuring that Health Net’s executive compensation program remains aligned with best practice. To this end, the Compensation Committee has directly selected and retained the services of Semler Brossy to assist the Compensation Committeeit in evaluating executive compensation matters. The aggregate fees paid to Semler Brossy for services that were not related exclusively to executive or director compensation were less than $120,000 during 2009.2011. The Compensation Committee has the sole authority, as it deems appropriate, to retain or terminate the compensation consultant in order to assist the Compensation Committee in carrying out its responsibilities, including sole authority to approve the compensation consultant’s fees and other retention terms that relate to the compensation consultant’s work. The compensation consultant reports directly and exclusively to the Compensation Committee. During 2009, the Compensation Committee directed Semler Brossy to provide the following services:

For a full discussion of the services that Semler Brossy provides to our Compensation Committee to assist it in structuring and evaluating our executive compensation programs, plans and practices, see the “Compensation Discussion and Analysis” section of this proxy statement.

Finance Committee.

The Finance Committee of the Board of Directors currently consists of Mses. Fitzgerald (Chairperson) and Citrino and Messrs. Foley (Chairman), Craver, FarleyWillison and Willison.Yeager. Each of the current members of the Finance Committee served on the Finance Committee from January 2009 through December 2009.during 2011. In 2009,2011, our Finance Committee held sixeight meetings.

Finance Committee Responsibilities.The. The Finance Committee is governed by a charter, a current copy of which is available on our website atwww.healthnet.com. Pursuant to the Finance Committee charter, the Finance Committee is responsible for, among other things:

Board Risk Oversight

The Board of Directors oversees an enterprise-wide approach to risk management that is designed to support the achievement of our objectives, including strategic objectives, improvement of long-term organizational performance and enhancement of stockholder value. Risk is an inherent part of Health Net’s business activities and Health Net’s enterprise risk management framework and governance structure are intended to provide ongoing management of the key risks in its business activities. A fundamental part of risk management is not only understanding the risks a company faces and what steps management is taking to manage those risks, but also understanding what level of risk is appropriate for us.the Company. In setting our business strategy, the Board of Directors assesses the variousselected risks being mitigated by management and determines what constitutes an appropriate level of risk for us. Discussions between senior management and Board members regarding risk management, control and mitigation are critical components of the Board of Directors’ risk oversight process.

While the Board of Directors has the ultimate oversight responsibility for the risk management process, various committees of the Board of Directors also have responsibility for overseeing specific areas of risk management, as set forth below. The committees periodically provide updates to the Board of Directors regarding significant risk management issues and management’s response.

In addition, as part of the effort to support the achievement of our objectives, the Board of Directors conducts an annual evaluation of its own performance, including the performance of each committee of the Board of Directors. The Board of Directors also conducts an annual evaluation of the President and Chief Executive Officer. As part of this formal evaluation process, the President and Chief Executive Officer prepares a self-evaluation, including his evaluation of the Company’s performance for the prior fiscal year. Each member of the Board of Directors then individually assesses his and the Company’s performance for the prior fiscal year, providing another forum for dialogue between senior management and Board members regarding the effectiveness of risk management and mitigation efforts.

Board Leadership Structure

Health Net has separated the roles of the Chairman of the Board and Chief Executive Officer since 1999.

After carefully considering the benefits and risks of separating the roles of the Chairman of the Board and Chief Executive Officer, the Board of Directors has determined that having an independent director serve as the Chairman of the Board is the most appropriate leadership structure for Health Net and is in the best interest of its stockholders at this time. With the exception of Mr. Gellert, our President and Chief Executive Officer, the Board of Directors is comprised entirely of independent directors. Separating the roles of the Chairman of the Board and Chief Executive Officer enables the independent directors to participate meaningfully in the leadership of the Board of Directors. The Board of Directors believes this structure provides an appropriate degree of oversight over our Chief Executive Officer and senior management. At the same time, the current Chairman of the Board is a director who has experience with our predecessor companies and therefore has deep institutional knowledge about our organization’s history and operations. For this reason, our Chairman of the Board is able to understand the unique challenges faced by management and serve as a liaison between the Board of Directors and management.

Our Corporate Governance Guidelines give the Board of Directors the flexibility to change its leadership over time, as needed, by permitting the roles of the Chairman of the Board and Chief Executive Officer to be held by the same person. The Board of Directors will continue to evaluate whether its leadership structure is appropriate as Health Net’s business evolves.

DIRECTORS’ COMPENSATION

Directors’ Compensation Table for 20092011

(10)

During 2009, Mr. Greaves received an option grant of 22,100 shares of our Common Stock on May 22, 2009. SeeNotes to Consolidated Financial Statements, Note 8—Long-Term Equity Compensation of our 2009 Form 10-K for a discussion of the assumptions used in determining grant-date fair value. As of December 31, 2009, Mr. Greaves held 86,200 options to purchase shares of our Common Stock, 53,867 of which were exercisable.

Cash Retainers and Meeting Fees.    The annual retainer payable to our non-employee directors during 20092011 was $45,000. During 2009,2011, each non-employee director who chaired the Compensation Committee, Governance Committee or the Finance Committee received an additional annual retainer of $10,000. The non-employee director who chaired the Audit Committee received an additional annual retainer of $15,000. Each non-employee director also received a $2,000 fee for each meeting of the Board of Directors attended, and a $1,000 fee for each committee meeting attended, other than the Audit Committee. Non-employee directors received a $2,000 fee for each Audit Committee meeting attended. In lieu of these retainer and meeting fees, Mr. Greaves received $18,333.34 per month for his services during 20092011 as Chairman of the Board of Directors and as a member of the Health Net of California board.Directors. No fees are paid to Health Net employees for service as a director. In December 2011, the Governance Committee and the Board of Directors reviewed the meeting fees and annual retainers payable to non-employee directors and determined that no changes were necessary at that time but reserved the right to revisit the topic in early 2012.

OptionEquity Grants.    OurUntil December 2010, our non-employee director equity compensation program provided for non-employee directors to receive initial grants of nonqualified stock options when they join our Board of Directors and automatic annual grants of nonqualified stock options upon their re-election to our Board of Directors. These grants are currently made under our 2006 Plan. When they join our Board of Directors, non-employee directors are granted options to purchase a number of shares with a target value equal to $130,000, based on

In December 2010, the Black-Scholes method of option valuation. Upon re-electionGovernance Committee recommended to the Board of Directors, and the numberBoard of shares grantedDirectors approved, a modification to our non-employee director equity compensation program. Beginning in 2011, the initial equity grants and the automatic annual equity grants to non-employee directors has aare made in the form of restricted stock units (“RSUs”), rather than nonqualified stock options. These grants are made under the Company’s 2006 Long-Term Incentive Plan, as amended (the “2006 Plan”). The target value equal toof each of the initial and annual non-employee director grants is $130,000 and is calculated based on the Black-Scholes method of option valuation. Each non-employee director grant entitles the optionee to purchase the granted number of shares of Common Stock at an exercise price equal to the fair market value of Common Stockthe shares underlying the RSUs on the date of such grant. Each grant vests as to 33 1/3% of the sharesRSUs each year on the anniversary of the date of the grant, provided that the optionsRSUs will become immediately exercisable in the event of a “change in control” of Health Net, as defined in the 2006 Plan. On May 22, 2009, optionsUpon vesting, the non-employee director will be entitled to purchase 22,100receive the number of shares at an exercise price of $15.30 per shareCommon Stock underlying the vested portion of the RSU grant. Each non-employee director may elect to defer the distribution of shares underlying the vested RSUs in accordance with deferral procedures established by the Company.

Certain of our directors have outstanding non-qualified stock option grants that were grantedmade pursuant to each of Messrs. Craver, Farley, Foley, Greaves, Willison, Yeager and Ms. Escarra and Ms. Fitzgerald, under the 2006 Plan. On December 1, 2009, options to purchase 13,252 shares at an exercise price of $21.80 per share were granted to Ms. Citrino.

We also maintain aour Third Amended and Restated Non-Employee Director Stock Option Plan (the “NED Plan”) pursuant to which nonqualified stock option grants to non-employee directors are outstanding. There are no longer enough shares available under the NED Plan to make annual grants to non-employee directors, and, as

such, we. We no longer utilize this plan for such grants.grants to non-employee directors. The terms and conditions of the grants that were made to non-employee directors under the NED Plan are substantially the same as grants made under the 2006 Plan, except that the definition of “change in control” is different in the NED Plan.

Expenses.We generally provide for, or reimburse the reasonable expenses of (including costs of travel food and lodging), our directors incurred in connection with attending Board of Directors, committee and stockholder meetings. We also reimburse directors for their reasonable expenses associated with attendance at other Heath Net-related business meetings and events. In addition, we invite our directors and their companions to attend the annual Health Net Board retreat, and generally reimburse the reasonable expenses of their companions’ travel food and lodging.Health Net does not own its own aircraft and, as such, our directors generally use commercial air, rail or automobile transportation when traveling to Health Net-related business meetings. In addition, we also provide for, or reimburse the expenses of, the Chairman of the Board’s spouse, Erika Greaves, related to her attendance (including the costs of travel food and lodging) at Celebration of Children and Heart & Soul meetings and events. Mrs. Greaves serves as a volunteer for Celebration of Children, which is a Health Net-sponsored charity program.program and for Heart & Soul, which is Health Net’s awards program for employees. In addition, we also reimburse the expenses of Mrs,Mrs. Greaves when she accompanies Mr. Greaves to Health Net-related business meetings and events.events that are unrelated to Celebration of Children or Heart & Soul.

Deferred Compensation Plan for Directors.    Each non-employee director is eligible to participate in the Health Net, Inc. Deferred Compensation Plan for Directors (the “Director DC Plan”). Participants may elect to defer all or a portion of their cash retainers, meeting fees and certain other cash remuneration earned for services performed during the year. All amounts deferred under the Director DC Plan are vested amounts. The Director

DC Plan has been designed so that federal and state income tax on the monies deferred is not due until such time as the account balance ispaidis paid to a participant. Participants can elect distribution of their account balances from a given year while they are still serving on our Board or they can elect to have payments made to them in the event of their separation from service with us. Payments under the Director DC Plan can be made in a lump sum payment or as annual installments over a period of greater than two years and less than ten years. Deferred amounts are treated as having been invested in certain investment funds as elected by the participant and become the basis for determining the earnings on the participant’s deferral account. Ms. Fitzgerald and Mr. Willison have account balances under the Director DC Plan, and Ms. Fitzgerald is the only non-employee director who elected to defer compensation under the Director DC Plan during 2009.2011.

Stock Ownership Requirements.    In light of recent economic conditions, and the volatility in our stock price, the    Our Board of Directors revised thehas adopted stock ownership guidelines for non-employee directors, effective January 1, 2010. Previously, our governance policy encourageddirectors. As of March 9, 2012, the guidelines required non-employee directors to own our Common Stock (whether as a result of exercising stock options or the purchase of shares),make good faith progress towards holding qualifying shareholdings with the expectation that, within four years of joining the Board of Directors, a non-employee director would own shares of our Common Stock having a value equal to or in excess of at least three times the annual retainer paid to such director during the most recently completed fiscal year, based on the average NYSE closing price per share of our Common Stock (as adjusted for stock splits and similar changes to our Common Stock) for our most recently completed fiscal year. All of our directors met these stock ownership guidelines as of December 31, 2008, but as a result of volatility in the price of our stock, Ms. Fitzgerald and Messrs. Craver and Yeager no longer met these guidelines as of December 31, 2009.

As revised, the current stock ownership guidelines eliminate the previous four-year compliance period and have replaced it with a requirement that non-employee directors hold 75% of all “net settled shares” received from the vesting, delivery or exercise of equity awards granted under our plans until the total value of all shares held equals or exceeds three times the amount of the director’s annual retainer for service on the Board of Directors during the most recently completed fiscal year$300,000 (the “Director Ownership Threshold”). Net settled shares generally refersAs of March 28, 2012, each of Messrs. Foley, Greaves and Willison held qualifying shareholdings with a value equal to those shares that remain after paymentor in excess of (i) the exercise price of stock options or purchase price of other awards, (ii) all applicable withholding taxes and (iii) any applicable transaction costs. Messrs. Farley and Foley continued to satisfy the Director Ownership Threshold, as of March 31, 2010, and the remainder of our non-employee directors are working towards theircomplying with the stock ownership requirements in accordance with our current ownership guidelines.guidelines as they make progress toward the Director Ownership Threshold.

EXECUTIVE COMPENSATION

COMPENSATION DISCUSSION AND ANALYSIS

Health Net, Inc. is an integrateda publicly traded managed care organization that delivers managed health care services through commercialhealth plans and government sponsoredgovernment-sponsored managed care plans. Our business requires a talented, motivated and capable leadership team. To that end, executive compensation plays a vital role in our ability to attract, retain and motivate top talent for continued business success.

This Compensation Discussion and Analysis (“CD&A” or “Compensation Discussion and Analysis”) discusses the compensation programs and policies in place for our named executive officers, as well as the Compensation Committee’s role in the design and administration of these programs and policies and in making specific compensation decisions for our named executive officers. Our named executive officers for 20092011 consist of the following executives:

Executive Summary

2011 Performance

Health Net’s overall 2011 performance, including financial results, was strong. The following are highlights of our 2011 performance:

Key Compensation Decisions and Angelee F. Bouchard,Tie to Our Performance

Committee approved cash incentive awards after taking into account a variety of Company and individual performance factors, as further discussed under “—Analysis of Compensation During Fiscal 2011—Annual Performance-Based Incentive Cash Awards” below.

Highlights of our Compensation Program

Impact of 2011 Advisory Vote on the Compensation of Named Executive Officers

In May 2011, we provided stockholders an advisory vote to approve the compensation of our named executive officers (the “say-on-pay proposal”). At our 2011 Annual Meeting of Stockholders, our stockholders approved the compensation of our named executive officers, with over 84% of the votes cast in favor of the

say-on-pay proposal. In evaluating our executive compensation program, the Compensation Committee considered the results of the say-on-pay proposal and numerous other factors as discussed in this CD&A. While each of these factors informed the Compensation Committee’s decisions regarding the compensation of our named executive officers, the Compensation Committee did not implement significant changes to our 2011 executive compensation program. The Compensation Committee will continue to monitor and assess our executive compensation program and consider the outcome of our say-on-pay votes when making future compensation decisions for our named executive officers.

What is the role of the Compensation Committee?

The Compensation Committee has primary authority to structure our compensation programs and establish compensation levels for our executives, including our named executive officers; however, our Board of Directors approves final compensation decisions (including any grant of equity awards) with regard to our Chief Executive Officer and our second-highest paid executive. A detailed discussion of the Compensation Committee’s rolesrole and responsibilities can be found under the “Corporate Governance” section of this proxy statement.

What are the objectives of our executive officer compensation programs?

Managed care is a complex industry that faces regulatory and marketplace challenges.challenges, especially in light of the sweeping changes enacted and proposed under the federal health care reform legislation and other state and federal legislation. We have found that the pool of executives with the relevant industry experience and skills to provide effective leadership in this complex and uncertain health care environment is limited. Therefore, our compensation program must support our goal of attracting and retaining executive talent with the knowledge and leadership capability needed for us to operate successfully.successfully and to meet upcoming challenges and opportunities. Of equal importance, our compensation program must (i) motivate our executive officers to meet or exceed our short-term performance objectives and (ii) align the interests of our executives with those of our stockholders by rewarding our executives for results that create long-term stockholder value.

The objectives of our compensation program are to:

What are the elements of named executive officer compensation and why do we provide each element?

The major compensation elements for our named executive officers are:

Our use of each of these compensation elements varies among our executive officers, as described in detail in this Compensation Discussion and Analysis. We use each element of compensation to satisfy one or more of our compensation objectives, and each element is an integral part of and supports our overall compensation program. Consistent with our performance-based philosophy, we reserve the largest potential compensation awards for performance-based programs. Our annual performance-based incentive cash award program rewards short-term financial performance, while our long-term equity compensation program rewards sustained performance and financial growth and alignswhile aligning the interests of our senior managementexecutive officers with those of our stockholders. Our annual performance-based incentive cash award program rewards short-term financial performance. Each of these elements helps us to attract and retain qualified and capable executive officers. The specific purposes of each element are identified in the descriptions that follow.follow in this CD&A.

Base Salary.

Base salaries provide our named executive officers with a degree of financial certainty and stability, compensating them for performing their core job duties and recognizing individual achievements and contributions. The base salary for each of our named executive officers is set forth in each of their respective employment agreements and is subject to adjustment by the Board or the Compensation Committee or Board of Directors (depending on theirthe executive’s level). Further discussion regarding 20092011 base salary is presented below under the sections, “How“—How do we determine the amount for each element of executive officer compensation?” and “Analysis“—Analysis of Compensation During Fiscal 2009”.2011.”

Annual Performance-Based Incentive Cash Awards.

Annual performance-based incentive cash awards help to motivate our named executive officers to meet or exceed our Company-wide and business unit short-term performance objectives. Each named executive officer’s employment agreement provides for participationeligibility to participate in our Executive Officer Incentive Plan (the “EOIP”) andEOIP, a corresponding target bonus amount, expressed as a percentage of base salary, subject toand provides that such executive officer will have a maximum bonus amountopportunity equal to 200% of target.his target bonus amount. In determining the target bonus amount for each named executive officer, our Compensation Committee considers the market data provided by its independent compensation consultant, Semler, Brossy, as described in the section, “How do we determine the amount for each element of executive officer compensation?”

The EOIP is onlyfully funded if we attainmeet or exceed a pre-established performance threshold. For 2009,2011, we used pre-tax income (“PTI”)Combined Western Region and Government Contracts PTI as our performance thresholdmeasure for funding of the EOIP. PTI is generally defined as total revenue less health care costs, selling expenses, and certain operations-related general and administrative and other costs. This measure creates emphasis on operational performance, which was critical for our 2009 business plan, because improved operational performance leads to increasedsupports the Company’s long-term financial growth and development and rewards the creation of value for our stockholders while enabling our financial growthstockholders. Company-wide performance factors and individual performance development. Awardsfactors were also considered when determining the actual award amounts paid to participants in the EOIP are also tied to specific pre-established Company-wide and business unit performance objectives, as well as individual performance.participants. Under the EOIP, assessment of performance is based both onwhat is achieved andhow it is achieved. This structure helps to ensure that business goals are accomplished in a manner that strengthensis consistent with Health Net’s climate and with a view to achieve our business objectives.values. A description of the material terms of the EOIP can be found below in the section entitled “Analysis“—Analysis of Compensation During Fiscal 2009—2011—Annual Performance-

BasedPerformance-Based Incentive Cash Awards”.Awards.” In 2009,2011, the Company achievedexceeded the pre-established performance threshold, PTI measure. As such, the EOIP was fully funded at the target amount and bonuses were paid to our named executive officers, as discussed in detail below under “Analysis“—Analysis of Compensation During Fiscal 2009—2011—Annual Performance-Based Incentive Cash Awards.”

Long-Term Equity Compensation.

In recent years, our annual long-term incentive awards have generally been provided in the form of restricted stock units and performance shares. For out-of-cycle grants (i.eEquity Grant Guidelines—General., grants that are not annual grants, such as new hire or promotion grants), we occasionally issue equity grants in the form of stock options. Our Chief Executive Officer has been delegated the authority to grant stock options in certain instances; however, any grants to the named executive officers must be approved by the Compensation Committee. Further, any grants to the Chief Executive Officer and the second-highest paid executive must be recommended by the Compensation Committee and approved by the Board of Directors.

Each year, the Compensation Committee approves our equity grant guidelines for equity awards to all employees who are eligible participants Company-wide,to participate in our equity program, including theour named

executive officers. Grant guidelines for our named executive officers take into consideration grant values at the market median based on thecompetitive market data provided by Semler and our targeted rate of share usage, or burn rate, as well as several other factors including participants’ salary grade levels in the organization.organization, participation guidelines, remaining shares available for issuance under our equity plans, longer-term stock price trends and option valuations. The grant guidelines provide a range of shares available for grant to participants at each salary grade level to providedeliver competitive equity value to the eligible recipient population and ensure that we maintain our targeted rate of share usage, or our burn rate, as approved bywhich the Compensation Committee. For 2009, we managed to aCommittee approves each year.

Our targeted burn rate cap approved by the Compensation Committee. We measure burn rate in stock option equivalents assuming a conversion factor for every full value share granted. Our targeted rate of share usage controls the rate of dilution for stockholders, is competitive with industry practice and provides a reasonable amount of value sharing with executives.

We measure burn rate in stock option equivalents assuming a conversion factor for every full value share granted. Our historical dilution and rate of usage over the past five years, as shown in the table below, illustrates our ability to maintain our rate of usage at or near 2% of our outstanding Common Stock in recent years.

Stockholder Dilution From Stock Grants: Historic Rates of Usage at Health Net

2011 Equity Grant Guidelines.    In determining the 2009our 2011 annual equity grant program,guidelines, the Compensation Committee reviewed market trends in equity grant guidelines based on the market median and considered the other factors discussed above.

In December 2010, the Compensation Committee made initial determinations with regard to the 2011 burn rate cap for all equity grants to long-term incentive participants and the grant guidelines for 2011 long-term incentive awards to our named executive officers. In making these determinations, the Compensation Committee assumed a $28.00 trading price for our common stock, which represented the approximate average closing price of general industry survey data providedour common stock over the prior 30 days. Under the 2011 grant guidelines, the Compensation Committee recommended granting our named executive officers long-term incentive awards with values approximately 12%, on average, below the market median. The Compensation Committee approved the 2011 long-term incentive awards to our named executive officers on February 18, 2011, which was also the actual grant date of the 2011 awards. In connection with their review and approval of the 2011 awards, the Compensation Committee considered that the trading price of our common stock had increased to $30.73 on the grant date and determined that the increase did not warrant any changes to the equity grants previously recommended by Semler Brossy. Grant ranges are established for each salary grade for associates at the director and above levels. Each year, we balance competitiveCompensation Committee.

The actual grant date fair values fromof the long-term incentive awards granted to our named executive officers, including the value of such awards relative to the market median, with our burn rate objectives, participation guidelines and remaining shares available for issuance under our equity plans. In order to balance these objectives, we are not able to provide grants to all eligible associates each year. Depending on our stock price, burn rate objective and shares available for issuance, our equity grant guidelines may reflect below market median competitive levels, as wasshown in the case in 2009.“2011 Long-Term Equity Compensation” table below. For further discussion on how Semler Brossy determines the market median and how this data affected the Compensation Committee’s 20092011 compensation decisions, please see “Competitive“—Competitive compensation analysis for fiscal 2009”2011” below.

For 2009, dueDeterminations Regarding Form and Mix of 2011 Equity Awards.    In February 2011, the Compensation Committee determined that long-term incentive grants consisting of stock options and restricted stock units, both with service-based vesting, would be granted to the decreaseour executives. The Compensation Committee believes that long-term performance measures are difficult to predict in our industry’s uncertain environment and therefore determined that stock priceoptions and restricted stock units are appropriate vehicles to motivate executives to achieve optimal performance. The use of stock options with service-based vesting maintains our objectiveexecutives’ focus on activities that support value creation, while recognizing that the strategy and drivers of value may continue to managechange and evolve as the health care environment evolves. The Compensation Committee also believes that the use of restricted stock units with service-based vesting both supports retention objectives and motivates executives to increase value to our burn rate, we established our equity grant guidelines using the number of full value shares, rather than targeted dollar values, for grants as reference points. As a result, the midpoint of our 2009 equity grant ranges represented an average of approximately 30% of the targeted market median equity value at the time that our guidelines were created in the fourth quarter of 2008.stockholders.

In February 2009,For 2011, the Compensation Committee approved long-term incentive grants in the form of performance share units to our named executive officers other than Mr. Gellert (who declined consideration for a long-termwith 50% of the award in the form of stock options and 50% of the award in restricted stock units. The stock options and the restricted stock units vest one-third per year over three years. The Compensation Committee changed the mix of equity incentive grantgrants, which in 2009)2010 consisted of 75% and Ms. Bouchard (who was not eligible25% of the value in the form of stock options and restricted stock units, respectively, to receive the 2009 performance share awards at the time they were made). Ms. Bouchard receivedan even mix of stock options and restricted stock units in lieu of the February 2009 performance shares award. The 2009 performance share awards contained the following three performance criteria:2011 in response to increased uncertainty within our industry and as a 2009 PTI performance target, a 2009 strategic component based on the completion of certain strategic business divestitures during 2009, and a 2010 PTI performance target. A detailed description ofmethod for supporting our 2009 performance share program can be found under the “How does the 2009 performance share program work?” section of this CD&A.retention objectives with regard to our named executive officers.

Retirement Plans.

Qualified defined contribution retirement plan—Health Net, Inc. 401(k) Savings Plan (“401(k) Plan”).    We offer the 401(k) Plan to all of our employees, including our named executive officers. The 401(k) Plan allows pre-tax salary deferral contributions of one to thirty percent (1% to 30%) of total eligible compensation up to the Internal Revenue Service maximum limits, including any catch-up contributions for employees age 50 or older. We match one hundred percent (100%) of the first three percent (3%) of eligible compensation contributed by an employee to the 401(k) Plan and match an additional fifty percent (50%) of the next two percent (2%) of eligible compensation contributed by an employee. Effective January 1, 2006, we elected the “safe harbor” method of meeting certain non-discrimination requirements under the Code with respect to the 401(k) Plan. This means that pre-tax salary deferral contributions and safe harbor matching contributions made under the 401(k) Plan automatically meet certain non-discrimination tests. The safe harbor requires that all matching contributions be immediately one hundred percent (100%) vested. Named executive officers may not elect Health Net, Inc. Common Stock as an investment option in the 401(k) Plan. Other than Mr. Tough, all of our named executive officers participated in the 401(k) Plan during 2011 and each received matching contributions of $9,800.

Nonqualified voluntary deferred compensation plan—Health Net, Inc. Deferred Compensation Plan (“Deferred Compensation Plan”).    Our named executive officers and certain of our other management employees are eligible to defer certain compensation under the Deferred Compensation Plan which permits personal savings beyond the IRS contribution limits on qualified plans and may provide certain tax benefits. The Compensation Committee believes the opportunity to defer compensation is a competitive benefit, enhancing our ability to attract and retain talented managers while building plan participants’ long-term commitment to Health Net. The return on the deferred amounts is linked to the performance of market-based investment choices made available to participants under the plan. None of our named executive officers elected to participate in the Deferred Compensation Plan in 2011. A description of the material terms of the Deferred Compensation Plan can be found in this proxy statement under the section entitled “Nonqualified Deferred Compensation for 2011.”

Nonqualified defined benefit pension plan—Health Net, Inc. Supplemental Executive Retirement Plan (“SERP”).    We maintain a nonqualified supplemental executive retirement program, which was adopted by Health Net in January 1996 to provideprovides benefits to a very limited number of our executives with supplemental retirement income beyond the IRS contribution limits onfor qualified plans, affording participants a measure of financial stability and security and building the participants’ long-term commitment to Health Net. The Compensation Committee has been extremely selective in approving participants in the SERP. Messrs. Gellert and Woys are the only named executive officers who participate in the SERP. Messrs. Gellert and Woys are 100% vested in their accounts under the SERP. A description of the material terms of the SERP can be found under the table entitled “Pension Benefits for 2009 table.2011.”

Health Net, Inc. 401(k) Savings Plan (“401(k) Plan”).    We offer the 401(k) Planto the named executive officers and all associates. The 401(k) Plan allows pre-tax salary deferral contributions of one to thirty percent (1% to 30%) of total cash earnings up to the annual established Internal Revenue Service maximums, including any catch-up contributions for associate’s age 50 or older. We match one hundred percent (100%) of the first three percent (3%) contributed and match an additional fifty percent (50%) of the next two percent (2%) contributed. Effective January 1, 2006, we elected the “safe harbor” method of meeting certain non-discrimination requirements under the Internal Revenue Code with respect to the 401(k) Plan. This means that pre-tax salary deferral contributions and safe harbor matching contributions made under the 401(k) Plan automatically meet certain non-discrimination tests. The safe harbor requires that all matching contributions be immediately one hundred percent (100%) vested. Named executive officers may not elect Health Net, Inc. Common Stock as an investment option in the 401(k) Plan. This policy ensures that that no purchases may be made by our named executive officers during trading blackout periods as described in our Insider Trading Policy. All of the named executive officers, except Mr. Tough, participated in the 401(k) Plan during 2009 and received matching contributions of $9,800 each.

Nonqualified voluntary deferred compensation plan – Health Net, Inc. Deferred Compensation Plan (“Deferred Compensation Plan”).    The named executive officers and certain other management employees are eligible to defer salary and annual incentive payments under the Deferred Compensation Plan that facilitates tax planning and personal savings beyond the IRS limits on qualified plans. The Compensation Committee believes the opportunity to defer compensation is a competitive benefit, enhancing our ability to attract and retain talented managers while building plan participants’ long-term commitment to Health Net. The return on the deferred amounts is linked to the performance of market-based investment choices made available in the plan. None of our named executive officers had an account balance or elected to defer compensation under the Deferred Compensation Plan during 2009. A description of the material terms of the Deferred Compensation Plan can be found in this proxy statement under the section entitled “Nonqualified Deferred Compensation for 2009”.

Severance and Change in Control Benefits.

We have entered into employment agreements with each of our named executive officers, pursuant to which they generally are eligible for severance and change in control benefits from Health Net. The severance and change in control payments and benefits provided under the employment agreements are independent of other

elements of compensation. Our outstanding equity awards provide for accelerated vesting upon the occurrence of both a change in control and involuntary termination of employment by the acquirer or by the executive under the definition of “good reason” within two years of such change in control. A description of the material terms of our severance and change in control arrangements can be found later in this proxy statement under the section entitled “Severance and Change in Control Arrangements.”

The Compensation Committee believes that employment agreements benefit Health Net by clarifying the terms of employment and ensuring that we are protected by non-solicitation, non-disclosure and reimbursement of sign-on/engagement bonus provisions. The Compensation Committee believes that severance and change in control benefits are necessary to attract and retain senior talent in the managed care industry, and to protectwhich protects the interests of our stockholders. Our agreements are designed to attract key employees, preserve employee morale and productivity and encourage retention in the face of the potentially disruptive impact of an actual or potential change in control. These benefits allow executives to assess takeover bids objectively without regard to the potential impact on their own job security. We do not permit tax gross-up payments under Section 280G of the Code on severance and change in control pay for any person who became an executive officer after 2007.

The Compensation Committee periodically reviews payments, benefit levels and the estimated costs related to such arrangements in order to ensure that the arrangements continue to serve Health Net’s and our stockholders’ best interests in retaining key executives.

Perquisites and other Personal Benefits.

General.    Effective January 1, 2009, we changedWe provide our compensation practice to eliminate futurenamed executive officers with various perquisites and personal benefits, which serve as an important recruiting and retention tool.

We generally do not permit tax gross-up payments in connection with perquisites provided to executive officers, except pursuant to certain Company-wide policies which are limited in nature. Under our Company-wide relocation policy, we provide tax gross-up payments with respect to standard relocation benefits as provided pursuantbenefits. Under our Company-wide policy relating to our company-wide relocation policy andspousal travel, we also provide tax gross-up payments relating to spousal travel for limited Company-sponsored events, which typically includesinclude sales and broker events that serve as an important part of our business. The Compensation Committee determined it is appropriate to continue to provide tax gross-up payments with respect to relocation benefits,these perquisites, to the extent permitted by applicable tax law, because such tax gross-up payments are broad-based benefits provided to all associates who are requested to relocate on behalf of the Companyemployees and are not limited to our executive officers. Further, the Compensation Committee concluded that it is appropriate to provide tax gross-up payments with respect to spousal travel for limited Company-sponsored events in order to encourage our executive officers to travel to such events.

Financial Counseling.    All named executive officers are entitled to reimbursement of $2,500 per year (for named executives who are not direct reports to our Chief Executive Officer) or $5,000 per year (for our Chief Executive Officer and his direct reports) for costs incurred for personal financial counseling services, including tax preparation, estate and/or tax planning, so long as the executive remains employed by us.planning. We provide these benefits to assist our named executive officers into efficiently managingmanage their time and financial affairs, allowing them tominimize distractions and maintain focus on business issues and minimizing distractions of this type.issues.

Relocation Benefits/Engagement Bonuses.    In order to prevent geographic restrictions on our recruitment and hiring opportunities, we periodically provide new hires with relocation benefits and/or engagement bonuses. Our executives,All of our exempt professional employees, including our named executive officers, are eligible to receive relocation benefits as part of our relocation policy when it is determined that relocation is desired and/or required due to the specific circumstances of the assignment. In addition, under our relocation policy, we provide additional tax gross-up amounts to reimburse our executives for their income taxes paid in connection with this benefit. As noOur relocation policy does not compensate participants for any loss on the sale of their homes.

None of our named executive officers were relocated or hired in 2009,2011 and, therefore, none received relocation benefits or engagement bonuses in 2009.2011.

Housing Allowance.    We provide corporate housing to Mr. Gellert, as part of his original employment agreement from 1997. This permits him to reside close to our corporate headquarters in Woodland Hills and perform his daily duties as our Chief Executive Officer while he continues to maintain his personal residence in the San Francisco area.

Life Insurance.    We provide Company-paid group term life insurance to all of our employees, including our named executive officers, and all of our associates in an amount equal to one times base salary. OurAll of our employees, including our named executive officers, and all associates may purchase additional life insurance for themselves and/or their dependents at their own expense.

Automobile Allowance or Company Car.    Two of our named executive officers received an automobile allowance or Company car in 2009. Mr. Gellert was provided with a Company car in lieu of a cash automobile allowance, and Mr. Woys received a monthly automobile allowance.    Although our automobile allowance program was terminated in 2003 after a review of market practices and as a cost-cutting measure, individuals participating in the program at

the time of the plan’sits termination, including Messrs. Gellert, Woys and Woys,Sell, were “grandfathered” under the program and continue to receive this benefit. During 2011, Mr. Gellert was provided with a Company car in lieu of a cash automobile allowance, and Messrs. Woys and Sell received a monthly automobile allowance, as further described in the “Summary Compensation Table.”

Physical Exams.    All named executive officers are required, on an annual basis, to undergo a physical examination. We reimburse the executive for any out-of-pocket expenses relating to the physical examination that are not otherwise covered by the executive’s health insurance plan. The purpose of this policy is to ensure proactive health management for our executive officers. The benefits described above are disclosed and quantified in the “Summary Compensation Table” and described in the accompanying narrative following the “Grants of“Narrative to Summary Compensation Table and Plan-Based Awards for 2009” tableTable” in this proxy statement.

Compensation Recovery Policy.

We have a Compensation Recovery Policy, which generally provides for the recovery of cash- or equity-based incentive compensation and profits realized from the sale of securities (collectively, “Incentive Compensation”) from our current executive officers (and certain other employees identified by our Board from time to time) following a “recoverable event.” A “recoverable event” generally means (i) fraudulent, intentional, willful or grossly negligent misconduct that ultimately results in our being required to prepare an accounting restatement due to material noncompliance with any financial reporting requirement under U.S. federal securities laws, or (ii) a covered employee’s engagement in conduct that constitutes “cause” under the covered employee’s employment agreement. In the event the Board determines that a recoverable event has occurred, the Compensation Committee, in its sole discretion, may recover from the covered employee any or all Incentive Compensation granted to, paid or payable to, or received or realized by, the covered employee during (i) the twelve (12) month period following the date of the first public disclosure of restated financials, if the recoverable event is triggered by an accounting restatement (as described above), or (ii) the twelve (12) month period following the initial occurrence of conduct constituting “cause.”

The Company intends to update the Compensation Recovery Policy from time to time as may be required by applicable law, including any rules promulgated under the Dodd-Frank Act.

How do we determine the amount for each element of executive officer compensation?

We believe the levels of compensation we provide should be competitive, reasonable and appropriate for our business needs and circumstances. The Board and the Compensation Committee usesuse comparative market data as a guide in its reviewreviewing and determination ofdetermining base salaries, annual performance-based incentive cash awards and long-term incentive compensation, as discussed below. The Board and the Compensation Committee also considersconsider our target total target direct compensation (consisting of base salaries, target annual target performance-based short-term cash incentive awards and target long-term incentive compensation) in making its compensation determinations with respect to each component of compensation. The Board’s and the Compensation Committee’s approach each year is to consider competitive compensation practices and relevant factors rather than establishing compensation at specific benchmark percentiles. This enables us to respond to dynamics in the labor market and provides us with flexibility in maintaining and enhancing our executive officers’ engagement, focus, motivation and enthusiasm for our future.

The Board and the Compensation Committee, annually determinesas applicable, determine the compensation levels for our named executive officers on an annual basis by considering severalnumerous factors, including:

We do not have a pre-defined framework that determines which of these factors may be more or less important, and the emphasis placed on specific factors may vary among the executives. Ultimately, it is the judgment of the Compensation Committee, with input from the Chief Executive Officer, to determinethat determines compensation for our named executive officers with the exception of theother than our Chief Executive Officer and the second highestour second-highest paid executive.executive officer. The Compensation Committee recommends the compensation for our Chief Executive Officer and theour second-highest paid executive to our Board, which is required to approve the compensation of Directors for approval.our Chief Executive Officer and our second-highest paid executive. The compensation

recommendations for the second-highest paid executive also include input from our Chief Executive Officer. Semler Brossy analyzes and synthesizes various sets of data in order to come up with a competitive market reference for the Compensation Committee to use when making compensation determinations for our executive officers, which we often refer to in this CD&A as the “market median” or “50^th percentile.”

As indicated above, while the Board and the Compensation Committee usesuse the market median data as one factor in making itstheir respective compensation determinations, it does not relyneither relies solely on market data to make these decisions. For further discussion on how Semler Brossy determines the market median and how this data affected the Board’s and the Compensation Committee’s 20092011 compensation decisions, please see “Competitive“—Competitive compensation analysis for fiscal 2009”2011” below.

Emphasis on long-term, performance-based compensation.    Consistent with our philosophy to align total compensation paid to the named executive officers with long-term stockholder interests, the Board and the Compensation Committee endeavorsendeavor to set target total target direct compensation such that that more than half of our executive officers’ annual compensation is in the form of long-term equity, rather than cash, and is oriented to rewarding longer-term performance, as opposed to annual performance.

The 2009 market median has2011 mix of compensation paid to our President and Chief Executive Officer and the followingaverage mix of compensation paid to all of our other named executive officers as a group is reflected below. Values used in determining the pay mix for these positions,represent base salaries in effect as of December 31, 2011, actual annual incentive cash awards based on 2011 performance and actual long-term equity award values granted in February 2011, which we endeavorwere calculated as described in the notes to approximate:the “2011 Long-Term Equity Compensation” table below.

2011 Health Net Pay Mix

Market Median Targeted Pay MixPresident & Chief Executive Officer

Average Pay Mix for All Other Named Executive Officers

Consultants and advisors.    Since May 2007, the Compensation Committee has used Semler Brossy exclusively as its compensation consultant, and Semler Brossy has provided services directed byto the Compensation Committee mainlyprimarily related to executive compensation and services directed byto the Governance Committee related to director compensation. Semler did not provide any other services to Health Net in 2011.

The Compensation Committee has the sole authority, as it deems appropriate, to retain or

terminate the compensation consultant in order to assist the Compensation Committee in carrying out its responsibilities, includingresponsibilities. The Compensation Committee’s authority also includes sole authority to approve the compensation consultant’s fees and other retention terms that relate to the compensation consultant’s work. The compensation consultant reports directly and exclusively to the Compensation Committee.Committee with respect to executive compensation matters.

During 2011, Semler Brossy has not provided any otherthe following services to Health Net.

During 2009, Semler Brossy provided the Compensation Committee with:Committee:

The Governance Committee has the sole authority, as it deems appropriate, to retain or terminate Semler in order to assist the Governance Committee in carrying out its responsibilities with respect to non-employee director compensation. With respect to non-employee director compensation matters, Semler reports directly and exclusively to the Governance Committee, and the Governance Committee has the sole authority to approve Semler’s fees and other retention terms that relate to their work.

During 2011, Semler provided the following services to the Governance Committee with regards to non-employee director compensation:

Competitive compensation analysis for fiscal 2009.2011.

Although the Board and the Compensation Committee use data from a traditional “peer group” of companies in the health care industry to help determine compensation for our named executive officers, the health care companies in our traditional peer group are not similar to us in size, revenue, market position and other factors. Therefore, the Board and the Compensation Committee also utilized several other sources of data to perform competitive compensation analysis for fiscal year 2011.

In October 2008,2010, Semler Brossy provided the Compensation Committee with a market overview approach to competitive compensation analysis that considered four data sources: (i) the “modeled peer group,” comprised of general industry survey data adjusted for the historical relationship with the peer group over the last five years; (ii) managed“managed care and general industryindustry” survey data developed by Mercer and Towers Perrin and Watson, Wyatt which includes both public and private managed care companies; (iii) a “cost of management” analysis that provides information about what other companies are paying by pay rank and in aggregate for their top positions,positions; and (iv) traditional“traditional peer groupgroup” proxy data as reported for the top five executives. This approach was approved by the Compensation Committee as a way to address the consolidation in our industry as well as inconsistencies in size (revenue, associates,(size, market position, revenue, etc.) among our traditional peer group companies. In effect,The Compensation Committee relies primarily on the

modeled peer group data in determining the compensation of our named executive officers and secondarily on the “cost of management” analysis and “traditional peer group” proxy data. The “managed care and general industry” survey data was not utilized in making determinations regarding our 2011 named executive officers’ compensation but was utilized in determining the 2011 compensation of certain of our other employees. All references to “market data” or the “50^th percentile of market” in this CD&A are references to data derived from the “modeled peer group” uses Towers Perrin general industry surveysurvey.

In October 2010, Semler advised that our named executive officers’ 2010 base salaries and total targeted cash compensation for 2011 were generally consistent with the market median and our target long-term incentive compensation for 2011 was within the “competitive range,” which for purposes of this Compensation Discussion and Analysis we consider to be between 90% and 110% of the 50^th percentile of market. Market data based on a larger sample set than the traditional peer group data and provides greater data stability and allowsobtained for meaningful summary statistics.

The “modeled peer group” datapurposes of competitive compensation analysis was used asonly one factor used in determining 20092011 compensation for our named executive officers. Other factors are described in the section, “How“—How do we determine the amount of each element of executive officer compensation?”

Details concerning the companies participating in the managed care surveys developed by Mercer, Towers Perrin and Watson Wyattused are summarized below:

The managed care surveys were one factor used in determining 2009 compensation for executive jobs below the level of our named executive officers. The companies that participated in the above surveys are: Aetna, Inc.; AFLAC, Inc.; American Family Insurance; AMERIGROUP Corp.; Blue Cross/Blue Shield of SC, FL, PA, MA, and MI, respectively; Blue Shield of CA,; CareFirst BlueCross BlueShield; CIGNA Corp.; ConnectiCare, Inc.; Conseco, Inc.; Coventry Health Care, Inc.; Health Care Service Corp.,; HealthNow New York, Inc.; HealthSpring, Inc.; Healthways, Inc.; Highmark, Inc.; Horizon Blue Cross Blue Shield of New Jersey; Humana, Inc.; Independence Blue Cross; Kaiser Permanente; Magellan Health Services, Inc.; Medical Mutual of Ohio; Premera Blue Cross; Principal Financial Group, Inc.; Providence Health & Services; The Regence Group; Triwest Healthcare Alliance Corp.; UnitedHealth Group, Inc.; WellCare Health Plans, Inc.; Wellmark Blue Cross and Blue Shield; WellPoint, Inc.; and Wisconsin Physicians Service Insurance Corp. The companies in the traditional peer group are Aetna, Inc.; AMERIGROUP Corp.; CIGNA Corp.; Coventry Health Care, Inc.; Humana, Inc.; UnitedHealth Group, Inc.; and WellPoint, Inc.

In addition, Semler Brossy cross checks the market data from the “modeled peer group” and the managed care surveys with the “cost of management” and traditional peer group proxy data, as described above.

In October 2008, Semler Brossy advised that our executive’s base salaries and total targeted cash compensation are generally within a competitive range of the market median based on “modeled peer group” data, although we have historically paid out cash bonuses below target (or not at all), resulting in total actual cash compensation being below the market median. Semler Brossy further advised that, in light of our stock price at that time, our 2009 annual equity grant guidelines would be significantly below the market median in order to satisfy our 2009 burn rate objectives. The Compensation Committee approved this approach for 2009 and, therefore, the actual total direct compensation was well below market median for our named executive officers, as discussed in detail under the section entitled “Total Direct Compensation” below.

Type of Survey Group/Data		Companies in Group/Data
Modeled Peer Group—General industry survey data adjusted for the historical relationship with our peer group over the last five years		Towers General Industry Survey—All participants
Managed Care and General Industry—Survey data developed by Mercer and Towers Watson which includes both public and private managed care companies		Aetna, Inc.; AFLAC, Inc.; American Family Insurance; AMERIGROUP Corp.; Blue Cross/Blue Shield of FL, MA, MI and NC, respectively; Blue Shield of CA; CIGNA Corp.; Conseco, Inc.; Coventry Health Care, Inc.; Health Care Service Corp.; Highmark, Inc.; Horizon Blue Crosss Bule Shield of New Jerey; Humana, Inc.; Kaiser Permanente; Premera Blue Cross; Principal Financial Group, Inc.; The Regence Group; Wellcare Health Plans; and WellPoint, Inc.
Cost of Management Analysis—Provides information about what other companies are paying by rank and in the aggregate for their top positions		Towers General Industry Survey—All participants
Traditional Peer Group—Data from competitor companies in the healthcare industry		Aetna, Inc.; AMERIGROUP Corp.; CIGNA Corp.; Coventry Health Care, Inc.; Humana, Inc.; UnitedHealth Group, Inc.; and WellPoint, Inc.

Management involvement in compensation decisions.    In addition to market factors, the Board and the Compensation Committee considersconsider input from our Chief Executive Officer in determiningmaking their respective decisions regarding the compensation of the other named executive officers.

In the fourth quarter of each calendar year, ourthe Board of Directors reviews and approves Company and business unit plans for the upcoming calendar year. Subsequently,The Compensation Committee subsequently reviews and approves Company and individual performance factors for the named executive officers also establish their performance objectives for their areas of responsibility for the year based on the approved Company and business unit plans. These objectives are then used as the individual objectives established under our EOIP. The annual goals for our Chief Executive Officer as well as for all of his direct reports are reviewed and approved by the Compensation Committee no later than March 31^st of the upcoming calendarperformance year. These factors are subjective factors, with no single factor to be determinative, and may be used in sum or in part by the Board and the Compensation Committee to reduce our executive officer’s bonus awards under the EOIP. In the first quarter following the performance year, our Chief Executive Officer, in partnership with our Chief Financial Officer, Chief Operating Officer and our Senior Vice President, Organization Effectiveness, conductconducts a formal assessment (including obtaining individual self-assessments) of each named executive officer against his or her goals forofficer’s performance, including with respect to the prior calendar year.Company and individual performance factors. Our Chief Executive Officer then provides the Compensation Committee with his assessment of the

Company’s performance and the performance of the other named executive officers, and provides recommendations for each named executive officer’s compensation, including salary adjustments, bonus payouts and equity grants, based on this assessment. The Compensation Committee uses these assessments and recommendations as a basis for its compensation decisions regarding our named executive officers and for its recommendation with regard to the compensation of our second-highest paid executive, which then must be approved by the Board.

The evaluation of our Chief Executive Officer is a formal process whereby all members of our Board have the opportunity to provide input. The performance evaluation of our Chief Executive Officer includes key leadership competenciesassessment of Company and skills, in additionindividual performance factors, which are intended to financial and operational measures. The evaluation is a formal process, conducted under the auspices of our Governance Committee,be subjective factors, with all Board members having the opportunityno single factor to provide input.be determinative. Our Chief Executive Officer provides a self-assessment to the Compensation CommitteeBoard each year, that is shared with all Board members. Eachand each Board member is then asked to appraise the Chief Executive Officer’s achievements in each area and provide comments.evaluate his achievements. The individual Board members’ ratingsevaluations are consolidated and sent back to each Board member. The Compensation Committee uses this consolidated feedback as a basis for its recommendation with regard to the compensation of our Chief Executive Officer’s compensation.Officer, which then must be approved by the Board. For additional detail on how the annual performance-based cash awards are determined based on these evaluations and recommendations, see “Analysis“—Analysis of Compensation During Fiscal 2009—2011—Annual Performance—BasedPerformance-Based Incentive Cash Awards” below.

Analysis of Compensation During Fiscal 2009.2011.

GeneralGeneral..    In 2009,2011, we provided our named executive officers with base salaries which generally approximated orand target annual short-term incentive opportunities that were belowclose to the 50^th percentile of our peer group companies,the market, with some base salaries and target annual short-term incentive opportunities which were generally atfalling above or below the 50^th percentile of our peer group companies, as discussed in further detail below.percentile. Consistent with our objectives of tyinglinking executive pay with performance and aligning the interests of our executives with those of our stockholders, we wanted to continuecontinued our practice of placing an emphasis on long-term incentive awards, which comprised approximately 64% of actual total direct compensation for our President and Chief Executive Officer and approximately 58%, on average, for our other named executive officers as a group in determining executive compensation in 2009. However, due to2011. For 2011, our decreased stock price atlong-term incentive awards were generally below the time grants were made and our commitment to manage to our burn rate, our 2009 long-term equity grants represented approximately 30%50^th percentile of the targeted market, median.as discussed in further detail below.

Ms. Bouchard was promoted to her current position, Senior Vice President and General Counsel, on December 14, 2009. Prior to her promotion, Ms. Bouchard was the Company’s Vice President, Assistant General Counsel and Assistant Secretary. In connection with her promotion, Ms. Bouchard’s salary was increased from $293,232 to $400,000. She was also granted a stock option to purchase 35,000 shares of Common Stock, which options will vest on the third anniversary of the date of grant, and received 20,000 restricted stock units, which vest in equal installments on the first four anniversaries of the date of grant. The increase in Ms. Bouchard’s base salary and the equity grant made to her on December 14, 2009 resulted in Ms. Bouchard being a named executive officer for 2009. Unless indicated otherwise, information regarding Ms. Bouchard’s 2009 compensation in this CD&A reflects Ms. Bouchard’s compensation following her promotion.

Base Salary.    The table below shows the base salary approved by the Compensation Committee in 20092011 for each of the named executive officers as well as the market positions of the base salaries based on “modeled peer group” data.salaries.

20092011 Base Salary Review

(2)	Describes percentageMr. Gellert’s base compensation of $1,200,000 was above the 50thpercentile of market based on “modeled peer group”, which is general industry data adjustedof $1,020,000 for historical managed care industry premium.

In 2009, it was determined that Messrs. Gellert, Woys and Capezza would not receive a base salary increase because company performance in 2008 did not warrant changes based on individual results. In February 2009, Mr. Tough received a base salary merit increase of 5.8% in acknowledgment of his individual performance during 2008 as our President, Health Plan and Government Programs (his job title in 2009). Ms. Bouchard also received a base salary merit increase of 3% in February 2009 in acknowledgement of her individual performance during 2008 as Vice President, Assistant General Counsel. When Ms. Bouchard was promoted to Senior Vice President, General Counsel and Secretary in December 2009, she received a base salary increase of 39% in recognition of her promotion and new responsibilities.

We consider base salaries between 90% and 110% of the market median to be competitive (the “Competitive Range”). For 2009, Mr. Gellert’s base compensation of $1,200,000 was above the market median of $1,045,000 for his position and above the Competitive Range. Mr. Woys’ base salary of $700,000 was at the market median for his position and within the Competitive Range. Mr. Capezza’s base salary of $550,000 was slightly below the market median of $610,000 for his position, but still within the Competitive Range. Ms. Bouchard’s base compensation of $293,232 in 2009 was within the Competitive Range for her former position, as Vice President, Assistant General Counsel. When Ms. Bouchard was promoted to Senior Vice President, General Counsel and Secretary in December 2009, she received a base salary increase of 39% in recognition of her promotion and new responsibilities. Ms. Bouchard’s current base salary of $400,000 is well below the market median of $515,000 for her position and below the Competitive Range, reflecting her newly promoted status. Mr. Tough’s base salary of $500,000 is also below the market median of $610,000 for the “Head of Health Plans” position and below the Competitive Range but is appropriate given his more limited job scope compared to that of the market match for his position.

(6)	Mr. Tough’s base salary of $515,000 was below the 50th percentile of market of $550,000 for his position, but within the competitive range. In 2011, he received a base salary increase of 3% in acknowledgement of his overall contributions to the Company in 2010.

Annual Performance-Based Incentive Cash Awards.    Under the EOIP, the target incentive opportunity for our named executive officers remained the same in 2009,2011, as compared to 2008, other than for Ms. Bouchard, whose target bonus opportunity increased from 40% of base salary to 70% of base salary effective for the 2009 fiscal year when she was promoted in December 2009 to Senior Vice President, General Counsel and Secretary. Our 20092010. The table below shows our 2011 target annual incentive cash award opportunities and positions relative to the market median based on “modeled peer group” data are shown in50^th percentile of the table below.market.

20092011 Target Annual Incentive Cash Award Opportunity

(2)	Describes percentage of 50thpercentile of market based on “modeled peer group”, which is general industrythe competitive market data adjustedprovided by Semler. See “—Competitive compensation analysis for historical managed care industry premium.fiscal 2011” above.

For the 20092011 EOIP bonuses, the Compensation Committee approved funding the EOIP forat 200% of each participant’s target bonus if the named executive officers upon attainment ofCompany’s 2011 Combined Western Region and Government Contracts PTI met

or exceeded a pre-established performance threshold PTI of $350 million for fiscal year 2009.$420 million. Our actual 20092011 Combined Western Region and Government Contracts PTI of $384.4was $449.7 million, as adjusted,which exceeded the pre-established performance threshold, and therefore, the 2011 EOIP was fully funded for 2009. Ourat 200% of each participant’s target bonus. The Compensation Committee exercised downward discretion to determine the actual 2009 PTIbonuses payable to our named executive officers, and each executive officer’s actual bonus was adjusted to includecalculated by multiplying the benefit of certain litigation reserve true-ups and to exclude the effect of certain charges relating to (i) the sale of our Northeast businesses on December 11, 2009, including related impairment charges and loss on sale, (ii) our operations strategy, and (iii) TRICARE contract procurement costs.

Actual EOIP payouts were determined based uponexecutive officer’s target bonus payment by a combination of two performance ratings: Company Performance Score and an Individual Performance Rating. The 2009 EOIP bonus formula for our named executive officers is set forth below:Score, as discussed further below.

Bonus = Target Bonus x Company Performance Score x Individual Performance Rating

The 2009 Company Performance Score could range from 0-115%, and the Individual Performance Rating for any named executive officer could range from 0-188%. While the bonus equation could yield a bonus of up to 216% of target, maximum bonuses for the named executive officers are capped at 200% of target. The achievement of all pre-established goals for 2009 at target levels would result in a rating of 100% for each element. For 2009,To determine the Company Performance Score, was based on the Company’s 2009 business planMr. Gellert reviewed a number of Company-wide performance factors (the “Company Performance Factors”), including 2011 Combined Western Region and Government Contracts PTI, target of $383.7 million. Actual 2009 PTI was $384.4 million, as adjusted, and the Compensation Committee awardedrecommended a Company Performance Score of 100%.

At the beginning of 2009,to the Compensation Committee approved the following individual performance objectives and their relative weights as a general guide for determining the bonus payout based on individual performance. Mr. Tough’s and Ms. Bouchard’s individual performance objectives were not reviewed by the Compensation Committee, as they were not direct reports of the Chief Executive Officer at that time.Committee. The Compensation Committee may take into account thesethen made a final determination, in its sole and absolute discretion, as to the Company Performance Score after considering Mr. Gellert’s recommendation and reviewing the Company’s performance in 2011, including with respect to the Company Performance Factors. The Company Performance Factors for 2011 included Western Region Operations year-end total medical membership; Combined Western Region Operations and Government Contracts Segment revenues; Western Region Operations total medical care ratio, or MCR; Government Contracts Ratio; Western Region Operations general & administrative expense ratio; Combined Western Region Operations and Government Contracts PTI; earnings per share, or EPS as determined in accordance with U.S. generally accepted accounting principles; Combined Western Region Operations and Government Contracts EPS and PTI margin. None of the Company Performance Factors carried any other factors in determiningweight, was expressed as a targeted amount or was expressed as a specific percentage of a named executive officer’s target bonus. The Compensation Committee determined the executives’ actual bonus payouts basedfinal 2011 EOIP Company Performance Score to be 100%. For additional information regarding the Company Performance Factors for 2011, see our Annual Reports on individual performance.Form 10-K for the years ended December 31, 2010 and 2011, including the financial statements included therein and the footnotes related thereto. In addition, Combined Western Region Operations and Government Contracts EPS is determined by summing Western Region Operations EPS and Government Contracts EPS. Combined Western Region Operations and Government Contracts PTI margin is determined by summing Western Region Operations PTI margin and Government Contracts PTI margin.

2009To determine the Individual Performance Objectives

Executive		Performance Objectives		Weight Attributed to Objective
James E. Woys Executive Vice President and Chief Operating Officer		Successfully transition NE and AZ operations to increase value of Health Net.		25%
		Develop an achievable, financially viable plan for 2010 and beyond as determined by the Board of Directors: -Approval of strategic direction by Board of Directors—7/09 -Approval of Business Plan by Board of Directors—9/09 -Approval of Budget by Board of Directors—12/09		25%
		Achieve 2009 Business Plan: -G&A under 10% -If sold, successfully transition HNNE and/or AZ business, including a) smooth transition of the NE and/or AZ book, operations and associates, b) realign remaining HN structure inclusive of streamlining corporate overhead/fixed costs ($45m allocated perceived fixed costs) and c) reengineer the operations strategy to continue to get value and savings in support of the 2009 business plan.		35%
		-Create and adhere to Health Net policies and processes that ensure a strong internal control environment including those linked to the specific goals of the Sarbanes-Oxley Act (SOX) and legislative and regulatory compliance.
		Enhance leadership through continued development: -Retention of key associates > 90%. -Succession plan for key positions. -Development plans for all key associates and successors by 12/09 Maximize associate development and contribution: -Alignment between company goals, company and unit results and individual rewards for management team under terms of MIP / Supervisor and Management Bonus Plan		15%
Joseph C. Capezza Executive Vice President and Chief Financial Officer		Successfully transition NE and AZ operations to increase value of Health Net.		25%
		Develop an achievable, financially viable plan for 2010 and beyond as determined by the Board of Directors: -Approval of strategic direction by Board of Directors—7/09 -Approval of Business Plan by Board of Directors—9/09 -Approval of Budget by Board of Directors—12/09		25%
		Achieve 2009 Business Plan: -Maintain investment portfolio rating of AA or better to minimize capital losses and achieve results in support of the 2009 business plan. -Design and implement (post asset sale) Finance organization to support 3-year business plan. -Work with business units to develop enhanced data analytic functionality. -Maintain all compliance requirements (e.g., debt covenant compliance, regulatory and SOX).		35%

Executive		Performance Objectives		Weight Attributed to Objective
		Enhance leadership through continued development: -Retention of key associates > 90%. -Succession plan for key positions. -Development plans for all key associates and successors by 12/09 Maximize associate development and contribution: -Alignment between company goals, company and unit results and individual rewards for management team under terms of MIP / Supervisor and Management Bonus Plan		15%
Steven D. Tough(1) President, Government Programs		Develop an achievable, financially viable plan for 2010 and beyond as determined by the Board of Directors: -Approval of strategic direction by Board of Directors—7/09 -Approval of Business Plan by Board of Directors—9/09 -Approval of Budget by Board of Directors—12/09		25%
		Achieve 2009 Government & Specialty Business Plans		60%
		Enhance leadership through continued development: -Retention of key associates > 90%. -Succession plan for key positions. -Development plans for all key associates and successors by 12/09 Maximize associate development and contribution: -Alignment between company goals, company and unit results and individual rewards for management team under terms of MIP / Supervisor and Management Bonus Plan		15%
Angelee F. Bouchard(2) Senior Vice President, General Counsel & Secretary		Support General Counsel in successfully executing strategic review to increase value of Health Net; support General Counsel in developing an achievable, financially viable plan for 2010 and beyond as determined by the Board of Directors: -Approval of strategic direction by Board of Directors—7/09 -Approval of Business Plan by Board of Directors—9/09 -Approval of Budget by Board of Directors—12/09		45%
		Support General Counsel in achieving 2009 Business Plan including compliance with all corporate regulatory requirements including SEC, NYSE and Sarbanes Oxley rules and regulations.		35%
		Support General Counsel in matters relating to Health Net’s Board of Directors		20%

In early 2010,Scores, Mr. Gellert presented to the Compensation Committee performance evaluations for each of his direct reports,the named executive officers, as well as a self-evaluation of his own performance for 2009.2011. Mr. Gellert’s assessments, including his own self-assessment, were based onevaluations included an assessment of the individual’sindividuals’ performance with respect to the Company Performance Factors and certain individual performance objectives approved atfactors, including leadership, talent development, succession planning, regulatory compliance, successful transition of our Northeast business, improved organizational climate and successful responses to changing market conditions, including, but not limited to health care reform, to ensure the beginningCompany is well positioned for 2012 and beyond (the “Individual Performance Factors”). None of the year by the Compensation Committee,Individual Performance Factors carried any weight, was expressed as wella targeted amount or was expressed as any other significant developments and accomplishments during the year. Mr. Gellert also presented a summary to the Compensation Committeespecific percentage of Health Net’s performance for 2009.

a named executive officer’s target bonus. Mr. Gellert recommended to the Compensation Committee that the named executive officersMessrs. Woys, Tough and Sell each receive an Individual Performance Rating scoreScore of 98%95%, reflecting a reduction of each executive’s score by 2% due5%, and that Mr. Capezza receive an Individual Performance Score of 90%, reflecting a reduction of 10% for Mr. Capezza. All reductions to certain compliance-related issues the Company experienced during 2009. Individual Performance Scores were recommended as a result of organizational climate scores attained by such executives as measured by our annual associate survey results and reflect reductions from a target Individual Performance Score of 100% for each executive.

The Compensation Committee utilized this information, alongthen made a final determination, in its sole and absolute discretion, as to the Individual Performance Score for each named executive officer after considering Mr. Gellert’s recommendation, reviewing the individual’s performance with respect to the Company Performance Factors and the Individual Performance Factors, and considering its own observations and assessments of our executivesnamed executive officers and Health Net’s performance to evaluate achievementperformance. None of the individual performance objectives and determineCompany Performance Factors or the appropriate Individual Performance Rating score for eachFactors carried any weight, was expressed as a targeted amount or was expressed as a specific percentage of a named executive officer.officer’s target bonus, and all of these factors were subjective with no single factor to be determinative. The Compensation Committee approved and, in the case of Mr. Gellert and Mr. Woys (our second-highest paid

executive), recommended to the Board of Directors for approval, an Individual Performance RatingScore of 98%95% for eachMessrs. Gellert, Woys, Tough and Sell and an Individual Performance Score of 90% for Mr. Capezza. The Board approved the named executive officers.Individual Performance Scores for Mr. Gellert and Mr. Woys as recommended by the Compensation Committee.

Total Cash Compensation (base salary plus actual annual performance-based incentive cash awards paid).     Actual total cash compensation as of December 31, 20092011 was within the competitive range for Messrs. Gellert, Woys and Woys.Tough. Actual total cash compensation for Messrs.Mr. Capezza and Tough was below the competitive range as a result of his actual 2011 annual cash incentive award being less than his target award and his target bonus amount, 80% of base salary, being below the market median of 100% of base salary but still considered appropriate given his respective scope relative to other peers within our organization. Mr. Sell’s actual total cash compensation was slightly below the othercompetitive range due to his actual 2011 annual cash incentive award being less than his target award. Other factors that the Compensation Committee considers when determining compensation levels for our named executive officers. These factorsofficers are listed under the section, “How“—How do we determine the amount for each element of executive officer compensation?” in this CD&A. Actual cash compensation for Ms. Bouchard was also below the competitive range for her new position, reflecting her newly promoted status. Actual total cash compensation paid in 2009, as compared to the 50^thpercentile of our “modeled peer group,” is shown in the table below.

20092011 Actual Total Cash Compensation as of December 31, 20092011

Long-Term Equity Compensation Program.    The grant date fair values for stock options and restricted stock units granted in 2011 to our named executive officers generally were below the market median due in part to our commitment to manage to our burn rate and other factors discussed in the description of our equity grant guidelines under “Long-Term Equity Compensation” above. Mr. Sell was granted stock and option awards with a grant date fair value above the competitive range, primarily as a result of his outstanding performance contributions to the company in 2011.

2011 Long-Term Equity Compensation⁽¹⁾

Long-Term Equity Compensation Program.    The 2009 target equity grant fair values for our named executive officers were generally well below the target market median due to a combination of our low share price and our commitment to manage to our burn rate. In further consideration of our efforts to manage to our burn rate, Mr. Gellert declined consideration for a 2009 long-term incentive grant. For 2009, Messrs. Woys, Capezza and Tough’s target grant values were approximately 37%, 40% and 21% of the market median, respectively. The target grant value of the equity awards received by Ms. Bouchard in connection with her promotion in December 2009 was approximately 38% of the market median.

In 2009, our long-term equity compensation plan and annual incentive cash plan incorporated a moderate to high level of difficulty to achieve the performance measures set forth therein. In light of the changing political and economic environment, our business strategy will require even greater continued discipline, focus and flexibility from our executives.

How does the 2009 performance share program work?

The 2009 performance share program, approved by the Compensation Committee on February 17, 2009, had three performance measures:

The 2009 performance shares will vest in their entirety on the date on which the Compensation Committee makes a determination regarding the satisfaction of the 2010 PTI Performance Measure, which determination will occur as soon as practicable following December 31, 2011 and in any event, no later than February 17, 2012 (the third anniversary of the grant date), so long as the recipient remains employed through such date. The 2009 performance shares are subject to accelerated vesting at the target level in the event of a change in control of Health Net (as defined in the 2006 Plan).

With respect to the 2009 PTI Performance Measure, in February 2010, the Compensation Committee concluded that the Company attained 100.5% of the target PTI level for 2009 based on the Company achieving a 2009 adjusted PTI of $384.4 million. Our actual 2009 PTI was adjusted to include the benefit of certain litigation reserve true-ups and to exclude the effect of certain charges relating to (i) the sale of our Northeast businesses on December 11, 2009, including related impairment charges and loss on sale, (ii) our operations strategy, and (iii) TRICARE contract procurement costs. This resulted in an award to participants of 100.5% of the target shares.

With respect to the Strategic Performance Measure, in February 2010, the Compensation Committee exercised its discretion to deem this performance measure as having been achieved based on the successful consummation of the sale of our Northeast business by December 31, 2009. In reaching this conclusion, the Compensation Committee took into consideration that the Strategic Performance Measure, as originally defined, included a sale of the Company’s Arizona business. The Compensation Committee based its conclusion on the fact that the Company’s management and the Board of Directors had mutually agreed during 2009 that a sale of

the Company’s Arizona business was no longer in the best interest of the Company’s stockholders. This decision resulted in an award to participants of 30% of the target shares. The modification of the Strategic Performance Measure resulted in an increase in the fair value per share attributable to the 2009 performance shares effective in 2010.

Based on the satisfaction of the 2009 PTI Performance Measure and the Strategic Performance Measure, our 2009 performance share program is on track to pay out at 130.5% of the target shares, excluding any assumption that the 2010 PTI Performance Measure will be achieved. In the event that the 2010 PTI Performance Measure is achieved at target, the 2009 performance share program would pay at 160.5% of the target shares.

For further information on the 2009 performance share grants awarded to certain of the named executive officers, please see the “Grants of Plan-Based Awards for 2009” table in this proxy.

The 2007 performance share program

Under the 2007 performance share program, performance shares were to vest only upon the achievement of a threshold PTI of $773.0 million and PTI margin of 4% (PTI as a percent of total revenues) in 2009. The Company did not achieve the threshold 2009 PTI or PTI margin. Actual 2009 results were PTI of $384.4 million, as adjusted, and PTI margin of 2.4%, as adjusted. Therefore, no awards were earned under the 2007 performance share program.

The 2008 performance share program

Under the 2008 performance share program, performance shares will vest only upon the attainment of minimum PTI and PTI margin in 2010, which remains to be determined.

Total Direct Compensation.    The actual total direct compensation for our named executive officers in 20092011 was generally well belowwithin the market median. For Mr. Gellert, this is because he declined consideration for a long-term equity incentive grant in 2009 in an effort to help manage our burn rate.competitive range, with the exception of Messrs. Woys, Capezza and Tough’s respective actual total direct compensation wasTough. As stated earlier, Mr. Capezza’s annual cash bonus target at 80% is below the market median because the value of their100% of base salary, but appropriate given his respective 2009 long-term incentive grants was significantlyscope relative to other peers within our organization. Mr. Tough’s total direct compensation is below the market median, due to our efforts to manage our burn rate. Ms. Bouchard’sprimarily as a result of the value of his actual total direct compensation also was2011 equity award being below the competitive range, but appropriate given his job scope compared to that of the market medianmatch for the Senior Vice President, General Counsel and Secretary position, reflecting her recent promotion on December 14, 2009.his position.

2011 Actual Total Direct Compensation