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.HEALTH NET, INC.

(Name of Registrant as Specified In Its Charter)

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

Payment of Filing Fee (Check the appropriate box):

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

Health Net, Inc. will hold its 20112013 Annual Meeting of Stockholders on Wednesday,Thursday, May 18, 201123, 2013 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 Monday,Thursday, March 28, 2011,2013, 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 4, 20118, 2013

YOUR VOTE IS IMPORTANT

All stockholders are cordially invited to attend the 20112013 Annual Meeting of Stockholders of Health Net, Inc. in person. However,Whether or not you expect to attend the Annual Meeting, please submit a proxy to vote as soon as possible to ensure your representationshares will be represented at the Annual Meeting. As provided herein, you may vote in person or by proxy 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,or you may submit a proxy to vote your shares by telephone by calling 1-800-560-1965, or over the Internet athttp://www.eproxy.com/hnt. If you votemail, by telephone or overvia the Internet. If you wish to submit your proxy by telephone or via the Internet, please follow the instructions on the Notice of Internet Availability of Proxy Materials or on the proxy card or voting instruction form. If you received a paper copy of the proxy materials and wish to submit your electronic vote authorizesproxy by mail, please follow the named proxiesinstructions in this proxy statement under “Voting by Proxy—Voting by Mail”, or on the same manner as ifproxy card. If you returnedonly received the Notice of Internet Availability of Proxy Materials, you may request a signed and datedpaper proxy card by mail.following the instructions in such notice and may submit your proxy by mail as indicated above. If you attend the Annual Meeting in person, you may vote at the meeting even if you have previously returned a proxy. Please see “Meeting and Voting Information” for additional instructions and requirements relating to attendance at our Annual Meeting and voting your shares.

Table of Contents

PROXY STATEMENT

FOR THE 20112013 ANNUAL MEETING

OF STOCKHOLDERS

TO BE HELD

MAY 18, 201123, 2013

MEETING AND VOTING INFORMATION

General

The accompanying proxy is solicited by the Board of Directors of Health Net, Inc. for use at our 20112013 Annual Meeting of Stockholders (the “Annual Meeting” or “2011“2013 Annual Meeting”) to be held on Wednesday,Thursday, May 18, 201123, 2013 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 website,www.healthnet.com.¹ We Beginning on or about April 8, 2013, we expect to mail thisdeliver the Notice of Internet Availability of Proxy Materials (“Notice”) to most of our stockholders entitled to vote at the Annual Meeting and a paper copy of our proxy statementmaterials and accompanying proxy card beginning on or about April 4, 2011 to allthe remaining 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 18, 201123, 2013

This proxy statement, including a proxy card sample, the notice of the Annual Meeting and our 20102012 Annual Report on Form 10-K are available on our Internet website address athttp://www.healthnet.com/InvestorRelations/2011Proxy.2013Proxy This website address contains the following documents: the notice of the Annual Meeting, this proxy statement, including a proxy card sample, and the 2010 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 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,Thursday, May 18, 201123, 2013 shortly before 10:00 a.m. (Pacific Time) and follow the instructions provided under the “Investor Relations” section of the website. Stockholders willnot be permitted to vote overvia 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 28, 20112013 (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 79,326,652 outstanding 91,996,975 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)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:

officers more or less frequently than the option approved by our stockholders. Brokers do not have discretionary authority to vote on this proposal. Broker non-votes and abstentions will not be counted as votes cast and will have no effect on the vote on this proposal.

Voting by Proxy

How to Vote by Proxy If You Are the Record Holder of Your Shares

If you holdare the record holder of your shares, of Common Stock as a record holder, you may submit your proxy to 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. 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 May 17, 2011. If you votemail, by telephone or overvia 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, May 17, 2011.

Internet. Note that if you hold your shares of Common Stock inthrough the Health Net, Inc. 401(k) Savings Plan (the “401(k) Plan”), you mayadditional restrictions apply as described below under “How to Vote Your 401(k) Plan Shares by Proxy”.

Voting via the Internet or by Telephone.

Instructions on how

Voting by Mail. As an alternative to submit asubmitting your proxy via the Internet or by telephone, you may submit your proxy by mail.

How to authenticate our stockholders by use ofVote Your Shares If You Are a control number located on the attachment to the proxy card included herewith. “Street Name” Holder

If you hold your shares through a bank, broker or other nominee, also referred to as a “street name” holder, check the instructions provided by that entity to determine which voting options are available to you. you with respect to voting your shares.

How to Vote Your 401(k) Plan Shares by Proxy

If you hold shares of Common Stock through the 401(k) Plan, you may vote your shares by telephone, mail or via the Internet as described above. If you vote your shares by telephone or via the Internet, your voting instructions must be receivedbefore 11:59 p.m. (Eastern Time) on Monday, May 20, 2013in order for the 401(k) Plan trustee to vote your shares. If you vote your shares by mail, your voting instructions must be receivedbefore 6:00 p.m. (Eastern Time) on Monday, May 20, 2013in order for the 401(k) Plan trustee to vote your shares. If you hold shares through the 401(k) Plan and do not timely submit your voting instructions by this deadline, your applicable shares will be voted in the same proportion to the shares held in the 401(k) Plan for which votes were cast.

If you hold shares of Common Stock through the 401(k) Plan, you may attend the Annual Meeting. However, shares held through the 401(k) Plan can only be voted as described above, and cannot be voted at the Annual Meeting.

General

Please be aware that any costs related to voting overvia the Internet, such as Internet access charges, will be your responsibility.

All properly signed proxies that are timely 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 voted:

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.

Attendance at the Annual Meeting and Voting in Person

Stockholders who wish to attend the Annual Meeting will be required to present verification of ownership of our 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.

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 In addition, as noted above, if you hold shares through the 401(k) Plan, you may attend the Annual Meeting, willbut those shares can only be required to present verification of ownership of our Common Stock, suchvoted as a bank or brokerage firm account statementdescribed above, and willcannot be required to present a valid government-issued picture identification, such as a driver’s license or passport, to gain admittance tovoted at 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 inthrough the 401(k) Plan, you may revoke your proxy using any of the above three methods (other than (4) above), but must do sobefore 12:11:59 p.m. (Eastern Time) on Monday, May 20, 2013 if you vote by telephone or via the Internet andbefore 6:00 p.m. (Central(Eastern Time) on Friday,Monday, May 13, 2011.20, 2013 if you vote by mail.

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

OurThe 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 mailingdelivery, as applicable, of this proxy statement, the proxy card 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. CopiesAs appropriate, 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 with voting via the Internet in accordance with the instructions on the Notice of Internet Availability of Proxy Materials, voting by telephone or 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 vote your shares via the Internet in accordance with the instructions in the Notice of Internet Availability of Proxy Materials, vote by telephone or 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 a 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. 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.

We provide and administer health benefits to approximately 6.05.4 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 (“Department of Defense” or “DoD”), including TRICARE, and Veterans Affairs programs. Our behavioral health services subsidiary, Managed Health Network, Inc., providesThrough our subsidiaries, we also offer behavioral health, substance abuse and employee assistance programs, to approximately 5.4 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 preferred provider organization (“PPO”), point-of-service (“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.

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”).Corporation. 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 HMOhealth maintenance organization (“HMO”) subsidiary in California, and HMO and PPOpreferred provider organization (“PPO”) networks operated by QualMed, Inc., which combined with us in 1994 to create HSI.

The mailing address of our principalOur executive office isoffices are located at 21650 Oxnard Street, Woodland Hills, CACalifornia 91367, and our Internet website address iswww.healthnet.com.www.healthnet.com.

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

Our Corporate Governance Guidelines generally provide that a director who has held officeshall serve for any perioda maximum of twelve 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 twelve consecutive year and shall be deemed to have retired and resigned from the Board of Directors effective immediately upon the completion of such twelve consecutive year in office;years; provided however, that the Board of Directors has 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.circumstances (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 has not impacted any of the director nominees.

Director Nominees

At the Annual Meeting, stockholders will vote for nineten directors. Each director will be re-elected to hold office for a term of one year or until the 20122014 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 nineten nominees for election. Each of the nominees has consented to serve as a director if elected. There are no family relationships among any of the nominees or executive officers. The following table sets forth certain information with respect to the nominees, as of March 28, 2011:2013:

On August 23, 2010, one of our long-time directors, Thomas T. Farley, passed away. In 2010, Mr. Farley served on our Audit, Finance and Governance Committees from January until his death.

As set forth under “Meeting and Voting Information—Quorum and Votes Required,” our bylaws include 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“them “FOR” the election of each of the nineten nominees named above. Because only nineten nominees have been named, proxies cannot be voted for a number of persons greater than nineten 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 20112013 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.

Our Board of Directors has concluded that, in light of her distinguished career as an investment 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. Further, herHer extensive experience valuing businesses provides our Board of Directors with key insights and knowledge of what makes our company 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 Institute of Nuclear Power Operations, a not-for-profit nuclear power industry self-regulatory organization. In addition, Mr. Craver is a director and vice-chairman of the Edison Electric Institute and a director of the Electric Power Research Institute, both industry trade organizations. He is also the Co-Chairman of the Electric Drive Transportation Association,organizations, and a directortrustee of the Autry National Center, both of which area non-profit organizations.organization.

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,September 2012, Ms. Escarra has served as Chief Executive Officer of Opportunity International, a non-profit organization providing microfinance services, including lending, savings, insurance and training to people in need. Prior thereto, from March 2006 through August 2012, Ms. Escarra served as President and Chief Executive Officer of Feeding America, a non-profit organization focused on hunger-relief.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 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 organizationorganizations lends a unique social awareness perspective to our Board of Directors. For these reasons, our Board of Directors has concluded that Ms. Escarra should serve as one of our directors.

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 onFor 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. Further, asAs 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 a 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 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 HNHealth Maintenance Network of Southern 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, 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 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. Mancino has served as our director since November 2012. Mr. Mancino has been a partner in the Los Angeles office of Hunton & Williams LLP since June 2011, and prior thereto, had been a partner at McDermott Will & Emery LLP since 1987. For more than 35 years, Mr. Mancino has represented numerous types of health care and non-profit organizations on tax, business, and financial matters. Mr. Mancino has extensive experience in audit, appeals and tax controversy issues. Mr. Mancino has also served as a director of HSI from January 1994 until HSI’s April 1997 merger transaction with Foundation Health Corporation. From April 1997 to November 2012, Mr. Mancino served as a director of HN California.

Mr. Mancino has been the Chairman of the Board of Trustees of the Children’s Burn Foundation since 1995. Mr. Mancino has also been a member of the Boards of Directors of the Irvine Health Foundation since 2010, the Media & Policy Center since 2008, and the Center on Philanthropy & Public Policy since 2007. In addition, Mr. Mancino served as president of the American Health Lawyers Association from 1993 to 1994, and was vice chair-publications of the ABA’s Tax Section from June 2009 through June 2012.

Our Board of Directors has concluded that Mr. Mancino should serve as one of our directors due to his distinguished career and broad experience with advising healthcare organizations on a variety of tax, business and financial matters. Mr. Mancino’s prior service on the board of directors of one of our subsidiaries also provides him with unique insight into our operations and industry.

Mr. Willisonhas served as our director since December 2000. 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, of the UCLA Anderson School of Management (the “UCLA Anderson School”) from July 1999 to January 2007,2006, and is currently a Professor in ManagementDean Emeritus of the UCLA Anderson School. From January 2009 until July 2010, Mr. Willison served as Chief Executive Officer of Grandpoint Capital Advisors, a middle market investment bank. Mr. Willison also is a director of Move, Inc., a NASDAQ-listed company, and a trustee of SunAmerica’s Seasons and Series Trusts.

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 as well as his current membership in the National Association of Corporate Directors 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, forFor these reasons, our Board of Directors has determined that Mr. Willison should serve as one of our directors.

Mr. Yeager has 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 ana senior vice president and advisor to Time Warner’s senior management sincefrom January 2009 to 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 2005.2011.

From December 2000 to January 2009, Mr. Yeager served as Senior Vice President, Finance for Time Warner, and 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 and Treasury departments,Staff, the Treasurer’s Office, the Product Development andGroup, the Financial Services groups,Group, 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 should serve as one of our directors due to hisYeager’s 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 and business strategies. For these reasons, our Board of Directors has determined that Mr. Yeager should serve as one of our directors.

EXECUTIVE OFFICERS

The following sets forth certain biographical information with respect to our executive officers, as of March 28, 2011, and all individuals who served as our executive officers during 2010.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 also as Treasurer since April 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 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 a member of the State Personnel Board and a director of the California Foundation on the Environment and the Economy.

Ms. MayhewHefnerhas served as our Senior Vice President, Customer and Technology Services since January 2012. Prior thereto, Ms. Hefner served as our Chief Customer Services Officer from September 2010 to January 2012. In addition, since 2008, Ms. Hefner has also served as President and Chief Executive Officer of Managed Health Network, Inc. (“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.

Mr. Law has served as our Health Care Services Officer since March 2013. Previously, Mr. Law served as our Chief Medicare Officer from November 2011 until March 2013. From 2009 to November 2011, Mr. Law served as Senior Vice President of Healthcare Delivery for WellCare Health Plans, Inc. Prior thereto, Mr. Law held various management positions with Health Net from 2005 to 2009.

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 servedand 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 TransactionTransactions 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, any member of“immediate family member” (as such term is defined in the immediate familyPolicy) of any of the

foregoing persons, any firm, corporation or other entity in which any of the foregoing persons is employed or is a partner or 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 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 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 thatand 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 whether the transaction should be ratified or 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:

On March 17, 2010,

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 website 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.website.

Board Meetings and Committees; Annual Meeting Attendance

Our Board of Directors met a total of nine14 times in 2010. Each2012. With the exception of Mr. Mancino, who was appointed to our Board of Directors in November 2012, 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 2010 (during the period he/she served as a director)2012 and (ii) all meetings of all committees of the Board of Directors held in 20102012 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. AllWith the exception of Mr. Mancino, who was appointed to our Board of Directors in November 2012, all of our current directors were in attendance at the 20102012 Annual Meeting except for Vicki Escarra.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 website 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.

The Board of Directors has determined that the following directors of the Company qualify as independent under both the Company’s independence guidelines and NYSE listing standards: 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. 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 the Company, either directly or as a partner, stockholder or officer of an organization that has a relationship with the Company.Company, which 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, Douglas M. Mancino, 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 the Company and members of the Board of Directors or their immediate family members, includingtheincluding the following:

certain health care services. Our Board of Directors determined that Ms. Citrino is independent based on the amounts involved in and the nature of these relationships (including the absence of any material direct or indirect relationship between Ms. Citrino and Health Net during 2010 on terms and conditions no more favorable than those customarily available to similarly situated entities that are not affiliated with directorsoutside of the Company.her service as a member of our Board of Directors).

Due to the amounts and nature of the payments described above and the fact that none of the foregoing directors has any direct or indirect material interest in any of these transactions or arrangements, ourHealth Net. Our Board of Directors determined that Mr. Mancino is independent based on (i) the fact that Health Net has not provided material grants, endowments or discretionary contributions to the hospital at which Mr. Mancino’s spouse is a member of the board of trustees, nor is Mr. Mancino’s wife an executive officer of such entity, (ii) the amounts Health Net received from the entity at which Mr. Mancino’s spouse serves on the Board of Directors and from the partnership of which Mr. Mancino is a partner, (iii) the fact that amounts paid to Mr. Mancino in connection with his service as a director of a subsidiary of Health Net were composed of director and committee fees and payments related to compensation for prior service (and were not contingent in any way on continued service) and (iv) the nature of these directors to be independent.relationships (including the absence of any material direct or indirect relationship between Mr. Mancino and Health Net outside of his service as a member of our Board of Directors).

In determining that Mr. Greaves (i) he and his wife receivedis independent, the Board of Directors considered the following additional factors:

In light of the significant time period since Mr. Greaves’ resignation and the fact that his receipt of health benefits areis in exchange for prior services rendered by Mr. Greavesno way contingent upon continued service to the Company, andthe business purpose of the expense reimbursements to Mrs.Mr. Greaves, are for a legitimate business purpose andthe 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 transactions dowere not impairmaterial relationships under NYSE listing standards and therefore determined Mr. Greaves’ independence.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 (Chairman)(Chairperson), Craver and Mancino and Ms. Fitzgerald. EachWith the exception of Mr. Mancino, who was appointed to the Audit Committee in November 2012, each of the current members of the Audit Committee served on the Audit Committee from January 2010 to December 2010, though Mr. Yeager replaced Mr. Craver as the Chairman of the Audit Committee in May 2010.throughout 2012. 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 eleven10 meetings in 2010.2012.

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

Governance Committee.

The Governance Committee of our Board of Directors is currently comprised of Messrs. Craver (Chairman)(Chairperson), Foley and FoleyMancino and Ms. Escarra. EachWith the exception of Mr. Mancino, who was appointed in November 2012, each of the current members of the Governance Committee served on the Governance Committee from January 2010 to December 2010, except for Mr. Craver who was appointed to the Governance Committee on May 12, 2010 and replaced Mr. Willison as a member and Chairman of the Governance Committee.throughout 2012. Each of the current members of the Governance Committee is independent under NYSE listing standards. The Governance Committee held five meetings in 2010.2012.

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

In addition,As described above, the Governance Committee is responsible for reviewing director compensation and making recommendations to the Board of Directors with respect to director compensation. The Governance Committee has from time to time directed Semler Brossy Consulting Group, LLC (“Semler”), the 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. The Governance Committee has from time to time directed Semler Brossy Consulting Group, LLC (“Semler Brossy”), the Governance and Compensation Committees’ compensation consultant, to provide certain services with respect to director compensation. 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.stockholders, in order to be eligible for inclusion in our proxy statement and form of proxy relating to that meeting pursuant to Rule 14a-8 under the Exchange Act.

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 20112013 Annual Meeting and in accordance with the above guidelines, the Governance Committee nominated for re-election (or election, in the case of Mr. Mancino) each of the following nineten nominees: Ms.Mses. Citrino, Ms. Escarra and Ms. Fitzgerald and Messrs. Craver, Foley, Gellert, Greaves, Mancino, Willison and Yeager.

Compensation Committee.

The Compensation Committee currently consists of Messrs. Willison (Chairman)(Chairperson) and Foley Ms.and Mses. Citrino and Ms. Escarra. Each of the current members of the Compensation Committee served on the Compensation Committee from January 2010 through December 2010, except for Ms. Citrino who was appointed to the Compensation Committee on May 12, 2010. Mr. Willison was appointed Chairman of the Compensation Committee in May 2010, replacing Ms. Fitzgerald as Chair.throughout 2012. Each of the current members of the Compensation Committee qualifies 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 at the Compensation Committee’s request, but, since he is not a member of the Compensation Committee, he does not vote on any Compensation Committee actions. In 2010,2012, our Compensation Committee held sixseven meetings.

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

approving, or recommending to the Board of Directors the approval of, all equity-compensation plans that are exempt from or not subject to such stockholder approval requirements, in each case, in light of our goals and objectives with respect to such plans;

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”).Oversight Executives. The Compensation Committee has the authority to approve the compensation for all Oversight Positions,Executives, 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 PositionsExecutives 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 asand the case may be, executive compensation including, but not limited to:

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 section “—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 Executives, the Chief Executive Officer and his direct reports review and approve all compensation other than the Oversight Positions,decisions on an annual basis. In 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, as listed above.review. 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 paidWith respect to Health Net, during 2012, Semler Brossy foronly provided services that were not related exclusively to executive or director compensation were less than $120,000 during 2010.compensation. 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 approveoversee and determine the compensation consultant’s feesand independence of the compensation consultant and other retention terms that relate to the compensation consultant’s work. The compensation consultant reports directly and exclusively to the Compensation Committee with respect to executive compensation matters. During 2010,

After review and consultation with Semler, the Compensation Committee directedhas determined that Semler Brossy to provideis independent and there is no conflict of interest resulting from retaining Semler currently or during 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 Ms.Mses. Fitzgerald (Chair)(Chairperson) and Ms. Citrino and Messrs. Willison and Yeager. Mr. Foley served as Chairman and Mr. Craver served as a memberEach of the current members of the Finance Committee until May 12, 2010,served on which date Ms. Fitzgerald, Ms. Citrino and Mr. Yeager were appointed to the Finance Committee.Committee throughout 2012. In 2010,2012, our Finance Committee held sevensix meetings.

Finance Committee Responsibilities.    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. In setting our business strategy, the Board of Directors assesses the various risks being mitigated by management and determines what constitutes an appropriate level of risk for us.Company. 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.

Committee		Primary Risk Oversight Responsibility
Audit Committee		Overseeing financial risk, capital risk and compliance risk and internal control over financial reporting, and evaluating the effectiveness of Health Net’sour Code of Business Conduct and Ethics.
Compensation Committee		Overseeing Health Net’sour compensation and benefits practices and evaluating the balance between risk-taking and rewards to associates,employees, as discussed under the heading, “Compensation Risk Assessment.”
Finance Committee		Monitoring the level of risk associated with investment policies and portfolio, strategic endeavors, use of cash and short- and long-term debt structure.
Governance Committee		Evaluating each director’s independence and the effectiveness of Health Net’sour Corporate Governance Guidelines, and overseeing management’s succession planning.

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 20102012

For Mr. Mancino, represents the aggregate grant date fair value of 5,732 restricted stock units, or RSUs, granted on November 2, 2012, as calculated in accordance with FASB ASC Topic 718. The grant date fair value shown is based on a per share value of $22.679. This is calculated in accordance with FASB ASC Topic 718 by multiplying the closing price of our Common Stock on the date of grant ($22.68 per share) by the number of restricted stock units granted, and then subtracting the par value of $0.001 per share of Common Stock underlying the award.

The RSUs granted to each of our non-employee directors in 2012 vest and become non-forfeitable as to 33  ¹/₃% of the RSUs on each of the first, second and third anniversaries of the date of grant. No options to purchase shares of our Common Stock were granted to our non-employee directors in 2012. The table below shows the aggregate numbers of stock awards and option awards outstanding for each non-employee director as of December 31, 2012. Stock awards consisted of unvested RSUs. Upon vesting and the passage of any applicable deferral period, the RSUs are paid in shares of our Common Stock on a one-for-one basis. Directors may elect to defer payment until a later date, which would result in a deferral of taxable income to the director. Option awards consist of exercisable and unexercisable options.

(3)	The amount shown was deferred under the Health Net, Inc. Deferred Compensation Plan for Directors.

(11)	Mr. Willison received an option grant of 12,859 shares of our Common Stock on May 13, 2010. As of December 31, 2010, Mr. Willison held 94,477 options to acquire shares of our Common Stock, 63,019 of which were exercisable.

Cash Retainers and Meeting Fees.The annual retainer payable to our non-employee directors during 20102012 was $45,000. During 2010,2012, 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 receivedis entitled to 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 20102012 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 2010,2012, 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.

Equity Grants.Until 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 were made under our 2006 Plan. Upon joining our Board of Directors, non-employee directors were granted options to purchase a number of shares with a target value equal to $130,000, based on the Black-Scholes method of option valuation. Upon re-election to the Board of Directors, the number of shares granted to non-employee directors had a target value equal to $130,000, 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 Stock on the date of such grant. Each grant vests as to 33 1/3% of the shares each year on the anniversary of the date of the grant, provided that the options become immediately exercisable in the event of a “change in control” of Health Net, as defined in the 2006 Plan. On May 13, 2010, options to purchase 12,859 shares of Common Stock at an exercise price of $23.51 per share were granted to each of Messrs. Craver, Farley, Foley, Greaves, Willison, Yeager and Ms. Escarra and Ms. Fitzgerald, under the 2006 Plan. As she received an initial grant of options upon her appointment to the Board of Directors in December 2009, on May 13, 2010, Ms. Citrino received a pro-rated option grant to purchase 5,707 shares of Common Stock at an exercise price of $23.51 per share, also under the 2006 Plan.

In December 2010, the Governance Committee recommended to the Board of Directors, and the Board of Directors 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 will be comprisedare made in the form of restricted stock units (“RSUs”), rather than nonqualified stock options. These grants will beare made under the Company’s 2006 Plan.Long-Term Incentive Plan, as amended (the “2006 Plan”). The target value of each of the initial and annual non-employee director grants will remain unchanged atis $130,000 and will beis calculated based on the fair value of the shares underlying the RSUs on the

date of grant. Each grant will vestvests as to 33 1/3% of the RSUs each year on the anniversary of the date of grant, provided that the RSUs will become immediately exercisable in the event of a “change in control” of Health Net, as defined in the 2006 Plan. Upon vesting, the non-employee director will be entitled to receive the number of shares of Common 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 to be established by the Company.

Certain of our directors have outstanding non-qualified stock option grants that were made pursuant to our Third Amended and Restated Non-Employee Director Stock Option Plan (the “NED Plan”). We no longer utilize this plan for 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 attendevents, including the annual Health Net Board retreat, and generally reimburse the reasonable expenses of their companions’ travel, food and lodging.retreat. 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 and for Heart & Soul, which is Health Net’s awards program for associates. In addition, weemployees. We also reimburse the expenses of Mrs. Greaves when she accompanies Mr. Greaves to Health Net-related business meetings and 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 is 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.Messrs. Foley, Mancino and Willison have account balances under the Director DC Plan, and Ms. Fitzgerald isand Mr. Mancino are the only non-employee directordirectors who elected to defer compensation under the Director DC Plan during 2010.2012.

Stock Ownership Requirements.    Our Board of Directors has adopted stock ownership guidelines for non-employee directors. As of February 4, 2011, the guidelines requireddirectors that require non-employee directors to hold 50%make good faith progress towards holding qualifying shareholdings with a value equal to or in excess 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 $300,000 (the “Director Ownership Threshold”). “Net settled shares” generally refers to those shares that remain after payment of (i) the exercise price of stock options or purchase price of other awards and (ii) any applicable transaction costs. As of March 28, 2011, Messrs. Foley and Greaves satisfied2013, each of our non-employee directors held qualifying share holdings with a value equal to or in excess of the Director Ownership Threshold and the remainder of our non-employee directorsor are otherwise complying with the “net settled shares” holding requirements as they workstock ownership guidelines by making good faith progress toward the Director Ownership Threshold, in compliance with the guidelines.Threshold.

EXECUTIVE COMPENSATION

COMPENSATION DISCUSSION AND ANALYSIS

Health Net, Inc. is a publicly traded managed care organization that delivers managed health care services through health 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“Compensation Discussion and Analysis”) discusses the compensation programs and policies in place for our named executive officers, as well as theour Board of Directors’ and Compensation Committee’s roleroles 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 2010 consist of the following executives:2012 are as follows:

Ms. Hefner was promoted from our Chief Customer Services Officer to our Senior Vice President, Customer and Technology Services on January 11, 2012. Unless otherwise indicated, information regarding Ms. Hefner’s compensation in this Compensation Discussion and Analysis reflects Ms. Hefner’s compensation following her promotion.

Executive Summary

The managed care industry is highly complex, currently experiencing unprecedented change and is facing a number of significant regulatory and marketplace challenges. Many of these changes and challenges are the result of federal health care reform legislation, as well as other federal and state legislation and regulation. Federal health care reform has had and will continue to have a significant impact on our business. In light of the uncertainty in our environment, we continue to be challenged in developing compensation programs and policies.

Summary of Elements of 2012 Executive Compensation

Retirement Plans		401(k) Plan, Nonqualified Deferred Compensation Plan, Nonqualified Defined Benefit Pension Plan		•    Provide tax-deferred methods for general savings, including for retirement •    Provide supplemental retirement income and measure of financial stability and security while building participant’s long-term commitment to us
Severance and Change in Control Benefits		Employment Agreements, Equity Award Agreements		•    Preserve productivity and retention in potentially disruptive restructure and/or change in control situations involving executive’s termination of employment
Limited Perquisites and Other Benefits		Financial Counseling Allowance, Relocation Benefits, Limited Housing Benefits, Group Life Insurance, Limited Car Allowances		•    Help executives to manage time and minimize distractions in order to maintain focus on business results

2012 Performance Highlights

Health Net’s overall 2010Our financial performance including financial results,in 2012, particularly with respect to medical costs, was solid.significantly affected by an increase in reserves for claims and other settlements of approximately $126 million in 2012 compared with 2011. The following are highlightsincrease was primarily caused by adverse development that occurred in the first half of our 2010 performance:

Key Compensation Decisions and Government Contracts PTI”) for 2010 was $423.3 million.Tie to Our Performance

Highlights of our Compensation Program

received from the vesting, delivery or exercise of equity awards granted under our equity award plans until the total value of all of his or her qualifying shareholdings equals or exceeds an ownership threshold equal to a multiple of his or her annual base salary. “Net settled shares” generally refers to those shares that remain after payment 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.

Impact of 2012 Advisory Vote on the Compensation of Named Executive Officers

In May 2012, we provided stockholders an advisory vote to approve the compensation of our named executive officers (the “say-on-pay proposal”). At our 2012 Annual Meeting of Stockholders, our stockholders approved the compensation of our named executive officers, with over 86% 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 reportable segments, see Note 14factors informed the Compensation Committee’s decisions regarding the compensation of our named executive officers, the Compensation Committee generally did not implement significant changes to our consolidated financial statements included2012 executive compensation program. However, as partnoted above, for our 2012 equity grants, we moved from a 50%-50% mix of stock options and service-based restricted stock units, to a mix of 75% of value in performance share units and 25% of value in service-based restricted stock units, in order to more closely align and tie the compensation of our 2010 Form 10-K.

What is the role of the Compensation Committee?

The Compensation Committee has the 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, especially in light of the sweeping changes recently enacted and proposed under the federal health care reform legislation. During the first quarter of 2010, the President signed into law both the Patient Protectionlegislation and Affordable Care Actother state and the Health Carefederal legislation and Education Reconciliation Act of 2010, which will result in significant changes to the U.S. health care system and alter the dynamicsregulation. In light of the health care insurance industry.uncertainty in our environment, we continue to face challenges in developing compensation programs and policies. 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:include:

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 long-term equity compensation program rewards sustained performance and financial growth while 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 in this CD&A.

Executive Compensation Changes in 2010

Based on the objectives of our compensation program, the Company has implemented the following changes:

ownership, starting in 2010, the Company’s long-term incentive grants for named executive officers transitioned from a combination of performance shares and restricted stock units to a combination of stock options and restricted stock units. The Compensation Committee believes that long-term performance measures are difficult to predict in our industry’s uncertain environment, but wants executives to remain focused on the activities that will increase shareholder value. Therefore, stock options replaced performance shares in 2010. More information is provided below under the section “Long-Term Equity Compensation”.

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 the executive’s level). Further discussion regarding 20102012 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 2010”.2012.” For 2012, the Board and the Compensation Committee determined that no increases would be made to the base salaries of Messrs. Gellert, Woys and Capezza. In connection with her promotion to Senior Vice President, Customer and Technology Services, effective as of January 11, 2012, Ms. Hefner’s base salary was increased by approximately 19%, reflecting an annual merit increase to her base salary in acknowledgement of her overall contributions to the Company in 2011 and her promotion. Effective February 25, 2012, Mr. Tough received an annual merit increase of 3% to his base salary in acknowledgement of his overall contributions to the Company in 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”)EOIP and 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 or her target

bonus amount. In determining the target bonus amount for each named executive officer, our Compensation Committee considers themultiple factors, including market data provided by its independent compensation consultant, Semler, Brossy, as described in the section, “How“—How do we determine the amount for each element of executive officer compensation?”

The EOIP is to be fully funded if we attainmeet or exceed a pre-established performance threshold. For 2010,2012, we used 2012 Combined Western Region and Government Contracts PTI as ourthe performance thresholdmeasure for funding of the EOIP. This measure creates emphasis on operational performance, which 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 growth and performance development. Awards to participants instockholders. If the EOIP are also tied to specific pre-established funding threshold were met, then certain Company-wide performance objectives, as well asfactors and individual

performance. performance factors were to be considered when determining the actual award amounts paid to EOIP 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 is consistent with Health Net’s values. A description of the material terms of the EOIP can be found below in the section entitled “Analysis“—Analysis of Compensation During Fiscal 2010—2012—Annual Performance-Based Incentive Cash Awards”.Awards.” In 2010,2012, the Company achieveddid not meet the pre-established performance threshold, PTI measure. As such,and thus, the EOIP was not funded and annual cash bonuses under the EOIP were not paid to our named executive officers, as discussed in detail below under “Analysis“—Analysis of Compensation During Fiscal 2010—2012—Annual Performance-Based Incentive Cash Awards.”

Long-Term Equity Incentive Compensation.

In recent years,Annual grants of equity awards are intended to align the interests of our annual long-term incentive awards have generally been provided in the formexecutive officers with those of restricted stock unitsour shareholders and performance shares. Due to the uncertainties of the economy and health care reform, we faced challenges in establishing attainable long-term performance targets. For example, none of the performance share awards that we granted in 2007 and 2008 were earned because the related Company performance measures were not attained. In February 2010, the Compensation Committee determined that stock options with service-based vesting would replace performance share grants to our 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 options are a better vehicle. The use of stock options with service-based vesting maintains our executives’ focus on activities that support value creation, while recognizing that the strategy and drivers of value may continue to change and evolve as the health care environment evolves. The Compensation Committee also determined to grant restricted stock units with time-based vesting to our executives because they believe that restricted stock units support retention objectives and motivate executives to increase value to our stockholders.

For 2010, the Compensation Committee approved long-term incentive grants tolink our named executive officers with 75% of the value in the form of stock options and 25% of the value in restricted stock units. The stock options vest in their entirety (i.e., “cliff” vesting) after three years, and the restricted stock units vest 25% per year over four years.officers’ compensation to shareholder value.

Equity Grant Guidelines—General.    Each year, the Compensation Committee approves grant guidelines that provide a range of shares available for grant to all employees who are eligible to participate in our equity program, including our named executive officers. When developing grant guidelines for our named executive officers, several factors are considered, including market median grant values and market trends in equity grant guidelines for equity awards to all eligible participants Company-wide, including the named executive officers, based on thecompetitive market data provided by Semler, our targeted rate of share usage, or burn rate, 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 for participants at each salary grade levelare designed to deliver competitive equity value to the eligible recipient population and ensure that we maintain our targeted burn rate, which the Compensation Committee approves each year. The Compensation Committee, in its discretion, may approve grant guidelines and equity awards that are below the market median in order to maintain our targeted burn rate.

Our targeted burn rate attempts to control the rate of share usage, or our burn rate, as approved by the Compensation Committee. For 2010, we managed todilution for stockholders and provide a burn rate cap approved by the Compensation Committee.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 targetedhistorical number of diluted weighted average shares outstanding and 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.

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 share usage at or nearbetween 2% and 2.5% of our outstanding Common Stock in recent years.

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

2012 Equity Grant Guidelines.    In determining the 2010 annual equity grant program,December 2011, the Compensation Committee reviewedmade initial determinations with regard to our 2012 target burn rate for all equity grants to long-term incentive plan participants and the grant guidelines for 2012 long-term incentive awards to our named executive officers. In making these determinations, the Compensation Committee assumed a $30.00 trading price for our common stock, which represented the approximate average closing price of our common stock over the prior 30 days. The

median award values for our named executive officers in the grant guidelines recommended by the Compensation Committee were, on average, approximately 11% below the market trendsmedian, and for Ms. Hefner, reflected her position at that time. The Compensation Committee recommended awarding grants below the market median in order to stay within our targeted burn rate. The Compensation Committee approved the 2012 long-term incentive awards to our named executive officers on February 17, 2012, which was also the grant date of the 2012 awards, and such awards reflected Ms. Hefner’s new position. In connection with their review and approval of the 2012 awards, the Compensation Committee considered that the trading price of our common stock had increased to $39.34 on the grant date. Based on input received from management and Semler, the Compensation Committee determined that the increase in our stock price between the date of their initial equity grant guidelinesrecommendations and the 2012 grant date did not warrant any changes to their initial recommendations. The Committee’s determination was based, in part, on its belief that the increase in stock price reflected recent volatility in the Company’s stock price, rather than a sustained long-term gain. The Committee also considered the fact that the Company’s stock price had been volatile in 2011 and early 2012. In addition, the Compensation Committee considered that 75% of the value of the equity awards would be in the form of performance share units, which could only be earned based on the market medianCompany’s achievement of general industry survey data provided by Semler Brossy. Grant ranges are established for each salary grade for associates atpre-established financial performance criteria.

The actual grant date fair values of the director and above levels. Each year, we balance competitive grant values fromlong-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.shown in the “2012 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 20102012 compensation decisions, please see “Competitive“—Competitive compensation analysis for fiscal 2010”2012” below.

For 2010, dueDeterminations Regarding Form and Mix of 2012 Equity Awards.     In January 2012, the Compensation Committee determined that long-term incentive grants consisting of performance share units and service-based restricted stock units would be granted to our executives. The Compensation Committee changed the mix of the long-term incentive grants, which in 2011 consisted of 50% of the value in the form of stock priceoptions and our objective50% of the value in the form of service-based restricted stock units, to manage our burn rate, we established our equity grant guidelines usinga mix of 75% of value in performance share units and 25% of value in service-based restricted stock units. The Compensation Committee determined that it was appropriate to award a significant portion of the numberlong-term incentive grants in the form of full value shares, rather than targeted dollar values, for grants as reference points. As a result, our 2010 equity grant values were 19% – 45% belowperformance share units in order to closely tie the median level forcompensation of our named executive officers.officers to the Company’s performance and to motivate executives to achieve optimal performance. 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 stockholders.

For 2012, the Compensation Committee approved long-term equity incentive grants to our named executive officers with 75% of the value of the award in the form of performance share units and 25% of the value of the award in service-based restricted stock units. The restricted stock units vest one-third per year over three years, subject to the executive’s continued service through each vesting date. Differing percentages of the performance share units were to “cliff” vest three years after the grant date depending upon the level of “2012 PTI” (as defined below) attained by the Company. The performance share units would have been earned and vested at 30% of each executive’s target number of shares if 2012 PTI equaled or exceeded $420 million, and 100% of each executive’s target number of shares if 2012 PTI equaled or exceeded $449 million. For this purpose, “2012 PTI” is the 2012 Combined Western Region and Government Contracts PTI, excluding profit and loss impact to the Company with respect to certain business ventures relating to the Company’s federal and state government programs. Because our 2012 Combined Western Region and Government Contracts PTI was $119 million, our 2012 PTI did not meet the $420 million threshold goal, and all 2012 performance share units were forfeited.

Retirement Plans.

Qualified defined contribution retirement plan—Health Net, Inc. 401(k) Savings Plan (“401(k) Plan”).We offer the 401(k) Plan to theall of our eligible employees, including our named executive officers and all associates.officers. The 401(k) Plan allows pre-tax salary deferral contributions of one to thirty percent (1% to 30%) of total cash earningseligible compensation up

to the annual established Internal Revenue Service maximum limits, including any catch-up contributions for associatesemployees 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 Internal Revenue Code with respect to the 401(k) Plan. This means that pre-tax salary deferral contributions and safe harborAll matching contributions made under the 401(k) Plan automatically meet certain non-discrimination tests. The safe harbor requires that all matching contributions be immediatelyare one hundred percent (100%) vested.vested when made. Named executive officers may not elect Health Net, Inc. Common Stock as an investment option in the 401(k) Plan. This policy ensures that no purchases may be made byOther than Mr. Tough, all of 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 20102012 and each received matching contributions or matching contribution commitments of $9,800 each.$10,000.

Nonqualified voluntary deferred compensation plan—Health Net, Inc. Deferred Compensation Plan (“Deferred Compensation Plan”).    TheOur named executive officers and certain of our other management employees are eligible to defer salary and annual incentive paymentscertain compensation under the Deferred Compensation Plan, that facilitates tax planning andwhich permits personal savings beyond the IRS contribution limits on qualified plans.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. OfNone of our named executive officers only Mr. Sell elected to participate in the Deferred Compensation Plan in 2010 by deferring 50% of his 2010 bonus under the EOIP.2012. 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 2010”.2012.”

Nonqualified defined benefit pension plan—Health Net, Inc. Supplemental Executive Retirement Plan (“SERP”).    We maintain a nonqualified supplemental executive retirement program, which provides benefits to a very limited number of our executives with supplemental retirement income beyond the IRS contribution limits for 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 2010 table.2012.”

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. The performance share units granted to our named executive officers in 2012 would have become fully vested upon a change in control at a level assuming the achievement of target performance. However, these performance share units were subsequently forfeited because the Company did not achieve certain pre-established performance metrics. Our other 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 with our named executive officers benefit Health Net by clarifying the terms of their employment and ensuring that we are protected by non-solicitation, non-disclosure and reimbursement of sign-on/engagement bonuscompensation recovery 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 agreementsseverance and change in control arrangements are designed to attract key employees, preserve employee morale and productivity and encourage retention in the face of the potentially disruptive impact of internal restructuring activities or an actual or potential change in control. TheseIn addition, 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.

Messrs. Gellert and Woys are the only named executive officers that are entitled to such gross-up payments, which are provided for in each of their long-standing employment agreements. However, as indicated in the table entitled “Potential Payments Upon Change in Control or Termination”, neither executive would trigger excise tax or related tax gross-up payments upon a change in control, assuming a change in control occurred on December 31, 2012.

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

Limited Perquisites and otherOther Personal Benefits.

General.    We provide our named executive officers with various perquisites and personal benefits, which serve as an important recruiting and retention tool.tools.

We have eliminatedgenerally do not permit tax gross-up payments in connection with perquisites provided to executive officers, except with respectpursuant to perquisites provided under certain company-wide policies.Company-wide policies which are limited in nature. Under our company-wide relocation policy,Company-wide Relocation Policy, we provide tax gross-up payments with respect to standard relocation benefits. Under our company-wideCompany-wide policy relating to spousal travel, we also provide tax gross-up payments relating to spousal travel for limited Company-sponsored events, which typically include 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 these perquisites, to the extent permitted by applicable tax law, because such tax gross-up payments serve an important recruiting and retention function and are broad-based benefits provided to all associatesemployees and are not limited to our executive officers.

Financial Counseling.    All named executive officers are entitled to reimbursement of $5,000 per year 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, minimizingminimize distractions and allowing them to maintain focus on business issues.

Relocation Benefits/Engagement Bonuses.    None of our named executive officers were relocated or hired in 2010 and, therefore, none received relocation benefits or engagement bonuses in 2010.

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 executivespayments for their income taxes paid in connection with this benefit, as such tax gross-up payments are generally available to associates under our relocation policy.benefit. Our relocation policy does not compensate named executive officersparticipants for any loss on the sale of their homes. Ms. Hefner is our only named executive officer who received relocation benefits and a related tax gross-up payment in 2012. See the tables entitled “Summary Compensation Table” and “All Other Compensation Table” for additional detail and quantification of these benefits.

Housing Allowance.    We provide corporate housing to Mr. Gellert as partpursuant to the terms of his originallong-standing employment agreement, from 1997.as described in the “All Other Compensation Table.” 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 pursuant to a broad-based plan to all of our eligible employees, including our named executive officers, and all of our associates in an amount equal to one times base salary. OurAll of our eligible 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.    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 and Woys and Sell,Ms. Hefner, were “grandfathered” under the

program and continue to receive this benefit. During 2012, Mr. Gellert was provided with a Company car in lieu of a cash automobile allowance and Messrs.Mr. Woys and SellMs. Hefner received a monthly automobile allowance, as further described in the “Summary Compensation Table”. and “All Other Compensation” table.

Physical ExamsExams..    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 perquisites and other personal benefits described above are disclosed and quantified in the “Summary Compensation Table” and “All Other Compensation Table” and described in the accompanying narrative following the “Grants of“Narrative to Summary Compensation Table and Plan-Based Awards for 2010” tableTable” in this proxy statement.

Compensation Recovery Policy.

In 2010, the Compensation Committee adopted theWe 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 a covered employee’s engagement in (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. federalFederal 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),financial document embodying the financial reporting requirement with respect to which we were required to restate, or (ii) the twelve (12) month period following the initial occurrence of conduct constituting “cause.”

In connection with the Compensation Recovery Policy, we have revised our forms of equity award agreements and executive officer employment agreement to provide that certain compensation granted or payable under such agreements will be subject to the terms and conditions of the Compensation Recovery Policy. The Company intends to update the Compensation Recovery Policy from time to time as may be required by applicable law, including any rules that may be promulgated under the Dodd-Frank Wall Street Reform and Consumer Protection 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 equity incentive compensation, as discussed below. The Board and the Compensation Committee also considersconsider our target total target direct compensation (consisting of base salaries, annual target performance-based short-term cash incentive awards and long-term incentive compensation) inwhen 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.

TheIn addition to the factors described in the paragraph above, 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:including the following:

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 theour Chief Executive Officer, Chief Operating Officer and/or Senior Vice President, Organization Effectiveness, as applicable, that 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 officer. The Compensation Committee recommends the compensation for our Chief Executive Officer and theour second-highest paid executive to the independent members 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 refer to in this CD&A as the “market median” or “50^th percentile.”

As indicated above, while the Board and the Compensation Committee uses theuse 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. Further, as stated below, based on input received from the Compensation Committee’s independent compensation consultant, the Board and the Compensation Committee use market data from our “modeled peer group” to address consolidation in our industry and inconsistencies among our traditional peer group companies. For further discussion on how Semler Brossy determines the market mediandata provided by Semler and how this data affected the Board’s and the Compensation Committee’s 20102012 compensation decisions, please see “Competitive“—Competitive compensation analysis for fiscal 2010”2012” 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 2010 market median has the following pay mix for these positions, which we generally endeavor to approximate:

The following table reflects the actual 2012 compensation of our President and Chief Executive Officer and our other named executive officers (excluding our President and Chief Executive Officer) as a group.

Market Median2012 Compensation Pay Mix⁽¹⁾

(3)	Represents the market median 2010 target annual incentive bonus as a percentage of total direct compensation.

Consultants and advisors.    Since May 2007, Semler has been the Compensation Committee’s exclusive independent compensation consultant. During that time, Semler has provided services to the Compensation Committee has used Semler Brossy exclusively as its compensation consultant, and Semler Brossy has provided services directed by the Compensation Committee mainlyprimarily related to executive compensation and services directed byto the Governance Committee related to director compensation. Semler Brossy did not provide any other services to Health Net in 2010. 2012.

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 approveoversee and determine the compensation consultant’s feesand independence of the compensation consultant and other retention terms that relate to the compensation consultant’s work. The compensation consultant reports directly and exclusively to the Compensation Committee with respect to executive compensation matters.

During 2010,2012, Semler Brossy provided the following services to 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 2012, Semler provided the following services to the Governance Committee with regards to non-employee director compensation:

Competitive compensation analysis for fiscal 2010.2012.

Although the Board and the Compensation Committee usesuse 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, ouras recommended by Semler, the Board and the Compensation Committee also utilized several differentother sources of data to perform competitive compensation analysis for fiscal year 2010.2012 in order to develop a complete and comprehensive comparison to peer companies.

In October 2009,2011, Semler Brossy provided the Compensation Committee with a market overview approach to competitive compensation analysis that considered four data sources: (i) thea “modeled peer group,” comprised of general industry survey data adjusted for the historical relationship with the Company’s peer group over the last five years;years and using regressions to establish scope consistent with our revenue; (ii) “managed care and general industry” survey data developed by Mercer, Towers PerrinWatson and Watson WyattEquilar, which includes both public and private managed care companies; (iii) a “cost of management” analysismanagement analysis” that provides information about what other companies are paying by pay rank and in aggregate for their top positions; and (iv) “traditional peer group” 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 (size, market position, revenue, etc.) among our traditional peer group companies. As recommended by Semler, the Compensation Committee relied primarily on the “modeled peer group” data and secondarily on the “cost of management analysis” and “traditional peer group” proxy data in determining the compensation of our named executive officers in 2012, other than Ms. Hefner. Because Ms. Hefner’s post-promotion position as Senior Vice President, Customer and Technology Services represents a hybrid job for which limited market data is available, the Compensation Committee considered available internal comparable compensation data in determining Ms. Hefner’s post-promotion compensation. When comparing Ms. Hefner’s compensation to the “50^th percentile of market” in this Compensation Discussion and Analysis, we have used a market match based on the fifth highest paid executive officer within the modeled peer group. The “managed care and general industry” survey data was not utilized in making determinations regarding our 2012 named executive officers’ compensation, but was utilized in determining the 2012 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” survey.

In October 2011, Semler advised that our named executive officers’ 2012 total target direct compensation, which reflected Ms. Hefner’s position at the time, was generally consistent with the market median and 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 obtained for purposes of competitive compensation analysis was only one factor used in determining 20102012 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 surveys used are summarized below:

In October 2009, Semler Brossy advised that our executives’ base salaries and total targeted cash compensation are generally within a competitive range of the market median based on the market data described above. However, historically we have 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 2010 annual equity grant guidelines would be significantly below the market median in order to satisfy our 2010 burn rate objectives. For 2010, the Compensation Committee approved an approach so that the actual total direct compensation paid to our named executive officers was an average of 29% below market median, as discussed in detail under the section entitled “Total Direct Compensation” below.

Management involvement in compensation decisions.    In addition to market and other factors, the Board and the Compensation Committee considersconsider input from our Chief Executive Officer, Chief Operating Officer and/or Senior Vice President, Organization Effectiveness, as applicable, in determiningmaking their respective decisions regarding the compensation of the other named executive officers.

In the fourth quarter of each calendar year, our Board of Directors reviews and approves Company and business unit plans for the upcoming calendar year. Subsequently, the named executive officers also establish performance objectives for the year for their areas of responsibility based on the approved Company and business unit plans. These objectives are then used to develop the individual performance factors for purposes of our EOIP. These individual performance factors, as well as the Company performance goals, are reviewed and approved by the Compensation Committee no later than March 31^st of the performance year. 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, conduct a formal assessment (including obtaining individual self-assessments) of each named executive officer’s performance, including with respect to his individualthe performance factors developed for the prior calendar year.use in connection with our annual incentive cash award program. For additional detail on how our annual performance-based incentive cash awards are determined, see “—Analysis of Compensation During Fiscal 2012—Annual Performance-Based Incentive Cash Awards” below. Our Chief Executive Officer then provides the Compensation Committee with his assessment of the Company’s performance during the performance year and the performanceresults of the formal assessment 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.these assessments. 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 non-management members of the Board.

The evaluation of our Chief Executive Officer is a formal process whereby all members of our Board of Directors have the opportunity to provide input. The performance evaluation ofinput on our Chief Executive Officer includes assessment of key leadership competencies and skills, in additionOfficer’s performance, including with regard to financial and operational measures of the Company.applicable performance factors. Our Chief Executive Officer provides a self-assessment to the Boardnon-management members of Directorsthe Board each year, and each such Board member is then asked to appraise theevaluate our Chief Executive Officer’s achievements in each area and provide comments.achievements. The individual non-management Board members’ ratingsevaluations are consolidated and sent back to each non-management 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, including salary adjustments, bonus payouts and equity grants, which then must be approved by the Boardnon-management members of Directors. For additional detail on how the annual performance-based cash awards are determined based on these evaluations and recommendations, see “Analysis of Compensation During Fiscal 2010—Annual Performance-Based Incentive Cash Awards” below.Board.

Analysis of Compensation During Fiscal 2010.2012.

GeneralGeneral..    In 2010,2012, we provided our named executive officers with (1) base salaries that were closeranged from 91% to 115% of the 50^th percentile of the market. In 2012, we provided our peer group companies (with some base salaries falling above or below the 50^th percentile), and (2)named executive officers with target annual short-term incentive opportunities under our EOIP that generally were at or belowranged from 73% to 121% of the 50^th percentile of our peer group companies, asthe market. As discussed in further detail below.below, no payments were actually made to our named executive officers under our EOIP in 2012 because the Company did not achieve certain pre-established performance criteria relating to 2012 performance. Consistent with our objectives of linking 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 87% of actual total direct compensation for our Chief Executive Officer and approximately 77%, on average, for our other named executive officers as a group in determining executive compensation2012. For 2012, the grant date fair value of our actual long-term incentive awards ranged from 103% to 178% of the 50^th percentile of the market. As discussed in 2010. However, due to our decreased stock price atfurther detail below, the time grants were made and our commitment to manage to our burn rate, 2010 grants were substantially below competitive rates. The table below titled “2010 Long-term Equity Compensation” shows that awardsperformance share units granted to our named executive officers in 2012 were 19% – 45% belowsubsequently forfeited because the market median.Company did not achieve certain pre-established performance metrics relating to 2012 performance.

Base Salary.    The table below shows the base salary, approved by the Compensation Committee in 2010 for each of the named executive officers as well as the market positions of the base salaries, based on “modeled peer group” data.for each of the named executive officers as of December 31, 2011 and December 31, 2012.

20102012 Base Salary Review

(3)(4)

Mr. Capezza’s base salary of $586,328 at December 31, 2011 was slightly below the 50thThe 2009 percentile of market position for Mr. Sell reflects his former position as President, Health Net of California, and is matched against the “managed care and general industry survey data” for that year, which was considered a more appropriate comparison$615,000 for his priorposition and within the competitive range for his position. The 2010 market position for Mr. Sell reflects his current position as President, Western Region Health Plan, and was matched against the “modeled peer group.”Capezza did not receive a base salary increase in 2012.

We consider base salaries between 90% and 110% of the market median to be competitive (the “competitive range”). Mr. Gellert’s base compensation of $1,200,000 was above the market median of $1,016,000 for his position and above the competitive range. Therefore, Mr. Gellert did not receive a base salary increase in 2010. Mr. Woys’ base salary of $700,000 was at the market median for his position and within the competitive range. Mr. Woys received a base salary increase of 3.5% in acknowledgement of his contributions during 2009, and his current base salary remains in the Competitive Range. Mr. Capezza’s base salary of $550,000 was slightly below the market median of $666,000 for his position. In 2010, he received a base salary increase of 3.5% in acknowledgement of his contributions during 2009. Mr. Tough’s base salary of $500,000 was below the market median of $588,000, but is appropriate given his more limited job scope compared to that of the market match for his position. Mr. Tough received a base salary increase of 3% in 2010 in acknowledgement of his contributions to the Company in 2009. Mr. Sell’s base salary of $400,000 was within the competitive range for his former position, President, Health Net of California. In 2010, he received a base salary increase of 12.5%, comprised of 3% merit and 9.5% market adjustment in connection with his expanded job scope as President, Western Region Health Plan. Mr. Sell’s current base salary is below the competitive range for his current position, reflecting his status as a recent

Annual Performance-Based Incentive Cash Awards.    Under the EOIP, the target incentive opportunity forFor each of our named executive officers other than Ms. Hefner, the executive’s target incentive opportunity as a percentage of base salary remained the same in 2010,2012, as compared to 2009.2011. In connection with her promotion to Senior Vice President, Customer and Technology Services, Ms. Hefner’s target incentive opportunity as a percentage of her base salary was increased from 50% to 80%, effective for the 2012 fiscal year. The table below shows our 20102012 target annual incentive cash award opportunities and positions relative to the market median based on “modeled peer group” data for our named executive officers.50^th percentile of the market.

20102012 Target Annual Incentive Cash Award Opportunity

For the 20102012 EOIP bonuses, the Compensation Committee approved funding the EOIP forat 200% of each participant’s target bonus if the named executive officers upon attainment of a pre-established thresholdCompany’s 2012 Combined Western Region and Government Contracts PTI met or exceeded a pre-established performance threshold of $394 million for fiscal year 2010.$420 million. Our actual 2010 Combined Western Region and Government Contracts PTI of $423.3 million exceeded the pre-established threshold. The Compensation Committee exercised downward discretion to fund the EOIP only at the target amount, taking into account performance relative to the business plan, compliance issues and a variety of other Company performance factors.

Actual EOIP payouts were determined based upon a combination of two performance ratings: Company Performance Score and Individual Performance Rating. The 2010 EOIP bonus formula for our named executive officers is set forth below:

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

An individual’s final bonus score is the product of these percentages, but awards are capped at 200% of the executive’s target bonus. For 2010, the Company Performance Score was based on the Company’s 2010 business plan PTI target: a Combined Western Region and Government Contracts PTI of $402.7 million. As our actual 20102012 Combined Western Region and Government Contracts PTI was greater than $402.7$119 million, which did not meet the pre-established performance threshold, and therefore, the 2012 EOIP was not funded and no annual cash bonus payments were made under the EOIP in 2012 to our named executive officers. If the EOIP had been funded, the Compensation Committee awardedwould have considered applicable Company-wide performance factors and individual performance factors when determining the amount of each named executive officer’s annual cash bonus payment under the EOIP, if any. No one factor would have been determinative or carried a Company Performance Scorepre-determined amount of 100%.

Atweight in the beginning of 2010,Compensation Committee’s determination. Because the 2012 EOIP was not funded, the Compensation Committee approved the following individual performance factors and their relative weights as a general guide for determining the EOIP bonus payout based on individual performance. Messrs. Tough and Sell’s individual performance factors were not pre-approved by the Compensation Committee, as they are not direct reports of the Chief Executive Officer. The Compensation Committee may take into account these and any other factors in determining the executives’ actual bonus payouts based on individual performance.

2010 Individual Performance Factors

Executive		Performance Factors		Weight Attributed to Factor
		•    Maximize associate development and contribution:          -Ensure alignment between Company goals, Company and business unit results and individual rewards by: •    Using Compass Learning Management System (“Compass”) tools —90% or greater penetration. •    Fostering management accountability through administration of Compass tools.          -Develop 2010 succession plan for key positions and those identified as feeder positions.			10	%
James E. Woys Executive Vice President and Chief Operating Officer		•    Develop a plan for success in a changing environment with a highly efficient and effective organization structure: •    Approval of strategic direction by the Board of Directors by July 2010. •    Approval of three-year business plan by the Board of Directors by October 2010. •    Approval of budget by Board of Directors by December 2010.			25	%
		•    Achieve 2010 business plan: •    Take actions necessary to realize stranded cost run-rate savings in 2011. •    Ensure legal and regulatory compliance. •    Implement commercial program initiatives to support financial goals: -Western Region Health Plans “brand promise”. -Western Region Health Plans product positioning. -Expand membership in most profitable segments. •    Secure favorable TRICARE contract. •    Pursue growth opportunities in government markets. •    Successful transition of Northeast membership to UnitedHealth Group in connection with sale of Northeast operations.			65	%
		•    Maximize associate development and contribution:          -Ensure alignment between Company goals, Company and business unit results and individual rewards by: •    Using Compass tools—90% or greater penetration. •    Fostering management accountability through administration of Compass tools.          -Develop 2010 succession plan.			10	%

Executive		Performance Factors		Weight Attributed to Factor
Joseph C. Capezza Executive Vice President and Chief Financial Officer		•    Develop a plan for success in a changing environment with a highly efficient and effective organization structure - Approval of strategic direction by the Board of Directors by July 2010. - Approval of three-year business plan by the Board of Directors by October 2010. - Approval of budget by the Board of Directors by December 2010.			25	%
		•    Achieve 2010 business plan: •    Take actions necessary to realize stranded cost run-rate savings in 2011. •    Ensure legal and regulatory compliance. •    Implement finance department reorganization, including structure, outsourcing and process changes to obtain stranded cost target savings and improve capabilities. •    Maintain investment portfolio rating of AA or better to minimize capital losses and achieve results in support of the 2010 business plan.			65	%
		•    Maximize associate development and contribution:          -Ensure alignment between Company goals, Company and business unit results and individual rewards by: •    Using Compass tools—90% or greater penetration. •    Fostering management accountability through administration of Compass tools.          -Develop 2010 succession plan			10	%
Steven D. Tough President, Government Programs		Execute on business growth plans as identified in the 2010 – 2012 Government & Specialty Services strategic plan.			25	%
		Ensure legal and regulatory compliance.			5	%
		Achieve 2010 business plan: •    Secure TRICARE T-3 North contract or extension of the current TRICARE contract through balance of 2011. •    Secure award of Military & Family Life Consultant Program successor contract or extension of current contract at least through end of 2010. •    Successful transition of Northeast membership to UnitedHealth Group in connection with sale of Northeast operations. •    Achieve operational and cost performance goals per 2010 plan.			60	%
		•    Maximize associate development and contribution:          -Ensure alignment between Company goals, Company and business unit results and individual rewards by: •    Using Compass tools—90% or greater penetration. •    Fostering management accountability through administration of Compass tools.          -Develop 2010 succession plan.			10	%

Executive		Performance Factors		Weight Attributed to Factor
Steven J. Sell President, Western Region Health Plan		Implement marketing, product and distribution goals per 2010 business plan: •    Strengthen Health Net’s identity in the marketplace, including launching brand messaging, integrating brand strategy into day to day activities, and implementing brand architecture. •    Expand and grow affordable community solutions. •    Improve broker loyalty and develop and launch enhanced direct distribution channel.			15	%
		•    Ensure legal and regulatory compliance.			5	%
		Achieve 2010 financial plan for Western Region commercial operations •    Realize Western Region commercial portion of stranded and other cost management savings, based on approved work plan.			70	%
		•    Maximize associate development and contribution:          -Ensure alignment between Company goals, Company and business unit results and individual rewards by: •    Using Compass tools—90% or greater penetration. •    Fostering management accountability through administration of Compass tools.          -Develop 2010 succession plan.			10	%

In early 2011, Mr. Gellert presented to the Compensation Committee performance evaluations for each of his direct reports and the other named executive officers, as well as a self-evaluation of his own performance for 2010. Mr. Gellert’s assessments, including his own self-assessment, were based on the individuals’ performance with respect to the individual performance factors approved at the beginning of the year by the Compensation Committee, as well as any other significant developments and accomplishments during the year. Mr. Gellert also presented a summary to the Compensation Committee of Health Net’s performance for 2010.

In November 2010, the Company’s Medicare operations were sanctioned by the Center for Medicare and Medicaid Services (CMS) due to certain issues related to our compliance with Medicare Part D regulations. We take these sanctions very seriously and are actively working with CMS to address their concerns. Due to these sanctions, Mr. Gellert recommended to the Compensation Committee that he and the named executive officers reporting directly to him (Messrs. Woys and Capezza), as well as Mr. Tough, each receive an Individual Performance Rating score of 75%, reflecting a reduction of each executive’s score by 25%, as Mr. Gellert holds himself and his direct reports accountable for this outcome. In addition, Mr. Tough has direct responsibility for our government programs, and so Mr. Gellert felt it was appropriate that his Individual Performance Rating score be reduced in the same manner. Because Mr. Sell was not responsible for Medicare compliance, Mr. Gellert did not believe a similar reduction was merited and recommended an Individual Performance Rating score of 100% for Mr. Sell. The Compensation Committee utilizedneed to engage in this information, along with its own observations and assessments of our executives and Health Net’s performance, to determine the appropriate Individual Performance Rating score for each named executive officer. 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 Rating of 75% for Messrs. Gellert, Woys, Capezza and Tough and an Individual Performance Rating of 100% for Mr. Sell.determination process.

Total Cash Compensation (base salary plus actual annual performance-based incentive cash awards paid).    ActualSince we did not pay cash incentive awards to our named executive officers in 2012, the actual total cash compensation as of December 31, 2010for 2012 was withinwell below the competitive range for Messrs. Gellert, and Woys. Actual total cash compensation for Mr. Capezza was below the competitive range, due to the reduction to his 2010 annual cash incentive award. In addition, Mr. Capezza’s target bonus amount, 80%each of base

salary, is below the market median of 100% of base salary but appropriate given his respective scope relative to other peers within our organization. Mr. Tough’s actual total cash compensation was slightly below the competitive range due to the reduction to his 2010 annual cash incentive award. Mr. Sell’s actual total cash compensation as of December 31, 2010 was below the competitive range, reflecting his newly promoted status. Other factors that the Compensation Committee considers when determining compensation levels for our named executive officers are listed under the section, “How do we determine the amount for each element of executive officer compensation?” in this CD&A.officers.

20102012 Actual Total Cash Compensation as of December 31, 20102012