2019 Notice of Annual Meeting and Proxy Statement
|
MESSAGE FROM OUR EXECUTIVE CHAIRMAN AND CEO |  |
Dear Fellow Shareholders:Shareholders,
In 2016,
2018 was a foundational year of change for the Tenet Healthcare Enterprise. We are purposefully getting better at what we continued to build upondo.
Throughout this year, we have driven change by embracing our fundamental strengthsresponsibilities as care providers, while creating a culture of accountability at all levels and implementacross all functions. We have reached far and deep, accelerating progress on a new path forward, improving our strategy. Tenet has a diversified business model aligned with key trends shaping the industry today; a quality network of care sites in growing communities; a dedicated, compassionate groupas well as our underlying performance.
We believe companies thrive when change becomes ingrained into the organizational fabric, creating the opportunity to challenge the old way. For Tenet, the result has been an infusion of caregiversnew ideas and supporting staff; and an enterprise commitmentphilosophies designed to makemeet the healthcare delivery system work better fordemands of our patients, physicians, partners and clients.
investors. Across the enterprise, we have changed the way we think, how we operate, our approach to leadership and governance, and our engagement efforts with our shareholders and in communities we serve around the country. We tookhave also activated a number of steps last year to growsignificant culture reset predicated on accountability and strengthenconnectivity with our business. Thesepatients and employees in their respective communities. Through these actions, were guided by the strategic priorities we established over the last few years, which will continue to serve as the foundationare positioned for our growth planscontinued success in 20172019 and beyond.
We made progress on our efforts to diversify our sources of revenue and earnings, expanding contributions from our faster-growing, stronger free cash flow generating Ambulatory Care and Conifer Health businesses and enhancing the mix of revenue and EBITDA that come from operations less reliant on government healthcare programs. These businesses contributed roughly 37 percent of Adjusted EBITDA in 2016, up from 15 percent in 2014. Continuing to invest in the growth of these businesses – organicallyyears ahead, and through acquisitions – remains an important component of our long-term strategy.
We are excited about the recent opening of our new, state-of-the-art teaching hospital that we built in collaboration with Texas Tech University Health Sciences Center in El Paso, Texas. We also are nearing completion on expansion projects that will add capacity and enable us to address unmet needs and better serve patients in some of our largest markets. We expect these projects will drive incremental revenue and EBITDA growth in our hospital segment, and as the investment period associated with these projects comes to a close, we expect to reduce capital expenditures by $150 million, or over 15 percent, this year while maintaining a competitive level of capital expenditures in our ongoing businesses.
We are choosing not to launch large capital-intensive projects at this time because of the inherent uncertainties facing our industry, most notably the continuing lack of clarity surrounding the future of the Affordable Care Act. We began shortening our capital planning horizon in 2015, and we think it’s appropriate to continue this approach while we gain visibility on the regulatory outlook. We’re also placing an even greater emphasis on cost management, finding opportunities to enhance efficiencies wherever possible.
Our work in 2016 led to total year-over-year revenue and Adjusted EBITDA growth of 5% and 6%, respectively. While we drove incremental growth during the year, Adjusted EBITDA of $2.413 billion was at the lower end of our range of expectations. The shortfall compared to the midpoint was driven primarily by unanticipated losses in our health plans, which we are in the process of exiting. In addition, we expected to deliver improvements in cash flow generation in 2016, and we were disappointed that our Adjusted Free Cash Flow performance was weaker than we had anticipated.
As these are important metrics by which we measure our success, executive compensation in 2016 decreased accordingly. We are committed to holding ourselves accountable when financial performance falls below our expectations.
Looking ahead, we are confident we have the right strategy in place to grow our business, including delivering growth in each of our operating segments. We honor the trust you place in us as stewards of your company. The board and management team remain focused on building sustainable value for shareholders by improving our business mix; delivering EBITDA growth across the enterprise; increasing free cash flow; and reducing our ratio of debt to EBITDA.
On behalf of my fellow directors, I would like to take this opportunity to thank Jim Unruhhighlight some of our collective accomplishments.
We delivered strong financial performance in 2018. We materially grew earnings and Freda Lewis-Hall, M.D., forfurther diversified EBITDA contributions from our three business segments while expanding margins by 120 basis points, our largest year-over-year improvement since 2009.
We improved the quality of our asset portfolio. We divested non-core and lower performing hospitals and operations while increasing the percentage of our hospital markets with a leading market share position. We purchased the remainder of our ownership interest in USPI well ahead of schedule and continued to deploy capital toward ambulatory acquisitions and development. And, we pursued a strategic review of Conifer to best suit the long-term future of the business, while driving nearly as much EBITDA growth at Conifer in 2018 – in incremental dollars – as we delivered over the prior three years.
We established a more disciplined approach to expense management. We delivered $250 million in cost savings, exceeding our initial target by $100 million. We also announced a new $200 million initiative in 2019, bringing our total expected cost savings to $450 million in a little more than two years.
We launched an innovative, consumer-focused marketing strategy company-wide, brought to life by our own employees and physicians. The common message of our locally-focused campaigns is that we are aCommunity Built on Care. We are distinguished by our unique medical expertise and human touch, delivered by passionate people who are your neighbors and friends and part ofyour community. In addition to speaking directly to
consumers in our markets, we are highlighting the sense of purpose and pride our caregivers deliver and feel personally, regardless of their dedicated serviceindividual role, in their day-to-day work. This effort has also helped activate a culture of accountability and numerous contributionsownership across the organization, from our care sites back to headquarters.
New leadership is playing a critical role in driving change. Over the course of the year, we added new talent which brought fresh eyes and ideas to our teams, promoted our best people and transitioned top performers into different positions where they could expand their skills and continue to flourish within our network. These changes have created a sense of excitement and challenge to the board and the company. Both are retiring from the boardoverall organization, igniting a renewed focus on driving us forward to a new paradigm.
Effective corporate governance practices informed by shareholder perspectives remain a top priority. We continued to regularly engage in May.
I am extremely honored to work alongside 130,000 colleagues, whose resolve and altruistic nature truly define who we are as an organization. All of us at Tenet are grateful for the support of ourdialogue with shareholders and want to thank you for your investment in the company.
|
|  |
Dear Fellow Shareholders:
It has been a great privilege to serve on the Tenet board for the last several years, and I am pleased to now have the opportunity to share my thoughts as lead director. As outlined in detail in this proxy, the board has spearheaded a number of governance enhancements in recent years, including those related to board composition, shareholder engagement on governance matters, and adjustments to our executive compensation metrics. What follows in this letter are some of the recent governance highlights, which reflect our continued commitment to active shareholder engagement, board refreshment, and effective, independent oversight.
Shareholder Outreach
We regularly solicit input from shareholders, and we pride ourselves on being responsive. To that end, we initiated a comprehensive outreach program in 2015 that was constructive for both the board and our shareholders. We held a series of meetings with shareholders in 2015 and again in 2016, which enabled us to obtain insights that informed our decision-making, including making adjustments to certain elements of our executive compensation program. This involved changing performance metrics and targetstheir feedback to better reflectinform decision-making. Following the company’s current business model and strategic priorities, while continuing to align compensation with company performance. These changes, which became effective in 2016, underscore our commitment to regularly review and refine our executive compensation program.
Board Composition and Leadership
We have made substantial changes to the compositionaddition of our board, including adding fivethree independent directors in the last two years. Two current directors will also be retiring from the board in May: Jim Unruh and Freda Lewis-Hall, M.D., each of whom has been an outstanding and dedicated member of the Board.
Most recently,late 2017, we appointed two new independent directors, in November 2016: John Byrnes, former chairmanfurther enriching the diversity and CEOexpertise of Lincare Holdings,our Board. In 2018, we added General Lloyd J. Austin, III, a recently retired four-star general with significant leadership and Pete Wilver,risk management capabilities and an exceptional commitment to public service. We also added Meghan M. FitzGerald, DrPH, who recently announced his retirement as executive vice presidentbrings experience across the healthcare spectrum, including corporate experience, policy, innovation, business development and chief administrative officer of Thermo Fisher Scientific. This followsstrategy. Additionally, our Board enhanced the January 2016 appointments of Matt Ripperger and Randy Simpson, partners and co-heads of healthcare for our largest shareholder, Glenview Capital Management, and the March 2015 appointment of Tammy Romo, executive vice president and chief financial officer of Southwest Airlines. Collectively, these directorsCompany’s corporate bylaws ensuring shareholders have a strong combination of operational skills, financial acumen, leadership experience,voice: adding rights for shareholders to call special meetings and deep knowledge across different dimensions of healthcare.
In addition to these changes, Ed Kangas transitioned his responsibilities as lead director to me in 2016. I would like to express my tremendous gratitude to Ed, who served with distinction on the board during transformative periods in Tenet’s evolution – first as non-executive chairman and later as lead director. Ed continues to provide valuable counsel on our board as chair of the Nominating and Corporate Governance Committee and through his membership on two other board committees.adopting proxy access provisions.
The recent enhancementsprogress we made by the board have coincidedlast year has put us on better financial and competitive footing. We are now a much healthier company with a structural transformationsharper focus on execution against clear priorities.
On behalf of the company over the last several years, which has been implemented to directly address a rapidly changing healthcare environment. We believe the actions taken related to strategyour Board and governance have further strengthened the company and positioned it to succeed.
In closing,leadership team, I want to thank you for your continued support and investment in Tenet Healthcare. We look forward to maintaining a collaborative relationship with you,Healthcare and we are committedreiterate our commitment to enhancing long-term value creation for our shareholders. I would also like to extend my sincere gratitude to our 110,000 caregivers and serving your best interests in 2017supporting staff, who deliver quality care and well intoservice with the future.utmost compassion and integrity – from the central coast of California, to El Paso, Detroit, Miami, and countless communities around the country.
Sincerely,
Ronald A. Rittenmeyer
Lead DirectorExecutive Chairman and CEO
TENET HEALTHCARE CORPORATION
1445 Ross Avenue, Suite 1400
Dallas, Texas 75202
(469)893-2200
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
to be held on Thursday, May 4, 20172, 2019
March 24, 201722, 2019
To Ourour Shareholders:
Our Annual Meeting of Shareholders will be held on Thursday, May 4, 2017,2, 2019, at 8:00 a.m. Central timeTime at Tenet Corporate Headquarters, 1445 Ross Avenue, Suite 1400, Dallas, Texas 75202, for the following purposes:
| 1. | To elect the |
| 2. | To vote, on an advisory basis, to approve the |
| 3. | To |
| 4. |
| To ratify the selection of Deloitte & Touche LLP as our independent registered public accountants for the year ending December 31, |
To transact any other business that properly comes before the meeting or any adjournment or |
Only shareholders of record of our common stock at the close of business on March 13, 201711, 2019 are entitled to notice of and to vote at the Annual Meeting.
It is important that your shares be represented and voted at the Annual Meeting. You may vote your shares via the Internet, by telephone or by completing and returning a proxy card. Specific voting instructions are set forth in the “General Information Regarding the Annual Meeting and Voting” section of the accompanying Proxy Statement and on both the Notice of Internet Availability of Proxy Materials and proxy card. You may revoke a proxy at any time prior to its exercise at the Annual Meeting by following the instructions in the “General Information Regarding the Annual Meeting and Voting” section of the Proxy Statement. If you attend the Annual Meeting, you may, if you wish, withdraw your proxy and vote in person.
Anthony Shoemaker |
Vice President, and Corporate Secretary |
Important Notice Regarding the Availability of Proxy Materials
for the ShareholderAnnual Meeting of Shareholders To Be Held on May 4, 20172, 2019
The accompanying Proxy Statement and the Company’s proxy card, as well as our Annual
Report on
Form10-K for the year ended December 31, 2016,2018, are available atwww.proxyvote.com.
|
This Proxy Statement includes certain non-GAAPfinancial measures not in accordance with generally accepted accounting principles in the United States (GAAP), such as Adjusted EBITDA and Adjusted Free Cash Flow. Definitions of these measures and reconciliations to the most comparable GAAP measure are contained in Appendix B.A to this Proxy Statement.
|
Below are highlights of certain information in this Proxy Statement. As it is only a summary, please refer to the complete Proxy Statement and our Annual Report on Form10-K for the year ended December 31, 20162018 before you vote.
20172019 ANNUAL MEETING OF SHAREHOLDERS
Date and Time:
Thursday, May 4, 2017,2, 2019, at 8:00 a.m. Central Time
Place:
Tenet Corporate Headquarters
1445 Ross Avenue, Suite 1400
Dallas, Texas 75202
Record Date:
March 13, 201711, 2019
Information:
This Proxy Statement and related proxy materials are being mailed or made available to shareholders on or about March 22, 2019. Copies of this Proxy Statement, the Company’s proxy card and our Annual Report on Form10-K are available atwww.proxyvote.com.
VOTING MATTERS AND BOARD RECOMMENDATIONS
| BOARD’S RECOMMENDATION | |||||||
Election of Our Board of Directors (Board) believes that the ten director nominees named in this Proxy Statement bring a combination of diverse qualifications and skills that contributes to a well-rounded Board. Each director nominee has proven leadership ability, good judgment and valuable experience. | FOR each of the | director nominees | 6 | |||||
Advisory Approval of the Company’s Executive Compensation (Proposal 2) | ||||||||
| ||||||||
| FOR | 62 | ||||||
Approval of the Tenet Healthcare 2019 Stock Incentive Plan (Proposal 3) The Tenet Healthcare 2019 Stock Incentive Plan (Plan) will provide for the issuance of incentive compensation, including equity-based awards, to our employees and directors. The Board believes the Plan will give the Company increased flexibility to continue to attract, motivate and retain qualified employees and directors, and incentivize them to maximize shareholder returns and achieve objectives that will benefit our shareholders. If approved, the Plan will supersede and replace our 2008 Stock Incentive Plan and will be the only compensation plan under which we grant equity-based compensation awards to our employees. | FOR | 63 | ||||||
Ratification of the Selection of Deloitte & Touche LLP as Independent Registered Public Accountants for The Audit Committee approved the appointment of Deloitte & Touche LLP as Tenet’s independent registered public accounting firm for 2019. The Audit Committee and the Board believe that the continued retention of Deloitte & Touche LLP to serve as the Company’s independent registered public accounting firm is in the best interests of the Company and its shareholders. | FOR | 72 | ||||||
BUSINESS OVERVIEW
Tenet Healthcare Corporation (“Tenet” or the “company”) is a diversified healthcare services company with three complementary business segments. Our care network is comprised of over 575 facilities in growing urban and suburban communities. We have 80 acute care hospitals and an outpatient network inclusive of the largest ambulatory and short-stay surgery platform in the country – operated by our United Surgical Partners International (USPI) subsidiary. Our Conifer Health Solutions (Conifer) subsidiary provides revenue cycle management and value-based care services to over 800 clients, including hospitals, physicians, health plans and employers. With our hospitals, USPI and Conifer, we believe we are well-positioned in some of the most relevant segments of healthcare.
| TENET HEALTHCARE● |
1
|
PROXY STATEMENT SUMMARY | ||
LONG-TERM STRATEGIC PRIORITIESBusiness Overview and 2018 Highlights
WeTenet is a diversified healthcare services company composed of three business units (Hospitals, Ambulatory Care and Conifer) that are focused on improving our business mix, delivering EBITDA growthunified in eachtheir commitment to deliver the right care, in the right place, at the right time. Our Hospital segment operates 65 acute care hospitals, over 160 outpatient centers and other ancillary healthcare businesses in primarily urban and suburban markets across nine states. Our Ambulatory Care segment, which represents the operations of our operating segments, increasing free cash flow,United Surgical Partners International (USPI), is the leading provider of ambulatory surgery services in the country and reducing our ratio of debtoperates over 330 ambulatory surgery centers, urgent care centers, imaging centers and surgical hospitals in the fast-growing ambulatory care market. Conifer Health Solutions (Conifer) has a leading position in the revenue cycle management market and provides services to EBITDA.nearly 750 clients in over 40 states.
In 2018, Tenet set itself on a new path to long-term growth. The Company implemented significant,BOARD AND CORPORATE GOVERNANCE HIGHLIGHTSfar-reaching changes to its cost structure, asset portfolio, and business leadership to effectuate a turnaround effort initiated by the Board in late 2017. The result was improved financial performance and a restructured business better suited to the challenges of 2019 and beyond.
Board RefreshmentStrong Financial Performance
We delivered strong financial performance in 2018 across the enterprise, including revenue of $18.3 billion, net income from continuing operations of $108 million and Self-EvaluationsAdjusted EBITDA* of $2.560 billion, with margins increasing 120 basis points to 14.0% on a same-hospital basis. Net patient revenue in our Hospital segment grew 3.6% on a same-hospital basis. Ambulatory same-facility system-wide revenue grew 5.1%. Enhanced cost management at Conifer contributed to a 26.1% increase in Adjusted EBITDA for the segment year-over-year.
| * | This Proxy Statement includes certainnon-GAAP financial measures, such as Adjusted EBITDA and Adjusted Free Cash Flow. Definitions of these measures and reconciliations to the most comparable GAAP measure are contained in Appendix A. |
2 | TENET HEALTHCARE●2019 PROXY STATEMENT |
PROXY STATEMENT SUMMARY | ||
Dramatic Cost Reductions
The Company has been focused on sustainable cost reductions since late 2017, when we set a goal to decrease expenses by $150 million across all three business units. We later increased our target to $250 million, implementing a program to remove unnecessary processes, integrate functions and eliminate management layers. By the end of 2018, we had achieved our goal, including a 28% reduction in corporate overhead expense, by operating more efficiently and effectively without compromising our service to patients and customers. Our Boardcost savings initiative continues in 2019, with a new plan to reduce costs by an additional $200 million.
Improved Care Delivery Platform
Last year, we made significant progress on initiatives to better integrate our care delivery platforms, continue our investments in high-growth areas, and divestnon-core operations. To that end, in 2018:
We completed our acquisition of Directors utilizes95% of the equity interests in USPI ahead of schedule—with our increased stake, more of the value of USPI’s growth will benefit our shareholders, and we can accelerate our work combining operations throughout the enterprise.
We have actively pursued a comprehensive, year-round director succession planning process designedthorough review of strategic alternatives for Conifer to providebest position the business for a highly independent, well-qualified Board, with the diversity, experiencelong-term success and background to provide strong, effective oversight. To further ensureenhance shareholder value.
We divested operations that we maintainidentified as non-core, including 17 hospitals and facilities in 2018 and an effectiveadditional three hospitals in early 2019.
We also invested in attractive opportunities, including approximately $240 million in acquisitions and engaged Board, the Board’s Nominatingjoint ventures in ambulatory care.
Upgraded Leadership and Corporate Governance Committee (Governance Committee) regularly conducts comprehensive self-evaluations and performance assessments forImplemented a “Culture of Accountability”
The most important investment Tenet has made to execute our turnaround is in our people. We have upgraded talent across all directors. These evaluations inform our Board’s refreshment practices, which include the identificationlevels of new directors, the review of our Board and committee leadership structures and rotation of committee memberships. For several years, the Governance Committee has retained a third party advisor to facilitate the annual self-evaluation, which the Board believes promotes a robust and candid process. The Board believes the self-evaluation process assists in maintaining a high performing Board with the right mix of directors to properly oversee management and its execution of the company’s strategy. For more information regarding the Board’s nomination process, succession planning and self-evaluations, please see “Director Nomination Process” beginning on page 12.
revamped our approach to developing talent internally. In November 2016,late 2017, the Board appointed twoRon Rittenmeyer as Chief Executive Officer to lead the Company’s transition, and as Mr. Rittenmeyer has proven his ability to drive significant improvements throughout the Company, the Board has extended his term of service. In 2018, Mr. Rittenmeyer strengthened the senior management team with a new independent directors: John P. Byrnes, former chairmanChief Information Officer, Executive Vice President of Marketing and CEOCommunications, Chief Medical Operations Officer and Chief Executive Officer of Lincare Holdings, Inc.,USPI, among others. Moreover, we restructured our senior leadership team to appoint Dr. Saum Sutaria to the newly created role of Chief Operating Officer for the entire enterprise. Dr. Sutaria is a trained cardiologist and Peter M. Wilver, former executive vice presidentan expert healthcare operator with over 20 years of clinical, operational and chief financial officerstrategic experience in healthcare delivery systems.
More broadly, through internal promotions and external hiring we brought onboard dozens of Thermo Fisher Scientific Inc. Effective upon the conclusion of the 2017 annual meeting, the sizenew executives after transitioning approximately 20% of our Board will be reduced from 14corporate leadership positions and approximately 35% of our hospital leadership positions. With a flatter organizational structure and an infusion of new energy and skillsets, we have helped shift the mindset of our employees to 12 directors followingcreate a “Culture of Accountability” that has taken hold throughout the retirement of two incumbent members of the Board: Jim Unruh and Freda Lewis-Hall, M.D. The appointments and reduction in the size of the Board are in accordance with the Support Agreement between the company and Glenview Capital Management, LLC, which is further described on page 6 under “Nominees for Election to the Board of Directors.” After giving effect to the retirements, the average tenure of the 11 non-employee directors will be approximately seven years, with five directors having served on the Board for less than three years.organization.
2019 Priorities
| TENET HEALTHCARE●2019 PROXY STATEMENT | 3 |
PROXY STATEMENT SUMMARY | ||
Governance Highights
Active Shareholder Engagement Program
Our Board of Directors regularly and actively solicits input from investors and governance groups to better inform decision-making and gain insight into shareholder perspectives on a broad range of topics. In 2015, we initiatedWe value our shareholders’ perspectives on our business and interact with them through a new investor outreach program to more actively seek specific investor feedback regarding the company’s corporate governance practices, Board composition and executive compensation program, and those discussions resulted in the Human Resources Committee taking a numbervariety of actions to redesign the company’s executive compensation program in 2016, which are described in the Compensation Discussion and Analysis section of this Proxy Statement beginning on page 27.
shareholder engagement activities. As we continue to engage with shareholders and proxy advisors,advisory firms, feedback is regularly reviewed by our Human Resources CommitteeBoard.
Throughout 2018, members of Tenet’s Board and management team met with shareholders that own over 75% of Tenet’s outstanding shares to provide updates on developments at Tenet, discuss business strategies and to solicit feedback on our corporate governance policies and practices. Each of the Governance Committee. Shareholders have generally expressed satisfactiongovernance changes discussed below was directly influenced and shaped through engagement with our shareholders.
Board Refreshment
The changes taking place at Tenet begin with the company’s corporateBoard. The Board initiated a process in 2017 to accelerate the refreshment already underway, and as a result half of our directors have joined since October 2017. The new directors have brought a diversity of viewpoints, approaches and experiences to complement the existing knowledge on the Board as we navigate the challenges and opportunities facing our Company and our industry.
New directors are selected after a rigorous evaluation by our Nominating and Corporate Governance Committee (Governance Committee) that assesses attributes beyond specific business skills, including character, diversity and personal and professional integrity. In particular, Messrs. Bierman, Fisher and Mark, who were appointed at the end of 2017, collectively offer expertise in healthcare supplies, finance, and highly regulated industries. General Austin and Ms. FitzGerald, who were appointed in May 2018, provide perspectives from military leadership, risk management and broad-based healthcare delivery and investment. Each of our directors has the dedication and leadership qualities that enable them to exercise robust oversight of the Company, especially as we navigate a transition onto a new path forward.
Board Diversity
The recent Board refreshment has led to a balanced mix of diversity, age and tenure in the boardroom. The Board believes that a range of backgrounds, beliefs, ethnicities and ages, in addition to gender diversity, contributes to strong governance practices and successful oversight of the Board’s responsiveness. Investors also continued to assign significant importance to the substantial board refreshment efforts since 2014Company.
Diversity, Age and the Board’s robust self-evaluation process, which was praised for its useTenure of a third-party consultant to facilitate an assessment of individual director performance and director succession planning.Board Nominees
 |  |
| ||
Director Nominees
| ||||||||||||
|
| |||||||||||
|
|
| ||||||||||
|
| |||||||||||
|
| |||||||||||
|
| |||||||||||
|
| |||||||||||
|
|
|
| |||||||||
|
| |||||||||||
| ||||||||||||
|
|
| ||||||||||
|
| |||||||||||
|
| |||||||||||
|
| ||
Overview of 2017 Director Nominees
Board Practice Highlights for 2016
Corporate Governance Practices
Tenet Healthcare is committed to sound corporate governance practices. Our corporate governance practices are intended to protect the long-term interests of shareholders and promote Board and management accountability. We continually review our corporate governance profile to ensure alignment with evolving market best practices. For further information on our corporate governance practices, please see “Corporate Governance and Board Practices” beginning on page 15.
|
| |
|
| |
|
| |
|
 |
4
| TENET HEALTHCARE● |
PROXY STATEMENT SUMMARY | ||
EXECUTIVE COMPENSATION PROGRAM HIGHLIGHTSGovernance Changes
Compensation PhilosophyOur Board is committed to sound corporate governance policies that protect the long-term interests of shareholders, promote accountability, and Practices
Tenet Healthcare’s executive compensation program is designed to promote pay-for-performance principles. Our Human Resources Committee reviewsgive shareholders a voice. While our compensation programs annually to ensure they are consistent with our philosophyBoard has long maintained many best practices, including annual election of directors by majority standard, a robust annual self-evaluation process, and objectives. Our practicesfrequent shareholder engagement, in 2018 and 2019 the Board has further enhanced the Company’s governance practices. These enhancements, driven in large part by shareholder feedback, are intended to incentivizeensure the company’s managementcontinued alignment of our corporate governance policies and practices with the long-term interests of our business and our shareholders.
Shareholder Right to meet our strategic objectives and position the companyCall a Special Meeting
In response to specific shareholder requests for both short- and long-term success:
Proxy Access
On January 3, 2019, after discussions with both large and small shareholders, the Board amended Tenet’s bylaws to adopt proxy access on market standard terms. Our proxy access provision allows a significant amountgroup of stockup to 20 shareholders that have collectively owned at least 3% of the Company’s outstanding shares for at least three years to have the right to submit up to two director nominees. The Board adopted proxy access to grant shareholders with a long-term interest in the company to ensure their interests are aligned with shareholders
2016 Compensation ProgramCompany a meaningful voice in director nominations.
In 2016, we used the following elements to compensate our executives:
|
| |||||
| ||||||
| ||||||
Compensation Governance
Tenet Healthcare is committed to strong compensation program governance practices that reflect market best practices and the input of our shareholders. These practices include:
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
| TENET HEALTHCARE● |
5
|
PROPOSAL 1–ELECTION OF DIRECTORS
|
Nominees for Election to the Board of Directors
Tenet’s Board of Directors is elected annually by our shareholders. Our nominees for election include 11nine independent directors and our Executive Chairman and Chief Executive Officer and Chairman.
On January 18, 2016, the company entered into a Support Agreement (Support Agreement) with Glenview Capital Management, LLC (Glenview) and other entities affiliated with Glenview. Concurrently with the execution of the Support Agreement, the company appointed Messrs. Ripperger and Simpson to the Board. Pursuant to the Support Agreement, Glenview also proposed Messrs. Byrnes and Wilver as two additional independent nominees for appointment as directors, which appointment occurred on November 2, 2016. Each of the nominees listed below, other than Messrs. Byrnes and Wilver, was last elected by the company’s shareholders at the 2016 annual meeting of shareholders.Officer. The company’s Current Reports on Form 8-K, filed with the Securities and Exchange Commission (SEC) on January 19, 2016 and November 4, 2016, contain more information with respect to the Support Agreement and include copies of the Support Agreement and the related Letter Agreement between the company and Glenview dated November 2, 2016.
Under the terms of the Support Agreement, the company agreed to reduce the size of the Board from 14 to 12 members, effective as of the 2017 annual meeting of shareholders. In effect, this provision requires that two incumbent directors (other than the four directors designated or proposed by Glenview) step down from the Board at the annual meeting. In light of the requirements of the Support Agreement, the Board, based upon the recommendation of its Governance Committee, has selected the nominees listed below to serve as directors until the next2020 annual meeting, or until their successors are elected or appointed. The incumbent directors who are not standing for electionEach of the nominees listed below, other than General Austin and Ms. FitzGerald, was last elected by the Company’s shareholders at the 20172018 annual meeting are Mr. Unruh, who has reachedof shareholders. The nominees for director will be elected if the mandatory retirement agevotes cast for directors set forth in the company’s Corporate Governance Principles,nominee exceed the votes cast against the nominee, with abstentions and Dr. Lewis-Hall, who will retire frombrokernon-votes not counted either for or against a nominee (and therefore having no effect on the Board when her term expires at the 2017 annual meeting in order to focus on her other business and professional responsibilities.election).
The Board recommends that you vote “FOR” the election of each of the following nominees.
|
|
|
| ||
|
| Ronald A. Rittenmeyer,
Career Highlights Mr. Rittenmeyer was named Executive Chairman of Tenet in August 2017 and Chief Executive Officer in October 2017. He has served on our Board since 2010, most recently as Lead Director. He is also Chairman of the
Skills and Qualifications • •
Other Public Company Directorships Current: American International Group, Inc. (AIG) Others in Past |
|
* Mr.
|
|
| ||
|
|
|
|
| TENET HEALTHCARE● |
PROPOSAL 1–ELECTION OF DIRECTORS | ||
|
|
Committee Membership: Governance (Chair) QCE | J. Robert Kerrey, (prior service as a director from March 2001 to March 2012) Lead Director since October 2017
Career Highlights
Skills and Qualifications • Accounting and financial: Has extensive experience in finance and public policy derived from his service at the investment banking firm Allen & Company and as a member of the U.S. Senate and as a state Governor; also served as the president of a major university and held senior executive positions with a number of corporations and foundations operating in the private education sector • Public sector:Has 18 years of experience in the public sector as a former U.S. Senator and Governor of Nebraska, experience that the Board deems particularly relevant given the highly regulated nature of the healthcare sector
Other Public Company Directorships Current: None Others in Past |
CommitteeMembership: Audit Human Resources | Lloyd J. Austin, III, 65 Director Since: May 2018 Career Highlights General Austin is a retired four-star general who served for 41 years in the U.S. Army. From March 2013 through March 2016, he served as the Commander of U.S. Central Command responsible for military strategy and joint operations throughout the20-country Central Region that includes Iraq, Syria, Iran, Afghanistan, Pakistan, Yemen, Egypt and Saudi Arabia. Prior to that, he served as the 33rd Vice Chief of Staff of the U.S. Army from January 2012 to March 2013 and as the Combined Forces Commander in Iraq from September 2010 through 2011. He is the recipient of numerous U.S. military awards, including the Silver Star, five Defense Distinguished Service Medals and the Legion of Merit. General Austin currently serves as a director of United Technologies Corporation and Nucor Corporation. He is a graduate of the U.S. Military Academy and holds master’s degrees from Auburn University (Education) and Webster University (Business Management). Skills and Qualifications •Public sector: As a former four-star general in the U.S. Army, has considerable experience in senior leadership across a variety of positions and deep insight into risk management Other Public Company Directorships Current: United Technologies Corporation, Nucor Corporation Others in Past Five Years: None |
| TENET HEALTHCARE●2019 PROXY STATEMENT | 7 |
PROPOSAL 1–ELECTION OF DIRECTORS | ||
Committee Membership: Governance QCE (Chair) | James L. Bierman, 66 Director Since: October 2017 Career Highlights Mr. Bierman served as President and Chief Executive Officer of Owens & Minor, Inc., a Fortune 500 company and a leading distributor of medical and surgical supplies, from September 2014 to June 2015. Previously, he served in various other senior roles at Owens & Minor, including President and Chief Operating Officer from August 2013 to September 2014, Executive Vice President and Chief Operating Officer from March 2012 to August 2013, Executive Vice President and Chief Financial Skills and Qualifications •Healthcare industry experience: Served as a senior healthcare industry executive for 8 years at Owens & Minor, Inc. and possesses significant operational and financial experience in the healthcare sector Other Public Company Directorships Current: None Others in Past Five Years: Owens & Minor, Inc. and Team Health Holdings, Inc. |
Committee Membership: Audit Human Resources | Richard W. Fisher, 70 Director Since: November 2017 Career Highlights Mr. Fisher served as President and Chief Executive Officer of the Federal Reserve Bank of Dallas from 2005 until 2015. During his tenure, he served as a member of the Federal Open Market Policy Committee, as the chair of the Conference of Federal Reserve Bank Presidents, and as the chair of the Information Technology Oversight Committee for the 12 Federal Reserve banks. Previously, from 2001 to 2005, Mr. Fisher was Vice Chairman of Kissinger McLarty Associates, a strategic advisory firm. From 1997 to 2001, Mr. Fisher served as Deputy U.S. Trade Representative with the rank of Ambassador. Mr. Fisher currently serves as a Senior Advisor for Barclays PLC, a leading investment bank, and as a Trustee of the University of Texas Southwestern Medical Foundation. Mr. Fisher received his B.A. in economics from Harvard University and earned his M.B.A. from Stanford University. Skills and Qualifications •Accounting and financial expertise: Served as President and Chief Executive Officer of the Dallas Federal Reserve, as a member of the Federal Open Market Policy Committee and as chair of the Conference of Federal Reserve Bank Presidents Other Public Company Directorships Current: AT&T Inc. and PepsiCo, Inc. Others in Past Five Years: None |
8 | TENET HEALTHCARE●2019 PROXY STATEMENT |
PROPOSAL 1–ELECTION OF DIRECTORS | ||
Committee Membership: Governance QCE | Meghan M. FitzGerald, DrPH, 48 Director Since: May 2018 Career Highlights Ms. FitzGerald is a Managing Partner at L1 Health LLC, an investment fund specializing in healthcare. She also serves as an Adjunct Associate Professor of Health Policy at Columbia University. From May 2015 to October 2016, Ms. FitzGerald served as Executive Vice President of Strategy and Policy at Cardinal Health, a healthcare services and product company. From 2010 to 2015, she served as President of Cardinal’s Specialty Solutions division. Ms. FitzGerald also serves as a director of Arix Bioscience plc. She holds a DrPH in Healthcare Policy from New York Medical College, a BSN in Nursing from Fairfield University, and a Master of Public Health from Columbia University. Skills and Qualifications •Healthcare industry experience: A former healthcare services executive with a strong clinical and policy background in addition to current experience in healthcare private equity, has a unique perspective on the healthcare industry Other Public Company Directorships Current: Arix Bioscience plc Others in Past Five Years: Concert Pharmaceuticals, Inc. |
Committee Membership: Audit (Chair) Human Resources | Brenda J. Gaines, 69 Director Since: March 2005 Career Highlights Ms. Gaines served as President and Chief Executive Officer of Diners Club North America, a financial services company and a division of Citigroup Inc., from 2002 until her retirement in March 2004. She also served as President of Diners Club, the nation’s oldest credit card company, from 1999 to 2002, and held a number of senior management positions within Citigroup from 1988 to 1999. From 1983 to 1987, she worked in various management positions for the City of Chicago, including Commissioner of Housing and Deputy Chief of Staff to the Mayor. Ms. Gaines received her bachelor’s degree from the University of Illinois at Champaign-Urbana and her M.P.A. from Roosevelt University in Chicago. Ms. Gaines also serves as a director of the National Association of Corporate Directors, a recognized authority on boardroom practices. Skills and Qualifications •Accounting and financial expertise: Possesses a broad range of experience in the consumer credit industry (Citigroup, Federal National Mortgage Association, CNA Financial), and provides the Board with a valuable perspective on patient billing systems and accounts receivable collections •Sales and marketing expertise: Possesses a broad range of experience in consumer andbusiness-to-business sales and marketing and provides the Board a valuable perspective on business development Other Public Company Directorships Current: Southern Company Gas Others in Past Five Years: AGL Resources Inc. and Federal National Mortgage Association (Fannie Mae) |
Committee Membership: Human Resources (Chair) QCE | Edward A. Kangas, 74 Director Since: April 2003 Career Highlights Mr. Kangas served as Global Chairman and Chief Executive Officer of Deloitte Touche Tohmatsu, an international public accounting and consulting firm, from 1989 until his retirement in 2000. He also served as the managing partner of Deloitte & Touche (USA) from 1989 to 1994. He was elected managing partner and Chief Executive Officer of Touche Ross in 1985, a position he held through 1989. Mr. Kangas began his career as a staff accountant at Touche Ross in 1967, where he became a partner in 1975. Mr. Kangas holds a bachelor’s degree in business administration and an M.B.A. from the University of Kansas. Skills and Qualifications •Accounting and financial expertise: Served as Chairman and Chief Executive Officer of Deloitte Touche Tohmatsu, an international public accounting and consulting firm, gaining significant experience in the public accounting field and in advising large public corporations on a range of financial reporting and compliance matters Other Public Company Directorships Current: Hovnanian Enterprises, Inc., Intelsat S.A. and VIVUS, Inc. Others in Past Five Years: Intuit Inc. and United Technologies Corporation |
| TENET HEALTHCARE● |
9
|
PROPOSAL 1–ELECTION OF DIRECTORS | ||
Committee
|
| Richard
Career Highlights Mr.
Skills and Qualifications • Healthcare industry experience:
|
|
Other Public Company Directorships Current: None Others in Past |
|
|
Audit Human Resources |
| |
| Tammy Romo,
Career Highlights Ms. Romo is
Skills and Qualifications • Accounting and financial expertise: Serves as EVP & CFO of Southwest Airlines Co., where she is responsible for the airline’s
Other Public Company Directorships Current: None Others in Past |
|
|
|
|
PROPOSAL 1–ELECTION OF DIRECTORS | ||||
|
|
Director Nomination Process
Our Board employsregularly reviews its composition and is engaged in an ongoing process to thoughtfully refresh the Board to support the continued evolution of the Company. This process is focused on identifying a comprehensive, year-round director succession planning process designed to provide for a highly independent, well-qualified Board,diverse mix of viewpoints, skills, experience and backgrounds that align with the diversity, experienceCompany’s business and background to deliver strong, effective oversight. Our Board constantly evaluatesstrategic goals.
Under the company’s needsGovernance Committee charter and adds new skillsets to the Board as necessary to best position the company to navigate the rapidly evolving competitive landscape. Under ourCompany’s Corporate Governance Principles, the Governance Committee is responsible for nominating, and the Board is responsible for selecting, individuals to fill vacancies on the Board and to stand for election at each annual or special meeting. The Governance Committee considers candidates based on the recommendation of, among others, existing and former Board members, our shareholders and other investors. The Governance Committee also engagesmay engage professional search firms and other consultants to assist in identifying, evaluating and conducting due diligence on potential candidates. The Governance Committee considers candidates based on the recommendation of, among others, our Board members and our shareholders.
Since late 2017, the Governance Committee has focused its refreshment efforts on identifying candidates to further strengthen the Board’s ability to oversee the Company through this time of significant transition. To date, this process has resulted in the identification and appointment of five new independent directors who collectively bring deep healthcare, financial, public sector and operational expertise that complements the current skillsets and enhances the effectiveness of the overall Board.
We intend to continue to actively engage with our shareholders regarding Board composition and director qualifications, including considering their input on potential director candidates. Shareholders may propose nominees for election in accordance with the terms of our bylaws or recommend candidates to the Board for consideration by writing to the Governance Committee in care of the Corporate Secretary at our offices inTenet Healthcare Corporation, 1445 Ross Avenue, Suite 1400, Dallas, Texas 75202, or by e-mailemail to boardofdirectors@tenethealth.com. The Governance Committee evaluates nominees recommendedYou should consult our bylaws for more detailed information regarding the process by which shareholders usingmay nominate directors, including by our newly implemented proxy access provisions. Our bylaws may be found in the same criteria as it uses to evaluate all other candidates.
|
| ||
“Corporate Governance” section under the “For Investors” tab on our website atwww.tenethealth.com.
Assessment of Board Composition and Criteria for Board Membership
The Governance Committee evaluates the composition of the Board on an ongoing basis and considers potential nominees to the Board as appropriate. As part of this process, the Governance Committee reviews the composition of the Board as a whole, including the balance of business backgrounds, diversity, qualifications, skillsets and other qualities represented on the Board to ensure the right balance to effectively oversee management. In light of our current structure and operations, and in consideration of the evaluation of the Board’s composition, the Governance Committee believes the following criteria best represent the qualities required for service on the company’sCompany’s Board:
✓ Professionalism, dedication, business judgment, integrity and commitment to our core ethical and other values ✓ Diversity of ethnicity, gender, background, experience and viewpoints
✓ Current or past service as the chief executive officer, chief financial officer, chief operating officer or other senior officer of a public or private company, chief executive officer of a business unit of a major corporation, or similar leadership position in a major governmental, professional ornon-profit organization ✓ Experience in the healthcare industry or other relevant industry experience
✓ Expertise in financial and accounting matters, familiarity with the regulatory and corporate governance requirements applicable to public companies and/or expertise in other areas enhancing the Board’s performance
✓
✓ Ability and willingness to commit adequate time to Board and committee matters
✓ Degree to which the individual’s skills complement those of other directors and potential directors
✓
|
The Governance Committee also reviews updated biographical information for each incumbent director on an annual basis, including information relating to changes in professional status, independence, other professional commitments and public company directorships, as well as input derived from the Board’s annual self-evaluation process with respect to each individual director’s performance on the Board.
Board Evaluations
The Governance Committee conducts comprehensive self-evaluations and performance assessments to determine whether the Board, its committees and individual directors are functioning well in view of their responsibilities and the company’s business. To ensure that the self-evaluation process is conducted with transparency and rigor, the Board retains a third party advisor to interview individual directors, compile their feedback and facilitate a discussion of the evaluation results at a special executive session of the Board.
The Board completed its most recent self-evaluation discussion in December 2016. As a follow-up to the discussion, the Lead Director instructed the third party advisor to meet with each board member separately to share feedback on his or her individual performance. In addition, the Board discussed (i) long-term director succession planning, (ii) management succession planning and talent development and (iii) enterprise risk management, including the Board’s oversight of regulatory and litigation risk and compliance matters. The Board also provided management with feedback intended to enhance the quality of presentations and the efficiency of Board meetings. Based on the evaluation, and in accordance with the requirements of the company’s Corporate Governance Principles, the Board concluded that, at the time, no changes were necessary in the Board’s leadership or committee structure, including Chair assignments. In addition, the Board concluded that its processes and committees were functioning properly. As part of its review, the Board noted in particular that none of its members was over-boarded or otherwise had experienced a material change in professional status.directorships.
| TENET HEALTHCARE● |
|
PROPOSAL 1–ELECTION OF DIRECTORS | ||
Board Evaluations
The Governance Committee oversees the Board’s annual performance evaluation to determine whether the Board, its committees and individual directors are functioning well in view of their responsibilities and the Company’s business. To ensure that the self-evaluation process is conducted with transparency and rigor, the Board has for many years retained a third party advisor to interview individual directors, compile and summarize their feedback, and facilitate a discussion of the evaluation topics at a special executive session of the Board. This comprehensive and disciplined approach to evaluation, assessment and thoughtful review has proven to be an essential element of maintaining a high performing and collaborative Board with the right mix of directors to properly oversee management and its execution of Company strategy.
The Board completed its most recent self-evaluation discussion in February 2019, focusing its discussions on, among other things, integration of the newest directors, further transitions in the Board’s composition over time, and the performance of each committee and committee chair. In addition, directors undertook a detailed review of recent progress in management succession planning, executive bench strength and talent development. Based on the Board’s annual evaluation, and in accordance with the requirements of the Company’s Corporate Governance Principles, the Board concluded that no changes were necessary in the Board’s leadership or committee structure, including chair assignments. In addition, the Board concluded that its processes and committees were functioning properly, noting healthy levels of debate, collaboration and respect among directors.
Directors’ Qualifications and Experience
Based on theits review, and evaluation process described above, the Governance Committee concluded that our 12ten director nominees possess athe diversity of experience, skills and other characteristics best suited to meet the needs of the Board and the companyCompany in light of our current business and operating environment. The following table highlights the core skills and experiences of our current nominees. Each nominee possesses skills and experiences in addition to the ones highlighted below (as noted in the director biographies outlined above).
SKILLS AND EXPERIENCES AUSTIN BIERMAN FISHER FITZGERALD GAINES KANGAS KERREY MARK RITTENMEYER ROMO Executive Leadership Healthcare Industry Accounting and Finance Public Sector Public Company Board Service Cybersecurity and Information Technology | ||||||||||||||||||||||||||
| ||||||||||||||||||||||||||
| ||||||||||||||||||||||||||
| ||||||||||||||||||||||||||
| ||||||||||||||||||||||||||
| ||||||||||||||||||||||||||
| ||||||||||||||||||||||||||
Personal Qualities and Diversity. Based on the Board’s annual self-evaluation process, theThe Governance Committee determined that each nominee embodies a demonstrated commitment to professionalism and integrity. In particular, the Governance Committee noted that each nominee has demonstrated an ability to work effectively with other directors and management, provide candid and direct feedback, and work constructively to bridge diverse viewpoints to provide oversight of the company’sCompany’s operations on behalf of all shareholders. Our Board includes a balanced regional representation of our country. Additionally, our Board currently includes individuals of differing ages, backgrounds, ethnicities and genders. Three of our ten director nominees are women and half of the current Board has a tenure of two years or less.
Special Considerations Regarding Service on Other Boards. NomineesOur directors must seek the approval of the Governance Committee prior to serving on another public company’s board. In addition, the Governance Committee limits the number of public boards on which a nomineedirector may serve to three in addition to our Board (twoto three, or two in the case of directors currently serving as chief executive officers or in equivalent positions of public companies). Nonecompanies. All of the company’s currentCompany’s directors servesare in compliance with these requirements. Mr. Rittenmeyer recently notified American International Group, Inc. (AIG) of his decision not to stand forre-election at AIG’s 2019 Annual Meeting of Shareholders. Following such meeting, Mr. Rittenmeyer will only serve on more than three other public company boards. The only current director who is a chief executive officer of a public company (Mr. Fetter) serves on only one other public company board.board of directors.
12 | TENET HEALTHCARE●2019 PROXY STATEMENT |
PROPOSAL 1–ELECTION OF DIRECTORS | ||
Director Independence
Our independence requirements for our Board are set forth in our Corporate Governance Principles, available in the “Corporate Governance” section under the “For Investors” tab on our website atwww.tenethealth.com. Under our Corporate Governance Principles, at leasttwo-thirds of the Board must consist of “independent” directors. The Board will not consider a director to be independent unless the Board affirmatively determines that the director has no material relationship with Tenet and the director otherwise qualifies as independent under the corporate governance standards of the New York Stock Exchange (NYSE). The Board reviews each director’s independence at least annually and has made the affirmative determination that each of our currentnon-employee directors (Byrnes,(Austin, Bierman, Fisher, FitzGerald, Gaines, Garrison, Kangas, Kerrey, Lewis-Hall, Pettingill, Ripperger, Rittenmeyer, Romo, Simpson, UnruhMark and Wilver)Romo) has no material relationship with the companyCompany and is independent. All members of our Board during the past eleven13 years have been independent directors with the exception of one employee director, Trevor Fetter,the two individuals who have served as our Chief Executive Officer.Officer during this time period.
In making its independence determinations, the Board broadly considers all relevant facts and circumstances and, in particular, looks closely at the organizations with which each director has an affiliation. If a director or member of the director’s immediate family has a material relationship with the company,Company, the Board reviews the interest to determine if it would preclude an independence determination.
The Audit Human Resources,Committee, HR Committee and Nominating and Corporate Governance CommitteesCommittee are composedcomprised exclusively of independent directors as required by the NYSE. Also, all directors serving on the Audit Committee meet the more stringent independence standards for audit committee members required by the SEC.Securities and Exchange Commission (SEC). In addition, the Human Resources Committee is composed exclusively of “outside directors” within the meaning of Section 162(m) of the Internal Revenue Code and “non-employee directors” within the meaning of Rule 16b-3 under the Securities Exchange Act of 1934, as amended. Allall directors serving on the Human ResourcesHR Committee meet the more stringent independence standards for compensation committee members required by the NYSE.
|
|
CORPORATE GOVERNANCE AND BOARD PRACTICES
|
Commitment to Sound Corporate Governance Policies and Practices
Tenet Healthcare is committed to maintaining corporate governance policies and practices that protect the long-term interests of all our shareholders and promote Board and management accountability. Our Board recognizes that this requires us to continually review and refine our corporate governance practices in order to ensure their continued alignment with evolving market practices and the best interests of our companyCompany and all our shareholders. Some of our key corporate governance policies and practices include:
Shareholder Rights | ✓ Annual election of directors | |
✓ Majority vote standard and director resignation policy in uncontested elections | ||
✓ | ||
✓ | ||
✓ One-year limit on “poison pills” unless approved by shareholders | ||
✓ | ||
Board | ✓ All directors are independent other than the | |
✓ Highly diverse and experienced Board | ||
✓ Independent Lead Director with clearly defined and robust responsibilities | ||
✓ | ||
| ||
✓ | ||
✓ | ||
| ||
✓ Board oversight of political contributions | ||
✓ Regular executive sessions of independent directors |
Our Board of Directors has also adopted a set of Corporate Governance Principles that provide the framework for our existing corporate governance practices.policies and practices, which the Board reviews annually. These Corporate Governance Principles more fully address matters such matters as director independence, director qualifications and responsibilities, director compensation, and director and officer stock ownership and retention guidelines, and Board and individual director performance evaluations.guidelines. To learn more about our current corporate governance structures, please see our Corporate Governance Principles, which may be found in the “Corporate Governance” section under the “For Investors” tab on our website atwww.tenethealth.com.
Board Leadership Structure
During 2016, after 13 years serving in the role of either non-executive chairman of the Board orSenator Kerrey has served as independent Lead Director Mr. Kangas advisedsince October 2017, when the Board that he believed that it would be appropriateappointed him to transition a new Board member intoreplace Mr. Rittenmeyer, who served as the role ofBoard’s independent Lead Director. Mr. Kangas further advised the Board that, as chair of the Nominating and Corporate Governance Committee, he intends to concentrate his efforts on Board refreshment, succession planning, shareholder engagement and other critical governance initiatives. InDirector from September 2016 until the independent directorstime he became Executive Chairman on August 31, 2017.
Since May 2015, the Board’s leadership structure has been composed of the Board named Mr. Rittenmeyer as the company’s newan Executive Chairman coupled with an independent Lead Director. Mr. Rittenmeyer has been a memberThe Company’s governing documents give the Board the flexibility to determine the appropriate leadership structure for the Company based on our particular circumstances at the time. The independent directors, with the assistance of Tenet’s Board since June 2010 and serves onits Governance Committee, regularly review the Board’s Audit Committeeleadership structure to assess whether to separate or combine the roles of Chairman and as ChairChief Executive Officer based on applicable facts and circumstances at the time. By retaining the flexibility to adjust the Company’s leadership structure, the Board is best able to provide for appropriate management and oversight of the Human Resources Committee.Company as well as address any circumstances the Company may face, as no single leadership model is universally or permanently appropriate in all circumstances. The Board believes that this flexibility has served the Company and its shareholders well during recent leadership transitions and that Mr. Rittenmeyer was named to The National AssociationRittenmeyer’s current leadership of Corporate Directors’ (NACD) 2016 Directorship 100 list, a distinguished honor that annually recognizesboth the most influential leaders inBoard and the boardroom and corporate governance community.management team is effective during this period of transition.
14 | TENET HEALTHCARE●2019 PROXY STATEMENT |
CORPORATE GOVERNANCE AND BOARD PRACTICES | ||
Role of Independent Lead Director of the Board
There have been no changes in theThe role of our Lead Director is set forth in connection with the appointment of the new Lead Director. Mr. Rittenmeyer,our Corporate Governance Principles. Senator Kerrey, as an independent Lead Director of the Board, coordinates the activities of the Board and exercises a robust set of duties. Amongduties described below. In addition, Senator Kerrey serves as Chair of the Governance Committee, a role which, combined with his service as Lead Director, enables him to provide oversight of the Company’s corporate governance policies and practices, the director nomination and succession process, and the Board’s self-evaluation process. In his capacity as Lead Director, Senator Kerrey, among other things, he:things:
Presides at all meetings at which the Chairman is not present
Chairs executive sessions of independent directors of the Board
Serves as the liaison between the Chairman and independent directors
Reviews and approves information sent to the Board
|
| ||
Calls meetings of independent directors if necessary
Participates in consultation and direct communication with stockholders,shareholders, including representing the Board in meetings with investors, legislators, regulators and other government officials
Serves aan oversight role, (inin conjunction with the Governance Committee)Committee, in the Board performance evaluation process
InSince assuming the Lead Director role in late 2017, Senator Kerrey has participated inin-person engagement meetings with a number of our significant shareholders to discuss and seek feedback on various matters regarding the Company’s strategy and governance practices, establishing a direct line of communication between shareholders and independent members of our Board. Senator Kerrey shares the feedback with the company’s governance practices,full Board so it may be incorporated into the Board will continue to regularly review and assess the leadership structure to confirm that it best suits the evolving needs and circumstances of the company.Board’s decision-making processes.
Board and Committee Organization and Responsibilities
Board Meetings and Attendance
We are governed by our Board of Directors.Board. Members of our Board are kept informed of our business through discussions with our Chief Executive Officer and other senior officers, by reviewing materials provided to them and by participating in meetings of the Board and its committees. Directors are also encouraged to attend continuing education courses relevant to their service on the Company’s Board. Significant business decisions are generally considered by the Board as a whole. The Board met 1814 times during 2016.2018. The Board regularly meets in executive sessions. Mr. FetterRittenmeyer is considered an employee director and all other directors are considerednon-employee directors.
Each incumbent director who served during 20162018, other than Mr. Fisher, participated in at least 75% of the aggregate meetings of the Board and the committees on which he or she served during the period he or she served as a director and committee member. Mr. Fisher informed the Board when he was appointed in November 2017 that he had a series of pre-existing commitments during the first quarter of 2018 but that he could attend all but one of the regularly scheduled meetings of the Board and the committees on which he served. However, in the first quarter of 2018, the Board and the committees on which Mr. Fisher serves held an unusually high number of special meetings scheduled on short notice, certain of which conflicted with Mr. Fisher’s pre-existing commitments. The meetings he did not attend were reviewed with him and his concurrence on the outcomes was noted. Given Mr. Fisher’s notification of his preexisting commitments prior to his joining the Board, and the high number of unscheduled meetings in the first quarter of 2018, his absences were approved. During the remaining three quarters of 2018, Mr. Fisher participated in over 75% of all regular and special meetings of the Board and his committees. For the full year of 2018, Mr. Fisher did meet the attendance expectations set forth in our Corporate Governance Principles, which require directors to attend at least 75% of regularly scheduled Board and committee meetings. So far in 2019, Mr. Fisher has attended 100% of the regular and special meetings of the Board and committees on which he serves.
All Board members are encouraged to attend our annual meeting of shareholders. All 12eight of the directors then-serving attendedelected at last year’s annual meeting.meeting were in attendance at the 2018 Annual Meeting.
| TENET HEALTHCARE●2019 PROXY STATEMENT | 15 |
CORPORATE GOVERNANCE AND BOARD PRACTICES | ||
Committees
The Board has delegated certain responsibilities to the following standing committees: Audit Committee; Human Resources Committee; Nominating and CorporateCommittee, HR Committee, Governance Committee, (Governance Committee);and Quality, Compliance and& Ethics Committee (QCE Committee); and Executive Committee.. The following table identifies the current members of each of our committees.
DIRECTOR | | HUMAN | ||||||||
| GOVERNANCE | QCE | ||||||||
Lloyd J. Austin, III | ✓ | ✓ | ||||||||
| ✓ | Chair | ||||||||
Richard W. Fisher | ✓ | ✓ | ||||||||
Meghan M. FitzGerald | ✓ | ✓ | ||||||||
Brenda J. Gaines | Chair | |||||||||
| ✓ | |||||||||
Edward A. Kangas | Chair | ✓ | ||||||||
J. Robert Kerrey | Chair | ✓ | ||||||||
Richard J. Mark | ||||||||||
| ✓ | |||||||||
| ||||||||||
| ||||||||||
Ronald A. Rittenmeyer | ||||||||||
| ||||||||||
| ||||||||||
| ||||||||||
| ||||||||||
Tammy Romo | ✓ | ✓ |
| * | All members of the Audit Committee have been designated as financially literate within the meaning of the NYSE listing standards. Mr. Fisher, Ms. Gaines and Ms. Romo have been designated as audit committee financial experts, as defined by SEC rules. |
Each of the Board’s committees except the Executive Committee, operates under a written charter that is reviewed and approved annually by the respective committee. The charters are available for viewing in the “Corporate Governance” section under the “For Investors” tab on our website atwww.tenethealth.com. The Board and each committee may from time to time retain independent advisors and consultants, at the company’sCompany’s cost, to assist the directors in carrying out their responsibilities.
|
|
| |||
| ||
Primary Responsibilities | Key Skills and Experience | |
• Assist the Board in oversight ¡ Accounting, reporting and financial practices ¡ The integrity of financial statements ¡ Compliance with legal and regulatory requirements with respect to applicable accounting and auditing matters ¡ Independent registered public accountants’ qualifications, independence and performance ¡ Internal audit function ¡ Cybersecurity • Establish and maintain policies and procedures for the receipt, retention and treatment of complaints and concerns regarding accounting, internal accounting controls and auditing matters • Authority to select, retain and review the independent registered public accountants qualifications, independence and performance • Oversee the performance of the Company’s chief internal auditor, who reports directly to the Audit Committee | • Expertise in auditing, accounting andtax-related matters • Preparation or oversight of financial statements • Extensive knowledge of compliance and relevant regulatory issues |
16 | TENET HEALTHCARE●2019 PROXY STATEMENT |
CORPORATE GOVERNANCE AND BOARD PRACTICES | ||
The Human Resources Committee | Meetings Held in | |
| ||
Membership: Kangas (Chair), Austin, Fisher, Gaines, Romo (All Independent) | ||
Primary Responsibilities | Key Skills and Experience | |
• Establish general compensation policies for the ¡ Support overall business strategies and objectives ¡ Enhance efforts to attract and retain skilled employees ¡ Link compensation with business objectives and organizational performance ¡ Provide competitive compensation opportunities for key executives • Oversee the administration of executive compensation programs with responsibility for establishing and interpreting the • Make all compensation decisions regardingnon-employee directors, the • Review the performance of the Chief Executive Officer
• Oversee the • Provide perspectives to management regarding the | • • Human capital management • Expertise in evaluating executive performance and determining appropriate compensation programs • Leading cultural change | |
|
| ||
| The Nominating and Corporate Governance Committee | Meetings Held in | |
| ||
Membership: Kerrey (Chair), Bierman, FitzGerald, Mark(All Independent) | ||
Primary Responsibilities | Key Skills and Experience | |
• Identify and evaluate existing and potential corporate governance issues, and make recommendations to the Board concerning our Corporate Governance Principles and other corporate governance matters • Review and recommend individuals qualified to become Board members and recommend to the Board candidates to stand for election orre-election to the Board • Consider amendments to the • Review and make recommendations to the Board regarding Board size, composition and structure • Review proposed related-party transactions and determine whether such transactions are appropriate for the Board to consider | • Corporate governance expertise • Board succession planning • Public company | |
| TENET HEALTHCARE●2019 PROXY STATEMENT | 17 |
CORPORATE GOVERNANCE AND BOARD PRACTICES | ||
The Quality, Compliance | Meetings Held in | |
| ||
Membership: Bierman (Chair), FitzGerald, Kangas, Kerrey(All Independent) | ||
Primary Responsibilities | Key Skills and Experience | |
• Assist the Board with overseeing and reviewing Tenet’s significant healthcare-related regulatory and compliance issues, including its compliance programs and the status of compliance with applicable laws, regulations and internal procedures • Oversee performance under the • Receive, and review and consult with management on, periodic reports from the Ethics and Compliance department on all aspects of the compliance program, including efforts in risk assessment, development of policies and procedures, training, auditing and monitoring, and investigations and remediation of • Receive and review periodic reports from the Clinical Quality department • Oversee performance under the • Oversee the performance of the | • Experience in establishing and ensuring adherence to quality and compliance controls • Expertise in compliance-related policies and procedures • Knowledge of and commitment to ethical business practices | |
| ||
|
| |
|
| |
|
| ||
Other Board Committees
In March 2017, the Board of Directors approved the retirement of its ad hoc committee on health information technology matters. The Board had formed the Health IT Committee in 2010 primarily to oversee implementation of the company’s “Impact Program,” which involved the implementation during the period 2010 to 2015 of various capital investments intended to achieve compliance with the health information technology requirements of the American Recovery and Reinvestment Act of 2009. The Board concluded that, due to the leadership and efforts of the Health IT Committee, the Impact Program had been successfully implemented and the primary mission of the Health IT Committee achieved.
Human ResourcesHR Committee Interlocks and Insider Participation
During 2016,2018, directors Rittenmeyer,Austin, Fisher, Gaines, Pettingill, Ripperger, UnruhKangas and WilverRomo served on the Human ResourcesHR Committee. No member of the Human ResourcesHR Committee was at any time during 20162018 or at any other time an officer or employee of the company,Company, and no member had any relationship with the companyCompany requiring disclosure as a related-party transaction under “Certain Relationships and Related Person Transactions” on page 2120 of this Proxy Statement. None of our executive officers has served on a board of directors or compensation committee of any other entity that has or has had one or more executive officers who served as a member of our Board of Directors or Human ResourcesHR Committee during 2016.2018.
Role of Board and its Committees in Risk Oversight
The primary responsibilityManagement is primarily responsible for the identification, assessment and management of the various risks that we face belongs with management.face. The Board’s oversight of these risks occursBoard oversees this process as an integral and continuous part of the Board’s oversight of our business. The Board receives regular reports from the heads of our principal businessbusinesses and corporate functions that include discussions of the risks involved in their respective areas of responsibility. The Board is routinely informed of developments that could affect our risk profile or other aspects of our business. Among other things, the Board has requested that the company’sCompany’s management and its internal and external legal counsel advise it promptly of any material developments
relating to litigation, regulatory proceedings, and investigations and compliance issues. The Board considers the oversight of regulatory and litigation risk to be one of its highest priorities. In addition, the Board has identified the oversight of cybersecurity risks to be one its priorities and receives regular reports from the company’sCompany’s management on the security of the company’sCompany’s information technology systems.
The Board’s committees oversee risks related to their respective areas, as further described below. The Board is kept informed of its committees’ risk oversight and other activities primarily through reports of the committee Chairschairs to the full Board. These reports are presented at every regular Board meeting.meeting in executive session, as well as at other times when appropriate. As risk-related issues sometimes overlap, committees hold joint meetings where appropriate, while addressing certain issues are addressed at the full Board level. In addition, as part of its annual self-evaluation process, the Board discusses and evaluates its ongoing role in enterprise risk oversight.
18 | TENET HEALTHCARE●2019 PROXY STATEMENT |
CORPORATE GOVERNANCE AND BOARD PRACTICES | ||
Role of Audit Committee in Risk Oversight
Our Audit Committee is primarily responsible for overseeing risk management processes relating to our accounting practices, financial reporting, corporate finance and general business operations. Among other responsibilities, the Audit Committee:
Receives quarterly reports from management on business and operational risks, internal audit reports relating to the integrity of our internal financial reporting controls and procedures, potential loss contingencies resulting from pending or threatened litigation or regulatory proceedings, and investigations and reports made to the companyCompany from our Ethics Action Line or any other sources relating to allegations of financial fraud or other infractions, as described below.infractions.
Meets regularly with our Chief Executive Officer, Chief Financial Officer, Controller, General Counsel and Chief Compliance Officer, as well as our external and internal auditors, to discuss potential risks and other contingencies relating to our business.
Meets on a quarterly basis to review these topics with selected chief executive officers and/or other senior officers of our major operating units and regions.units.
Reviews material risk issues in connection with its review of our quarterly and annual filings with the SEC.
Reviews the company’sCompany’s cybersecurity program at least annually and receives frequent updates on cybersecurity matters.
Reports and discusses the outcome of its meetings to the full Board, including any other material risks identified by the Audit Committee in the course of its deliberations that require discussion or action by the full Board.
|
| ||
Role of QCEQuality, Compliance & Ethics Committee in Risk Oversight
Our Quality, Compliance and EthicsQCE Committee is primarily responsible for overseeing our assessment and management of regulatory and compliance risk and also reports regularly to the full Board.risk. In particular, the QCE Committee:
Oversees our information, procedures and reporting systems to provide reasonable assurance that: (1) our operations comply with applicable laws and regulations, particularly those related to healthcare providers; (2) we, including our directors and employees, act in accordance with appropriate ethical standards; and (3) our subsidiaries’ hospitals and other facilities deliver quality medical care to their patients.
Oversees our Compliance Program, which is governed by our Quality, Compliance & Ethics Program Charter. Our Compliance Program is intended to foster compliance with federal and state laws and regulations applicable to healthcare providers, and receives periodicquarterly reports from our Chief Compliance Officer (who reports directly to the QCE Committee), our Ethics and Compliance Department, and our internal and external legal, regulatory and other officers and advisors.
Oversees the company’sCompany’s compliance with itsnon-prosecution agreement, including the company’sCompany’s ongoing work with the independentco-monitors appointed pursuant to the terms of the agreement.
Role of Human Resources Committee in Risk Oversight
Our Human ResourcesHR Committee is responsible for assessing our compensation policies and practices relative to all our employees, includingnon-executive officers, to determine if the risks arising from these policies and practices are reasonably likely to have a material adverse effect on our company.the Company. In performing its duties, the Human ResourcesHR Committee meets at least annually with our management and the Human ResourcesHR Committee’s independent compensation consultant to review and discuss potential risks relating to our employee compensation plans and programs. The Human ResourcesHR Committee reports to the Board on a regular basis any risks associated with our compensation plans and programs, including recommended actions to mitigate such risks.
The Human ResourcesHR Committee has determined that there are no risks arising from our compensation policies and practices that are reasonably likely to have a material adverse effect on our company.the Company. This finding is based upon the HR Committee’s ongoing review of our compensation programs and practices, the mechanisms in our compensation plans and programs intended to reduce the risk of conduct reasonably likely to have a material adverse effect on our company, and an overall risk assessment of such programs. Among other things, the Human ResourcesHR Committee has reviewed our pay philosophy, balance of cash and equity compensation, balance of long-term and short-term performance periods ofin our plans and programs, and theour use of performance metrics that encourage management to act in the long-term interest of our “balanced” approach to annual incentive compensation (which rewards employees based on a broad range of financial and operational metrics and company initiatives as opposed to a single target).shareholders. The HR Committee has also considered our equity grant administration policy, stock ownership guidelines, clawback incentive pay policies on clawbacks and bonus modifiers, as well as our internal financial reporting and regulatory compliance procedures.
| TENET HEALTHCARE●2019 PROXY STATEMENT | 19 |
CORPORATE GOVERNANCE AND BOARD PRACTICES | ||
Policies on Ethics and Conduct
Standards of Conduct
All of our employees, including our Chief Executive Officer, Chief Financial Officer and Controller, are required to abide by Tenet’s policies on business conduct summarized in our Standards of Conduct to ensure that our business is conducted in a legal and ethical manner. The members of our Board of Directors and manyall of our contractors having functional roles similar to our employees are also required to abide by our Standards of Conduct. Tenet’s policies form the foundation of a comprehensive processcompliance program that includes compliance with corporate policies and procedures, extensive training, robust auditing and monitoring, an open relationship among colleagues to foster good business conduct, and a high level of integrity. Our policies and procedures cover all major areas of professional conduct, including quality patient care, compliance with all applicable laws and regulations, appropriate use of our assets, protection of patient information, avoidance of conflicts of interest and employment practices.
Employees are required to report any conduct that they believe in good faith to be an actual or apparent violation of Tenet’s policies on business conduct. Retaliation against any employee who in good faith seeks advice, raises a concern, reports misconduct, or provides information in an investigation is strictly prohibited. The full text of our Standards of Conduct is published in the “Ethics and“Our Commitment To Compliance” section under the “About”“About Us” tab on our website atwww.tenethealth.com. In addition, amendments to the Standards of Conduct and any grant of a waiver from a provision of the Standards of Conduct requiring disclosure under applicable SEC rules will be disclosed at the same location as the Standards of Conduct on our website atwww.tenethealth.com.
|
| ||
As part of the program, we provide annual ethics and compliance training sessions to every employee, as well as our Board of Directors and certain physicians and contractors.
Quality, Compliance and& Ethics Program Charter
We operate our ethics and compliance program throughpursuant to a Quality, Compliance and& Ethics Program Charter, which has been approved by our QCE Committee. The charterCharter requires all companyCompany employees and many of our contractors to:
Follow our Standards of ConductConduct.
Participate in annual ethics training and specialized compliance training tailored to the individual’s job dutiesduties.
Work with our hospital, regional, corporate and business unit compliance teams to resolve issues of concernconcern.
Contact the Tenet Ethics Action Line at1-800-8ETHICS, via email or through our intranet website, to report any conduct that they believe in good faith to be an actual or apparent violation of Tenet’s policiespolicies.
Our Quality, Compliance and& Ethics Program Charter may be found in the “Ethics and“Our Commitment To Compliance” section under the “About”“About Us” tab on our website atwww.tenethealth.com.
Certain Relationships and Related Person Transactions
Our written Standards of Conduct require all employees, including our executive officers and members of our Board, of Directors to report conflicts of interest and also those situations in which there may be the appearance of a conflict of interest. The full text of our Standards of Conduct is published on our website atwww.tenethealth.com, and a description of our policies on ethics and conduct can be found above. In the event that a related person transaction (as defined under the SEC rules) involving Tenet or its subsidiaries is identified, our policy is to require that any such transaction be reviewed and approved by the Governance Committee, which is comprised entirely of independent directors. Under SEC rules, a related person is a director, executive officer, nominee for director, or 5% shareholder of Tenet, and their immediate family members. There were no “related person” transactions that require disclosure under the SEC rules since the beginning of our last completed fiscal year.
Communications with the Board of Directors by Shareholders and Other Interested Parties
Shareholders may communicate with the Board of Directors by e-mailemail toboardofdirectors@tenethealth.com or by writing to the Board in care of theAnthony Shoemaker, Corporate Secretary, at our office inTenet Healthcare Corporation, 1445 Ross Avenue, Suite 1400, Dallas, Texas.Texas 75202. Shareholder communications will be reviewed internally to determine if the shareholder’s concern can best be addressed by referral to a Tenet department, such as Investor Relations. All other communications will be referred to the Corporate Secretary, who will determine if the communication should be brought to the attention of the full Board, the Chairman of the Board or a particular Board committee or Board member.
Other interested parties may make their concerns known to ournon-employee directors by following the procedures for reporting concerns to the Audit Committee set forth in our Corporate Governance Principles, which are available in the “Corporate Governance” section under the “For Investors” tab on our website atwww.tenethealth.com.
|
|
|
The HR Committee reviews our non-employee director compensation programs each year with the assistance of the HR Committee’s independent compensation consultant. The full Board considers any changes recommended by the HR Committee following its review. The Board has not increased director compensation levels or otherwise made changes to the program since 2015.
Employee directors do not receive any compensation for their service as a director. All 2018 compensation for our Executive Chairman and Chief Executive Officer is shown in the 2018 Summary Compensation Table on page 47.
Our 2018 annual compensation program fornon-employee directors was structured as follows:
ANNUAL COMPENSATION ELEMENT |
AMOUNT | ||||
Annual Cash Retainer | $ | 95,000 | |||
Annual Grant of Restricted Stock Units (RSUs) | $ | 175,000 | |||
Annual Committee Chair Cash Retainers: | |||||
• Audit Committee | $ | 25,000 | |||
• Human Resources Committee | $ | 20,000 | |||
• Nominating and Corporate Governance Committee | $ | 15,000 | |||
• Quality, Compliance & Ethics Committee | $ | 15,000 | |||
Annual Retainer for Lead Director orNon-Executive Chair: | |||||
• Cash Fee | $ | 150,000 | |||
• Additional Grant of RSUs | $ | 50,000 | |||
Our non-employee directors, which include all our directors except Mr. Fetter, each receives a $95,000 annual retainer fee. The non-employeeNon-employee directors also receive $2,000 per committee meeting attended and for Board meetings receive:
no fee for the first seven Board meetings each year; and
for additional meetings, $3,000 perin-person meeting and $1,500 per telephonic meeting attended.
Each non-employeeA newly appointed director serving as the Chair of a committee receives an annual feeinitial grant of $15,000, except that the Chairs of the Audit Committee and the Human Resources Committee receive an annual chair fee of $25,000 and $20,000, respectively, given the demands and responsibilities placed on those committees. Our Lead Director receives an annual fee of $200,000 in addition to other Board and committee compensation, which is typically comprised of $150,000 in cash and restricted stock unitsRSUs valued at $50,000.$65,000, as well as a prorated annual RSU grant. All annual cash fees are prorated for partial year service. All directors are reimbursed for any travel expenses and otherout-of-pocket costs incurred while attending meetings.
Our non-employee director compensation also includes an annual award of restricted stock units equal in value to $175,000, which award is prorated for partial service in the initial year of service. The 2016 awards are shown in the Stock Awards column in the table below.
20162018 Director Compensation Table
NAME | FEES EARNED OR ($) | STOCK AWARDS ($)(1)(2) | TOTAL ($) | |||||||||
John Byrnes | 15,231 | 152,740 | (3) | 167,971 | ||||||||
Brenda Gaines | 188,000 | 175,006 | 363,006 | |||||||||
Karen Garrison | 145,000 | 175,006 | 320,006 | |||||||||
Edward Kangas | 289,733 | 225,004 | 514,737 | |||||||||
J. Robert Kerrey | 143,000 | 175,006 | 318,006 | |||||||||
Freda Lewis-Hall | 144,000 | 175,006 | 319,006 | |||||||||
Richard Pettingill | 176,000 | 175,006 | 351,006 | |||||||||
Matthew Ripperger | 138,063 | 295,143 | (4) | 433,206 | ||||||||
Ronald Rittenmeyer | 259,308 | 175,006 | 434,314 | |||||||||
Randy Simpson | 132,563 | 295,143 | (4) | 427,706 | ||||||||
James Unruh | 184,000 | 175,006 | 359,006 | |||||||||
Tammy Romo | 159,000 | 175,006 | 334,006 | |||||||||
Peter Wilver | 17,231 | 152,740 | (3) | 169,971 | ||||||||
NAME |
FEES EARNED OR ($) |
STOCK AWARDS |
TOTAL | ||||||||||||
Lloyd J. Austin, III |
|
71,157 |
|
|
227,572 |
(3) |
|
298,729 |
| ||||||
James L. Bierman |
|
140,431 |
|
|
175,015 |
|
|
315,446 |
| ||||||
John P. Byrnes(4) |
|
46,363 |
|
|
-0- |
|
|
46,363 |
| ||||||
Richard W. Fisher |
|
119,000 |
|
|
175,015 |
|
|
294,015 |
| ||||||
Meghan M. FitzGerald |
|
65,157 |
|
|
227,572 |
(3) |
|
292,729 |
| ||||||
Brenda J. Gaines |
|
163,500 |
|
|
175,015 |
|
|
338,515 |
| ||||||
Karen M. Garrison(4) |
|
46,363 |
|
|
-0- |
|
|
46,363 |
| ||||||
Edward A. Kangas |
|
150,500 |
|
|
175,015 |
|
|
325,515 |
| ||||||
J. Robert Kerrey |
|
295,500 |
|
|
225,010 |
|
|
520,510 |
| ||||||
Richard J. Mark |
|
129,000 |
|
|
175,015 |
|
|
304,015 |
| ||||||
Richard R. Pettingill(4) |
|
49,473 |
|
|
-0- |
|
|
49,473 |
| ||||||
Tammy Romo |
|
138,500 |
|
|
175,015 |
|
|
313,515 |
| ||||||
Peter M. Wilver(4) |
|
48,363 |
|
|
-0- |
|
|
48,363 |
| ||||||
| (1) | Amounts shown in this column reflect the grant date fair value, computed in accordance with FASB ASC Topic 718, of RSU awards granted under our |
| TENET HEALTHCARE●2019 PROXY STATEMENT | 21 |
DIRECTOR COMPENSATION | ||
| (2) | The |
| (3) | Upon joining the Board in |
| (4) | Messrs. Byrnes, Pettingill and Wilver, and Ms. Garrison all ended their term of service as directors on May 3, 2018 and their cash fees were prorated as applicable. These directors did not receive an annual |
|
| ||
Compensation Plans Applicable to Directors
Stock Incentive Plans
Eachnon-employee director receives an annual grantaward under our 2008 Stock Incentive Plan of restricted stock unitsRSUs that is meant to compensate the director for service on the Board beginning on the date of that year’s annual shareholders meeting and ending on the date of the following year’s annual shareholders meeting. These grants are typically made on the first business day following the annual shareholders meeting and vest immediately on the grant date. Beginning with the 2015 annual grants, a mandatory post-vest holding period of three years was applied to the annual restricted stock unitRSU awards, and such awards will be settled in shares of our common stock on the third anniversary of the date of grant (unless a non-employee director elects,deferred under the Special RSU Deferral Plan, described below, to defer settlement of the units)discussed below). For 2016, the annual grants were made on May 13, 2016 and had a grant date fair value of $175,006. In addition, on that date our Lead Director at the time, Mr. Kangas, received an additional grant of restricted stock units a with grant date fair value of $50,000 as a portion of the annual Lead Director fee. In September 2016, the Board appointed Mr. Rittenmeyer as its new Lead Director and he received a prorated portion of the annual Lead Director fee, paid entirely in cash.
On the last Thursdaytrading day of any month in which a newnon-employee director is elected to the Board, the director receives an automatica grant of that number of restricted stock unitsRSUs equal to $65,000 divided by the NYSE closing price per share of our common stock on the date of the grant. Theseone-time grants awards vest immediately on the grant date and are settled in shares of our common stock within 60 days of the director’s termination of the director’s service on the Board. In addition, newly appointed directors receive a prorated annual restricted stock unit grant for the portion of the board service year that they serve.
In the event of a change of control of the company as defined in Section 409A of the Internal Revenue Code (“Section 409A”), the restricted stock units would be settled within 60 days of the change of control. In the event of a change of control of the company that does not comply with Section 409A, the restricted stock units would be converted to cash and paid within 60 days of the earlier of the third anniversary of the date of grant or termination of service on the Board, in the case of the annual grants (including the grant related to the annual Chairman fee), and within 60 days of the termination of service on the Board, in the case of the new director grants.
Special RSU Deferral Plan
We adopted the Special RSU Deferral Plan to permit directors to elect to defer the settlement of their annual restricted stock unitRSU grants under the 2008 Stock Incentive Plan for a period of five years as provided under the terms of the award agreement. In the event of a change of control of the company,Company, the restricted stock unitsRSUs will be settled on the subsequent deferral date irrespective of whether the underlying award agreement would provide for earlier settlement by reason of such change in control. As of March 13, 2017, Richard Pettingill wasthe record date, none of our only director that haddirectors have elected to defer settlement of certain restricted stock unitRSU grants pursuant to the terms of the Special RSU Deferral Plan.
2006 Deferred Compensation Plan
Under our 2006 Deferred Compensation Plan (the “2006 DCP”)(2006 DCP), directors and eligible employees may defer all or a portion of their compensation paid during a given calendar year. For directors, compensation is defined as cash compensation from retainers, meeting fees and committee fees. None of our Senator Kerrey was the onlynon-employee directors director who participated in the 2006 DCP in 2016.2018. A more complete description of the 2006 DCP can be found under “Deferred“Nonqualified Deferred Compensation—2006 Deferred Compensation Plans”Plan” beginning on page 54.
Director Stock Ownership and Retention Requirements
The Board has adopted stock ownership and retention requirements that require eachnon-employee director with more than one year of service on the Board to own shares of our stock. In addition, eachnon-employee director is required to own shares of our stock with a value equal to five times the annual directorcash retainer within five years after the date on which the director joins the Board. As of March 13, 2017, all of our non-employee directors were in compliance with the requirements. Mr. Ripperger and Mr. Simpson are senior executives of Glenview Capital Management, LLC (Glenview) and serve on the Board as Glenview’s representatives. Pursuant to the Glenview Director Compensation Policy, Messrs. Ripperger and Simpson have each agreed to pay and/or otherwise distribute to Glenview the right to any and all compensation received in connection with their service as directors on our Board. Therefore, for purposes of determining compliance with our director stock ownership requirements, we attribute Glenview’s stock holdings in Tenet to Messrs. Ripperger and Simpson.
Directors who have not satisfied their ownership requirements must retain 100% of any “net shares” received upon the exercise of stock options and the vesting of restricted stock or restricted stock unitsRSUs until such time as the requirements are met. For this purpose, “net shares” means the number of shares received upon exercise of stock options or upon vesting of restricted stock or restricted stock unitsRSUs less the number of shares sold or deducted to pay the exercise price (in the case of options), withholding taxes and any brokerage commissions. A detailed discussion of these requirements can be found under “Stock Ownership and Retention Requirements” beginning on page 46.45. As of the record date, all of ournon-employee directors were in compliance with the requirements or within the applicable period to come into compliance.
|
|
|
Securities Ownership of Management
The table below indicates the shares, options and other securities beneficially owned by our directors, each of our Named Executive OfficersNEOs, and our current directors and executive officers as a group, as of March 13, 2017.11, 2019. No director or current executive officer has pledged any shares of our common stock.
| SHARES BENEFICIALLY OWNED(1) | |||||||||||||||||||||||||
| SHARES BENEFICIALLY OWNED(1) | |||||||||||||||||||||||||
NAME | SHARES OF COMMON STOCK(2) | OPTIONS EXERCISABLE ON OR BEFORE MAY 12, 2017 | PERCENT OF CLASS | SHARES OF COMMON STOCK(2) | OPTIONS EXERCISABLE WITHIN 60 DAYS | PERCENT OF CLASS | |||||||||||||||||||
Audrey Andrews | 46,648 | -0- | * |
| 92,282 |
| -0- | * | |||||||||||||||||
John P. Byrnes | 11,025 | (3) | -0- | * | |||||||||||||||||||||
Lloyd J. Austin, III |
| 7,912 | (3) |
| -0- | * | |||||||||||||||||||
James L. Bierman |
| 20,286 | (4) |
| -0- | * | |||||||||||||||||||
Daniel J. Cancelmi | 201,344 | 54,688 | * |
| 255,089 |
| 37,500 | * | |||||||||||||||||
Eric Evans | 34,861 | -0- | * |
| 44,206 | (5) |
| -0- | * | ||||||||||||||||
Trevor Fetter | 1,115,411 | (4) | 912,198 | 2.0 | % | ||||||||||||||||||||
Richard W. Fisher |
| 19,869 | (6) |
| -0- | * | |||||||||||||||||||
Meghan M. FitzGerald |
| 7,912 | (3) |
| -0- | * | |||||||||||||||||||
Brenda J. Gaines | 75,884 | (5) | -0- | * |
| 96,187 | (7) |
| -0- | * | |||||||||||||||
Karen M. Garrison | 79,860 | (6) | -0- | * | |||||||||||||||||||||
Edward A. Kangas | 71,092 | (7) | -0- | * |
| 91,395 | (8) |
| -0- | * | |||||||||||||||
J. Robert Kerrey | 22,772 | (8) | -0- | * |
| 45,200 | (9) |
| -0- | * | |||||||||||||||
Freda C. Lewis-Hall | 15,314 | (9) | -0- | * | |||||||||||||||||||||
Richard R. Pettingill | 105,601 | (10) | -0- | * | |||||||||||||||||||||
Richard J. Mark |
| 19,869 | (6) |
| -0- | * | |||||||||||||||||||
Keith B. Pitts | 184,219 | -0- | * |
| 292,356 |
| -0- | * | |||||||||||||||||
Matthew J. Ripperger | 9,000 | (11) | -0- | * | |||||||||||||||||||||
Ronald A. Rittenmeyer | 46,134 | (12) | -0- | * |
| 165,857 | (10) |
| 408,526 | * | |||||||||||||||
Tammy Romo | 14,543 | (13) | -0- | * |
| 34,846 | (11) |
| -0- | * | |||||||||||||||
Randolph C. Simpson | -0- | (11) | -0- | * | |||||||||||||||||||||
James A. Unruh | 73,292 | (14) | -0- | * | |||||||||||||||||||||
Peter M. Wilver | 16,025 | (15) | -0- | * | |||||||||||||||||||||
Executive officers and directors as a group (18 persons) | 2,123,025 | 966,886 | 3.1 | % | |||||||||||||||||||||
Current executive officers and directors as a group (18 persons)
| 1,154,465 | (12) | 446,026 | 1.5% | |||||||||||||||||||||
| * | Less than 1%. |
| (1) | Except as indicated, each individual named has sole control as to investment and voting power with respect to the securities owned. |
| (2) | As |
| (3) | Represents |
| (4) | Represents 20,286 RSUs granted under our stock |
| (5) | Holdings for Mr. Evans are reported as of January 1, 2019, the date that he ceased to be an executive officer of the Company. |
| (6) | Represents 19,869 RSUs granted under our stock incentive plans. |
| (7) | Includes |
| (8) | Includes |
| (9) | Includes 30,412 RSUs granted under our stock incentive plans. |
| (10) | Includes |
| (11) |
|
| (12) | Includes RSUs granted to |
|
|
SECURITIES OWNERSHIP | ||||
Securities Ownership of Certain Shareholders
Based on reports filed with the SEC, each of the following entities owns more than 5% of our outstanding common stock. We know of no other entity or person that beneficially owns more than 5% of our outstanding common stock.*
|
| |||||||
| ||||||||
| ||||||||
| ||||||||
| ||||||||
NAME AND ADDRESS | NUMBER OF SHARES BENEFICIALLY OWNED | PERCENT OF CLASS AS OF MARCH 11, 2019 | ||||||||
Glenview Capital Management, LLC 767 Fifth Avenue, 44th Floor New York, NY 10153
| 17,942,624 | (1) | 17.4 | % | ||||||
The Vanguard Group, Inc. 100 Vanguard Blvd. Malvern, PA 19355
| 12,122,997 | (2) | 11.8 | % | ||||||
BlackRock, Inc. 55 East 52nd Street New York, NY 10055
| 11,574,378 | (3) | 11.2 | % | ||||||
Harris Associates L.P. 111 S. Wacker Drive, Suite 4600 Chicago IL 60606
| 6,209,187 | (4) | 6.0 | % | ||||||
Nantahala Capital Management, LLC 19 Old Kings Highway S, Suite 200 Darien, CT 06820
| 5,448,112 | (5) | 5.3 | % | ||||||
| (1) | Based on a Schedule 13D/A filed with the SEC on |
| (2) |
| Based on a Schedule 13G/A filed with the SEC on February |
| (3) | Based on a Schedule 13G/A filed with the SEC on January 31, 2019 by BlackRock, Inc., on behalf of itself and its named subsidiaries and affiliates (collectively, BlackRock), as of December 31, 2018. BlackRock reported sole voting power with respect to 11,354,111 of the shares indicated above and sole dispositive power with respect to all of the shares indicated above. |
| (4) | Based on a Schedule 13G/A filed with the SEC on February 14, 2019 by Harris Associates L.P. (Harris), along with its general partner Harris Associates, Inc. (HAI), as of December 31, 2018. Harris and HAI reported sole voting power with respect to 4,382,976 shares and sole dispositive power with respect to all of the shares indicated above. |
| (5) | Based on a Schedule 13G filed with the SEC on February 14, 2019 by Nantahala Capital Management, LLC (Nantahala), Wilmot B. Harkey and Daniel Mack, as of December 31, 2018. Nantahala reported shared voting and dispositive power with respect to all of the shares indicated above, which shares included 29,750 options held by Nantahala that may be exercised for 2,975,000 shares of our common stock within sixty days. |
| * | UBS Group AG filed a Schedule 13G filed with the SEC on January 23, 2019, on behalf of itself and certain of its subsidiaries (collectively, UBS), as of December 31, 2018. UBS reported shared voting and dispositive power with respect to 12,496,825 shares, or approximately 12.2% of our issued and outstanding common stock as of March 11, 2019. Based on additional information provided by UBS to the Company, UBS filed its Schedule 13G due to contractual relationships with certain of its prime broker clients, at least some of whose shares the Company believes are represented by holders in the table above. |
|
|
HUMAN RESOURCES COMMITTEE REPORT
|
Our Human Resources Committee (HR Committee) has reviewed and discussed with management the following Compensation Discussion and Analysis below.Analysis. Based on this review and these discussions, the Human ResourcesHR Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be incorporated by reference in the company’sCompany’s Annual Report onForm 10-K for the year ended December 31, 20162018 and included in this Proxy Statement.
Members of the Human Resources Committee
RonaldEdward A. Rittenmeyer,Kangas, Chair
Lloyd J. Austin, III
Richard W. Fisher
Brenda J. Gaines
Richard R. PettingillTammy Romo
Matthew J. Ripperger
| TENET HEALTHCARE●2019 PROXY STATEMENT | 25 |
James
LETTER FROM THE HUMAN RESOURCES COMMITTEE |
Dear Tenet shareholders:
The Human Resources Committee strives to maintain an executive compensation program that appropriately rewards our leadership team for long-term value creation. We have received significant feedback from our shareholders in recent years that has informed our decision-making as to how we structure and implement our compensation program, and we are encouraged by approval of our say-on-pay proposal last year with more than 97% shareholder support.
The compensation decisions made over the past 18 months reflect the Company’s current period of transition. With a revitalized leadership team focused on implementing operational improvements and driving cultural changes across the enterprise, we have seen substantial progress on important strategic initiatives. Substantial stock price growth since these changes in leadership began in 2018, and thus far in 2019, demonstrates the progress being achieved throughout the Tenet enterprise. And, it is clear there is more work to be done, which is reflected in the below-target payouts under the 2018 Annual Incentive Plan and performance-based portion of our long-term incentives.
Our Committee continues to refine the Company’s executive compensation program to better connect real, delivered pay with the performance of both the Company and the individual executive. Under the AIP, we have implemented new safeguards to more directly target and emphasize individual contributions while ensuring the funding of the incentive pool remains tied directly to our financial performance. These strict and objectively-defined performance elements tightly align with the enterprise shift to a “Culture of Accountability” by differentiating the most critical elements of performance. As you will see in the disclosure that follows, these changes have resulted in modest upward and downward adjustments to AIP payouts for the year in review, sending the appropriate signal that performance matters.
In addition, the Board of Directors has taken key steps to ensure that we have strong leadership continuity through the remainder of Tenet’s transformation. To that end, following significant deliberation, in 2019 the Board proposed, and Ron Rittenmeyer accepted, a roughly one-and-a-half year extension to his anticipated service as Executive Chairman and CEO. The extension and the associated employment arrangement were designed to provide for the successful turnaround at Tenet, at compensation levels that continue to be reasonable as compared to peers and below those of our former CEO. We have also made significant progress in securing our next generation of leadership across the enterprise executive ranks, including the appointment of Dr. Saum Sutaria to the newly created role of Chief Operating Officer. Dr. Sutaria is a recognized senior talent in our industry, and his appointment, coupled with Mr. Rittenmeyer’s leadership, will ensure the Company’s continued successful transition and positioning for our future.
This is an exciting time for Tenet, and the Human Resources Committee recognizes the importance of structuring executive rewards that are aligned with shareholders and incentivize the Company’s leaders to generate sustainable long-term growth. We look forward to continuing to engage in dialogue with our shareholders on these topics.
THE TENET HEALTHCARE CORPORATION HUMAN RESOURCES COMMITTEE
Edward A. Unruh
Peter M. WilverKangas, Chair
26
| TENET HEALTHCARE● |
COMPENSATION DISCUSSION AND ANALYSIS
|
This Compensation DiscussionCD&A describes our compensation programs and Analysis (CD&A) describesreviews compensation decisions for the components of our executive compensation packages, the way in which the Human Resources Committee makes decisions about each component, the philosophy behind each component and the way these decisions and philosophies were applied to eachfollowing Named Executive Officer (NEO)Officers (NEOs) for 2016. Our NEOs for 2016 were:2018:
NAMED EXECUTIVE OFFICER | TITLE | |
| Executive Chairman and Chief Executive Officer (CEO) | |
| Chief Financial Officer | |
Keith Pitts | Vice Chairman | |
J. Eric Evans | Former President of Hospital Operations(1) | |
Audrey Andrews |
| |
(1) Mr. Evans served as President of Hospital Operations until December 31, 2018. For more information, see “Creation of Enterprise-Wide COO Role” below on page 31. | ||
The CD&A and Executive Compensation Tables are organized as follows:
| TENET HEALTHCARE● |
27
|
COMPENSATION DISCUSSION AND ANALYSIS | ||
Business Overview2018: Progress on a New Path
2018 was a successful and Strategic Prioritiestransformational year for Tenet that oriented the Company in a new direction. We delivered strong financial performance while implementing significant,far-reaching changes throughout the enterprise. Our efforts in 2018 were focused on fulfilling strategic initiatives developed in late 2017, when the Board appointed Mr. Rittenmeyer as the new CEO, accelerated its process of Board refreshment, and called for operational improvements and a shift in the Company’s culture.
Under Mr. Rittenmeyer’s leadership, in 2018 Tenet Healthcare is areduced costs, enhanced the portfolio of healthcare delivery assets, upgraded talent at all levels, and repositioned the business for stability and long-term growth. Key to these achievements was the energy of the 110,000 employees across the three business segments that comprise Tenet’s diversified healthcare services company with three complementary business segments. Our care network is comprised of over 575 facilities in growing urban and suburban communities. We have 80mission: our Hospital segment operates 65 acute care hospitals, over 160 outpatient centers and an outpatient network inclusive of the largest ambulatory and short-stay surgery platformother ancillary healthcare businesses to serve communities in the country – operated by ourdiverse markets; United Surgical Partners International (USPI) subsidiary. Ouroperates over 330 healthcare facilities, including ambulatory surgery centers, urgent care centers, imaging centers and surgical hospitals, and is the leading provider of ambulatory surgery services in the country; and Conifer Health Solutions (Conifer) subsidiary provides revenue cycle management and value-based care services to nearly 750 clients in over 800 clients, including hospitals, physicians, health plans and employers. With our hospitals, USPI and Conifer, we believe we are well-positioned in some of the most relevant segments of healthcare.40 states.
Our long-term strategic priorities by business segment are as follows:2018 Accomplishments
| • | Improved Operations. Last year, each business segment contributed to our strong financial performance, headlined by combined net income of $108 million and Adjusted EBITDA of $2.560 billion. We further enhanced our asset portfolio by divesting eight hospitals and sold othernon-core assets to streamline operations. |
| • | Reduced Costs. We delivered on our goal to cut costs by $250 million—raised from an initial target set in late 2017 of $150 million—with comprehensive expense reductions made enterprise-wide that included a reduction of corporate overhead expense by 28%. |
| • | Secured New Leadership Enterprise-Wide. The Board appointed Mr. Rittenmeyer to lead the Company’s transition in 2017, and in 2018 secured his commitment to serve for at least two additional years to lead the Company’s turnaround. The Board and Mr. Rittenmeyer have worked together to further upgrade talent through external hiring and internal promotions, reshaping the senior management team and leadership ranks throughout the enterprise. |
| • | Refreshed the Board. The Board began a comprehensive refreshment process in 2017 that continued in 2018 with the appointment of two new independent directors. This has brought new perspectives and diverse experiences to bear on the direction of the Company and its commitment to long-term success. |
| • | Reshaped the Business. In 2018, we completed our acquisition of 95% of the equity interests in USPI. As a result, we are now able to share in more of the upside of USPI’s performance and can better integrate the ambulatory business with the rest of the enterprise. With respect to our Conifer business unit, as we reviewed a broad range of strategic alternatives to best suit the long-term future of the business, we simultaneously drove significant improvements in performance. |
| • | Culture of Accountability. Through the substantial changes in management, restructured operational processes, and the leadership of Mr. Rittenmeyer, we have implemented a “Culture of Accountability” that has flattened the organization and shortened the time from decision to action. |
Response to Shareholder Feedback
In recent years, the HR Committee has implemented a series of executive compensation program changes to strengthen the alignment between pay delivery and performance. These changes support Tenet’s turnaround strategy and are also responsive to shareholder feedback from the annual say-on-pay voting and year-round shareholder engagement.
In 2016, the HR Committee overhauled our Long-Term Incentive (LTI) compensation to more tightly connect executive incentives with the Company’s long-term financial goals. These changes included expanding the performance metrics based on shareholder feedback and utilizing longer performance periods, along with new governance practices like expanded clawbacks that apply to all performance-based LTI awards made to our NEOs.
28
| TENET HEALTHCARE● |
COMPENSATION DISCUSSION AND ANALYSIS | ||
In 2017, the Committee increased the percentage of overall LTI compensation for senior officers and weighted it more heavily toward performance-based elements. Further, the Board took meaningful action in response to a disappointing 2017say-on-pay vote of 72.6% approval that reflected shareholder dissatisfaction with certain of the Company’s pay practices. After soliciting and receiving additional shareholder feedback, the Board appointed Mr. Rittenmeyer as the new CEO in 2017 and in 2018 set his target compensation below the median of our peers. Following the implementation of these changes, our 2018say-on-pay proposal received over 97% support from our shareholders.
In addition, for 2018 the HR Committee added a “Gatekeeper” to the Annual Incentive Plan (AIP) for our Hospital, USPI and Conifer businesses. The Gatekeeper, as discussed in more detail on page 34, introduced a threshold level of quality and service performance metrics that our employees closest to care delivery and client services, including Mr. Evans, must meet in order to receive any payout under the AIP. For corporate employees whose roles serve the enterprise more broadly, including all NEOs other than Mr. Evans, the HR Committee simplified the performance metrics to focus on key, enterprise-wide financial results.
For all AIP participants, the HR Committee made another significant change in 2018. To reinforce our “Culture of Accountability” and allow the HR Committee to more accurately target the performance that it wishes to reward or discourage, the amount every participant receives depends in part on a rigorous assessment of individual performance against apre-established framework under a redesigned performance review process. For more information, see “Revised 2018 AIP Structure” and “Culture of Accountability” on page 34.
Chief Executive Officer Compensation
Mr. Rittenmeyer’s compensation package has been designed to effect a successful turnaround at Tenet at reasonable compensation levels consistent with our philosophy of paying for strong performance results. Accordingly, Mr. Rittenmeyer’s compensation arrangement has evolved as he has continued to produce meaningful improvements and drive the Company towards its key strategic objectives. This evolution includes aone-and-a-half year extension approved in early 2019 to provide for a successful turnaround while maintaining annualized compensation levels that are reasonable compared to peers and below those of our former CEO, as described in detail below.
The following graphic annualizes Mr. Rittenmeyer’s target direct compensation for the entire term of his service as CEO through the end of his extended Employment Agreement on June 30, 2021. The HR Committee believes this presentation provides a more holistic view of
Mr. Rittenmeyer’s intended compensation package as compared to the SEC-required disclosure levels shown in the Summary Compensation Table on page 47, where LTI equity awards are reported entirely in the year of grant. When approving Mr. Rittenmeyer’s compensation arrangements, the HR Committee viewed compensation levels from an annualized basis to confirm that his target compensation remained below the median peer CEO level and below the pay level of his predecessor in the role. The HR Committee also considered that granting the awards up front would serve to strongly link Mr. Rittenmeyer’s potential pay delivery to Tenet’s turnaround results during this period. The HR Committee does not intend to make any additional LTI grants, or other forms of compensation, to Mr. Rittenmeyer during the remainder of his term of service with the Company.
Ron Rittenmeyer’s Target Direct Compensation as CEO
(August 31, 2017 to June 30, 2021)
Over the last several years, we have successfully increased the proportion of our revenues from higher margin, higher free cash flow generating businesses, and enhanced the mix of revenue and EBITDA that come from operations less reliant on government healthcare programs. As illustrated in the charts below, we generated 37% of our Adjusted EBITDA in 2016 from our Ambulatory and Conifer segments, up significantly from 15% in 2014.
See Appendix B for definitions and reconciliations of non-GAAP measures
Financial Performance and Link to Executive Compensation
Nearly all healthcare provider companies experienced a challenging year for stock price performance in 2016. The year culminated with considerable uncertainty, partly driven by the results of the Presidential and Congressional elections, which created uncertainties regarding, among other things, the potential repeal of the Affordable Care Act. While we continued our history of generating increasing levels of Net Revenue and Adjusted EBITDA, our stock price declined by 51% in 2016 and we did not achieve certain objectives in our 2016 business plan.
|
| TENET HEALTHCARE● |
29
|
COMPENSATION DISCUSSION AND ANALYSIS | ||
Active Shareholder Engagement Program2018 Chief Executive Officer Employment Agreement
OurIn March 2018, Tenet entered into an employment agreement (the Employment Agreement) with Mr. Rittenmeyer engaging him to serve as the Company’s CEO for thetwo-year period from March 1, 2018 through February 28, 2020.
In determining the appropriate compensation for Mr. Rittenmeyer, the HR Committee considered Mr. Rittenmeyer’s strong performance during the first six months of his tenure. The Committee set the target for Mr. Rittenmeyer’s annual direct compensation at approximately the 25th percentile of our peers based on the belief that initial compensation levels for an incoming CEO should be set with room for growth and with the expectation that, should the Employment Agreement be amended or extended, future compensation levels would be determined based on actual performance results.
For thetwo-year period from March 1, 2018 through February 28, 2020, the Employment Agreement provides for:
Base Salary: $1,200,000 per year
Annual Incentive Plan: 150% of salary (at target) per year
Long-Term Incentives: $14,000,000 for thetwo-year period (granted 50% in RSUs and 50% in time-vested or “restricted” cash)
Under the terms of the Employment Agreement, Mr. Rittenmeyer’s long-term incentives vest in equal quarterly installments over thetwo-year term, aligning with the transitional nature and compressed timing of the turnaround objectives. In making these LTI grants, the HR Committee believed that two years was too short to set meaningful long-term performance goals, but rather that performance would be fairly reflected by the change in the Company’s stock price over the period. Mr. Rittenmeyer is not covered by Tenet’s Executive Severance Plan.
The HR Committee approved the compensation for Mr. Rittenmeyer under his Employment Agreement, including the RSUs with a grant date fair value of $7,000,000, on February 28, 2018; however, the parties did not execute the Employment Agreement until March 24, 2018. The HR Committee intended for the grant date for Mr. Rittenmeyer’s restricted stock units to be the date of HR Committee approval in February. Instead, the date of execution of the Employment Agreement in March was used to determine the grant date. As a result of using the March grant date, Mr. Rittenmeyer received 288,660 restricted stock units whereas the HR Committee intended Mr. Rittenmeyer to receive the number of units calculated with the February grant date, or 339,806. In June 2018, the HR Committee awarded Mr. Rittenmeyer RSUs equal to the difference between these figures, or 51,146 units.
Extension in 2019
In February 2019, recognizing the considerable improvements Mr. Rittenmeyer had already implemented and the additional progress required in the Company’s turnaround process, the Board of Directors regularlyapproved an amendment to Mr. Rittenmeyer’s Employment Agreement (the Amendment) that extends his term of service through June 2021.
Mr. Rittenmeyer’s base salary and actively solicits inputannual bonus opportunity remain unchanged under the Amendment. In connection with the Amendment, an award of RSUs valued at $16,000,000 and vesting in nine quarterly installments was granted to Mr. Rittenmeyer to further align his interests with those of shareholders over the remainder of his term of service as CEO, and to reward continued turnaround performance reflected by Tenet’s stock price growth rather than setting goals for a short incremental performance period. Since assuming the role of Executive Chairman on August 31, 2017, Tenet’s share price has increased by more than 75% through March 21, 2019, driving an increase in market-capitalization of approximately $1.4 billion over that time period.
The Amendment also extends the duration of thenon-competition andnon-solicitation covenants to which Mr. Rittenmeyer is subject under the Employment Agreement from investors12 months following the date of Mr. Rittenmeyer’s termination of employment to two years following such date.
To facilitate a smooth transition and governance groups to better inform decision-making and gain insight into shareholder perspectives on a broad rangepromote stability in leadership, Mr. Rittenmeyer has agreed to serve in an advisory role to his successor over an additionaltwo-year period following the end of topics. The feedback received from our shareholders in 2015—particularly regarding the designhis employment as CEO. Under this advisory arrangement, Mr. Rittenmeyer will receive an annual retainer of the company’s long-term incentive (LTI) compensation awards—resulted$750,000, will remain eligible to participate in the Human Resources Committee taking several actions in 2016Company’s health and welfare benefits programs, and will remain subject to modify the structure and design of the company’s executive compensation program, as described in more detail below under “Executive Compensation Program Key Changes—Substantial Redesign for 2016.” We believe that these changes, which we first disclosed in our 2016 proxy statement, and our enhanced shareholder outreach efforts throughout 2015 and 2016, contributedrestrictive covenants no less favorable to the significant improvementCompany than those set forth in the resultsEmployment Agreement.
The Board does not intend to approve any further LTI awards or other forms of our advisory vote on executive compensation—from approximately 82% of votes cast approving our say-on-pay proposal in 2015 to approximately 90% in 2016.
After the 2016 annual meeting of shareholders, we again reached out to a number of shareholders to offer a meeting with members of our management team and/or an independent director. In particular, the Board solicited feedback on the recent compensation program changes as well as recent changes in Board composition and leadership. In total, during our 2016 Fall and Winter engagement, we held discussions with shareholders representing in aggregate approximately 25% of our outstanding common stock (which did not include the input we regularly receive from our largest shareholder, Glenview Capital Management, which has two of its partners serving on our Board of Directors), as well as with proxy advisory firms. Two of our independent directors,for Mr. Rittenmeyer Lead Director and Chairduring the remainder of the Human Resources Committee; and Mr. Unruh, then the Chairhis term of our Health IT Committee and the former Chair of our Audit Committee, participated in several of these meetings.
In early 2017, the Board reviewed the feedback communicated to us by our shareholders and noted that investors generally expressed satisfactionservice with the Board’s responsiveness—particularly the steps taken by the Human Resources Committee and Board to redesign the performance-based LTI awards made to executives. Certain shareholders raised questions with respect to past practices of targeting above-median compensation for certain officers and the company’s executive compensation peer group. In response to these points, we have included additional information with respect to target-setting on page 34 under “Compensation Design and Target-Setting Process” and the company’s 2016 peer group selection process on page 43 under “Benchmarking Against Peer Companies—2016 Peer Group.”Company.
30
| TENET HEALTHCARE● |
COMPENSATION DISCUSSION AND ANALYSIS | ||
Creation of Enterprise-Wide COO Role
The Board maintains a strong leadership succession plan. Over the past year, several steps have been taken to ensure that the Company has the appropriate leadership structure and a clear succession process with internal candidates being developed for future key promotions.
In November 2018, the Board announced the appointment of Saumya (Saum) Sutaria, M.D., as Chief Operating Officer (COO) of the Company, to be effective in January 2019. The appointment created a new position and restructured the Company’s senior leadership. Previously, operational leadership was divided among the three business units, with Mr. Evans serving as President of Hospital Operations. Under the new streamlined structure, Dr. Sutaria as COO has direct responsibility for the Hospital business unit as well as the authority to design and implement enterprise-wide initiatives, particularly with respect to increased integration. This shift in leadership structure aligns with the Company’s broader transformation strategy and leverages Dr. Sutaria’s clinical, operational and advisory experience accumulated over 20 years working in complicated and diverse healthcare systems and related businesses.
Dr. Sutaria most recently served as a Senior Partner at McKinsey & Company, where he worked for 18 years providing advisory support for hospitals, healthcare systems, physicians groups, ambulatory care models, integrated delivery, andgovernment-led delivery, while also working with institutional investors in healthcare. Previously, Dr. Sutaria practiced medicine with a focus in internal medicine and cardiology.
Mr. Evans and the Company agreed that his last day of employment with the Company would be December 31, 2018. In connection with his departure, Mr. Evans was eligible to receive benefits consistent with a Qualifying Termination and/or termination without cause under the Company’s Executive Severance Plan and other employee benefit plans, as further described on page 56.
Chief Operating Officer Employment Agreement
In connection with his appointment as COO, Tenet entered into an employment agreement with Dr. Sutaria for an initial three-year term until January 2022, during which he will receive target total direct compensation in the median annual range for comparable positions, consisting of:
Annual Incentive Plan: 100% of salary (at target) per year
Annual Long-Term Incentives: $4,000,000 in RSUs per year (vesting ratably over three years)
The HR Committee also approved aone-time buyout to Dr. Sutaria valued at $12,000,000, which was a make-whole for 2016
In responseforfeited and forgone earnings from his previous employer. Thebuy-out was split between $7 million in RSUs and $5 million in restricted cash to feedback received from investors, andprovide for employment retention, as it vests in full upon the expiration of the three-year term. LTI awards to Dr. Sutaria are not subject to financial performance goals as part of the Human Resources Committee’s ongoing review and refinement of Tenet’s executivethis initial employment arrangement, which is designed to transition him to a public company compensation program from a private partnership model at his prior employer. The Company’s stock price performance over the Committee made several significant changesperiod will be reflected in ultimate pay delivery. Dr. Sutaria is subject to the executive compensation programcertainnon-competition covenants for 2016, whichone year, andnon-solicitation covenants for two years, following termination of his employment. Dr. Sutaria is not covered by Tenet’s Executive Severance Plan, and there were previously disclosed in our 2016 proxy statement:no additional hiring inducements.
| ||
|
| |
|
| |
|
| |
|
|
| TENET HEALTHCARE● |
31
|
COMPENSATION DISCUSSION AND ANALYSIS | ||
2017 Compensation ActionsElements Link Pay with Performance
The Human Resources Committee continuesfollowing table outlines the primary components of our NEOs’ 2018 compensation packages (other than Mr. Rittenmeyer, as discussed above):
| ELEMENT | DESCRIPTION | PURPOSE | ||||
Base Salary | • Fixed cash compensation set annually • Based on peer group and market survey data, as well as individual performance, experience, internal pay equity considerations and tenure | • Attracts and retains talented executives with competitive fixed pay | ||||
Annual Incentive Plan | • Performance-based cash compensation tied to achievement of annual performance goals • Target award amount set as a percentage of base salary that increases for executives who more directly influence business outcomes | • Motivates and rewards executives for meeting short-term goals that drive long-term growth • Challenging, objective performance metrics are set annually based on Company’s business plans and vary across business units | ||||
| Long-Term Incentives | Performance- Stock Options (1/3) | • Performance stock options vest only if stock price increases 25% from grant date and remains at or above such a level for 20 consecutive trading days • If performance condition is not met within three years following grant, 100% of the options are forfeited | • Requires sustained increase in the Company’s stock price for executives to realize any value • Strongly incentivizes executives to deliver meaningful growth to shareholders | |||
| Performance Based Cash (1/3) | • Awards cliff vest on third anniversary of grant date based on performance againstpre-determined goals measured over cumulative three-year performance period • Cash payments conserve equity usage and provide liquidity to insiders who are often precluded from selling stock | • Focuses executives on creating long-term shareholder value • Rigorous goals are set for Adjusted EPS, Adjusted Free Cash Flow Less Cash NCI and Relative Total Shareholder Return (TSR) to align with the Company’s long-term objectives | ||||
| Time-Based RSUs (1/3) | • RSUs vest ratably over three years | • Directly aligns economic interests of executives and shareholders through equity ownership • Encourages retention and subject to forfeiture in the event that an officer terminates employment | ||||
Best Practices Support Strong Compensation Governance
We maintain the following best practices to refine the company’sensure our governance of executive compensation programs to take into account additional shareholderreflects ourpay-for-performance philosophy and proxy advisor feedbackaligns the interests of our executives and other factors, including input from its independent compensation consultant regarding current market practices. In designing the 2017 executive compensation program, the Committee’s primary objectives were continuing to align pay delivery with company performance, maintaining rigorous goals, and retaining talent during a period of great uncertainty in the healthcare sector. In total, approximately 90% of the CEO’s target 2017 pay opportunity will be “at-risk” (i.e., contingent upon our meeting performance goals and/or increasing shareholder value), and approximately 65% of the total is subject to performance metrics.
With respect to the design of 2017 LTI awards, the Committee moved a larger percentage of the overall award toward performance-based elements (now two-thirds of the total), utilizing the following structure:shareholders.
The Committee believes that the 2017 LTI structure will continue to challenge management to achieve results for our shareholders while also resulting in a more efficient utilization of authorized equity under its stock incentive plan. Moreover, the LTI program is specifically designed such that realized compensation will fall significantly short of target if the company’s shareholders do not benefit from a sustained increase in the company’s stock price. In determining target LTI opportunities for our NEOs in 2017, the Committee took into account, among other things, the greater emphasis on performance-based pay elements in 2017 and the significant reduction in LTI grant levels in 2016.
✓ Active engagement with investors |
✓ Emphasis onpay-for-performance |
✓ Clawback provisions applicable to all performance-based compensation paid to NEOs |
✓ Significant stock ownership and retention requirements for executives (6x base salary for the Chief Executive Officer) andnon-employee directors (5x annual cash retainer) |
✓ No excise taxgross-ups onchange-in-control severance benefits |
✓ Independent compensation consultant |
✓ Limited perquisites |
✓ Anti-hedging and anti-pledging policies |
32
| TENET HEALTHCARE● |
COMPENSATION DISCUSSION AND ANALYSIS | ||
DETAILED DESCRIPTION AND ANALYSIS
Components2018 Compensation Decisions
Base salary provides our NEOs with a fixed annual income and helps us attract and retain key executive talent. The HR Committee approves the base salary of 2016 CompensationNEOs annually based on its assessment of each NEO’s individual performance and Alignment with Performanceexperience level, internal equitability considerations, and a review of peer group and market survey data provided by our independent compensation consultant. None of our NEOs received base salary increases in 2018.
NAMED EXECUTIVE OFFICER | 2018 SALARY | INCREASE FROM 2017 | ||||||||
Ron Rittenmeyer | $ | 1,200,000 | (1) |
| N/A | |||||
Dan Cancelmi | $ | 618,000 |
| 0.0 | % | |||||
Keith Pitts | $ | 925,000 |
| 0.0 | % | |||||
J. Eric Evans | $ | 700,000 |
| 0.0 | % | |||||
Audrey Andrews | $ | 550,000 |
| 0.0 | % | |||||
| (1) | Mr. Rittenmeyer’s base salary was reduced to $1,200,000 in March 2018 when the HR Committee approved a comprehensive pay package that included AIP and LTI compensation. Previously, the HR Committee had set Mr. Rittenmeyer’s base salary at $2,900,000 in November 2017, reflecting the short-term nature of the arrangement during the leadership transition and lack of AIP and LTI compensation. |
Performance-Based Annual Incentive Plan
Our executive compensation programThe AIP is designed to promote prudent pay practices that support pay-for-performance principles. Our Human Resourcesreward our employees for performance against short-term financial, quality and service goals selected by our HR Committee reviews our compensation program annually to ensuredrive long-term growth. It is broad-based and, for most of the approximately 5,600 employees who participate across each of the Company’s business units, it is consistentour principal means for linking pay to performance.
Each year the HR Committee sets performance goals across metrics related to the financial performance of the Company and operational objectives of each business unit, as well as individual performance goals. Each metric has a carefully calibrated threshold, target, and maximum performance level that is scored from 0% (at or below the threshold) to 200% (at or above the maximum) of target. Once the outcome of each metric has been determined, the result is a fixed funding pool from which individual payouts are determined.
The HR Committee maintains discretion to adjust AIP outcomes positively or negatively for individuals or business units depending on a variety of factors, including results that do not meet expectations, unanticipated market events, and extraordinary or disappointing individual performance. Specifically, the HR Committee reduces AIP payments for failure to comply with these objectives. The following table outlines the componentsCompany’s standards of conduct or in response to other negative quality, safety or compliance events.
In addition, AIP awards are subject to recoupment provisions where the Board may require reimbursement to the Company of awards in the event of a material restatement of our NEO’s 2016 compensation:financial results caused by the recipient’s fraud or in other circumstances involving material violations of Company policy or misconduct that cause substantial harm to the Company.
2018 Target Annual Incentive Award Levels for Named Executive Officers
In 2018, the HR Committee approved the following target bonus award levels for each NEO:
| TO BASE SALARY | ||||||||
Ron Rittenmeyer |
| 150 |
% | ||||||
|
|
| |||||||
| 100 |
| |||||||
|
| ||||||||
|
| ||||||||
|
| ||||||||
|
% | ||||||||
|
| 100 |
|
% | |||||
|
|
|
| ||||||
Audrey Andrews |
| 75 | % | ||||||
Significant Levels of Pay At Risk
The substantial majority of all NEO compensation is “at risk” (i.e., contingent upon our meeting performance goals and/or increasing shareholder value). Specifically, for 2016, 87.7% of the Chief Executive Officer’s target compensation and, on average, 78.8% of other NEO’s target compensation was tied to company performance, including stock price.
| TENET HEALTHCARE● |
33
|
COMPENSATION DISCUSSION AND ANALYSIS | ||
CEO Realizable PayNEO target award levels have remained unchanged since 2016, except for Mr. Rittenmeyer, whose target award level was first set at the time the HR Committee approved his comprehensive pay package in early 2018.
Revised 2018 AIP Structure
Historically, our AIP measured rigorous, objective performance metrics across financial, quality and service dimensions that track the Company’s strategy, with specific metrics adapted for each business unit. Each metric was weighted differently and then combined into a single “score” on which the AIP was based. While the HR Committee maintained discretion to adjust payouts, the scorecard did not specifically incorporate the results of individual performance reviews, so most participants would receive the calculated level of payout. In 2018, the Company revamped its approach to talent development and individual performance reviews.
“Culture of Accountability”
To illustratefurther emphasize our newly implemented “Culture of Accountability,” the link between executive compensation and company performance, the following charts compare Mr. Fetter’s target compensation and realizable pay asresults of December 31, 2016, for compensation opportunities awarded to him in 2014, 2015 and 2016.
Compensation Design and Target-Setting Process
A significant portionthorough annual assessments became a component of the compensation of our NEOs is subject to the company achieving targeted levels of financial and operating performance under both our short and long-term plans. These predetermined performance levels are derived from the performance goals in the company’s annual business plan, which is reviewed and approved by the Board of Directors prior to the beginning of each fiscal year. Our Human Resources Committee also establishes operational targets intended to incentivize our officers to improve patient care and other quality metrics, which we believe are critical to achieving success as a healthcare provider.
Near the end of each year, the Committee begins its target-setting process and undertakes a comprehensive review of the design of both the short and long-term incentive programsAIP scoring for the upcoming fiscal year.first time in 2018. The goalscorecard payout is now adjusted by a multiplier based on each participant’s individual performance rating, with the ratings calibrated across the entire Company to identifyensure the AIP funding pool remains fixed.
The individual performance metrics and establish targets thatreviews strengthen the Committee believes will motivate our executivesAIP program by introducing the ability to delivertarget more directly the performance that drives shareholder value creationthe HR Committee desires to reward or discourage. The reviews help build a productive workplace culture that can be unified across different business units and further reinforce the behaviors that lead to long-term success. Moreover, they refine the level at which the HR Committee can reward extraordinary performance or incentivize better performance going forward.
Individuals are rated across a number of dimensions in bothtwo categories:Results, or the short“what,” and longer term. As partPeople, or the “how.”
The Results category incorporates factors including a participant’s ability to meet financial, operational and process goals, execute plans aligned with the Company’s focus, provide customer service, innovate and work independently.
The People category measures traits such as reinforcing the Company culture, leading by example, treating others with respect, and displaying honesty and courage.
Individuals are given a rating in each category ranging from 1 to 5, with 1 representing unsatisfactory performance and 5 representing a top performer. The ratings under the Results and People categories are averaged to produce a single metric that, when calibrated across the Company, produced the distribution shown to the right.
2018 Individual Performance Company-Wide Rating Distribution
Gatekeeper forNon-Enterprise Employees
Last year, the HR Committee determined that a revised structure would better focus Hospital, USPI and Conifer participants on the operational goals that directly impact the experiences of its target-setting process,patients and customers in the communities we serve. Rather than joining these metrics with financial performance results—where strong growth could overcome quality and service outcomes that did not meet expectations—the HR Committee also reviewsimplemented a “Gatekeeper” so that the historicalAIP would not pay out if employees did not adequately meet operational objectives.
Under the Gatekeeper, achievement of targets by managementall quality and service goals applicable to assess whether targets have been sufficiently rigorous. An overviewa particular business unit are scored first. Financial measures are scored separately. If a participant does not meet at least 50% of the typical target-setting processtarget performance in the Gatekeeper, he or she does not receive an AIP bonus regardless of financial results. The Gatekeeper thus incentivizes operational leaders to prioritize long-term drivers of growth like operational excellence and patient loyalty.
For “Enterprise” employees, including all of the NEOs other than Mr. Evans, whose roles support all three business units but are further removed from healthcare delivery, the HR Committee determined that clear, enterprise-wide measures of financial performance would best motivate business results and foster a unified mentality. Consequently, the Gatekeeper does not apply to Enterprise employees. Instead, the creation of the Enterprise AIP funding pool is outlined below.dependent on the financial success of the consolidated enterprise.
|  |
|
|
34
| TENET HEALTHCARE● |
COMPENSATION DISCUSSION AND ANALYSIS | ||
The levels2018 Enterprise AIP Performance Metrics and Results
Four of NEOour 2018 NEOs—Messrs. Rittenmeyer, Cancelmi and Pitts and Ms. Andrews—earned AIP bonuses from the funding pool created under our performance-based AIP are determined by the company’s achievementEnterprise scorecard. This scorecard measured the Company’s total annual Adjusted EBITDA (60% of pre-specified financial, operating, qualitythe scorecard) and service performance targets focusedAdjusted Free Cash Flow Less Cash Payments to Noncontrolling Interests (Adjusted Free Cash Flow Less Cash NCI) (30%). Achievement on a balanced mix of value-driving metrics.
A substantial portion (50% in 2016 and 66.7% in 2017)external guidance. The remaining 10% of the equity grants made to NEOs under our LTI plan are subject to performance-based vesting requirements that require the company to achieve specified financial targets established by the Human ResourcesEnterprise funding pool was set aside for individual performance assessments.
The HR Committee with the remaining awards subject to time-based vesting conditions.
Sound Compensation Governanceboth the AIP and PracticesLTI programs.
We maintain the following compensation-related governance best practices that support our compensation philosophy and alignment of pay and performance for our NEOs.
METRIC
|
THRESHOLD
| TARGET
| MAXIMUM
| ACTUAL
| PERCENTAGE
| CALCULATED
| ||||||||||||||||||||||||
Adjusted EBITDA | $ | 2.392 billion | $ | 2.525 billion | $ | 2.659 billion | $ | 2.560 billion |
| 125.9 | % | 75.5 | ||||||||||||||||||
Adjusted FCF Less Cash NCI(2) | $ | 353 million | $ | 503 million | $ | 653 million | $ | 312 million |
| 0.0 | % | 0.0 | ||||||||||||||||||
Individual Performance |
| Target(3) |
| 100 | % | 10.0 | ||||||||||||||||||||||||
Enterprise Score |
| 85.5 | ||||||||||||||||||||||||||||
Negative Discretionary Adjustment |
| (10.0%) | ||||||||||||||||||||||||||||
Final Funding Level |
| 76.9% of Target | ||||||||||||||||||||||||||||
| (1) | See Appendix A for definition and reconciliation of Adjusted EBITDA. |
|
| (2) |
|
| |
| |
| |
| |
| |
| |
| |
flow. |
| (3) | Target value used for purposes of establishing AIP funding pool; individual performance is ultimately reflected through the individual performance adjustment process described below. |
2018 Hospital AIP Performance
Mr. Evans earned his AIP bonus from the funding pool created under the Hospital Gatekeeper and scorecard. The Gatekeeper measured the following quality and service metrics: a composite of over a dozen hospital quality measures with target set at national average (30% of Gatekeeper); the average star rating assigned by the Centers for Medicare and Medicaid Services with target set at national average (10%); the results of internal patient satisfaction surveys with target set at approximately four percentage points above 2017’s results (25%); and employee turnover with target set at national average (20%). The remaining 15% of the Gatekeeper was set aside for individual performance assessments. Altogether, the Hospital Gatekeeper achieved 84.5% of target.
Like the Enterprise scorecard, the Hospital scorecard measured Adjusted EBITDA (65% of scorecard) and Adjusted Free Cash Flow Less Cash NCI (15%) with the same target levels. It also included measures for inpatient admissions with target set at 1.0% growth relative to 2017 (10%) and outpatient visits with target set at 1.2% growth relative to 2017 (10%). The Hospital scorecard achieved 85.5% of target and, when combined with the outcome of the Gatekeeper, resulted in a calculated Hospital AIP score of 72.3% of target.
Negative Discretionary Adjustment to Enterprise and Hospital Funding Pools
The HR Committee, on the recommendation of management, determined that it was appropriate to reduce the total AIP funding pools for Enterprise and Hospital employees by 10% and 20%, respectively. This downward adjustment reflected the Company’s failure to meet certain performance expectations, particularly in the third and fourth quarters of 2018 when the Company lowered its earnings guidance, driven in large part by underperformance of the Hospital Operations segment. The discretionary reductions resulted in final funding of the Enterprise AIP funding pool at 76.9% of target and the Hospital AIP funding pool at 57.7%.
| TENET HEALTHCARE● |
35
|
COMPENSATION DISCUSSION AND ANALYSIS | ||
COMPENSATION, DISCUSSION AND ANALYSIS: IN DETAILIndividual Performance Adjustments
DescriptionAs described above, in 2018 the HR Committee introduced a robust individual performance component to the AIP to align with our “Culture of Accountability,” and Analysis of Our Program and 2016 Compensation Decisions
This section describesto more directly reflect performance that the components of our executive compensation program,HR Committee desires to reward or discourage. Under this new structure, the way in which the Human ResourcesHR Committee makes decisions about each component, the philosophy behind each component and how these decisions and philosophies were applied to each NEO in 2016. The following table shows the target component pay mix across all our NEOs and lists where we discuss each component in this section.
2016 COMPENSATION ELEMENT | PERCENTAGE OF TOTAL TARGET COMPENSATION FOR CEO | AVERAGE TARGET COMPENSATION | WHERE DISCUSSED | ||||||||||||
Base Salary | 12.3 | % | 21.2 | % | Page 36 | ||||||||||
Annual Incentive Plan | 18.4 | % | 19.9 | % | Page 36 | ||||||||||
Long-Term Incentive Program, comprised of: • Performance-based RSUs (50%) • Time-based RSUs (50%) | 69.3 | % | 58.9 | % | Page 39 | ||||||||||
Base salary provides our NEOsadjusted individual payouts with a fixed annual income. The Human Resources Committee approves the base salary of each NEO on an annual basismultiplier based on its assessment of each NEO’s individual performance and experience level, internal equity considerations, and a review of peer group and market survey data provided by our independent compensation consultant. The following table summarizes the annualized base salaries approved by the Committee for 2016 and the increasefinal rating obtained from each NEO’s annualized salary asperformance review. The multiplier ranges from 0% for a rating of December 31, 2015:
NAMED EXECUTIVE OFFICER | 2015 SALARY | 2016 SALARY | INCREASE FROM 2015 | ||||||||||||
Trevor Fetter | $1,275,000 | $ | 1,275,000 | 0.0 | % | ||||||||||
Daniel Cancelmi | $ 618,000 | $ | 618,000 | 0.0 | % | ||||||||||
Keith Pitts | $ 925,000 | $ | 925,000 | 0.0 | % | ||||||||||
Eric Evans | not in current role | $ | 650,000 | N/A | |||||||||||
Audrey Andrews | $ 489,250 | $ | 525,000 | 7.3 | % | ||||||||||
Mr. Evans was promoted1 to Presidenta potential 150% for a rating of Hospital Operations in March 2016 and received an increase in base salary at that time from5. For any given rating other than 1, the salary he was receiving in his previous role as the CEO of the company’s Texas region. Mr. Evans’ 2016 annualized base salary in his current role is approximately 10% less than the annual base salary that the company’s former President of Hospital Operations was receiving, due to Mr. Evans’ relatively short tenure in the role. Ms. Andrews was the only other NEO to receive any increase in base salary from 2015 levels. The increase was intended to align her compensation toward the median pay of chief legal officers of our peer companies after taking into account her tenure in the role.
Performance-Based Annual Incentive Planmultiplier can range within a specified narrow band.
The Human ResourcesHR Committee annually determinesmade the payment of cash bonusesfollowing performance adjustments for NEOs under our Annual Incentive Plan (AIP), which is a broad-based management compensation program in which approximately 3,000 of our employees participate. Payment of a bonus isNEOs based on the company’s achievementmaterial factors provided below:
Mr. Rittenmeyer received an individual performance adjustment of performance goals established130% based on a rating of 4.5. This rating was determined by the Committee. IfHR Committee based on strong results that Mr. Rittenmeyer delivered in a year of significant transformation. Operational and financial performance has greatly improved in a short period of time, and Mr. Rittenmeyer has provided the thresholdvision behind the “Culture of Accountability” driving results across the enterprise. The HR Committee also considered that under Mr. Rittenmeyer’s leadership, the organization has been reshaped, stabilized and is well-positioned for continued success in 2019 and beyond.
Mr. Cancelmi received an individual performance adjustment of 120% based on a rating of 4. This rating was determined based on the sound financial performance delivered under Mr. Cancelmi’s leadership in 2018. Adjusted EBITDA results were strong and Tenet delivered significant cost reductions by restructuring throughout the organization, streamlining processes and speeding decision-making. Through improved performance, debt retirement and refinancing, Tenet also reduced its leverage and increased financial flexibility, while investing to increase USPI ownership to 95%.
Mr. Pitts received an individual performance adjustment of 100% (no change) based on a rating of 3. This rating was determined based on the positive outcomes that Mr. Pitts and his team were able to produce in 2018. He and his team executed on an accretive divestiture program and guided our exploration of strategic alternatives for Conifer. Mr. Pitts also played an integral role in the successful early acquisition of our minority partner’s remaining interest in USPI.
Mr. Evans received an individual performance adjustment of 90% based on a rating of 2.5. This rating was determined in consideration of the fact that Hospital Operations results were mixed in 2018. While focus on quality and patient satisfaction had positive results, overall performance continued to fall short of expectations. A decision was made to restructure senior leadership at the end of 2018 and create the position Chief Operating Officer in January 2019 with enterprise-wide authority.
Ms. Andrews received an individual performance adjustment of 125% based on a rating of 4.5. This rating was determined based on Ms. Andrews’ significant contributions to the transition of leadership and shift in culture in 2018. She and her team also delivered strong results across the enterprise, and she made organizational changes to further streamline legal processes and reduce outside counsel spend. In addition to her contributions leading the Law department, the HR Committee considered the fact that Ms. Andrews also assumed responsibility for Government Relations in 2018.
The table below shows target and actual AIP awards for 2018.
NAMED EXECUTIVE OFFICER
| TARGET AIP PAYOUT
| CALCULATED
|
INDIVIDUAL
| 2018 ACTUAL AIP PAYOUT
| PAYOUT AS %
| ||||||||||||||||||||
Ron Rittenmeyer | $ | 1,800,000 | $ | 1,384,200 |
| 130 | % | $ | 1,799,460 |
| 99.97 | % | |||||||||||||
Dan Cancelmi | $ | 618,000 | $ | 475,242 |
| 120 | % | $ | 570,290 |
| 92.28 | % | |||||||||||||
Keith Pitts | $ | 925,000 | $ | 711,325 |
| 100 | % | $ | 711,325 |
| 76.90 | % | |||||||||||||
J. Eric Evans | $ | 700,000 | $ | 403,900 |
| 90 | % | $ | 363,510 |
| 51.93 | % | |||||||||||||
Audrey Andrews | $ | 412,500 | $ | 317,213 |
| 125 | % | $ | 396,516 |
| 96.13 | % | |||||||||||||
Long-Term Incentive Compensation
The HR Committee restructured our LTI compensation awards in 2016 with a number of significant changes designed to better align our executives’ incentives with the long-term goals are not exceeded, no bonus is paid. Theof the Company, and the Committee has the discretioncontinued to reduce bonus payments for failure to comply with the company’s standards of conduct or inrefine our LTI design each year since. In response to other quality, safety or compliance eventsspecific shareholder feedback that put the company’s reputation or financial results at risk. In addition, AIPHR Committee establish longer performance periods and reconsider performance metrics, the Committee began making LTI awards to NEOs arein 2016 with cumulative three-year performance periods that were subject to a clawback provision under which the Boardvariety of Directors may require reimbursementperformance metrics connected to the companyCompany’s long-term strategies. For more information on the LTI awards granted in 2016, see “Results of a cash bonus in the event of a material restatement of our financial results caused by the recipient’s fraud or in other circumstances involving fraud or misconduct that causes substantial harm to the company even in the absence of a restatement of financial statements.2016-18 LTI Awards” on page 38 below.
36
| TENET HEALTHCARE● |
COMPENSATION DISCUSSION AND ANALYSIS | ||
2016 Target Annual Incentive Award Levels for Named Executive Officers
In 2016, the Human ResourcesThe HR Committee approved the following target bonuscontinues to review our LTI award levels for each NEO. The target award level represents the amount of potential cash bonus that might be paid to an officer if the company meets pre-establishedstructure and performance goals set by the Committee:
|
| |
| ||
| ||
| ||
| ||
|
These target award levels remain unchanged from the levels established for 2015 AIP bonus, with the exception of the level established for Mr. Evans, which, in connection with his recent promotion to his current role, was set based on market data for comparable positions at peer companies and in recognition of the critical role he plays in executing the business plan of the company’s largest business segment. The target award percentages for Messrs. Fetter and Pitts have not increased since 2013.
2016 AIP Performance Metrics
For 2016, consistent with prior practice, the Committee selected metrics to measure management’s performance with respect toensure that the AIP under a “Balanced Scorecard.” The Balanced Scorecard measures the company’s performance in the following broad categories, which we call “pillars”: Cost, Growth, Quality, Service and People. Points are awarded for each metric under the Balanced Scorecard based on the degree to which the pre-determined goals for that metric are achieved. The aggregate target number of points under the Balanced Scorecard is 100 and the maximum is 200.
| ||||||
|
| |||||
|
| |||||
|
| |||||
|
| |||||
|
| |||||
Goal-Setting Process for the Balanced Scorecard
Financial Pillars. The Committee assigned the greatest weight within the Balanced Scorecard (80%) to management’s performance on Cost and Growth metrics. This was an increase from the 75% weighting applied to these metrics for 2015 and reflects the Committee’s desire to place an increased emphasis on the company’s financial performance. It is the Committee’s expectation that achievement of target-level performance under the Cost and Growth metrics requires management to perform at levels exceeding the prior year’s performance, which is consistent with the Committee’s objective of challenging management to deliver on performance that increases shareholder value. The Committee believes that achievement of above-target performance under the Cost and Growth metrics requires the company’s management to achieve the “stretch” goals embedded in the company’s annual business plan. To achieve this level of performance, management must not only meet the basic objectives of the business plan, but also execute at superior levels on all aspects of the plan.
|
| ||
Adjusted EBITDA is a primary metric that financial analysts and investors use to measure the company’s financialprogram best promotes long-term company performance and for many years, the Committee has used Adjusted EBITDA as the key financial performance metric driving the majority of the Balanced Scorecard calculation, with Adjusted Free Cash Flow as the secondary financial metric. In 2016, the Committee made an important change in the way that these metrics would be defined and calculated in response to the company’s changing strategies. As the company has entered into a number of significant joint venture partnerships, particularly including USPI, Tenet’s net income attributable to noncontrolling interests and its cash distributions paid to noncontrolling interests have increased. The revised EBITDA and free cash flow metrics used in the AIP— Adjusted EBITDA Less NCI and Adjusted FCF Less Cash NCI—are designed to reflect this strategic change and are intended to serve as better measurements of performance driven by Tenet’s management team relative to the benefits received by the company’s shareholders.
The 2016 targets set by the Committee for the Cost metrics matched the company’s 2016 business plan and the midpoint of the company’s outlook provided to investors in February 2016. The Committee chose to set the threshold level for each metric at 10% below target, and the maximum level at 10% above target.
Operational Pillars. The remaining metrics of the Balanced Scorecard measure our management’s achievement of healthcare and other operational performance goals. The Committee selected the metrics discussed below to incentivize management to focus on improving the quality of the healthcare we provide our patients and reducing healthcare costs. The Committee believes that these operational metrics are critical drivers of value as patients are increasingly adopting a consumer orientation in the selection of their healthcare providers and taking more ownership of their healthcare spending. In addition, achieving operational excellence benefits shareholders by enhancing the company’s competitive position in the market.
The Committee established performance goals for each of these metrics based on achieving national performance benchmarks and/or continued internal improvement. Targets are designed to be challenging yet attainable, and take into consideration results from the prior year. The following table sets forth a description of each Quality, Service and People metric and how the targets were set by the Committee.
| ||
|
| |
|
| |
|
| |
|
| |
|
| ||
2016 Balanced Scorecard Performance
The following tables set forth the individual component metrics of the five Balanced Scorecard pillars, the target level of points allocated to each metric and the actual performance levels achieved by management in 2016.
COST AND GROWTH (FINANCIAL) METRIC | THRESHOLD LEVEL | TARGET LEVEL | MAXIMUM LEVEL | ACTUAL PERFORMANCE | TARGET BALANCED SCORECARD POINTS | ACTUAL POINTS | ||||||||||||
Adjusted EBITDA Less NCI(1) | $1.914 billion | $2.127 billion | $2.340 billion | $2.058 billion | 60 | 40.6 | ||||||||||||
Adjusted FCF Less Cash NCI(2) | $245 million | $272 million | $299 million | $163 million | 15 | 0.0 | ||||||||||||
Inpatient admissions(3) | 645,146 | 679,101 | 692,683 | 677,361 | 2.5 | 2.4 | ||||||||||||
Outpatient visits(3) | 8,085,991 | 8,694,613 | 9,042,398 | 8,562,859 | 2.5 | 2.0 | ||||||||||||
TOTAL: | 80 | 45.0 | ||||||||||||||||
NON-FINANCIAL METRIC | TARGET BALANCED SCORECARD POINTS | ACTUAL BALANCED SCORECARD POINTS EARNED | ||||||||
Quality (Quality Composite Index) | 5.0 | 10.0 | ||||||||
Service (Inpatient Satisfaction) | 5.0 | 1.6 | ||||||||
Service (Physician Satisfaction) | 5.0 | 4.2 | ||||||||
People (Employee Turnover) | 5.0 | 6.5 | ||||||||
TOTAL: | 20.0 | 22.3 | ||||||||
Calculation of Actual AIP Award Payments
Based on the AIP performance targets described above, the company’s 2016 performance resulted in achievement under the Balanced Scorecard of 67.3 points, which corresponds with award payouts for most corporate participants at only 67.3% of target. Mr. Evans and other corporate Hospital Operations personnel received payouts based on a scorecard with slightly different weightings (additional emphasis on Quality and Service metrics); Mr. Evans’ award level was also calculated to account for the timing of his assumption of his current role in March 2016 and resulted in a payout at 69.5% of target.
Consistent with the company’s pay-for-performance philosophy, these award levels were among the lowest paid by the company under its annual incentive plan since 2003 and reflected significant decreases in the AIP payouts as compared to 2015, as reflected in the table below.
NAMED EXECUTIVE OFFICER | 2015 ACTUAL AIP PAYOUT | 2016 TARGET AIP PAYOUT | 2016 ACTUAL AIP PAYOUT | ||||||||||||
Trevor Fetter | $ | 2,807,550 | $ | 1,912,500 | $ | 1,287,113 | |||||||||
Daniel Cancelmi | 950,484 | 618,000 | 415,914 | ||||||||||||
Keith Pitts | 1,422,650 | 925,000 | 622,525 | ||||||||||||
Eric Evans | Not in current role | 619,583 | 430,848 | ||||||||||||
Audrey Andrews | 564,350 | 393,750 | 264,994 | ||||||||||||
2016 Long-Term Incentive Compensation Program
As discussed above, significant changes were made to the design of the performance-based LTI awards in 2016. These changes were implemented in response to specific shareholder feedback that the Committee establish longer performance periods and reconsider the performance metrics in order to better connect with the company’s long-term strategies. We believe that our long-term incentive compensation program now betterappropriately aligns the economic interests of our NEOs with those of our shareholders. After reviewing our LTI compensation practices and the 2017 awards, the HR Committee determined that the structure and metrics remained appropriate for 2018 and provided helpful continuity. Our 2018 LTI awards are summarized below.
| • | Performance-Based Stock Options (1/3). of the total target LTI award was granted in the form of performance-based stock options that are subject to the satisfaction of a stock price performance condition. These options become eligible to vest only if the Company’s stock price increases at least 25% from the price on the date of grant. To ensure that the stock price increase represents sustained value creation, the stock price must then close at or above this hurdle price for 20 consecutive trading days for vesting to occur. This performance condition for the 2018 performance options was achieved. If the stock price performance condition had not been achieved in the three years following the date of grant, all of the options would have been forfeited without payment of additional consideration. |
| • | Performance-Based Cash (1/3).One-third of the total target LTI award was granted in the form of performance-based cash awards. Actual payouts will range from 0% to 200% of the target level depending on the degree to which three equally weighted performance metrics are achieved: Adjusted EPS, Adjusted Free Cash Flow Less Cash NCI, and Relative TSR, each measured over a three-year period. While these awards were denominated in shares for those granted in 2016, the HR Committee believed that settling awards in cash would better manage share utilization under our Stock Incentive Plan for awards granted in 2017 and 2018. More information with respect to each metric and the reason it was selected appears in the table below: |
| ||
2016 LTI Grant Values for Named Executive Officers
The Committee evaluated total pay levels in light of the significant decline in the company’s stock price during the second half of 2015 and the first several months of 2016. As a result of this review, the Committee reduced the target value of LTI compensation awards made in March 2016 to Mr. Fetter by 20% from the prior year target award level and to most other senior officers of the company by similar levels. These reductions resulted in Mr. Fetter’s 2016 total target direct compensation (i.e., base salary plus target AIP plus target value of LTI awards) being set at approximately the 25th percentile of our 2016 peer group, Mr. Pitts’ being set at approximately the 50th percentile, and the other NEOs’ being set between the 25th and 50th percentiles.
The following table summarizes the LTI awards granted to each of our NEOs in 2016:
NAMED EXECUTIVE OFFICER | NUMBER OF RESTRICTED STOCK UNITS | TARGET LONG-TERM AWARD VALUE(1) | ||||||||
Trevor Fetter | 282,354 | $ | 7,200,027 | |||||||
Daniel Cancelmi | 72,158 | $ | 1,840,029 | |||||||
Keith Pitts | 122,354 | $ | 3,120,027 | |||||||
Eric Evans(2) | 50,256 | $ | 1,400,096 | |||||||
Audrey Andrews | 47,060 | $ | 1,200,030 | |||||||
2016 Long-Term Incentive Components and Performance Metrics
The following table summarizes the awards in our 2016 long-term incentive compensation program, including the types of LTI awards that we granted, and the purpose, performance measured and vesting period of each type.
| PERFORMANCE | ||||||
|
|
| ||||
|
|
|
As discussed above under “Executive Compensation Program Key Changes—Substantial Redesign for 2016,” one of the most significant recent changes made to our compensation program in response to investor feedback was the adoption of a cumulative three-year performance period and four new performance metrics for all performance-vested RSUs granted to the NEOs in 2016. Performance equity had previously been measured based on one year of total Adjusted EBITDA performance.
In early 2016, the Committee, with input from company management and the other independent directors, undertook a comprehensive review of metrics used by the company and other peer companies to measure performance under incentive compensation programs, and particularly the specific financial and performance metrics that had been suggested by a number of investors as part of the 2015 shareholder engagement program. Discussions focused on the long-term strategies articulated by the Board in its most recent strategic retreat and business plan review and how best to measure management’s performance in driving shareholder value. There was broad agreement among the Committee members that performance must be measured by a number of important metrics so as not to cause undue focus on any one measure, and final agreement was reached on a “basket” of four metrics that would each determine the payout for 25% of the total number of
|
| ||
performance-based RSUs granted to each NEO. The actual awards received will range from 0% to 200% of the target level, depending on the degree to which the performance goals are met. More information with respect to each metric and the reason it was selected appears in the table below.
Adjusted Earnings Per Share (EPS) | • Measures the
• Many analysts and
• Likewise, Adjusted EPS incorporates interest expense and noncontrolling interest expense, which are meaningful uses of the | |
Adjusted Free Cash Flow Less NCI | • Measures the
• The HR Committee believes that free cash flow generation is an important determinant in | |
|
| |
Relative Total Shareholder Return (TSR) | • Compares the
• To achieve a target-level or higher payout on the relative TSR metric, the Company’s relative TSR must exceed that of at least two of the direct peers over the three-year performance period, and the maximum payout will be achieved only if Tenet outperforms all of the other companies. |
| • | Time-Based RSUs (1/3). The |
| TENET HEALTHCARE●2019 PROXY STATEMENT | 37 |
COMPENSATION DISCUSSION AND ANALYSIS | ||
2018 LTI Grant Values for Named Executive Officers
Two-thirds of the total target LTI award isat-risk and requires achievement of rigorous performance goals over a three-year period before value is received. The following table summarizes the total target grant value of LTI awards granted to each of our NEOs in February 2018:
NAMED EXECUTIVEOFFICER | PERFORMANCE CASH(1) | PERFORMANCE STOCK OPTIONS(2) | TIME-BASED RSUS(3) | TOTAL 2018 LTI GRANT VALUE | ||||||||||||||||
Dan Cancelmi | $ | 766,667 | $ | 766,674 | $ | 766,670 | $ | 2,300,011 | ||||||||||||
Keith Pitts | $ | 1,300,000 | $ | 1,300,006 | $ | 1,300,004 | $ | 3,900,010 | ||||||||||||
J. Eric Evans | $ | 833,334 | $ | 833,340 | $ | 833,352 | $ | 2,500,026 | ||||||||||||
Audrey Andrews | $ | 500,000 | $ | 500,008 | $ | 500,003 | $ | 1,500,011 | ||||||||||||
| (1) | Assumes target level performance. |
| (2) | Fair value of these options was calculated using a Monte Carlo simulation; material assumptions used in such calculation are discussed in Note 9 to |
| (3) | Value is based on the NYSE closing price per share of our common stock on the date of grant (February 28, 2018: $20.60). |
Equity Grant TimingRigor of Performance Goals
In establishing target, threshold and Stock Option Exercise Pricesmaximum performance levels for our performance-based cash awards, the HR Committee considers annual and longer-term growth rates that the Company discloses to shareholders, as well as the consensus of analyst estimates and business-planning projections. The HR Committee sets the target amounts at demanding levels that require NEOs to achieve significant improvement each year of the performance period. Evidence of the HR Committee’s highly rigorous approach to goal-setting is apparent in the below-target payout under the 2016 annual LTI awards as discussed below.
Consistent with the practices of many other public companies, the Company has concluded thatpre-disclosure of specific long-term financial performance goals could cause competitive harm to the Company and may be interpreted as guidance by some shareholders. As has been Tenet’s practice, specific goals will be disclosed after the respective performance period is completed and the information is no longer sensitive from a competitive perspective.
Results of2016-18 LTI Awards
Historically, we haveThe redesigned LTI awards first granted in March 2016 had a performance period of three years with performance measured across four equally weighted performance metrics as set forth in the table below (achievement at target on any metric would result in 25.0% of the total payout). Four of our 2018 NEOs—Ms. Andrews and Messrs. Cancelmi, Evans and Pitts—received these grants, which vested in March 2019 following the HR Committee’s certification of the Company’s achievement under the performance metrics.
Three of the four performance metrics for the 2016 LTI awards were the same as the 2018 LTI award performance metrics. The performance metrics for the 2016 LTI awards also included Adjusted Return on Invested Capital (ROIC), which measures capital efficiency and management’s ability to generate economic returns on capital investments and acquisitions.
The following table shows the Company’s results under each of the applicable performance metrics measured over the three-year period ended December 31, 2018.
2016-18 LTI PERFORMANCE METRIC | THRESHOLD PERFORMANCE | TARGET PERFORMANCE | ACTUAL PERFORMANCE | PAYOUT | |||||||||||||
Adjusted Earnings per Share | $5.87 | $6.52 | $3.71 | 0.00% | |||||||||||||
Adjusted Free Cash Flow less Cash NCI | $1.358 billion | $1.509 billion | $839 million | 0.00% | |||||||||||||
Adjusted return on invested capital | 4.91% | 5.46% | 5.23% | 17.20% | |||||||||||||
Relative total shareholder return | 4th | 3rd | 3rd | 25.00% | |||||||||||||
Total Pay Delivery | 42.20% of Target | ||||||||||||||||
Results of 2014 Performance LTI Awards
In August 2014, the HR Committee made awards of performance RSUs to certain senior officers.One-third of these RSUs vest on attainment of performance criteria based on the Company’s compound annual growth rate (CAGR) of Adjusted EBITDA over the three-year period ended December 31, 2018 as compared to the Company’s Adjusted EBITDA for the year ended December 31, 2015. The number of shares received with respect to this award could range from 0% to 200% of the target level, depending on the degree to which the target
38 | TENET HEALTHCARE●2019 PROXY STATEMENT |
COMPENSATION DISCUSSION AND ANALYSIS | ||
performance goals were achieved. The threshold performance for Adjusted EBITDA CAGR from 2015 to 2018 was 1%, with target at1%-3% and maximum at greater than 3%. Actual performance was above the maximum at 3.89% CAGR, resulting in a payout of 200%. Ms. Andrews and Messrs. Cancelmi, Evans and Pitts received these grants, which remain subject to a service-based vesting requirement and will vest in August 2019 subject to continued employment.
Chief Executive Officer Compensation
Mr. Rittenmeyer’s compensation package has been designed to effect a successful turnaround at Tenet at reasonable compensation levels consistent with our philosophy of paying for strong performance results. Accordingly, Mr. Rittenmeyer’s compensation arrangement has evolved as he has continued to produce meaningful improvements and drive the Company towards its key strategic objectives. This evolution includes aone-and-a-half year extension approved in early 2019 to provide for a successful turnaround while maintaining annualized compensation levels that are reasonable compared to peers and below those of our former CEO, as described in detail below.
The following graphic annualizes Mr. Rittenmeyer’s target direct compensation for the entire term of his service as CEO through the end of his extended Employment Agreement on June 30, 2021. The HR Committee believes this presentation provides a more holistic view of
Mr. Rittenmeyer’s intended compensation package as compared to the SEC-required disclosure levels shown in the Summary Compensation Table on page 47, where LTI equity awards are reported entirely in the year of grant. When approving Mr. Rittenmeyer’s compensation arrangements, the HR Committee viewed compensation levels from an annualized basis to confirm that his target compensation remained below the NEOsmedian peer CEO level and below the pay level of his predecessor in the role. The HR Committee also considered that granting the awards up front would serve to strongly link Mr. Rittenmeyer’s potential pay delivery to Tenet’s turnaround results during this period. The HR Committee does not intend to make any additional LTI grants, or other employeesforms of compensation, to Mr. Rittenmeyer during the remainder of his term of service with the Company.
Ron Rittenmeyer’s Target Direct Compensation as CEO
(August 31, 2017 to June 30, 2021)
2018 Chief Executive Officer Employment Agreement
In March 2018, Tenet entered into the Employment Agreement with Mr. Rittenmeyer engaging him to serve as the Company’s CEO for thetwo-year period from March 1, 2018 through February 28, 2020.
In determining the appropriate compensation for Mr. Rittenmeyer, the HR Committee considered Mr. Rittenmeyer’s strong performance during the first quartersix months of his tenure. The Committee set the target for Mr. Rittenmeyer’s annual direct compensation at approximately the 25th percentile of our peers based on the belief that initial compensation levels for an incoming CEO should be set with room for growth and with the expectation that, should the Employment Agreement be amended or extended, future compensation levels would be determined based on actual performance results.
| TENET HEALTHCARE●2019 PROXY STATEMENT | 39 |
COMPENSATION DISCUSSION AND ANALYSIS | ||
For thetwo-year period from March 1, 2018 through February 28, 2020, the Employment Agreement provides for:
Base Salary: $1,200,000 per year
Annual Incentive Plan: 150% of salary (at target) per year
Long-Term Incentives: $14,000,000 for thetwo-year period (granted 50% in connection with annual executive compensation decisions. In accordance withRSUs and 50% in time-vested or “restricted” cash)
Under the terms of our equity plans,the Employment Agreement, Mr. Rittenmeyer’s long-term incentives vest in equal quarterly installments over thetwo-year term, aligning with the transitional nature and compressed timing of the turnaround objectives. In making these LTI grants, the HR Committee believed that two years was too short to set meaningful long-term performance goals, but rather that performance would be fairly reflected by the change in the Company’s stock price over the period. Mr. Rittenmeyer is not covered by Tenet’s Executive Severance Plan.
The HR Committee approved the compensation for Mr. Rittenmeyer under his Employment Agreement, including the RSUs with a grant date fair value of $7,000,000, on February 28, 2018; however, the parties did not execute the Employment Agreement until March 24, 2018. The HR Committee intended for the grant date of these awards isfor Mr. Rittenmeyer’s restricted stock units to be the date of HR Committee approval in February. Instead, the Human Resources Committee approvesdate of execution of the Employment Agreement in March was used to determine the grant which usually occursdate. As a result of using the March grant date, Mr. Rittenmeyer received 288,660 restricted stock units whereas the HR Committee intended Mr. Rittenmeyer to receive the number of units calculated with the February grant date, or 339,806. In June 2018, the HR Committee awarded Mr. Rittenmeyer RSUs equal to the difference between these figures, or 51,146 units.
Extension in 2019
In February 2019, recognizing the considerable improvements Mr. Rittenmeyer had already implemented and the additional progress required in the Company’s turnaround process, the Board of Directors approved an amendment to Mr. Rittenmeyer’s Employment Agreement that extends his term of service through June 2021.
Mr. Rittenmeyer’s base salary and annual bonus opportunity remain unchanged under the Amendment. In connection with the Amendment, an award of RSUs valued at $16,000,000 and vesting in nine quarterly installments was granted to Mr. Rittenmeyer to further align his interests with those of shareholders over the remainder of his term of service as CEO, and to reward continued turnaround performance reflected by Tenet’s stock price growth rather than setting goals for a meeting date which is scheduledshort incremental performance period. Since assuming the role of Executive Chairman on August 31, 2017, Tenet’s share price has increased by more than one75% through March 21, 2019, driving an increase in market-capitalization of approximately $1.4 billion over that time period.
The Amendment also extends the duration of thenon-competition andnon-solicitation covenants to which Mr. Rittenmeyer is subject under the Employment Agreement from 12 months following the date of Mr. Rittenmeyer’s termination of employment to two years following such date.
To facilitate a smooth transition and to promote stability in leadership, Mr. Rittenmeyer has agreed to serve in an advisory role to his successor over an additionaltwo-year period following the end of his employment as CEO. Under this advisory arrangement, Mr. Rittenmeyer will receive an annual retainer of $750,000, will remain eligible to participate in the Company’s health and welfare benefits programs, and will remain subject to restrictive covenants no less favorable to the Company than those set forth in the Employment Agreement.
The Board does not intend to approve any further LTI awards or other forms of compensation for Mr. Rittenmeyer during the remainder of his term of service with the Company.
Creation of Enterprise-Wide COO Role
The Board maintains a strong leadership succession plan. Over the past year, in advance.
We occasionally may grant equity awards, including stock options to newly hired employees, employees whoseveral steps have been promotedtaken to officer-level positions, orensure that the Company has the appropriate leadership structure and a clear succession process with internal candidates being developed for special recognition or retention outsidefuture key promotions.
In November 2018, the Board announced the appointment of Saumya (Saum) Sutaria, M.D., as Chief Operating Officer (COO) of the annual grant process. For equity grants awarded outsideCompany, to be effective in January 2019. The appointment created a new position and restructured the Company’s senior leadership. Previously, operational leadership was divided among the three business units, with Mr. Evans serving as President of Hospital Operations. Under the annual grant process cycle,new streamlined structure, Dr. Sutaria as COO has direct responsibility for the grant date generally isHospital business unit as well as the authority to design and implement enterprise-wide initiatives, particularly with respect to increased integration. This shift in leadership structure aligns with the Company’s broader transformation strategy and leverages Dr. Sutaria’s clinical, operational and advisory experience accumulated over 20 years working in complicated and diverse healthcare systems and related businesses.
Dr. Sutaria most recently served as a Senior Partner at McKinsey & Company, where he worked for 18 years providing advisory support for hospitals, healthcare systems, physicians groups, ambulatory care models, integrated delivery, andgovernment-led delivery, while also working with institutional investors in healthcare. Previously, Dr. Sutaria practiced medicine with a focus in internal medicine and cardiology.
Mr. Evans and the Company agreed that his last trading day of employment with the month of hire or the approval of the promotion or retention award.Company would be December 31, 2018. In connection with his departure, Mr. Evans was the only NEOeligible to receive any such special awardbenefits consistent with a Qualifying Termination and/or termination without cause under the Company’s Executive Severance Plan and other employee benefit plans, as further described on page 56.
40 | TENET HEALTHCARE●2019 PROXY STATEMENT |
COMPENSATION DISCUSSION AND ANALYSIS | ||
Chief Operating Officer Employment Agreement
In connection with his appointment as COO, Tenet entered into an employment agreement with Dr. Sutaria for an initial three-year term until January 2022, during which he will receive target total direct compensation in 2016,the median annual range for comparable positions, consisting of:
Base Salary: $1,000,000 per year
Annual Incentive Plan: 100% of salary (at target) per year
Annual Long-Term Incentives: $4,000,000 in RSUs per year (vesting ratably over three years)
The HR Committee also approved aone-time buyout to Dr. Sutaria valued at $12,000,000, which was a make-whole for forfeited and forgone earnings from his previous employer. Thebuy-out was split between $7 million in RSUs and $5 million in restricted cash to provide for employment retention, as described above when he was promoted into his current role. The exercise price for all stock options isit vests in full upon the NYSE closing price per share of our common stock on the date of grant or on the immediately preceding trading day if the date of grant is a non-trading day. Human Resources Committee approval is required in all cases where the recipientexpiration of the equity grantthree-year term. LTI awards to Dr. Sutaria are not subject to financial performance goals as part of this initial employment arrangement, which is designed to transition him to a NEO or other senior officer.public company compensation program from a private partnership model at his prior employer. The Company’s stock price performance over the period will be reflected in ultimate pay delivery. Dr. Sutaria is subject to certainnon-competition covenants for one year, andnon-solicitation covenants for two years, following termination of his employment. Dr. Sutaria is not covered by Tenet’s Executive Severance Plan, and there were no additional hiring inducements.
Role of the Human Resources Committee
The Human ResourcesHR Committee of our Board of Directors, which is comprised entirely of independent directors and makes all compensation decisions regarding our NEOs. The HR Committee considers input from (i) the other independent members of our Board of Directors, (ii) the company’sCompany’s shareholders and (iii) its independent compensation consultant. In the case of NEOs other than the Chief Executive Officer,CEO, the HR Committee also considers input and recommendations from the Chief Executive Officer.CEO. The HR Committee’s decisions regarding compensation of our NEOs are made outside the presence of these officers. The HR Committee is also responsible for approving our executive compensation program and general compensation policies, all new or materially amended broad-based compensation plans and the performance measures used in our executive compensation programs.
|
| ||
Independent Compensation Consultant
The Human ResourcesHR Committee has retained an independent consultant, Frederic W. Cook & Co. (the “Consultant”), as its independent consultant to provide data on market compensation practices and adviseassist the Committee on executive compensation decisions generally as well as the design and structure of our executive compensation plans and policies.with its duties. In 2016,2018, the Consultant participated in or provided input with respect to all meetings of the Committee.HR Committee and regularly communicated with the Committee Chair and the Lead Director. This year the Consultant’s services included:
Providing market data, industry trends and competitive analysis relative to our peers;
Advising on the key elements of our executive compensation plans and policies;
Reviewing our compensation peer group and suggesting changes, if warranted; and
Providing recommendations on the structure and competitiveness of compensation for our CEO and COO.
Subject to the approval of the HR Committee, the Consultant meets with members of management to:
data. Any material information provided to management by the Consultant is disclosed to the HR Committee.
To safeguard the independence of the Consultant:
The HR Committee retains the Consultant, determines the terms and conditions of the Consultant’s engagement and has the sole authority to approve the Consultant’s fees and other retention terms or to terminate the engagement;
The Consultant reports directly to the HR Committee and has direct access to the Committee Chair during and between meetings; and
The Consultant provides no services to the companyCompany or management, except as related to executing the Human Resourcesprovisions of the HR Committee Charter, and with the knowledge and approval of the HR Committee Chair.
The HR Committee has assessed the independence of the Consultant pursuant to SEC and NYSE rules and concluded that no conflict of interest exists in connection with the Consultant’s service as an independent advisor to the Human Resources Committee.
| TENET HEALTHCARE●2019 PROXY STATEMENT | 41 |
COMPENSATION DISCUSSION AND ANALYSIS | ||
Each year, the Human ResourcesHR Committee reviews the performance of the Chief Executive OfficerCEO with the other independent members of the Board in executive session. This review is based on the performance evaluations of the Chief Executive OfficerCEO by each of the independent Board members, as well as other data provided to the HR Committee, including the Chief Executive Officer’sCEO’s self-evaluation and the feedback provided by selected members of management. AsFor performance reviews of other NEOs, the CEO provides the HR Committee a detailed evaluation based in part on a self-assessment completed by each NEO to review prior year performance as measured against personal, pre-established goals. For a summary of the Board’s annual self-evaluation, the independent members of the Board provide feedback on their assessment of the performance of the NEOs and selected senior officers. The Committee also receives an assessment by the Chief Executive Officer of the performance of every other NEO. To maintain the integrity of the review process, the contents of individual reviews and related discussions are kept confidential. If and to the extent that performancematerial factors addressed in any individualeach NEO’s performance review, affect an individual NEO’s compensation, those factors are discussed above.see page 36.
Benchmarking Against Peer Companies
In setting compensation for our NEOs, the Human ResourcesHR Committee typically reviews comparative compensation data derived from the companies that comprise our peer group, as well as market survey data provided to us by the Consultant. The HR Committee believes it is appropriate to evaluate the compensation of the NEOs against a blend of peer group and market survey data given the small number of publicly held healthcare services companies comparable in size to Tenet and the fact that hospital companies comprise only a small portion of the publicly held healthcare service companies. We describe each of thethese data sources in more detail below.
The Human ResourcesHR Committee seeks to compensate our NEOs as a group, at competitive compensation levels relative to our peer group when target-levelstarget levels of performance goals are met. The Committeemet and considers the “market median” to be a helpful benchmark in setting compensation levels for our NEOs. Recognizing
2018 Peer Group
The changing healthcare landscape, including consolidation among health care providers, left only four other similarly sized publicly traded “direct” competitors engaged primarily in the need to retain key executivesoperation of acute care hospitals at the beginning of 2018: Community Health Systems, Inc., HCA Healthcare, Inc., LifePoint Health, Inc. and Universal Health Services, Inc. (collectively, the “Direct Peers”). While these four Direct Peers were included in our peer group for 2018, in November 2018, LifePoint Health, Inc. went private in connection with a highly competitive marketmerger, leaving only three. To create a sufficiently large peer group of public companies with whom Tenet competes for talent, the HR Committee haslooked to related industry segments that approximated Tenet in revenues, enterprise value and number of employees. In consultation with the Consultant, for 2017 the HR Committee established the objective selection process below to determine its peer group. For 2018, the HR Committee determined it was appropriate to follow the same process again, resulting in the same 17 companies that operate across healthcare services, facilities and equipment, as well as managed care.
| • | Step 1: Start with the Direct Peers(Four companies) |
Step 2: Add companies in the following GICSsub-industry segments identified as peers by at times targeted total compensationleast two of the four direct peers:
| ¡ | Healthcare Facilities |
| ¡ | Healthcare Services |
| ¡ | Managed Healthcare |
| ¡ | Healthcare Equipment |
| ¡ | Healthcare Distributors |
(198 additional companies added)
Step 3: Remove companies with:
| ¡ | Revenues less than ~$5 billion or greater than ~$60 billion |
| ¡ | Enterprise value greater than $75 billion |
| ¡ | Fewer than 25,000 employees |
(184 companies removed)
Step 4: Review potential peers for certain NEOs above the market median. However, in light of recentrelevance to Tenet:
| ¡ | Remove companies with limited overlap with Tenet |
(1 company stock price and financial performance below many of our peers, the Committee kept most senior officer base salary levels unchanged in 2016 and reduced the value of LTI awards granted in 2016, targeting total compensation at or below the median for all of our NEOs.removed)
42
| TENET HEALTHCARE● |
COMPENSATION DISCUSSION AND ANALYSIS | ||
2016 Peer Group
The company’s executive compensation peer group has traditionally been comprised of public companies in a number of healthcare-related industry classification groups, including the company’s Health Care Facilities classification, but also health services and managed care categories. The changing healthcare landscape, including the consolidation among health care providers, has left only four other similarly-sized publicly-traded “direct” competitors that are engaged primarily in the operation of acute care hospitals: Community Health Systems, Inc., HCA Holdings, Inc., LifePoint Health, Inc. and Universal Health Services, Inc. (collectively, the “Direct Peers”). As a result, peer group selection had become significantly more challenging. In recognition that the historical healthcare-related peer group included many companies with very different business models (including insurance, pharmaceutical services and clinical laboratory companies), the Committee asked the Consultant to review its approach to peer group selection.
The Committee decided in late 2015 to utilize an approach to peer group selection for 2016 that would include both the limited number of direct competitors as well as a number of general industry companies that did not operate in the healthcare sector, but were comparable to us in terms of the complexity and labor intensiveness of their business operations. The Committee established the following selection criteria process to determine this newly constructed peer group:
|
|
| ||||||
|
Using the criteria set forth above, the HR Committee established the following peer group for 20162018 compensation decisions:
| OTHER PEERS | |||
Community Health Systems | Aetna | Genesis Healthcare | ||
HCA Healthcare | Baxter International | Humana | ||
LifePoint Health | Becton, Dickinson and Company | Kindred Healthcare | ||
Universal Health Services | Boston Scientific | LabCorp | ||
| ||||
| Quest Diagnostics | |||
DaVita | Stryker | |||
Envision Healthcare |
The following chart illustrates Tenet’s size compared to the 20162018 peer group median of revenues, enterprise value and number of employees, using data provided to the HR Committee by the Consultant as of September 30, 2015.in November 2017.
The Committee continues
Tenet Positioning Relative to evaluate both (i) its approach to peer group selection in light of the uncertainty in the healthcare regulatory environment and continued changes in our industry, and (ii) the specific criteria used to identify peer companies of broadly similar size and complexity that compete for talent, business and capital.Peers
Market Survey Data
For 20162018 compensation decisions, the HR Committee reviewed additional compensation data from the following third-party general-industry survey sources:
SURVEY | TARGETED ANNUAL REVENUE OF COMPANIES COMPRISING | |
| $10 billion to $25 billion | |
| Greater than $10 billion | |
| $10 billion to $20 billion | |
| Greater than $5 billion | |
| $ |
The Consultant compiles data from these survey sourcessurveys relating to the compensation levels received for each position held by a NEO against the compensation levels received by executives holding similar positions at other companies. The Consultant compiles data from these sources andthen presents the data to the HR Committee in aggregated form. In benchmarking compensation levels against the survey data, the HR Committee considers only the aggregated survey data provided by the Consultant. The identity of the companies comprising the survey data is not disclosed to, or considered by, the HR Committee in its decision-making process. The HR Committee members do not consider the identity of the companies comprising the survey data to be material for this purpose.
| TENET HEALTHCARE●2019 PROXY STATEMENT | 43 |
COMPENSATION DISCUSSION AND ANALYSIS | ||
Other Compensation, Benefits and Considerations
Perquisites
Tenet operates aircraft that we believe providePerquisites for a more efficientour NEOs are limited and generally represent an immaterial element of our executive compensation program. They largely consist of life insurance premiums, Company contributions to retirement programs available to other senior officers, and personal use of our executives’ time givenCompany aircraft.
Upon the greater likelihoodrecommendation of direct flights and improved flight times than are available commercially. Itan independent, third-party security study, the Company also provides Mr. Rittenmeyer a more secure traveling environment where sensitivecar and personal security driver that he primarily uses for commuting and local business issues may be discussed.travel. The HR Committee does not consider these security costs as personal benefits because they serve a business purpose arising from his employment as CEO. However, the Company is required to disclose the unreimbursed incremental costs associated with the personal use of the Company-provided car, including commuting expenses, and personal security driver. These services were made available to Mr. Rittenmeyer beginning in October 2018, and the related amounts are disclosed in the 2018 Summary Compensation Table on page 47.
Under ourThe security study also recommended Mr. Rittenmeyer use Company aircraft for both business and personal use. Our aircraft usage policy our Chief Executive Officer and certain other employees of the company approved by him from timerequires Mr. Rittenmeyer to time are eligible to use the company’s aircraft for limited personal use. We believe this is a reasonable perquisite to offer to our senior executive officers so long as there is a business necessity of maintaining company aircraft. To the extent any travel on our aircraft results in imputed income to a NEO, the company does not provide gross-up payments to cover the officer’s personal income tax obligation due to such imputed income.
|
| ||
Under our aircraft usage policy, Mr. Fetter must reimburse us for any personal use of the corporate aircraft above 75 hours per year.year and allows Mr. Rittenmeyer to approve limited personal use of Company aircraft by certain other Company executives. In 2016,2018, Mr. Fetter’sRittenmeyer’s personal use of the corporate aircraft totaled 55.3approximately eight hours. The unreimbursed incremental cost of his and other NEO’s use is disclosed in the 2018 Summary Compensation Table.Table on page 47.
The Company does not provide taxgross-ups to NEOs except to Mr. Rittenmeyer exclusively to cover personal income tax obligations due to imputed income for use of a Company-provided car for security purposes. We do not provide our NEOs with any other significant perquisites.
Executive Severance Plan
In 2006, we adopted theThe Tenet Executive Severance Plan (ESP), which is applicable to certain of our NEOs and certain other senior managers and officers of the company,Company, including hospital chief executive officers. The terms of the ESP were approved by the Human Resources Committee after consultation with the Consultant at the time it was adopted.
The ESP provides cash severance and other benefits that vary by position level, consistent with market practice. In May 2012, our Human Resources Committee eliminated from the ESP all participants do not receivegross-ups of excise taxes that may be incurred upon a change of control to current and future participants.control.
The ESP is intended to continue the company’s practice of strengthening retention and recruitment by offering competitive compensation packages consistent with industry standards. Each of the NEOs, other than Mr. Rittenmeyer, participates in the ESP. The severance periods for the company’sCompany’s NEOs under the ESP were determined by the HR Committee based on (1) past company practice, (2) competitive data provided by the Consultant regarding the severance periods in place for executives of similar sizedsimilar-sized companies and other healthcare peers, and (3) the HR Committee’s analysis of the future financial impact of various severance compensation scenarios on each of these executives and on the company.Company.
Provisions in the ESP and related severance agreements regardingnon-competition, confidentiality,non-disparagement andnon-solicitation as a condition of receipt of severance benefits under the ESP remain in effect for at least the period during which the severed executive is entitled to receive severance payments. There are no provisions regarding waiver of breach of any such agreements or provisions.
A more detailed description of the ESP is contained in “Potential Payments Upon Termination or Change of Control” beginning on page 55.
Supplemental Executive Retirement Plan
The Supplemental Executive Retirement Plan (SERP) provides certain current and former officers with retirement benefits in the form of lifetime annuity payments. The benefit amount is based on the officer’s years of service, age and earnings. Benefit amounts received under the SERP are reduced (offset) by any benefit received under the Tenet Executive Retirement Account described below.
Our SERP has been in place since 1984, but the Committee adopted a policywas closed to new participants in 2014 discontinuing the admission of future new entrants.2014. The SERP will bewas continued for existing participants, includingwhich includes Messrs. Fetter, Cancelmi and Pitts, and Ms. Andrews, but the Committee does not intend to include any additional new participants in the SERP.Andrews. As of December 31, 2016, 15 current2018, only nine employees of the company (including each of the NEOs other than Mr. Evans)Company participated in the SERP. Additional information regarding benefit calculations and other terms of the SERP is provided in the narrative discussion following the 2018 Pension Benefits Table on page 52.53. Messrs. Rittenmeyer and Evans do not participate in the SERP.
Executive Retirement Account
In 2007, weWe established the Tenet Executive Retirement Account (the ERA)(ERA) in order to attract and retain certain members of companyCompany management, particularly those who were not eligible to participate in the SERP. The companyCompany makes an annual contribution to the ERA each year on behalf of each participant in an amount equal to a specified percentage of the participant’s base salary. Such contributions accrue earnings credits. Upon a qualifying termination, participants are entitled to a retirement benefit equal to the vested balance of their ERA account. Upon
44 | TENET HEALTHCARE●2019 PROXY STATEMENT |
COMPENSATION DISCUSSION AND ANALYSIS | ||
becoming eligible to participate in the SERP, a participant’s ERA account balance is frozen and such participant is no longer eligible to receive contributions or earnings credits under the ERA. Such individual, however, may continue to accrue years of vesting service under the ERA.
Mr. Rittenmeyer began participating in the ERA in 2018, and Mr. Evans was a participant in the ERA until his departure in 2018. Mr. Cancelmi and Ms. Andrews began participating in the ERA prior to becoming eligible to participate in our SERP. Upon a qualifying termination of employment, Mr. Cancelmi and Ms. Andrews will receive their vested balances under the ERA and will also be entitled to receive their applicable benefit under the SERP, but such SERP benefit will be reduced (offset) by any benefit received under the ERA. Mr. Evans continues to be an active participant in the ERA as hePitts does not participate in the SERP.ERA.
Deferred Compensation Plan
Under our Fifth Amended and Restated Tenet 2006 Deferred Compensation Plan (the 2006(2006 DCP), our NEOs and other eligible management employees may defer a portion of their base salary and annual incentive compensation that would otherwise be paid during a given calendar year. We make employer matching contributions to the 2006 DCP for employee participants in an amount equal to 50% of participant supplemental deferrals not to exceed 6% of compensation. The purpose of our deferred compensation plans2006 DCP is to enable highly paid employees to defer the taxable receipt of a portion of
|
| ||
their income, until such time as the employee is more likely to be in a lower tax bracket, usually at retirement, and to provide these employees with the matching contribution they would have received under our 401(k) Plan if Internal Revenue Code limits applicable to such plan did not apply.
Each of the NEOs is eligible to participate in the 2006 DCP. Additional details regarding our deferred compensation plans are set out under “Deferred Compensation Plans”“Nonqualified Deferred Compensation” beginning on page 54.
Employee Benefits
Our NEOs participate in the company’sCompany’s broad-based programs generally available to all employees, including our 401(k) retirement plan,Retirement Savings Plan, health and dental and various other insurance plans, including disability and life insurance. Also, in connection with the SERP, we provide additional life insurance and accidental death and dismemberment insurance as described under “Potential Payments Upon Termination or Change of Control – Control—Death, Disability and Retirement” beginning on page 55.56. These benefits are consistent with providing a total pay program that is sufficiently competitive with our peer companies so as to attract and retain highly qualified personnel.
Tax Matters
Section 162(m) of the Internal Revenue Code (Section 162(m)) generally disallows a tax deduction to public companies for compensation in excess of $1,000,000 paid to any NEO (other than the chief financial officer employed at the end of the year)certain “covered employees” in any single year, but exempts qualifyingyear. Prior to 2018, the HR Committee generally sought to structure our performance-based compensation from the deduction limit if certain requirements are met. The Human Resources Committee generally seeks to structure performance-based compensationelements in a manner intended, but not guaranteed, to satisfy these requirements.
The Boardqualify as “performance-based” for purposes of satisfying the conditions of an exemption to this limit on deductibility. For taxable years beginning after December 31, 2017, the Tax Cut and the Committee reserve the authority to award nondeductibleJobs Act repealed this exemption from Section 162(m)’s deduction limit for all but certain grandfathered compensation arrangements that were in effect as they deem appropriate. Further, becauseof November 2, 2017. Because of ambiguities and uncertainties as to the application and interpretation of Section 162(m) and related regulations including the scope of relief for grandfathered arrangements, no assurance can be given that compensation awarded or paid in prior years and intended by the HR Committee to satisfy the requirements for deductibility under Section 162(m) doeswill in fact do so.be fully tax deductible. Notwithstanding the repeal of the “performance-based” compensation deduction pursuant to Section 162(m), the Company intends to continue subjecting a significant portion of the incentive compensation payable to our NEOs to the achievement of one or more performance metrics specified by the HR Committee.
Compensation Governance Practices
Stock Ownership and Stock Retention Requirements
OurThe Board of Directors has adopted stock ownership and stock retention requirements for ournon-employee directors and all companyCompany officers with the title of Senior Vice President and above, to further align such individual’s economic interests with those of our shareholders. The ownership requirements must be met within five years from the date on which an individual becomes a director or senior officer. If, during or after such five-year period, a senior officer is promoted to a position that requires a higher stock ownership multiple than the position previously held, the senior officer will be granted an additionaltwo-year period to meet the increased multiple.
| TENET HEALTHCARE●2019 PROXY STATEMENT | 45 |
COMPENSATION DISCUSSION AND ANALYSIS | ||
Each senior officer is required to own shares of our stock with a value equal to the following multiples of his or her base salary:
EXECUTIVE LEVEL | MARKET VALUE OF COMMON STOCK OWNED AS A MULTIPLE OF BASE SALARY | |
Chief Executive Officer | 6x | |
Chief Operating Officer, Vice Chairman, Chief Financial Officer, | 2x | |
Senior Vice | 1x |
Shares counted toward the stock ownership requirements include: (i) shares of common stock held of record or in a brokerage account by the individual or his or her spouse; (ii) unvested restricted stock or RSUs; and (iii) stock units credited under deferred compensation plans. Outstanding stock options do not count toward satisfaction of the ownership requirements.
If a director or senior officer does not meet the applicable ownership requirements, he or she must retain 100% of any “net shares” received upon the exercise of stock options and the vesting of restricted stock or RSUs until such time as the requirements are met. For this purpose, “net shares” means the number of shares received upon exercise of stock options or upon vesting of restricted stock or RSUs less the number of shares sold or deducted to pay the exercise price (in the case of options), withholding taxes and any brokerage commissions.
AsMr. Rittenmeyer is within the initial compliance period, and all other NEOs that are current employees of March 13, 2017, all NEOs werethe Company are in compliance with thethese requirements. All senior officers are required to certify that they are in compliance with these guidelines prior to executing a sale of the company’sCompany’s common stock.
Equity Grant Timing and Stock Option Exercise Prices
Historically, we have made annual equity awards to the NEOs and other employees during the first quarter of the year in connection with annual executive compensation decisions. In accordance with the terms of our equity plans, the grant date of these awards is the date the HR Committee approves the grant, which usually occurs at a meeting scheduled more than one year in advance.
We occasionally may grant equity awards, including stock options to newly hired employees, employees who have been promoted to officer-level positions, or for special recognition, retention or other purposes outside of the annual grant process. For equity grants awarded outside of the annual grant process cycle, the grant date generally is the last trading day of the month of hire or the approval of the promotion or retention award. Mr. Rittenmeyer was the only NEO to receive any such special award in 2018, as described above. The exercise price for all stock options is the NYSE closing price per share of our common stock on the date of grant or on the immediately preceding trading day if the date of grant is not a trading day. HR Committee approval is required in all cases where the recipient of the equity grant is an NEO or other senior officer.
Prohibition on Hedging or Pledging Our Stock
Our insider trading policy prohibits any NEO or any other officer or employee subject to its terms (approximately 7570 people) from entering into short sales or derivative transactions to hedge their economic exposure to our stock. In addition, these officers and employees are prohibited from pledging our stock, including through holding our stock in margin accounts.
Clawback Policies
All awards under our AIP, including for NEOs, are subject to clawback and forfeiture provisions under which the Board may require forfeiture or reimbursement to the Company of a cash bonus in the event of a material restatement of our financial results caused by the recipient’s fraud or in other circumstances involving material violations of Company policy, fraud or misconduct that cause substantial harm to the Company even in the absence of a restatement of financial statements. In addition, performance-based LTI awards made to our NEOs in 2016 and later years are subject to clawback if, within three years following the end of the performance period, the Company materially restates its financial results with respect to the performance period and the recipient’s fraud or misconduct caused or partially caused the need for the restatement.
46
| TENET HEALTHCARE● |
|
Summary Compensation Table
The following table summarizes the compensation in the years ended December 31, 2016, 20152018, 2017 and 20142016 for our Chief Executive Officer, our Chief Financial Officer and our three most highly compensated other executive officers during 2016 (collectively, the NEOs). Additional information concerning our NEOs’ compensation can be found in the Compensation Discussion and Analysis section of this Proxy Statement beginning on page 27.NEOs for 2018. Mr. Rittenmeyer was not an NEO prior to 2017.
20162018 Summary Compensation Table
| NAME AND PRINCIPAL POSITION | YEAR | SALARY ($)(1) | BONUS ($) | STOCK AWARDS ($)(2) | OPTION AWARDS ($) | NON-EQUITY INCENTIVE PLAN COMPENSATION ($)(1)(3) | CHANGE IN PENSION VALUE AND NONQUALIFIED DEFERRED COMPENSATION EARNINGS ($)(4) | ALL OTHER COMPENSATION ($)(5) | TOTAL ($) | ||||||||||||||||||||||||||||||||||||
Trevor Fetter Chief Executive Officer | 2016 | 1,275,000 | -0- | 7,299,204 | -0- | 1,287,113 | 2,245,496 | 279,203 | 12,386,016 | ||||||||||||||||||||||||||||||||||||
| 2015 | 1,316,346 | -0- | 9,000,061 | -0- | 2,807,550 | 2,016,823 | 213,503 | 15,354,283 | |||||||||||||||||||||||||||||||||||||
| 2014 | 1,250,000 | -0- | 8,000,000 | -0- | 3,857,428 | 4,612,782 | 229,897 | 17,950,107 | |||||||||||||||||||||||||||||||||||||
Daniel Cancelmi Chief Financial Officer | 2016 | 618,000 | -0- | 1,865,374 | -0- | 415,914 | 1,199,116 | 11,804 | 4,110,208 | ||||||||||||||||||||||||||||||||||||
| 2015 | 636,231 | -0- | 2,200,005 | -0- | 950,484 | 824,015 | 25,956 | 4,636,691 | |||||||||||||||||||||||||||||||||||||
| 2014 | 565,923 | -0- | 4,900,001 | -0- | 984,001 | 2,316,274 | 15,575 | 8,781,774 | |||||||||||||||||||||||||||||||||||||
Keith Pitts Vice Chairman | 2016 | 925,000 | -0- | 3,163,004 | -0- | 622,525 | 664,903 | 16,742 | 5,392,173 | ||||||||||||||||||||||||||||||||||||
| 2015 | 828,577 | -0- | 3,500,004 | -0- | 1,422,650 | 696,404 | 541,645 | 6,989,280 | |||||||||||||||||||||||||||||||||||||
| 2014 | 699,992 | -0- | 5,999,987 | -0- | 1,170,400 | 515,666 | 179,962 | 8,566,007 | |||||||||||||||||||||||||||||||||||||
Eric Evans President of Hospital Operations(6) | 2016 | 626,538 | -0- | 1,424,360 | -0- | 430,848 | -0- | 148,600 | 2,630,346 | ||||||||||||||||||||||||||||||||||||
Audrey Andrews SVP and General Counsel | 2016 | 515,375 | -0- | 1,216,560 | -0- | 264,994 | 793,748 | 11,703 | 2,802,380 | ||||||||||||||||||||||||||||||||||||
| 2015 | 503,683 | -0- | 1,300,090 | -0- | 564,350 | 318,090 | 11,557 | 2,697,770 | |||||||||||||||||||||||||||||||||||||
| 2014 | 459,616 | -0- | 2,900,014 | -0- | 595,650 | 976,419 | 11,218 | 4,942,917 | |||||||||||||||||||||||||||||||||||||
NAME AND
| YEAR
| SALARY
| BONUS
| STOCK
| OPTION
| NON-EQUITY
|
CHANGE IN
| ALL OTHER
| TOTAL
| ||||||||||||||||||||||||||||||||||||
Ron Rittenmeyer | 2018 | 1,513,846 | 2,625,000 | 8,716,976 | (8) | -0- | 1,799,460 | -0- | 328,739 | 14,984,021 | |||||||||||||||||||||||||||||||||||
Executive Chairman and | 2017 | 914,615 | -0- | 225,001 | 2,300,001 | -0- | -0- | 212,163 | 3,651,781 | ||||||||||||||||||||||||||||||||||||
Chief Executive Officer
| |||||||||||||||||||||||||||||||||||||||||||||
Dan Cancelmi Chief Financial Officer | 2018 | 618,000 | -0- | 766,670 | 766,674 | 570,290 | 292,830 | 12,080 | 3,026,544 | ||||||||||||||||||||||||||||||||||||
| 2017 | 618,000 | 323,832 | 766,683 | 766,596 | 108,768 | 807,670 | 11,885 | 3,403,434 | |||||||||||||||||||||||||||||||||||||
| 2016 | 618,000 | -0- | 1,865,374 | -0- | 415,914 | 1,199,116 | 11,804 | 4,110,208 | |||||||||||||||||||||||||||||||||||||
Keith Pitts Vice Chairman | 2018 | 925,000 | -0- | 1,300,004 | 1,300,006 | 711,325 | 9,435,392 | (9) | 12,660 | 13,684,387 | |||||||||||||||||||||||||||||||||||
| 2017 | 925,000 | 300,000 | 1,300,017 | 1,299,879 | 162,800 | 596,745 | 33,632 | 4,618,073 | |||||||||||||||||||||||||||||||||||||
| 2016 | 925,000 | -0- | 3,163,004 | -0- | 622,525 | 664,903 | 16,742 | 5,392,173 | |||||||||||||||||||||||||||||||||||||
J. Eric Evans Former President of Hospital Operations | 2018 | 700,000 | -0- | 833,352 | 833,340 | 363,510 | -0- | 213,920 | 2,944,122 | ||||||||||||||||||||||||||||||||||||
| 2017 | 686,539 | 357,368 | 833,338 | 833,256 | 123,625 | -0- | 176,314 | 3,010,440 | |||||||||||||||||||||||||||||||||||||
| 2016 | 626,538 | -0- | 1,424,360 | -0- | 430,848 | -0- | 148,600 | 2,630,346 | |||||||||||||||||||||||||||||||||||||
Audrey Andrews EVP and General Counsel | 2018 | 550,000 | -0- | 500,003 | 500,008 | 396,516 | 342,367 | 11,935 | 2,300,829 | ||||||||||||||||||||||||||||||||||||
| 2017 | 543,269 | 250,000 | 500,007 | 499,954 | 72,600 | 800,171 | 11,763 | 2,677,764 | |||||||||||||||||||||||||||||||||||||
| 2016 | 515,375 | -0- | 1,216,560 | -0- | 264,994 | 793,748 | 11,703 | 2,802,380 | |||||||||||||||||||||||||||||||||||||
| (1) | Includes amounts deferred by |
| (2) | For Mr. Rittenmeyer, the 2018 value reflects the vesting of three equal quarterly installments of his restricted cash awards granted pursuant to his Employment Agreement as described on page 30. |
| (3) | Values in this column for 2018 represent the grant date fair value of time-based restricted stock unit awards and are computed in accordance with FASB ASC Topic 718. For Mr. Rittenmeyer, the value in this column for 2017 represents the grant date fair value of his annual Board and Lead Director restricted stock unit awards granted prior to his appointment as Executive Chairman. Certain assumptions used in the calculation of these amounts are discussed in Note 9 to our consolidated financial statements for the year ended December 31, 2018 included in our Annual Report on Form10-K. |
| (4) | Values in this column represent the grant date fair value of |
| NAME | GRANT DATE | STOCK AWARD AT GRANT DATE VALUE ($) | GRANT DATE VALUE ASSUMING LEVEL OF PERFORMANCE | ||||||||||||
Trevor Fetter | 3/10/16 | 7,299,204 | 10,998,394 | ||||||||||||
Daniel Cancelmi | 3/10/16 | 1,865,374 | 2,810,734 | ||||||||||||
Keith Pitts | 3/10/16 | 3,163,004 | 4,765,994 | ||||||||||||
Eric Evans | 3/10/16 | 405,554 | 611,087 | ||||||||||||
| 3/31/16 | 1,018,805 | 1,537,585 | |||||||||||||
Audrey Andrews | 3/10/16 | 1,216,560 | 1,833,105 | ||||||||||||
This column reflects cash awards earned under our |
| (6) | 2018 amounts represent the change in the actuarial present value of accumulated benefits under our SERP as of December 31, 2018. These amounts do not reflect compensation actually paid to the NEO. No NEO received preferential or above-market earnings on deferred compensation. |
| TENET HEALTHCARE● |
47
|
EXECUTIVE COMPENSATION TABLES | ||
| Amounts shown in this column for |
| FETTER | CANCELMI | PITTS | EVANS | ANDREWS | RITTENMEYER
| CANCELMI
| PITTS
| EVANS
| ANDREWS
| ||||||||||||||||||||||||||||||||||||
Premiums for long-term disability and survivor benefit life insurance under our SERP | $ | 3,747 | $ | 3,704 | $ | 3,656 | $ | 0 | $ | 3,603 | |||||||||||||||||||||||||||||||||||
Premiums for long-term disability and survivor benefit life insurance | -0- | $ | 3,830 | $ | 4,185 | -0- | $ | 3,685 | |||||||||||||||||||||||||||||||||||||
Matching contributions under our 401(k) Retirement Savings Plan | 8,100 | 8,100 | 8,100 | 8,100 | 8,100 | -0- | $ | 8,250 | $ | 8,250 | $ | 8,250 | $ | 8,250 | |||||||||||||||||||||||||||||||
Matching contributions under our 2006 DCP | 115,121 | 0 | 0 | 10,500 | 0 | -0- | -0- | -0- | 20,670 | -0- | |||||||||||||||||||||||||||||||||||
Company contributions under our ERA | 0 | 0 | 0 | 130,000 | 0 | $ | 300,000 | -0- | -0- | $ | 140,000 | -0- | |||||||||||||||||||||||||||||||||
Personal use of company aircraft* | 152,236 | 0 | 4,986 | 0 | 0 | $ | 21,213 | -0- | $ | 225 | -0- | -0- | |||||||||||||||||||||||||||||||||
Personal use of Company car and driver provided for security reasons** | $ | 7,526 | -0- | -0- | -0- | -0- | |||||||||||||||||||||||||||||||||||||||
Payments made to Mr. Evans in connection with separation*** | -0- | -0- | -0- | $ | 45,000 | -0- | |||||||||||||||||||||||||||||||||||||||
Total | $ | 279,203 | $ | 11,804 | $ | 16,742 | $ | 148,600 | $ | 11,703 | $ | 328,739 | $ | 12,080 | $ | 12,660 | $ | 213,920 | $ | 11,935 | |||||||||||||||||||||||||
| * | Amounts shown in this row represent the incremental costs |
| ** | For business-related security reasons, beginning in October 2018 a Company car and personal security driver were provided to Mr. Rittenmeyer primarily for commuting and local business travel. The car is valued based on the annualized cost of the car plus maintenance and fuel. For security personnel employed by the Company, the cost is the actual incremental cost of expenses incurred by the security personnel. Total salary and benefits are not allocated because the Company already incurs these costs for business purposes. The amount also includes $1,775 for a related taxgross-up benefit. |
| *** | In connection with Mr. Evans’ Severance Agreement and General Release, Mr. Evans received aone-time payment of $45,000 less applicable withholdings to recognize that he will not be eligible to receive any additional contributions to his ERA. |
This value represents restricted stock unit awards (i) granted on March |
| (9) | This value represents 14 additional years of service credited to Mr. Pitts for his time spent at Vanguard Health Systems prior to its acquisition by the Company as described on page 54. In recognition of Mr. Pitts’ significant tenure and experience at Vanguard, and to incentivize and retain Mr. Pitts to join the Company following the acquisition of Vanguard, the Company entered into a letter agreement with Mr. Pitts on June 21, 2013 pursuant to which we agreed that Mr. Pitts would be credited under our SERP with his tenure at Vanguard following his completion of five years of service with the Company. In October 2018, Mr. Pitts met the five-year service requirement agreed upon in 2013. The Company has no further arrangements with Mr. Pitts, and no similar arrangements with any of its other executive officers. |
48
| TENET HEALTHCARE● |
EXECUTIVE COMPENSATION TABLES | ||
Grants of Plan-Based Awards During 20162018
The following table sets forth information concerning grants of equity and performance cash awards made in 20162018 under our stock incentive plansplan and grants of cash that potentially could have been earned in 20162018 under our AIP.
| NAME | AWARD TYPE(1) | GRANT DATE | ESTIMATED FUTURE PAYOUTS UNDER NON-EQUITY INCENTIVE PLAN AWARDS | ESTIMATED FUTURE PAYOUTS UNDER EQUITY INCENTIVE PLAN AWARDS | ALL OTHER STOCK AWARDS: NUMBER OF SHARES OF STOCK OR UNITS (#) | GRANT DATE ($)(2) | AWARD
| GRANT
|
ESTIMATED FUTURE PAYOUTS |
ESTIMATED FUTURE PAYOUTS |
ALL
| EXERCISE ($/SH)
| GRANT ($)(2)
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
NAME
| THRESHOLD
| TARGET
| MAXIMUM
| THRESHOLD
| TARGET
| MAXIMUM
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| THRESHOLD ($) | TARGET ($) | MAXIMUM ($) | THRESHOLD (#) | TARGET (#) | MAXIMUM (#) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Trevor Fetter | AIP | -0- | 1,912,500 | 3,825,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Ron Rittenmeyer | AIP | 0 | 1,800,000 | 3,600,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| RSU | 3/29/18 | 288,660 | 24.25 | 7,000,005 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| RSU | 6/29/18 | 51,146 | (3) | 33.57 | 1,716,971 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| PRSU | 3/10/16 | -0- | 141,177 | 282,354 | 3,699,190 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| RSU | 3/10/16 | 141,177 | 3,600,014 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Dan Cancelmi | AIP | -0- | 618,000 | 1,236,000 | AIP | 0 | 618,000 | 1,236,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| PRSU | 3/10/16 | -0- | 36,079 | 72,158 | 945,360 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| RSU | 3/10/16 | 36,079 | 920,015 | PCASH | 2/28/18 | 255,555 | 766,666 | 1,533,332 | 766,666 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| RSU | 2/28/18 | 37,217 | 766,670 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| PSO | 2/28/18 | 0 | 86,826 | 86,826 | 20.60 | 766,674 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Keith Pitts | AIP | -0- | 925,000 | 1,850,000 | AIP | 0 | 925,000 | 1,850,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| PRSU | 3/10/16 | -0- | 61,177 | 122,354 | 1,602,990 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| RSU | 3/10/16 | 61,177 | 1,560,014 | PCASH | 2/28/18 | 433,333 | 1,300,000 | 2,600,000 | 1,300,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Eric Evans | AIP | -0- | 619,583 | 1,239,167 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| RSU | 2/28/18 | 63,107 | 1,300,004 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| PSO | 2/28/18 | 0 | 147,226 | 147,226 | 20.60 | 1,300,006 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
J. Eric Evans | AIP | 0 | 700,000 | 1,400,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| PCASH | 2/28/18 | 277,778 | 833,333 | 1,666,666 | 833,333 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| RSU | 2/28/18 | 40,454 | 833,352 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| PRSU | 3/10/16 | -0- | 7,844 | 15,688 | 205,532 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| RSU | 3/10/16 | 7,844 | 200,022 | PSO | 2/28/18 | 0 | 94,376 | 94,376 | 833,340 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| PRSU | 3/31/16 | -0- | 17,284 | 34,568 | 518,779 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| RSU | 3/31/16 | 17,284 | 500,026 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Audrey Andrews | AIP | -0- | 393,750 | 787,500 | AIP | 0 | 412,500 | 825,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| PRSU | 3/10/16 | -0- | 23,530 | 47,060 | 616,545 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| RSU | 3/10/16 | 23,530 | 600,015 | PCASH | 2/28/18 | 166,667 | 500,000 | 1,000,000 | 500,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| RSU | 2/28/18 | 24,272 | 500,003 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| PSO | 2/28/18 | 0 | 56,626 | 56,626 | 20.60 | 500,008 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (1) | AIP Awards. Awards designated “AIP” are awards that our |
Performance-Based Cash. Awards designated “PCASH” reflect performance-based cash awards granted in 2018 under our 2008 Stock Incentive Plan. Actual payouts will range from 0% to 200% of the target level depending on the degree to which performance goals are met under three equally-weighted performance metrics: Adjusted Earnings Per Share, Adjusted Free Cash Flow Less Cash NCI, and Relative Total Shareholder Return, each measured over a three-year period from the date of grant. Actual payout earned, if any, will be reported in our Summary Compensation Table for the year in which they are paid. |
Restricted Stock Unit Awards. Awards designated “RSU” reflect |
Performance-Based |
| NAME | GRANT DATE | NYSE CLOSING PRICE ON | POTENTIAL PAYOUT RANGE | VESTING PERIOD | ||||||||
Trevor Fetter Dan Cancelmi Keith Pitts Eric Evans Audrey Andrews | 3/10/16 | $ | 25.50 | Actual shares to be received ranges from 0% to 200% of the target share level shown, depending on the degree to which specified performance goals are met. | Three years from date of grant. | |||||||
Eric Evans | 3/31/16 | $ | 28.93 | Actual shares to be received ranges from 0% to 200% of the target share level shown, depending on the degree to which specified performance goals are met. | Three years from date of grant. | |||||||
| (2) | We calculate the grant date fair value of restricted stock units based on the NYSE closing price per share of our common stock on the date of grant, |
| TENET HEALTHCARE● |
49
|
EXECUTIVE COMPENSATION TABLES | ||
| (3) | The HR Committee approved the compensation for Mr. Rittenmeyer under his Employment Agreement, including the restricted stock units with a grant date fair value of $7,000,000, on February 28, 2018; however, the parties did not execute the Employment Agreement until March 24, 2018. The HR Committee intended for the grant date for Mr. Rittenmeyer’s restricted stock units to be the date of HR Committee approval in February. Instead, the date of execution of the Employment Agreement in March was used to determine the grant date. Accordingly, the grant date for these restricted stock units was the last trading day in March. As a result of using the March grant date, Mr. Rittenmeyer received 288,660 restricted stock units whereas the HR Committee intended Mr. Rittenmeyer to receive the number of units calculated with the February grant date, or 339,806. In June, the HR Committee awarded Mr. Rittenmeyer restricted stock units equal to the difference between these figures, or 51,146 units. |
50 | TENET HEALTHCARE●2019 PROXY STATEMENT |
EXECUTIVE COMPENSATION TABLES | ||
Outstanding Equity Awards
The following table sets forth information as of December 31, 20162018 with respect to outstanding equity awards granted to each of the Named Executive Officers.NEOs. Where applicable, the numbers of securities and values in this table and throughout this Proxy Statement have been adjusted for the reverse stock split effective October 11, 2012.
Outstanding Equity Awards at 20162018 FiscalYear-End Table
| OPTION AWARDS(1) | STOCK AWARDS | |||||||||||||||||||||||||||||||||||
NAME | GRANT DATE | NUMBER OF SECURITIES UNDERLYING UNEXERCISED OPTIONS (#) EXERCISABLE | NUMBER OF SECURITIES UNDERLYING UNEXERCISED OPTIONS (#) UNEXERCISABLE | OPTION EXERCISE PRICE ($) | OPTION EXPIRATION DATE | NUMBER OF SHARES OR UNITS OF STOCK THAT HAVE NOT VESTED (#) | MARKET VALUE OF SHARES OR UNITS OF STOCK THAT HAVE NOT VESTED ($)(2) | EQUITY INCENTIVE PLAN AWARDS: NUMBER OF UNEARNED SHARES, UNITS OR OTHER RIGHTS THAT HAVE NOT VESTED (#)(3) | EQUITY OF UNEARNED SHARES, UNITS OR | |||||||||||||||||||||||||||
Trevor Fetter | 3/1/07 | 182,000 | 26.40 | 3/1/17 | ||||||||||||||||||||||||||||||||
| 3/6/08 | 416,750 | 19.76 | 3/6/18 | |||||||||||||||||||||||||||||||||
| 2/25/10 | 52,532 | 20.12 | 2/25/20 | |||||||||||||||||||||||||||||||||
| 2/25/10 | 52,532 | 20.12 | 2/25/20 | |||||||||||||||||||||||||||||||||
| 2/29/12 | 109,250 | 22.60 | 3/1/22 | |||||||||||||||||||||||||||||||||
| 2/29/12 | 109,250 | 22.60 | 3/1/22 | |||||||||||||||||||||||||||||||||
| 2/28/13 | 171,884 | 39.31 | 2/28/18 | |||||||||||||||||||||||||||||||||
| 6/13/13 | 53,045 | (4) | 787,188 | |||||||||||||||||||||||||||||||||
| 6/13/13 | 53,045 | 787,188 | ||||||||||||||||||||||||||||||||||
| 2/26/14 | 30,071 | (8) | 446,254 | |||||||||||||||||||||||||||||||||
| 2/26/14 | 60,142 | (5) | 892,507 | |||||||||||||||||||||||||||||||||
| 2/25/15 | 65,747 | (8) | 975,685 | |||||||||||||||||||||||||||||||||
| 2/25/15 | 108,286 | (5) | 1,606,964 | |||||||||||||||||||||||||||||||||
| 3/10/16 | 141,177 | (8) | 2,095,067 | |||||||||||||||||||||||||||||||||
| 3/10/16 | 141,177 | (9) | 2,095,067 | |||||||||||||||||||||||||||||||||
Total values | $ | 6,803,665 | $ | 2,882,254 | ||||||||||||||||||||||||||||||||
Dan Cancelmi | 4/30/12 | 25,000 | (6) | 371,000 | ||||||||||||||||||||||||||||||||
| 9/28/12 | 37,500 | 25.08 | 9/28/22 | |||||||||||||||||||||||||||||||||
| 2/28/13 | 17,188 | 39.31 | 2/28/18 | |||||||||||||||||||||||||||||||||
| 2/26/14 | 7,142 | (8) | 105,987 | |||||||||||||||||||||||||||||||||
| 2/26/14 | 14,284 | (5) | 211,975 | |||||||||||||||||||||||||||||||||
| 8/25/14 | 16,694 | (6) | 247,739 | |||||||||||||||||||||||||||||||||
| 8/25/14 | 23,323 | (7) | 346,113 | 16,695 | 247,754 | |||||||||||||||||||||||||||||||
| 2/25/15 | 16,072 | (8) | 238,508 | |||||||||||||||||||||||||||||||||
| 2/25/15 | 26,471 | (5) | 392,830 | |||||||||||||||||||||||||||||||||
| 3/10/16 | 36,079 | (8) | 535,412 | |||||||||||||||||||||||||||||||||
| 3/10/16 | 36,079 | (9) | 535,412 | |||||||||||||||||||||||||||||||||
Total values | $ | 2,449,565 | $ | 783,166 | ||||||||||||||||||||||||||||||||
Keith Pitts | 2/26/14 | 11,277 | (8) | 167,351 | ||||||||||||||||||||||||||||||||
| 2/26/14 | 22,554 | (5) | 334,701 | |||||||||||||||||||||||||||||||||
| 8/25/14 | 16,694 | (6) | 247,739 | |||||||||||||||||||||||||||||||||
| 8/25/14 | 23,323 | (7) | 346,113 | 16,695 | 247,754 | |||||||||||||||||||||||||||||||
| 2/25/15 | 25,568 | (8) | 379,429 | |||||||||||||||||||||||||||||||||
| 2/25/15 | 42,110 | (5) | 624,912 | |||||||||||||||||||||||||||||||||
| 3/10/16 | 61,177 | (8) | 907,867 | |||||||||||||||||||||||||||||||||
| 3/10/16 | 61,177 | (9) | 907,867 | |||||||||||||||||||||||||||||||||
Total Values | $ | 3,008,113 | $ | 1,155,620 | ||||||||||||||||||||||||||||||||
|
| ||
| OPTION AWARDS(1) | STOCK AWARDS | |||||||||||||||||||||||||||||||||||
NAME | GRANT DATE | NUMBER OF SECURITIES UNDERLYING UNEXERCISED OPTIONS (#) EXERCISABLE | NUMBER OF SECURITIES UNDERLYING UNEXERCISED OPTIONS (#) UNEXERCISABLE | OPTION EXERCISE PRICE ($) | OPTION EXPIRATION DATE | NUMBER OF SHARES OR UNITS OF STOCK THAT HAVE NOT VESTED (#) | MARKET VALUE OF SHARES OR UNITS OF STOCK THAT HAVE NOT VESTED ($)(2) | EQUITY INCENTIVE PLAN AWARDS: NUMBER OF UNEARNED SHARES, UNITS OR OTHER RIGHTS THAT HAVE NOT VESTED (#)(3) | EQUITY OF UNEARNED SHARES, UNITS OR | |||||||||||||||||||||||||||
Eric Evans | 4/30/12 | 18,750 | (6) | 278,250 | ||||||||||||||||||||||||||||||||
| 2/26/14 | 1,000 | (8) | 14,840 | |||||||||||||||||||||||||||||||||
| 8/25/14 | 1,333 | (6) | 19,782 | |||||||||||||||||||||||||||||||||
| 8/25/14 | 1,863 | (7) | 27,647 | 1,334 | 19,797 | |||||||||||||||||||||||||||||||
| 2/25/15 | 2,334 | (8) | 34,637 | |||||||||||||||||||||||||||||||||
| 4/30/15 | 1,742 | (8) | 25,851 | |||||||||||||||||||||||||||||||||
| 4/30/15 | 2,869 | (5) | 42,576 | |||||||||||||||||||||||||||||||||
| 3/10/16 | 7,844 | (8) | 116,405 | |||||||||||||||||||||||||||||||||
| 3/10/16 | 7,844 | (9) | 116,405 | |||||||||||||||||||||||||||||||||
| 3/31/16 | 17,284 | (8) | 256,495 | |||||||||||||||||||||||||||||||||
| 3/31/16 | 17,284 | (9) | 256,495 | |||||||||||||||||||||||||||||||||
Total values | $ | 816,482 | $ | 392,696 | ||||||||||||||||||||||||||||||||
Audrey Andrews | 2/26/14 | 3,383 | (8) | 50,204 | ||||||||||||||||||||||||||||||||
| 2/26/14 | 6,766 | (5) | 100,407 | |||||||||||||||||||||||||||||||||
| 8/25/14 | 11,129 | (6) | 165,154 | |||||||||||||||||||||||||||||||||
| 8/25/14 | 15,549 | (7) | 230,747 | 11,130 | 165,169 | |||||||||||||||||||||||||||||||
| 2/25/15 | 9,498 | (8) | 140,950 | |||||||||||||||||||||||||||||||||
| 2/25/15 | 15,644 | (5) | 232,157 | |||||||||||||||||||||||||||||||||
| 3/10/16 | 23,530 | (8) | 349,185 | |||||||||||||||||||||||||||||||||
| 3/10/16 | 23,530 | (9) | 349,185 | |||||||||||||||||||||||||||||||||
Total values | $ | 1,268,805 | $ | 514,354 | ||||||||||||||||||||||||||||||||
|
|
| ||
| ||||
| ||||
| ||||
| ||||
| ||||
| OPTION AWARDS(1) | STOCK AWARDS | |||||||||||||||||||||||||||||||||||||||
NAME | GRANT DATE | NUMBER OF SECURITIES UNDERLYING UNEXERCISED OPTIONS (#) EXERCISABLE(1) | NUMBER OF SECURITIES UNDERLYING UNEXERCISED OPTIONS (#) UNEXERCISABLE | EQUITY INCENTIVE PLAN AWARDS: NUMBER OF SECURITIES UNDERLYING UNEXERCISED UNEARNED OPTIONS | OPTION EXERCISE PRICE ($) | OPTION EXPIRATION DATE | NUMBER OF SHARES OR UNITS OF STOCK THAT HAVE NOT VESTED (#) | MARKET VALUE OF SHARES OR UNITS OF STOCK THAT HAVE NOT VESTED ($)(2) | EQUITY INCENTIVE PLAN AWARDS: NUMBER OF UNEARNED SHARES, UNITS OR OTHER RIGHTS THAT HAVE NOT VESTED (#) | EQUITY OF SHARES, | ||||||||||||||||||||||||||||||
Ron Rittenmeyer | 9/29/17 | 408,526 | 16.43 | 9/29/22 | ||||||||||||||||||||||||||||||||||||
| 3/29/18 | 180,414 | (3) | 3,092,296 | |||||||||||||||||||||||||||||||||||||
| 6/29/18 | 36,534 | (3) | 626,193 | |||||||||||||||||||||||||||||||||||||
Total values | 3,718,489 | |||||||||||||||||||||||||||||||||||||||
Dan Cancelmi | 9/28/12 | 37,500 | 25.08 | 9/28/22 | ||||||||||||||||||||||||||||||||||||
| 8/25/14 | 16,694 | (4) | 286,135 | |||||||||||||||||||||||||||||||||||||
| 8/25/14 | 56,713 | (5) | 972,061 | |||||||||||||||||||||||||||||||||||||
| 3/10/16 | 12,027 | (6) | 206,143 | |||||||||||||||||||||||||||||||||||||
| 3/10/16 | 15,225 | (7) | 260,962 | |||||||||||||||||||||||||||||||||||||
| 3/1/17 | 89,976 | 18.99 | 3/1/27 | |||||||||||||||||||||||||||||||||||||
| 3/1/17 | 26,916 | (6) | 461,340 | |||||||||||||||||||||||||||||||||||||
| 2/28/18 | 86,826 | 20.60 | 2/28/28 | |||||||||||||||||||||||||||||||||||||
| 2/28/18 | 37,217 | (6) | 637,899 | |||||||||||||||||||||||||||||||||||||
Total values | $ | 2,824,540 | ||||||||||||||||||||||||||||||||||||||
Keith Pitts | 8/25/14 | 16,694 | (4) | 286,135 | ||||||||||||||||||||||||||||||||||||
| 8/25/14 | 56,713 | (5) | 972,061 | |||||||||||||||||||||||||||||||||||||
| 3/10/16 | 20,393 | (6) | 349,536 | |||||||||||||||||||||||||||||||||||||
| 3/10/16 | 25,817 | (7) | 442,498 | |||||||||||||||||||||||||||||||||||||
| 3/1/17 | 152,568 | 18.99 | 3/1/27 | |||||||||||||||||||||||||||||||||||||
| 3/1/17 | 45,639 | (6) | 782,252 | |||||||||||||||||||||||||||||||||||||
| 2/28/18 | 147,226 | 20.60 | 2/28/28 | |||||||||||||||||||||||||||||||||||||
| 2/28/18 | 63,107 | (6) | 1,081,654 | |||||||||||||||||||||||||||||||||||||
Total values | $ | 3,914,136 | ||||||||||||||||||||||||||||||||||||||
J. Eric Evans | 8/25/14 | 1,333 | (4) | 22,848 | ||||||||||||||||||||||||||||||||||||
| 8/25/14 | 4,531 | (5) | 77,661 | |||||||||||||||||||||||||||||||||||||
| 3/10/16 | 2,615 | (6) | 44,821 | |||||||||||||||||||||||||||||||||||||
| 3/10/16 | 3,311 | (7) | 56,751 | |||||||||||||||||||||||||||||||||||||
| 3/31/16 | 5,762 | (6) | 98,761 | |||||||||||||||||||||||||||||||||||||
| 3/31/16 | 7,294 | (7) | 125,017 | |||||||||||||||||||||||||||||||||||||
| 3/1/17 | 97,800 | 18.99 | 3/1/27 | |||||||||||||||||||||||||||||||||||||
| 3/1/17 | 29,256 | (6) | 501,448 | |||||||||||||||||||||||||||||||||||||
| 2/28/18 | 94,376 | 20.60 | 2/28/28 | |||||||||||||||||||||||||||||||||||||
| 2/28/18 | 40,454 | (6) | 693,382 | |||||||||||||||||||||||||||||||||||||
Total values | $ | 1,620,689 | ||||||||||||||||||||||||||||||||||||||
| TENET HEALTHCARE● |
51
|
EXECUTIVE COMPENSATION TABLES | ||
| OPTION AWARDS(1) | STOCK AWARDS | |||||||||||||||||||||||||||||||||||||||
NAME | GRANT DATE | NUMBER OF SECURITIES UNDERLYING UNEXERCISED OPTIONS (#) EXERCISABLE(1) | NUMBER OF SECURITIES UNDERLYING UNEXERCISED OPTIONS (#) UNEXERCISABLE | EQUITY INCENTIVE PLAN AWARDS: NUMBER OF SECURITIES UNDERLYING UNEXERCISED UNEARNED OPTIONS | OPTION EXERCISE PRICE ($) | OPTION EXPIRATION DATE | NUMBER OF SHARES OR UNITS OF STOCK THAT HAVE NOT VESTED (#) | MARKET VALUE OF SHARES OR UNITS OF STOCK THAT HAVE NOT VESTED ($)(2) | EQUITY INCENTIVE PLAN AWARDS: NUMBER OF UNEARNED SHARES, UNITS OR OTHER RIGHTS THAT HAVE NOT VESTED (#) | EQUITY OF SHARES, | ||||||||||||||||||||||||||||||
Audrey Andrews | 8/25/14 | 11,129 | (4) | 190,751 | ||||||||||||||||||||||||||||||||||||
| 8/25/14 | 37,809 | (5) | 648,046 | |||||||||||||||||||||||||||||||||||||
| 3/10/16 | 7,844 | (6) | 134,446 | |||||||||||||||||||||||||||||||||||||
| 3/10/16 | 9,930 | (7) | 170,194 | |||||||||||||||||||||||||||||||||||||
| 3/1/17 | 58,680 | 18.99 | 3/1/27 | |||||||||||||||||||||||||||||||||||||
| 3/1/17 | 17,554 | (6) | 300,876 | |||||||||||||||||||||||||||||||||||||
| 2/28/18 | 56,626 | 20.60 | 2/28/28 | |||||||||||||||||||||||||||||||||||||
| 2/28/18 | 24,272 | (6) | 416,022 | |||||||||||||||||||||||||||||||||||||
Total values | $ | 1,860,335 | ||||||||||||||||||||||||||||||||||||||
All options have a term of 10 years except for the stock options granted to Mr. Rittenmeyer, which have a term of five years. |
| (2) | Based on the NYSE closing price of $17.14 per share of our common stock on December 31, 2018. |
| (3) | These time-based restrict stock units vest quarterly in equal installments ending on February 28, 2020. |
| (4) | These time-based restricted stock units vest on the fifth anniversary of the date of grant. |
| (5) | The |
These time-based restricted stock units vest in equal installments on each of the first three anniversaries of the date of grant. |
The award shown represents a grant of performance-based restricted stock units with performance-based conditions that have been satisfied, with the awards earned at 42.2%.These earned awards remain subject to vesting conditions and will vest |
Option Exercises and Stock Vested
The following table sets forth certain information regarding options and restricted stock unit awards exercised and vested, respectively, during 20162018 for the Named Executive Officers.NEOs.
20162018 Option Exercises and Stock Vested Table
| OPTION AWARDS | STOCK AWARDS |
OPTION AWARDS |
STOCK AWARDS | |||||||||||||||||||||||||||||||||
NAME | NUMBER OF SHARES ACQUIRED ON EXERCISE (#) | VALUE REALIZED ON EXERCISE ($)(1)(2) | NUMBER OF SHARES ACQUIRED ON VESTING (#) | VALUE REALIZED ON VESTING ($)(2)(3) |
NUMBER OF SHARES |
VALUE REALIZED |
NUMBER OF SHARES |
VALUE REALIZED | ||||||||||||||||||||||||||||
Trevor Fetter | -0- | -0- | 399,961 | 10,515,157 | ||||||||||||||||||||||||||||||||
Ron Rittenmeyer |
|
-0- |
|
|
-0- |
|
|
127,580 |
|
|
4,013,183 |
| ||||||||||||||||||||||||
Dan Cancelmi | -0- | -0- | 57,111 | 1,448,106 |
|
-0- |
|
|
-0- |
|
|
46,754 |
|
|
984,163 |
| ||||||||||||||||||||
Keith Pitts | -0- | -0- | 87,812 | 2,164,736 |
|
-0- |
|
|
-0- |
|
|
77,049 |
|
|
1,625,815 |
| ||||||||||||||||||||
Eric Evans | -0- | -0- | 5,303 | 149,008 | ||||||||||||||||||||||||||||||||
J. Eric Evans |
|
-0- |
|
|
-0- |
|
|
26,475 |
|
|
588,515 |
| ||||||||||||||||||||||||
Audrey Andrews | -0- | -0- | 29,501 | 746,652 |
|
-0- |
|
|
-0- |
|
|
29,190 |
|
|
616,747 |
| ||||||||||||||||||||
| (1) | These amounts are associated with prior-year equity compensation and |
| (2) |
| Calculated by multiplying the number of shares vested by the market price of common stock on the vesting date. The values shown do not represent proceeds actually received by the |
52 | TENET HEALTHCARE●2019 PROXY STATEMENT |
EXECUTIVE COMPENSATION TABLES | ||
Pension Benefits
The following table sets forth information as of December 31, 20162018 with respect to our SERP, which provides for payments or other benefits in connection with the retirement of the Named Executive Officers. Mr.NEOs. Messrs. Rittenmeyer and Evans doesdo not participate in the SERP.
20162018 Pension Benefits Table
NAME | PLAN NAME | NUMBER OF YEARS CREDITED SERVICE (#)(1) | PRESENT VALUE BENEFIT | PAYMENTS DURING LAST FISCAL YEAR ($) |
PLAN NAME |
NUMBER OF YEARS |
PRESENT VALUE BENEFIT |
PAYMENTS DURING LAST FISCAL YEAR ($) | ||||||||||||||||||||||||||||
Trevor Fetter | SERP | 20 | 20,092,547 | -0- | ||||||||||||||||||||||||||||||||
Dan Cancelmi | SERP | 20 | 5,775,326 | (4) | -0- |
|
SERP |
|
|
20 |
|
|
6,875,826 |
(4) |
|
-0- |
| |||||||||||||||||||
Keith Pitts | SERP | 3 | 1,876,973 | -0- |
|
SERP |
|
|
19 |
|
|
11,909,110 |
|
|
-0- |
| ||||||||||||||||||||
Audrey Andrews | | SERP | | | 18 | | | 3,076,938 | (4) | | -0- | |
|
SERP |
|
|
20 |
|
|
4,219,476 |
(4) |
|
-0- |
| ||||||||||||
| (1) | In recognition of |
| (2) | Computed as of December 31, |
| (3) | Determined using the benefit formula, age and service credits, and final average earnings as of December 31, |
| (4) | The amount shown is the present value of the full accumulated benefit amount under the SERP; however, the amount received under the SERP upon retirement will be reduced (offset) by any benefit received under the ERA and other retirement benefits. For more information on amounts payable under the ERA, see the 2018 Nonqualified Deferred Compensation Table on page 54. |
|
| ||
Supplemental Executive Retirement Plan
Messrs. Fetter, Cancelmi and Pitts, and Ms. Andrews, are participants in our SERP, which provides certain executives with supplemental retirement benefits in the form of retirement payments for life, generally commencing on the first day of the month following the attainment ofan executive’s retirement from Tenet after reaching age 62, subject to thesix-month delay applicable to key employees under Section 409A.409A of the Internal Revenue Code of 1986 (Section 409A). At retirement, the annual benefit (paid on a monthly basis) to a participant will be a product of four factors:
highest average monthly earnings (base salary and annual cash bonus under our AIP) for any consecutive60-month period during the 10 years preceding retirement
| x | years of credited service
| x | vesting factor | x | percentage factor (to offset certain other |
| (1) | For the first five years of participation in the SERP, a participant is given partial credit for years of service performed prior to the participant’s enrollment in the SERP. Upon achieving five years of SERP participation, a participant receives full credit for service years performed prior to SERP participation. |
The monthly SERP benefit is reduced in the event of a participant’s early retirement (age 55 with 10 years of service) or termination of employment prior to age 62 by 3.0% for each year that employment termination occurs before age 62 (max reduction of 21%). Monthly SERP benefits are further reduced by an additional 3% each year if benefits begin to be paid prior to age 62. Unreduced retirement benefits under the SERP are available for participants who terminate on or after age 62. Mr. Fetter is our only Named Executive Officer presently eligible for early retirement under the SERP.
In the event of a change of control, participants will be deemed fully vested in their SERP benefits without regard to their actual years of service, and their SERP benefits will be calculated based on all of their years of service with the companyCompany (i.e., the partial credit for service prior to enrollment in the SERP will not apply) and no early retirement or payment reduction will apply. SERP benefits payable in the event of a termination of employment within two years offollowing a change of control event described in Section 409A will commence on the first day of the month following the participant’s termination of employment, subject to thesix-month delay applicable to key employees under Section 409A. Otherwise, any SERP benefits payable following a change of control will be paid at normal retirement or early retirement as described above.
| TENET HEALTHCARE●2019 PROXY STATEMENT | 53 |
EXECUTIVE COMPENSATION TABLES | ||
None of our Named Executive OfficersNEOs has received credited service under the SERP for years not worked for the Company or its acquired entities, however:
the ESP, which was adopted duringin 2006, would provide each Named Executive OfficerNEO with thecontinued accrual of age and service credit under the SERP during his or her “severance period.” The SERP and ESP have been amended to eliminate these accruals during the severance period for employees that became SERP participants after August 3, 2011, including Mr. Pitts.
In recognition of Mr. Pitts’ significant tenure and experience at Vanguard, and to incentivize and retain Mr. Pitts to join the companyCompany following the October 2013 acquisition of Vanguard, and to encourage retention, the Committee approvedCompany entered into a limited exception to its policy to grantletter agreement with Mr. Pitts credit foron June 21, 2013 pursuant to which we agreed that Mr. Pitts would be credited under our SERP with his 14-year employment withtenure at Vanguard which is now a wholly-owned subsidiary of the company, subject tofollowing his completion of five years of service with Tenet. Ifthe Company. In October 2018, Mr. Pitts does not satisfymet the five-year employment condition, he will forfeit his entitlement to all SERP benefits.service requirement agreed upon in 2013, and as a result Mr. Pitts has been credited with 19 years of service under the SERP. In approving the conditional credit for Vanguard service, the HR Committee took into account:
| – | the fact that Vanguard now comprises a substantial portion of Tenet’s business; |
| – | Mr. Pitts’ unique ability to complete the integration of Vanguard into our operations; and |
| – | Mr. Pitts’ extensive background and experience in the acquisition and development area. |
During their employment, SERP participants are provided a life insurance and an accidental death benefit for the designated beneficiary of each participant and a disability insurance policy for the benefit of each participant.
|
| ||
Nonqualified Deferred Compensation
The following table sets forth information as of December 31, 20162018 with respect to our deferred compensation plans.
20162018 Nonqualified Deferred Compensation Table
NAME | PLAN NAME(1) | EXECUTIVE CONTRIBUTIONS IN LAST FISCAL YEAR ($)(2) | REGISTRANT CONTRIBUTIONS IN LAST FISCAL YEAR ($)(3) | AGGREGATE EARNINGS IN LAST FISCAL YEAR ($)(4) | AGGREGATE WITHDRAWALS/ DISTRIBUTIONS ($) | AGGREGATE BALANCE AT LAST FISCAL YEAR END ($)(5) |
PLAN |
EXECUTIVE |
REGISTRANT |
AGGREGATE |
AGGREGATE |
AGGREGATE | ||||||||||||||||||||||||||||||||||||||||||
Trevor Fetter | 2006 DCP | 230,242 | 115,121 | 52,428 | -0- | 2,139,899 | ||||||||||||||||||||||||||||||||||||||||||||||||
Ron Rittenmeyer |
|
2006 DCP |
|
|
-0- |
|
|
-0- |
|
|
-0- |
|
|
-0- |
|
|
-0- |
| ||||||||||||||||||||||||||||||||||||
| 2001 DCP | -0- | -0- | 1,771 | -0- | 138,120 |
|
ERA |
|
|
-0- |
|
|
300,000 |
|
|
5,562 |
|
|
-0- |
|
| 298,382
|
| |||||||||||||||||||||||||||||||
Dan Cancelmi | 2006 DCP | -0- | -0- | 1,636 | -0- | 190,136 |
|
2006 DCP |
|
|
-0- |
|
|
-0- |
|
| 4,256
|
|
|
-0- |
|
|
221,064 |
| ||||||||||||||||||||||||||||||
| ERA | -0- | -0- | -0- | -0- | 69,502 |
|
ERA |
|
|
-0- |
|
|
-0- |
|
|
-0- |
|
|
-0- |
|
|
69,502 |
| |||||||||||||||||||||||||||||||
Keith Pitts | -0- | -0- | -0- | -0- | -0- |
|
2006 DCP |
|
|
-0- |
|
|
-0- |
|
|
-0- |
|
|
-0- |
|
|
-0- |
| |||||||||||||||||||||||||||||||
Eric Evans | 2006 DCP | 21,000 | 10,500 | 1,175 | -0- | 112,032 | ||||||||||||||||||||||||||||||||||||||||||||||||
J. Eric Evans |
|
2006 DCP |
|
| 41,340
|
|
| 20,670
|
|
| 6,825
|
|
|
-0- |
|
|
273,928 |
| ||||||||||||||||||||||||||||||||||||
| ERA | -0- | 130,000 | 38,620 | -0- | 526,915 |
|
ERA |
|
|
-0- |
|
|
140,000 |
|
|
(50,228 |
) |
|
-0- |
|
|
576,163 |
| |||||||||||||||||||||||||||||||
Audrey Andrews | ERA | -0- | -0- | -0- | -0- | 55,858 |
|
2006 DCP |
|
|
-0- |
|
|
-0- |
|
|
-0- |
|
|
-0- |
|
|
-0- |
| ||||||||||||||||||||||||||||||
|
ERA |
|
|
-0- |
|
|
-0- |
|
|
-0- |
|
|
-0- |
|
|
55,858 |
| |||||||||||||||||||||||||||||||||||||
| (1) | More information about our deferred compensation plans appears below. |
| (2) | Included in the amounts represented in the 2018 Summary Compensation Table on page 47 as “Salary” and/or |
| (3) | Included in the amounts represented in the 2018 Summary Compensation Table on page 47 as “All Other Compensation.” |
| (4) | These amounts are not included in the 2018 Summary Compensation Table on page 47 because plan earnings were not preferential or above-market. |
| (5) | The fiscalyear-end balance reported for the 2006 DCP includes the following amounts that were previously reported in |
2006 Deferred Compensation PlansPlan
We maintain: (i)maintain the Fourth Amended and Restated Tenet 2006 Deferred Compensation Plan (2006 DCP), a Section 409A compliant plan for deferrals elected with respect to amounts otherwise payable in calendar years beginning on and after January 1, 2005; and (ii) the Ninth Amended and Restated Tenet 2001 Deferred Compensation Plan (2001 DCP), a grandfathered plan for deferrals elected with respect to amounts otherwise payable in calendar years beginning before January 1, 2005. No additional elective deferrals or employer contributions may be made to the 2001 DCP.plan. All of our Named Executive Officers andnon-employee directors are eligible to participate in the 2006 DCP; however, Mr.Messrs. Rittenmeyer and Pitts, and Ms. Andrews, do not currently participate in this plan.
54 | TENET HEALTHCARE●2019 PROXY STATEMENT |
EXECUTIVE COMPENSATION TABLES | ||
Employee participants are permitted to elect up to six types of elective deferral contributions (Deferral Contributions)(“Deferral Contributions”) to the 2006 DCP:
(i) base compensation deferrals of up to 75% of eligible compensation (base salary and certain other cash compensation, but excluding bonuses under the AIP);
(ii) bonus deferrals of up to 100% of bonus under the AIP (94% if a bonus with match deferral is made as described below);
(iii) base compensation with match deferrals of up to 6% of eligible compensation when the employee reaches certain statutory limits on contributions under our 401(k) Plan;
(iv) bonus with match deferrals of 6% of bonus under the AIP;
(v) if authorized, discretionary compensation deferrals; and
(vi) if authorized, restricted stock unit deferrals, of up to 100% of the restricted stock units awarded under our stock incentive plans.
DCP. We make an employer matching contribution to the 2006 DCP equal to 50% of an employee’s base compensation and/or bonus deferrals, in each case, with match deferrals and/or bonus with match deferrals.not to exceed 6% of compensation. In addition, we may elect to make a discretionary contribution to the 2006 DCP with respect to any participant. We did not elect to make any discretionary contributions to the 2006 DCP during 2016.2018. All elective deferrals and employer contributions made to the 2006 DCP are fully vested when made and are credited to a separate bookkeeping account on behalf of each participant.
|
| ||
Amounts deferred under the 2006 DCP or 2001 DCP will generally be distributed, as directed by the participant, upon either termination of service or the occurrence of a specified date. Matching and discretionary contributions are distributed upon termination of service. Distributions may be made in cash or in shares of our common stock, and may be made in the form of a lump sum payment or annual installments over a oneone- to 15 year15-year period, as elected by the participant. Any amounts that are payable from the 2006 DCP upon a termination of employment are subject to thesix-month delay applicable to key employees under Section 409A. Under certain circumstances, a participant may elect to receive an immediate lump sum distribution under the 2001 DCP subject to a 10% forfeiture, a 13-month delay or the occurrence of a change of control.
Participants may request, on ano more frequently than daily, basis, that any of the following investment crediting rates be applied to amounts credited to their 2001 DCP and 2006 DCP accounts: (i) an annual rate of interest equal to 120% of the applicable federal long-term(10-year) interest rate (which generated an annual return for 20162018 of 2.66%3.59%); (ii) a rate of return based on one or more benchmark mutual funds, which are the same funds as those offered under our 401(k) Plan; or (iii) a rate of return based on the performance of our common stock, designated as stock units that are payable in shares of our common stock. Amounts that are deemed to be invested in stock units may not be transferred out of stock units and will be paid in shares of our common stock.
Executive Retirement Account
We maintain the Executive Retirement Account (ERA) in order to provide additional deferred compensation benefits to members of the company’sCompany’s senior management including Mr. Evans, who are not eligible to participate in the SERP. No Named Executive Officers are actively participating in both the SERP, which includes Mr. Rittenmeyer and the ERA.included Mr. Evans prior to his departure. Mr. Cancelmi and Ms. Andrews began participating in the ERA prior to becoming eligible to participate in the SERP, but are no longer actively participating in the ERA. Mr. Evans actively participated in the ERA until his departure from the Company on December 31, 2018. For active participants in the ERA, the companyCompany makes an annual contribution to the ERA on the participants’ behalf in an amount equal to a specified percentage of their respective base salaries. Such contributions accrue earnings credits for so long as the participant is actively participating in the ERA. Participants may request, on ano more frequently than monthly, basis, that any of the following investment crediting rates described above with regard to the 2006 Deferred Compensation Plan be applied to amounts credited to their ERA accounts: (i) an annual rate of interest equal to 120% of the applicable federal long-term (10-year) interest rate (which generated an annual return for 2016 of 2.66%); (ii) a rate of return based on one or more benchmark mutual funds, which are the same funds as those offered under our 401(k) Plan; or (iii) a rate of return based on the performance of our common stock, designated as stock units that are payable in shares of our common stock.accounts. Participants are not vested in any portion of their account until reaching age 55 (with five years of service), at which point vesting occurs according to a schedule. Participants become fully vested in their ERA account at age 60 with five years of service or at age 62 regardless of years of service or upon death, disability or a change of control. Upon a qualifying termination, vesting is determined based on years of service and participants in the ERA are entitled to a retirement benefit equal to the vested balance of their ERA account.
Upon becoming participants in the SERP, Mr. Cancelmi’s and Ms. Andrews’ participation in the ERA and their account balances were frozen and no additional contributions or earnings credits will be made, though the account balances continue to accrue years of vesting service. Upon a qualifying termination of employment, Mr. Cancelmi and Ms. Andrews will receive their vested balances under the ERA and will also be entitled to receive their applicable benefit under the SERP, but such SERP benefit will be reduced (offset) by the benefit received under the ERA.
Potential Payments Upon Termination or Change of Control
The information below describes and quantifies certain compensation that would be paid under existing plans and arrangements if a Named Executive Officer’san NEO’s employment had terminated on December 31, 2016,2018. These amounts are calculated given his or herthe NEO’s compensation and service levels as of that date and, as applicable, based on the NYSE closing price of $14.84$17.14 per share of our common stock on December 30, 2016.2018. These benefits are in addition to benefits available generally to our salaried employees, such as distributions under our 401(k) Plan, disability benefits and accrued vacation pay. A Named Executive Officer’sAn NEO’s benefits under our deferred compensation plans2006 Deferred Compensation Plan will generally be distributed in connection with his or her termination of employment or the occurrence of a specified date. Benefits under the SERP are generally paid on early or normal retirement.
Due to the number of factors that affect the nature and amount of any benefits paid upon the occurrence of any of the events discussed below, any actual amounts paid may be different. Factors that could affect these amounts include the timing of the event, the company’sCompany’s stock price and the executive’s age.
| TENET HEALTHCARE●2019 PROXY STATEMENT | 55 |
EXECUTIVE COMPENSATION TABLES | ||
Mr. Rittenmeyer’s Employment Agreement Benefits
Upon certain terminations of Mr. Rittenmeyer’s employment with the Company by the Company without “cause” or by Mr. Rittenmeyer for “good reason” (each as defined in the Employment Agreement), his Employment Agreement provides that Mr. Rittenmeyer will be entitled to receive, subject to his execution of a release of claims in favor of the Company, (1) accrued but unpaid base salary through the date of termination, (2) reimbursement for unreimbursed business expenses incurred through the termination date, (3) payment of any earned but unpaid AIP bonus for the year prior to the year in which the termination of employment occurs, (4) a lump sum payment equal to the amount of base salary that remains payable through the conclusion of the term of the Employment Agreement, (5) apro-rata AIP bonus for the year in which the termination of employment occurs, (6) a lump sum payment equal to the AIP bonus Mr. Rittenmeyer would have had the opportunity to earn for the remainder of the term of the Employment Agreement, with such lump sum based on actual performance for the performance period in which Mr. Rittenmeyer’s employment occurs, and target performance for any remaining performance period thereafter during the term of the Employment Agreement, (7) accelerated vesting and settlement of all outstanding unvested restricted stock units and restricted cash, and (8) continued coverage under the Company’s health and welfare plans through the end of the Term. The severance and other post-termination benefits provided to Mr. Rittenmeyer recognize our commitment to atwo-year employment term, and offer Mr. Rittenmeyer protection through a period of transition, without providing Mr. Rittenmeyer any additional or supplemental termination packages or change in control-related benefits.
Pursuant to the Employment Agreement, Mr. Rittenmeyer is bound by perpetual confidentiality andnon-disparagement covenants. The Employment Agreement also containsnon-competition andnon-solicitation covenants that apply for the duration of Mr. Rittenmeyer’s employment with the Company and for one year thereafter.
Payments upon Mr. Evans’ Departure
As discussed under “Creation of Enterprise-Wide COO Role” on page 31, Mr. Evans’ last day at the Company was December 31, 2018. In connection with his departure, Mr. Evans was eligible to receive benefits consistent with a“non-cause” termination (as defined below) under our ESP. The actual payments and benefits provided to Mr. Evans in connection with his termination included (i) a severance payment of $3,500,000, payable ratably over 2.5 years following the date of termination, along with continued health and welfare benefits for that period (at a cost to the Company not to exceed $41,450) and aone-time payment of an additional $45,000 in lieu of continued ERA participation, and(ii) pro-rata vesting of his outstanding time-based RSUs and continued vesting of apro-rata portion of his performance-based equity awards (which will vest, if at all, based on actual performance at the end of the performance period).
Death, Disability and Retirement
Upon the death of a Named Executive Officer,an NEO, his or her survivors would receive payments from our insurance carriers under life insurance and accidental death and dismemberment policies provided in connection with the SERP. Wepolicies. For SERP participants, we provide coverage under each policy in an amount up to two times a Named Executive Officer’san NEO’s salary, not to exceed $550,000 per policy (i.e., we pay up to $1,100,000), with excess coverage elected by the executive at his or her expense. As of December 31, 2016,2018, the survivors of the Named Executive OfficersNEOs would receive the
|
| ||
following lump sum cash payments: Mr. Fetter, $1,600,000; Mr. Cancelmi, $3,455,000;$3,505,000; Mr. Pitts, $2,525,000; Mr. Evans, $4,100,000;$2,575,000; and Ms. Andrews, $3,701,000.$3,851,000. In addition, under the SERP, the surviving spouse of a deceased Named Executive OfficerNEO would receive monthly payments equal to 50% of the retirement benefits that would have been payable to the executive.
Upon total and permanent disability, a Named Executive Officeran NEO would receive a cash payment from our insurance carrier, payable on a monthly basis until the executive reaches age 65, not to exceed $25,000 per month.
Upon retirement, a Named Executive Officeran NEO would receive apro-rata bonus earned under the AIP for the year that includes the date of retirement.
PursuantOther than Mr. Rittenmeyer’s awards as discussed above, pursuant to the terms of the award agreements under the 2008 Stock Incentive Plan, if a Named Executive Officeran NEO dies, becomes totally and permanently disabled or, in the case of stock options, only, retires, unvested options and restricted stock units will vest in full. If the options or restricted stock units are subject to performance criteria, however, then vesting is subject to the satisfaction of such performance criteria, and, if termination occurs prior to the end of the performance period, the awards will be subject topro-rata vesting and settlement if and when the performance criteria are satisfied, based on the period of time employed during the performance period.
The table set forth below reflects the estimated aggregate amount of payments and other benefits each Named Executive OfficerNEO other than Mr. Evans would receive upon termination of employment due to death, disability or retirement assuming that terminations occurred as of December 31, 2016.2018. As of December 31, 2016, Mr. Fetter was our only Named Executive Officer2018, Messrs. Cancelmi and Pitts are considered retirement-eligible for purposes of the SERP or accelerated equity vesting.
NAME | TERMINATION SCENARIO | SERP/ERA BENEFIT ($)(1) | ACCELERATED EQUITY AWARDS ($)(2) | TOTAL ($) | ||||||||||
Trevor Fetter | Death | 10,316,473 | 8,289,208 | 18,605,681 | ||||||||||
| Disability | 16,932,046 | 8,289,208 | 25,221,255 | |||||||||||
| Retirement | 19,402,518 | -0- | 19,402,518 | |||||||||||
Dan Cancelmi | Death | 3,509,197 | 2,875,784 | 6,384,981 | ||||||||||
| Disability | 4,885,192 | 2,875,784 | 7,760,977 | |||||||||||
| Retirement | -0- | -0- | -0- | |||||||||||
Keith Pitts | Death | -0- | 3,558,484 | 3,558,484 | ||||||||||
| Disability | 1,572,994 | 3,558,484 | 5,131,477 | |||||||||||
| Retirement | -0- | -0- | -0- | |||||||||||
Eric Evans | Death | 526,915 | 960,564 | 1,487,479 | ||||||||||
| Disability | 526,915 | 960,564 | 1,487,479 | |||||||||||
| Retirement | -0- | -0- | -0- | |||||||||||
Audrey Andrews | Death | 1,972,326 | 1,550,364 | 3,522,691 | ||||||||||
| Disability | 2,619,366 | 1,550,364 | 4,169,730 | |||||||||||
| Retirement | -0- | -0- | -0- | |||||||||||
56 | TENET HEALTHCARE●2019 PROXY STATEMENT |
EXECUTIVE COMPENSATION TABLES | ||
2018 Death, Disability and Retirement Table
NAME |
TERMINATION |
SERP/ ($)(1) |
ACCELERATED |
PERFORMANCE |
TOTAL ($) | ||||||||||||||||||||
Ron Rittenmeyer(3) |
Death |
|
298,382 |
|
|
3,718,437 |
|
|
4,375,000 |
|
|
8,391,820 |
| ||||||||||||
Disability |
|
298,382 |
|
|
3,718,437 |
|
|
4,375,000 |
|
|
8,391,820 |
| |||||||||||||
Retirement |
|
298,382 |
|
|
-0- |
|
|
-0- |
|
|
298,382 |
| |||||||||||||
Dan Cancelmi |
Death |
|
3,779,069 |
|
|
2,618,409 |
|
|
766,667 |
|
|
7,164,145 |
| ||||||||||||
Disability |
|
5,762,111 |
|
|
2,618,409 |
|
|
766,667 |
|
|
9,147,187 |
| |||||||||||||
Retirement |
|
6,668,763 |
|
|
-0- |
|
|
-0- |
|
|
6,668,763 |
| |||||||||||||
Keith Pitts |
Death |
|
5,597,521 |
|
|
3,564,623 |
|
|
1,300,000 |
|
|
10,462,144 |
| ||||||||||||
Disability |
|
9,886,597 |
|
|
3,564,623 |
|
|
1,300,000 |
|
|
14,751,220 |
| |||||||||||||
Retirement |
|
11,923,277 |
|
|
-0- |
|
|
-0- |
|
|
11,923,277 |
| |||||||||||||
Audrey Andrews |
Death |
|
2,756,899 |
|
|
1,725,912 |
|
|
500,000 |
|
|
4,982,812 |
| ||||||||||||
Disability |
|
3,560,555 |
|
|
1,725,912 |
|
|
500,000 |
|
|
5,786,467 |
| |||||||||||||
Retirement |
|
-0- |
|
|
-0- |
|
|
-0- |
|
|
-0- |
| |||||||||||||
| (1) | Represents the present value of the benefit payable under the SERP |
| (2) | Unvested performance-based restricted stock unit awards are reported as vesting at target levels. Amounts reflected are based on the NYSE closing price of |
| (3) | ||||
Mr. Rittenmeyer’s performance stock option award is exercisable upon his death or disability because the award’s performance condition was met and the award vested in 2018. The performance condition required the average closing price of the Company’s common stock to be at least 25% above the closing price on the grant date, which was $16.43, for 30 consecutive days.
|
| ||
Non-Cause Termination/No Change of Control
Subject to the terms of the ESP and applicable equity plans and award agreements, and with respect to the ESP, further subject to signing a severance agreement containing restrictive covenants, as well as a release, each of the Named Executive OfficersMs. Andrews and Messrs. Cancelmi and Pitts is entitled to the following severance payments and other benefits if his or her employment is terminated without cause, or by the executive for good reason (a “non-cause”“non-cause” termination), outside the context of a change of control of the company:Company:
Severance pay (base salary plus target bonus) during the “severance period” which is three years for Mr. Fetter, two and a half years for Mr.Messrs. Cancelmi Mr.and Pitts, and Mr. Evans, and one and a half years for Ms. Andrews;
Lump sumpro-rata bonus earned under the AIP for the year that includes the date of termination;
Continued coverage during the severance period under medical, dental, vision, life and long-term care benefit programs;programs, provided that the executive continues to pay his or her portion of the cost of such coverages as in effect upon termination;termination, and reduced to the extent that the Named Executive Officer receives comparable benefits through other employment during the severance period;
Outplacement services not to exceed $25,000;
Pursuant to the terms of the ESP, the Named Executive OfficersNEOs will forfeit anynon-vested outstanding equity awards at termination to the extent the underlying equity award agreements do not otherwise provide for acceleration of vesting. Time-vested restricted stock unit awards and stock options vest upon anon-cause termination. Likewise, subject to satisfaction of the performance criteria, performance-based restricted stock unit awards and performance-based stock options vest upon anon-cause termination (with proration for any performance period not completed as of termination with respect to performance-based restricted stock unit awards);
Performance cash awards are subject to the same treatment as performance-based restricted stock unit awards with respect to any performance period not completed as of termination (any previously “banked” amounts shall also be payable); and
| TENET HEALTHCARE●2019 PROXY STATEMENT | 57 |
EXECUTIVE COMPENSATION TABLES | ||
Age and service credit under the SERP during the severance period, for employees who became participants in the SERP prior to August 3, 2011.
The table set forth below reflects the estimated aggregate amount of payments and other benefits (not including reimbursable legal fees, if any, to obtain benefits under the ESP and certain reimbursable excise taxes, if any, incurred by the participant under Section 409A) each Named Executive OfficerNEO would receive other than Mr. Evans upon anon-cause termination unrelated to any change of control assuming that terminations occurred as of December 31, 2016.2018.
NAME | CASH SEVERANCE ($)(1) | HEALTH AND WELFARE BENEFITS ($)(2) | OUTPLACEMENT SERVICES ($) | ADDITIONAL SERP/ERA BENEFIT ($)(3) | ACCELERATED EQUITY AWARDS ($)(4) | EXCISE TAX REIMBURSE- MENTS ($) | TOTAL ($) |
CASH |
HEALTH |
OUTPLACEMENT |
ADDITIONAL |
PERFORMANCE |
ACCELERATED |
EXCISE TAX |
TOTAL | |||||||||||||||||||||||||||||||||||||||||||
Trevor Fetter | 10,849,613 | 42,273 | 25,000 | 3,743,827 | 8,289,208 | Not offered | 22,949,921 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Ron Rittenmeyer |
|
3,500,000 |
|
|
12,323 |
|
|
-0- |
|
|
-0- |
|
|
4,375,000 |
|
|
3,718,437 |
|
|
Not a benefit |
|
11,605,760 | ||||||||||||||||||||||||||||||||||||
Dan Cancelmi | 3,505,914 | 35,227 | 25,000 | 2,094,582 | 2,875,784 | 8,536,507 |
|
3,090,000 |
|
|
40,910 |
|
|
25,000 |
|
|
1,146,036 |
|
|
766,667 |
|
|
2,618,409 |
|
7,687,021 | |||||||||||||||||||||||||||||||||
Keith Pitts | 5,247,525 | 35,227 | 25,000 | -0- | 3,558,484 | 8,866,236 |
|
4,625,000 |
|
|
27,978 |
|
|
25,000 |
|
|
-0- |
|
|
1,300,002 |
|
|
3,564,623 |
|
9,542,603 | |||||||||||||||||||||||||||||||||
Eric Evans | 3,680,848 | 41,827 | 25,000 | 316,149 | 960,564 | 5,024,388 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Audrey Andrews | 1,643,119 | 21,136 | 25,000 | 340,377 | 1,550,364 | Not offered | 3,579,997 |
|
1,443,750 |
|
|
24,842 |
|
|
25,000 |
|
|
-0- |
|
|
500,000 |
|
|
1,725,912 |
|
|
Not a benefit |
|
3,719,505 | |||||||||||||||||||||||||||||
| (1) | Severance is paid on abi-weekly basis at termination, subject to certain amounts being delayed for asix-month period in compliance with Section 409A. Severance pay will be reduced for any SERP benefits that become payable during the severance period. For employees who became participants in the SERP prior to August 3, 2011, at the end of the severance period, the |
| (2) | Represents the aggregate incremental cost of providing medical, dental, life insurance, and accidental death and dismemberment benefits to the executive at active employee rates. “Incremental cost” is comprised of our contributions to the premium cost for these benefits and our cost of paying benefits under our self-funded plans. |
| (3) | Represents the present value of the additional benefit payable under the SERP (for NEOs other than Mr. |
Company. |
| ||
| (4) | Unvested performance-based restricted stock unit awards are reported as vesting at target levels (as such levels are disclosed above in the Outstanding Equity Awards Table and footnote 3 thereto). Amounts reflected are based on the NYSE closing price of |
Non-Cause Termination/Change of Control
Subject to the terms of the ESP and applicable equity plans and award agreements, each of the Named Executive OfficersNEOs (other than Mr. Rittenmeyer whose separation benefits are described above) is entitled to the following severance payments and other benefits if his or her employment is terminated without cause, or by the executive for good reason (a “non-cause”“non-cause” termination), during the period beginning six months prior to a change of control and ending 24 months following the occurrence of a change in control (the “protection period”):
The same benefits to which the executive would be entitled with respect to anon-cause termination outside the context of a change of control, provided that the “severance period” is three years for Messrs. Fetter, Cancelmi Pitts and EvansPitts, and two years for Ms. Andrews. If the termination occurs within the six months prior to a change of control that results from the liquidation or dissolution of the company,Company, however, then the severance period applicable tonon-cause terminations outside the context of a change of control will apply; and
Equity awards under our stock incentive plans that have not vested and are not assumed or exchanged for substitute equity by the successor to the companyCompany will accelerate and become vested upon a change of control irrespective of whether the Named Executive Officer terminates employment. Equity awards under our stock incentive plans that have not vested and are assumed or substituted by the successor to the companyCompany will accelerate and become vested upon anon-cause termination in connection with a change of control; performance-based restricted stock units and performance-based stock options will vest subject to the satisfaction of performance criteria (with proration for any performance period not completed as of termination).
In 2012, the companyCompany amended the ESP to eliminate all reimbursements andgross-ups with respect to golden parachute excise taxes. Pursuant to the ESP, if any payment or other benefit to which an executive is entitled under the ESP or otherwise will become subject to the
58 | TENET HEALTHCARE●2019 PROXY STATEMENT |
