EXECUTIVE MANAGEMENT
TOTAL DIRECT COMPENSATION PROGRAM
November 22, 1994
EXECUTIVE MANAGEMENT
TOTAL DIRECT COMPENSATION PROGRAM
OVERVIEW
- - - - Executive Compensation Program Goals:
- - - - Facilitate and encourage stock ownership by
executives
- - - - Promote a firm-wide culture
- - - - Emphasize performance-sensitivity in the executive
compensation area
- - - - Shift pay from fixed to variable, from short-term
to long-term
- - - - Provide a program which is viewed favorably by
shareholders
EXECUTIVE MANAGEMENT
TOTAL DIRECT COMPENSATION PROGRAM
OVERVIEW
- - - - Compensation Objective:
Salary
Total Annual Compensation (TAC)
(Salary + Target Bonus)
Total Direct Compensation (TDC)
(TAC + Long-Term Incentive Opportunity)
Relative to the Marketplace
60th Percentile*
Expected Performance: 75th Percentile
Expected Performance: 75th Percentile
TOTAL DIRECT COMPENSATION (TDC)
TDC =
Annual Salary
+
Annual Bonus
+
Long Term Incentives
EXECUTIVE MANAGEMENT
TOTAL DIRECT COMPENSATION PROGRAM
PROGRAM COMPONENTS
1) ANNUAL SALARY
2) ANNUAL BONUS
3) LONG TERM INCENTIVE PLANS (LTIP)
- Stock Option Program
- Purchased Restricted Stock Program
EXECUTIVE MANAGEMENT
TOTAL DIRECT COMPENSATION PROGRAM
ANNUAL SALARY
ANNUAL SALARY
- - - - Amount Determined By:
- Market Competitive Data Provided by The HAY
Group, a National Compensation Consulting
Firm
- Executive Management Recommendations
- Compensation Committee of the Board Approval
- - - - General Guidelines:
- 50-60th Percentile of Market Competitive Data
Used as the Midpoint Range
- For-Profit Hospital Management Companies Used
as Benchmarks (See Appendix A)
- Comparisons also made to General Industry and
Not-For-Profit Hospital Companies
EXECUTIVE MANAGEMENT
TOTAL DIRECT COMPENSATION PROGRAM
ANNUAL BONUS
ANNUAL BONUS
- - - - Bonus Percent Determined By:
- Market Competitive Data as Reported by The
HAY Group
- Executive Management Recommendations
- Compensation Committee of the Board Approval
- - - - General Guidelines:
- Base Salary + Annual Bonus = Total Annual
Compensation (TAC)
- TAC = 75th Percentile of Market Competitive
Data
ANNUAL BONUS
- - - - Bonus Objectives: Each participant in the
program will have specific objectives established for
each criterion.
Corporate objectives will be established by Executive
Management.
Business Unit and Individual* objectives will be
established by the participant and his/her supervisor.
*Individual and/or Business Unit objectives should
contain specific goals pertaining to the Employee
Attitude Survey
ANNUAL BONUS
- - - - Targeted Incentive: Percent of Base Salary (Varies
by Position)
- - - - Bonus Opportunity: Each participant will be
assigned a Target Incentive Award opportunity.
Executive Management will review performance
contributions and achievement of objectives after the
end of the fiscal year to determine what, if any, bonus
is paid.
Individuals who exceed the performance expectations in
a material manner may be eligible for a bonus award
greater than the Targeted Incentive.
EXAMPLE
Target Incentive Award: 15% of Base Salary
ANNUAL BONUS
- - - - BONUS CRITERIA: Corporate
Business Unit
Individual
- - - - CRITERIA WEIGHTINGS: Varies by Position
EXAMPLE
VP, HRD Corporate: 50%
Business Unit: 35%
Individual: 15%
RVP Corporate: 35%
Business Unit: 55%
Individual: 10%
ANNUAL BONUS
- - - - CRITERIA ACCOMPLISHMENTS:
- Each criterion will be evaluated based on its
own merit
* Corporate: If the corporation meets
its financial goals, a bonus will be
paid to the executive (as long as he/she
is actively employed at the time bonuses
are paid out and as long as individual
performance throughout the fiscal year
was satisfactory)
* Business Unit: If the executive does
not meet all of his/her business unit
objectives, executive management (and
for executive management, the Board)
will determine the portion, if any, of
the bonus payout to be made
* Individual: If the executive does not
meet all of his/her individual
objectives, executive management (and
for executive management, the Board)
will determine the portion, if any, of
the bonus payout to be made
-- See the plan document for plan details --
ANNUAL BONUS
- - - - CRITERIA DEFINITIONS:
- Corporate: Accomplishment of Pro Forma
financial objectives
- Business Unit: Performance and contributions
of business unit(s) in supporting the overall
strategies of the company
- Individual: The accomplishment of specific
objectives; contributions considered "above
and beyond"
ANNUAL BONUS
EXAMPLE
HUMAN RESOURCES
- - - - Target Bonus Potential: 15% of Base Salary
Corporate (50%) 7.5%
Business Unit (35%) 5.0%
Individual (15%) 2.5%
ANNUAL BONUS
EXAMPLE
HUMAN RESOURCES
- Corporate:
Accomplishment of Company Pro Forma Financial
Objectives
- Business Units:
(Specific objectives for each unit to be
established)
1) Benefits
2) Recruiting
3) Compensation
4) Employee Relations
5) General Services
- Individual
1) Management of Staff
2) Management Development (Personal &
Staff)
3) Community Involvement
4) Employee Attitude Survey (Human
Resources Department plus Corporate
Office)
5) Teamwork
EXECUTIVE MANAGEMENT
TOTAL DIRECT COMPENSATION PROGRAM
LONG TERM INCENTIVE PLAN (LTIP)
LONG TERM INCENTIVE PLAN (LTIP)
- - - - PARTICIPANTS AND PLAN SPECIFICATIONS
- Executive Management Recommendations
- Compensation Committee of the Board Approval
- - - - PLAN COMPONENTS:
1) Stock Options Program
2) Purchased Restricted Stock (PRS) Program
LONG TERM INCENTIVE PLAN (LTIP)
- - - - PARTICIPATION:
- Stock Options Program:
Company Directed*
- Purchased Restricted Stock (PRS)
Program:
Individual Directed
* Subject to eligibility rules, performance,
vesting and other provisions as outlined in
the plan document
LONG TERM INCENTIVE PLAN (LTIP)
- - - - STOCK OPTION PROGRAM
- Non-Qualified Stock Options
- Stock Option Formula: LTIP Award Percent (%)
times annual salary ($) times 50% divided by
the fair market value (FMV) of stock options.
The LTIP Award % is determined by Executive
Management at the beginning of each fiscal
year and approved by the Compensation
Committee of the Board.
- Fair market value (FMV) of the stock option
is determined by Compensation Committee of
the Board (expected to be approximately one-
fourth of Market Price of Common Stock
LONG TERM INCENTIVE PLAN (LTIP)
- - - - STOCK OPTIONS PROGRAM (Continued)
- Price = 100% of the fair market value on the
date of grant
- Granted to participants regardless of
participation in the Purchased Restricted
Stock (PRS) Program
- No option to take cash instead of Stock
Options
- Option awards granted at the beginning of the
program year, but will be subject to
satisfactory performance of bonus criteria
- Three-year cumulative (cliff) vesting
- Option Term = 10 years
LONG TERM INCENTIVE PLAN (LTIP)
- - - - STOCK OPTIONS PROGRAM (Continued)
EXAMPLE
Annual Salary: $100,000
Target Annual Bonus: $ 15,000 (15%)
Fair Mkt Value of Stock Option: $6.00
Stock Options Granted: 2,500 shares
(Formula: Annual Salary x LTIP Award % x 50% Divided
by FMV)
($100,000 x 15% x 50% = $7,500 divided by $6.00 = 2,500
Options Granted)
LONG TERM INCENTIVE PLAN (LTIP)
- - - - PURCHASED RESTRICTED STOCK PROGRAM
- Participation in this program is optional
- Opportunity to give up portion or all of
bonus to purchase Restricted Stock at 50% of
current stock price (discounted stock price)
- Executive determines the percent of bonus (or
flat dollar amount) to allocate toward the
purchase of discounted restricted stock
EXAMPLES
(A) (B)
Annual Salary = $100,000 $100,000
Target Bonus = 15% or $15,000 15% or
$15,000
LTIP Award % = 15% 15%
Elected Deferral = 50% of Target Bonus 1st $10,000
Actual Award = $10,000 $10,000
Amount Deferred = $5,000 $10,000
Cash Received = $5,000 $0.00
LONG TERM INCENTIVE PLAN (LTIP)
- - - - PURCHASED RESTRICTED STOCK PROGRAM
(Continued)
- Allocations to the Purchased Restricted Stock
Program must be made in advance consistent
with deferred compensation rules
- Vesting = 3-year cliff vesting
- Maximum deferral: 100% of Annual Bonus
LONG TERM INCENTIVE PLAN (LTIP)
TREATMENT OF CHANGES IN EXECUTIVES' STATUS
CHANGE IN EMPLOYMENT TREATMENT
STATUS DURING PURCHASED
RESTRICTION RESTRICTED
REQUIRED STOCK OPTIONS
Death,
Disability,
Retirement Restrictions 100% vesting
lapse on shares
Termination by
the Company
without cause
(layoff) Stock payment equal Vesting to the
to the stock's fair to the date of
market value on the termination.
last day of Other options
employment. forfeit
Termination by Cash payment equal Forfeiture
the Company with to the lesser of
Cause the stock's fair
market value on the
last day of employment
or the purchase amount
of the stock
Other Terminations Cash payment equal to Forfeiture
the lesser of the
stock's fair market
value on the last
day of employment or
the purchase amount
of the stock
LONG TERM INCENTIVE PLAN (LTIP)
- - - - PURCHASED RESTRICTED STOCK PROGRAM
(CONTINUED)
EXAMPLE A
- Annual Salary: $100,000
- Annual Bonus: $ 15,000
- Elected Deferral to Stock: 60% of Bonus or
$42,000
- Cash Received $28,000
- Current Stock Price: $25.00 per share
- Discounted Stock Price (50%): $12.50 per
share
- LTIP Purchased Restricted Stock: 3,360 shares
- Value of PRS shares:$84,000 (3,360 x $25)
LONG TERM INCENTIVE PLAN (LTIP)
- - - - PURCHASED RESTRICTED STOCK PROGRAM
(CONTINUED)
EXAMPLE B
- - - - Annual Salary: $200,000
- - - - Annual Bonus: $ 70,000
- - - - Elected Deferral to Stock: 30% of Bonus or
$21,000
- - - - Cash Received $49,000
- - - - Current Stock Price: $25.00 per
share
- - - - Discounted Stock Price (50%): $12.50 per share
- - - - LTIP Purchased Restricted Stock: 1,680 shares
- - - - Value of PRS shares: $42,000 (1,680 x $25)
TOTAL DIRECT COMPENSATION
EXAMPLE A: CURRENT VALUE
Annual Salary $200,000
Annual Cash Bonus Paid ($70,000 - $42,000 Deferred)
$ 28,000
Long Term Incentives* $119,000
Total Direct Compensation $347,000
*Long Term Incentives
LTIP Stock Options 5,600 x $ 6.25 $ 35,000
LTIP PR Stock 3,360 x $25.00 $ 84,000
Estimated Value of LTIP Incentives $119,000
TOTAL DIRECT COMPENSATION
EXAMPLE B: CURRENT VALUE
Annual Salary $200,000
Annual Cash Bonus Paid ($70,000 - $21,000) $ 49,000
Long Term Incentives* $ 77,000
Total Direct Compensation $326,000
*Long Term Incentives
LTIP Stock Options 5,600 x $ 6.25 $ 35,000
LTIP PR Stock 1,680 x $25.00 $ 42,000
Estimated Value of LTIP Incentives $ 77,000
TOTAL DIRECT COMPENSATION
STOCK OWNERSHIP GUIDELINES
NUMBER OF TIMES SALARY
FOR EXECUTIVES WHO RETENTION GOALS FOR
DIDN'T PARTICIPATE THOSE WHO ALREADY
IN FOUNDERS STOCK OWN SIGNIFICANT
GROUP STOCK
Chairman and CEO - 7x
SVP and COO - 5x
SVP, Finance - 5x
SVP, G.C. & Corp
Sec'y
SVP, Development
SVP, Controller .5x 3x
RVPs .5x 3x
Other Officers .5x 1x
Regional AVPs .5x 1x
Certain Corporate
Directors/Managers .15x .5x
Hospital CEOs .25x -
Hospital CNOs,
CFOs, COOs .15x -
- - - - Goal to be met in three years
APPENDIX A
ANNUAL SALARY
For-Profit Hospital Management Companies
- - - - American Healthcare Management, Inc.
- - - - American Medical Holdings, Inc.
- - - - Charter Medical Corporation
- - - - Galen Health Care, Inc.
- - - - Hospital Corporation of America
- - - - National Medical Enterprises, Inc.