Quest Diagnostics 2004 Annual Report Download - page 19

of capital of Quest Diagnostics in a transaction not covered by clause (2) following which
Quest Diagnostics ceases to be an independent public company or there is material
diminution of Dr. Mohapatra’s position, duties or responsibilities or (4) a change in the
membership of the Quest Diagnostics Board of Directors as a result of a contested election
such that a majority of the Board members at any particular time were initially placed on
the Board as a result of such contested election.
Severance Arrangements
Quest Diagnostics has a severance policy for all executive officers, other than Mr. Freeman
and Dr. Mohapatra, whereby:
•Severance is paid to an executive officer if his or her employment is terminated by Quest
Diagnostics other than for cause prior to a change of control or Quest Diagnostics fails to
renew the severance agreement, in an amount equal to two times the executive officer’s
annual base salary at the annual rate in effect on the date of termination of employment
and two times the annual award of variable compensation at the most recent target level.
The executive would also be entitled to participate in Quest Diagnostics’ health and welfare
plans, to the extent permitted by the terms of the plans and applicable law, for a period of
up to two years or until the officer is covered by a successor employer’s benefit plans,
whichever occurs first.
•If, however, an executive officer’s employment is terminated by Quest Diagnostics, other
than for cause, during the 12-month period following a change in control, or the ninety-day
period prior to a change of control in anticipation of a change of control, the severance
benefit will be equal to three times the executive officer’s annual base salary at the annual
rate in effect on the date of termination of employment and three times the annual award
of variable compensation at the most recent target level. Certain executive officers will
receive gross-up payments for applicable excise taxes. The executive officer would also be
entitled to participate in Quest Diagnostics’ health and welfare programs, to the extent
permitted by the terms of these plans and applicable law, for a period of up to three years
or until the officer is covered by a successor employer’s benefit plans, whichever is first. A
“Change of Control’’ is defined in the policy to include the following: the acquisition by a
person of 40% or more of the voting stock of the Company; the membership of the Board
of Directors changes as a result of a contested election such that a majority of the Board
members at any particular time was initially placed on the Board as a result of such
contested election; approval by the Company’s stockholders of a merger or consolidation in
which the Company ceases to be an independent public company; or a sale or disposition
of all or substantially all of the Company’s assets or a plan of partial or complete
liquidation.
Compensation Committee
Report on Executive Compensation
The Compensation Committee of the Board of Directors determines the compensation of
Quest Diagnostics’ executive officers. Currently, the Compensation Committee has three members,
each of whom is independent of management under the NYSE listing standards. None of the
Committee members has any insider or interlocking relationship with the Company, and each of
them is a non-employee director, as these terms are defined in applicable SEC rules.
Compensation Philosophy
The Compensation Committee is responsible for ensuring that executive compensation is
aligned with Quest Diagnostics’ values and strategic objectives and is based on corporate,
applicable business unit, and individual performance measures. The Committee intends to design
and administer its compensation plans to:
Quest Diagnostics Incorporated ?2004 Proxy Statement ?17