Health Net 2015 Annual Report Download - page 113

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EXECUTIVE COMPENSATION
COMPENSATION DISCUSSION AND ANALYSIS
Health Net, Inc. is a publicly traded managed care organization that delivers managed health care services through
health plans and government-sponsored managed care plans. Our business requires a talented, motivated and capable
leadership team, particularly given the amount and rate of change in the Company and the industry. To that end,
executive compensation plays a vital role in our ability to attract, retain and motivate top talent for continued business
success.
This Compensation Discussion and Analysis (“CD&A” or “Compensation Discussion and Analysis”) discusses the
compensation programs and policies in place for our named executive officers, as well as our Board of Directors’ and
Compensation Committee’s roles in the design and administration of these programs and policies and in making specific
compensation decisions for our named executive officers. Our named executive officers for 2015 are as follows:
• Jay M. Gellert, our President and Chief Executive Officer (our “CEO”);
• James E. Woys, our Executive Vice President, Chief Financial and Operating Officer and Interim Treasurer;
• Juanell Hefner, our Chief Administration Officer;
• Steven D. Tough, our President, Government Programs; and
• Steven J. Sell, our President, Western Region Health Plan.
Executive Summary
While the managed care industry continues to be highly complex, experience unprecedented change and face a
number of significant regulatory and marketplace challenges, the actions of our executives to position the Company to
benefit from these changes and challenges supported the Company’s strong financial and operational performance in
2015. Our guiding principle for our executive compensation program continues to be aligning executive compensation
with the interests of our stockholders by tying a significant portion of executive compensation to our performance.
2015 Financial Highlights
In 2015, we continued to use Pretax Income (“PTI”) for the combined Western Region Operations and Government
Contracts segments and earnings per diluted share (“EPS”) for the combined Western Region Operations and
Government Contracts segments as key financial performance measures for our performance-based cash and equity
incentive award programs, respectively. We use these key metrics as financial performance measures in our
compensation program and believe these measures help to align the interests of our executives with those of our
stockholders. EPS for the combined Western Region Operations and Government Contracts segments equals (i) the sum
of GAAP net income for the Western Region Operations segment and the GAAP net income for the Government
Contracts segment for the applicable fiscal year, divided by (ii) the GAAP diluted weighted average shares of common
stock outstanding as of the applicable fiscal year end.
In 2015, the Company achieved combined Western Region Operations and Government Contracts segments EPS
of $3.30, an increase of approximately 42% compared with 2014. In 2015, the Company achieved combined Western
Region Operations and Government Contracts segments PTI of $573 million, an increase of approximately 49%
compared with 2014.
For information about our financial performance in 2015, see "Item 7 —Management's Discussion and Analysis of
Financial Condition and Results of Operations," above.
Linking 2015 Named Executive Officer Compensation to Performance
Our compensation programs for our named executive officers emphasize compensation based on performance and
are designed to align our named executive officers’ interests with those of our stockholders and to permit individuals
who have performed well in creating and protecting significant long-term value for the Company and its stockholders to
share in the value generated. To this end, our compensation programs emphasize variable compensation in the form of
cash and equity awards, including performance stock units (“PSUs”) and time-vested restricted stock units (“RSUs”),
over fixed compensation. This program design is intended to motivate our executive officers to achieve positive short-
and long-term results for our stockholders.