Health Net 2015 Annual Report Download - page 115

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Management Incentive Plan
In 2015, our named executive officers earned annual cash bonuses under our Management Incentive Plan for
Directors and Above (“MIP”), which is the Company’s cash bonus program for eligible associates. The Compensation
Committee approved an original program framework that provided for funding 2015 cash bonuses under the MIP upon
the Company achieving a pre-established level of combined Western Region Operations and Government Contracts
segments PTI for 2015 (“2015 PTI”). If the pre-established funding threshold was met, the Compensation Committee
would have the discretion under the framework to fund the MIP within one of three funding ranges, depending on the
amount of 2015 PTI achieved. Under this framework, the Company’s actual 2015 PTI would have supported a funding
level in the highest of the three possible ranges, which was between 101% - 150% of the target funding level. In
February 2016, the Compensation Committee determined, in lieu of using 2015 PTI to determine the funding level under
our MIP, to fund such bonuses at $35 million, in accordance with the terms of our Merger Agreement with Centene (the
“Merger Agreement”) and as permitted by the terms of the MIP. The Compensation Committee then approved specific
awards of these cash bonuses based upon each named executive officer’s performance with regard to, among other
things, certain previously established performance factors, as further discussed under “—Analysis of Compensation
During Fiscal 2015—Annual Performance-Based Incentive Cash Awards.” We believe the contingent nature of the award
of MIP cash bonuses for 2015 reflects our continued emphasis on pay-for-performance.
Performance Stock Units
In 2015, we continued awarding our Oversight Executives (which group includes our named executive officers)
annual equity awards consisting of a mix of 75% of the total award value in PSUs and 25% of the total award value in
RSUs, in order to continue to align and tie the compensation of our named executive officers to the Company’s
performance. However, in 2015 we changed the framework of our annual equity award program such that the PSUs
granted to our named executive officers under the program include multiple performance measures, including new
strategic operating performance measures in addition to a performance measure based on an EPS metric. Seventy
percent of the PSUs awarded as part of the 2015 annual award program would be earned and subject to a three-year
vesting period if the Company achieved a pre-established target level of combined Western Region Operations and
Government Contracts segments EPS for 2015 (“2015 EPS”) and thirty percent of the PSUs would be earned and subject
to a three-year vesting period if the Company achieved certain pre-established strategic operating performance measures
in 2015. The changes made to the framework of our 2015 annual equity award program, as compared to our prior equity
award programs, were adopted to, among other things, provide for multiple performance measures consistent with
market best practices and require the achievement of both financial and strategic operational goals in order to achieve the
full target value of the PSUs granted in the program.
On February 13, 2016, the Compensation Committee concluded that the Company met the 2015 EPS target and
that the strategic operating performance measures had been achieved. Accordingly, the Compensation Committee
determined that 100% of the PSUs granted as a part of our 2015 annual equity award program had been earned, and
would vest on the first, second and third anniversaries of the February 20, 2015 grant date subject to the recipient’s
continued employment through each vesting date.
We believe that this 75%-25% PSU to RSU value mix subjects a significant portion of our named executive
officers’ equity incentive compensation to risk based on Company performance and helps us to achieve a desired level of
pay for performance alignment while maintaining incentives to increase long-term stockholder value and satisfying our
retention objectives. For additional detail, see the information under “What are the elements of named executive officer
compensation and why do we provide each element?—Long-Term Equity Incentive Compensation—Determinations
Regarding Form and Mix of 2015 Equity Awards” and “—Analysis of Compensation During Fiscal 2015-Long-Term
Equity Compensation Program.”
Key Practices and Governance Standards
We are committed to having strong governance standards with respect to our compensation programs and
practices. Consistent with this focus, we have the following programs and practices that are mindful of the concerns of
our stockholders and best governance.
What We Do
Pay for Performance. Our named executive officers receive the majority of their compensation in
performance-based compensation.
Compensation Recovery Policy. We have a formal compensation recovery policy for the recovery of
cash- or equity-based incentive compensation and profits realized from the sale of securities from our