Health Net 2015 Annual Report Download - page 123

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are 100% vested in their accounts under the SERP. A description of the material terms of the SERP can be found below
under “Executive Compensation—Pension Benefits for 2015.”
Severance and Change in Control Benefits
We have entered into employment agreements with each of our named executive officers, pursuant to which they
generally are eligible for severance and change in control benefits from Health Net. The severance and change in control
payments and benefits provided under the employment agreements are independent of other elements of compensation.
In 2014, the Compensation Committee, with input from its independent compensation consultant, determined to
eliminate single-trigger acceleration for PSU awards starting with the PSU awards granted in 2014, due to our
commitment to strong governance standards and current best practices. This action codified double trigger provisions
across all of our employee equity vehicles going forward. A description of the material terms of our severance and
change in control arrangements can be found below under “Executive Compensation—Severance and Change in Control
Arrangements.”
The Compensation Committee believes that employment agreements with our named executive officers benefit
Health Net by clarifying the terms of their employment and ensuring that we are protected by non-solicitation, non-
disclosure and compensation recovery provisions. The Compensation Committee believes that severance and change in
control benefits are necessary to attract and retain senior talent in the managed care industry, which protects the interests
of our stockholders. Our severance and change in control arrangements are designed to attract key employees, preserve
employee morale and productivity and encourage retention in the face of the potentially disruptive impact of internal
restructuring activities or an actual or potential change in control. In addition, these benefits allow executives to assess
takeover bids objectively without regard to the potential impact on their own job security. We do not permit tax gross-up
payments under Section 280G of the Code on severance and change in control pay for any person who became an
executive officer after 2007. Messrs. Gellert and Woys are the only named executive officers that are entitled to such
gross-up payments, which are provided for in each of their long-standing employment agreements. However, as
indicated in the table below under “Executive Compensation—Potential Payments Upon Change in Control or
Termination”, neither executive would trigger excise tax or related tax gross-up payments upon a change in control,
assuming a change in control occurred on December 31, 2015. In addition, Ms. Hefner and Messrs. Sell and Tough’s
employment agreements provide that, to the extent that any change in control payment or benefit would be subject to an
excise tax imposed in connection with Section 4999 of the Code, such payments and/or benefits may be subject to a
“best pay cap” reduction to the extent necessary so that the executive receives the greater of the (i) net amount of the
change in control payments and benefits reduced such that such payments and benefits will not be subject to the excise
tax and (ii) net amount of the change in control payments and benefits without such reduction.
The Compensation Committee periodically reviews payments, benefit levels and the estimated costs related to our
severance and change in control arrangements in order to ensure that such arrangements continue to serve Health Net’s
and our stockholders’ best interests in retaining key executives.
The Merger will constitute a “change in control” under each of these employment agreements.
Limited Perquisites and Other Personal Benefits
General. We provide our named executive officers with various perquisites and personal benefits, which serve as
important recruiting and retention tools.
We generally do not permit tax gross-up payments in connection with perquisites provided to executive officers,
except pursuant to certain Company-wide policies which are limited in nature. Under our Company-wide relocation
policy, we provide tax gross-up payments with respect to standard relocation benefits. Under our Company-wide policy
relating to spousal travel, we also provide tax gross-up payments relating to spousal travel for limited Company-
sponsored events, which typically include sales and broker events that serve as an important part of our business. The
Compensation Committee determined it is appropriate to continue to provide tax gross-up payments with respect to these
perquisites, to the extent permitted by applicable tax law, because such tax gross-up payments serve an important
recruiting and retention function and are broad-based benefits provided to all employees and are not limited to our
executive officers.
Financial Counseling. All named executive officers are entitled to reimbursement of $5,000 per year for costs
incurred for personal financial counseling services, including tax preparation, estate and/or tax planning. We provide
these benefits to assist our named executive officers to efficiently manage their time and financial affairs, minimize
distractions and maintain focus on business issues.
Relocation Benefits/Engagement Bonuses. In order to prevent geographic restrictions on our recruitment and
hiring opportunities, we periodically provide new hires with relocation benefits and/or engagement bonuses. All of our