Health Net 2015 Annual Report Download - page 130

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In connection with the pending Merger, in February 2016, the Compensation Committee determined, in lieu of
using 2015 PTI to determine the funding level under the MIP, to fund such bonuses at $35 million, in accordance with
the terms of the Merger Agreement and as permitted by the terms of the MIP. The Company’s actual 2015 PTI was
$572.8 million, which would have supported funding the 2015 MIP at a funding level in the highest of the three possible
ranges, which was between 101% - 150% of the target funding level. In addition, the $35 million funding level would
have correlated to approximately 127% of the target funding level, assuming a 100% Individual Performance Score for
each participant at our targeted participation rate, which would have been within the original Committee-determined
funding range applicable to the Company's actual 2015 PTI performance. The Compensation Committee made such
determination based upon the negotiated terms of the Merger Agreement, the Company’s performance in 2015, the
inapplicability of certain elements of the Strategic Initiatives in light of the pending Merger and its determination that the
Company performed successfully with regard to the remaining Strategic Initiatives. 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 defined below. Such awards were calculated
by (i) multiplying the executive’s annual base salary at December 31, 2015 by his or her individual target award
percentage, and then (ii) multiplying the result of the foregoing by such executive’s Individual Performance Score. For
additional detail, see the information under “—What are the elements of named executive officer compensation and why
do we provide each element?—Annual Performance-Based Incentive Cash Awards.”
To determine each named executive officer’s Individual Performance Score, which may range from 0% to
200%, Mr. Gellert presented to the Compensation Committee performance evaluations for Mr. Woys and Ms. Hefner, as
well as a self-evaluation of his own performance for 2015, and Mr. Woys presented to the Compensation Committee
performance evaluations for Messrs. Sell and Tough. Mr. Gellert’s and Mr. Woys’ evaluations included, among other
things, an assessment of the named executive officers’ performance with respect to the following performance factors:
(i) individual and/or business unit contributions to 2015 combined Western Region and Government Contracts PTI,
Western Region Operations year-end total medical membership, combined Western Region Operations and Government
Contracts segment revenues, Western Region Operations total MCR, Western Region Operations general &
administrative expense ratio, GAAP EPS, and Combined Western Region Operations and Government Contracts EPS;
(ii) individual and/or business unit contributions to the achievement of the Strategic Initiatives; (iii) leadership; (iv) talent
development; (v) succession planning; (vi) regulatory and operational compliance; (vii) organizational climate;
(viii) successful responses to changing market conditions, including, but not limited to, changes resulting from health
care reform, to ensure the Company is well positioned for 2015 and beyond; (ix) business unit performance and
operations; and (x) process improvements to drive enterprise outcome (collectively, the “Performance Factors”). The
Performance Factors were not an exhaustive listing of factors to be considered and were intended to be subjective
factors. In addition, no single factor was to be determinative, nor must all factors have been considered with respect to a
particular individual. Mr. Gellert recommended to the Compensation Committee Mr. Woys’ and Ms. Hefner’s Individual
Performance Score while Mr. Woys recommended to the Compensation Committee Messrs. Sell’s and Tough’s
Individual Performance Scores.
The Compensation Committee then made a final determination, in its sole and absolute discretion, as to the
Individual Performance Score for each named executive officer after considering Mr. Gellert’s and Mr. Woys’
recommendations, reviewing the individual’s performance with respect to the Performance Factors, among other things,
and considering its own observations and assessments of our named executive officers and Health Net’s performance in
2015, taking into account, among other things, the impact of the announcement of the proposed Merger and the operation
of the business in light thereof. The Compensation Committee approved Messrs. Sell’s and Tough’s Individual
Performance Scores as recommended by Mr. Woys of 170% and 110%, respectively and approved Ms. Hefner’s
Individual Performance Score as recommended by Mr. Gellert of 110%. For each of Mr. Gellert and Mr. Woys (our
second-highest paid executive), the Compensation Committee recommended an Individual Performance Score of 200%
to the Board, which the Board approved. When approving the Individual Performance Scores of our named executive
officers, the Compensation Committee and the Board, as appropriate, considered each named executive officer’s
individual and business unit contributions to the Performance Factors among other things, including, but not limited to,
the following: (i) Mr. Gellert’s leadership and significant contributions in support of the Company’s successful
performance with regard to the Strategic Initiatives, positioning the Company to continue to benefit from the
unprecedented changes in the managed care industry, and negotiating and effectuating the Merger Agreement; (ii) Mr.
Woys’ significant contributions to the economic success of the Company through his leadership and guidance, as well as
his contributions in negotiating and effectuating the Merger Agreement and preparing for the close of the proposed
Merger; (iii) Ms. Hefner’s significant contributions in preparing for the commencement of services under the Cognizant
Services Agreement and the subsequent “unwinding” of such efforts, including efforts to support IT infrastructure after
the suspension of the Cognizant Services Agreement to improve our business operations that provide customer services
to our members; (iv) Mr. Tough’s significant contributions in support of our Government Contracts segment, including