Health Net 2015 Annual Report Download - page 135

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below. “Net settled shares” generally refers to those shares that remain after payment of (i) the exercise price of stock
options or purchase price of other awards, (ii) all applicable withholding taxes, and (iii) any applicable transaction costs.
Equity Ownership Guidelines
Named Executive Officer
Ownership
Threshold
(as a Multiple of
Base Salary)
2015 Ownership
Threshold
($)(1)
Jay M. Gellert
President and Chief Executive Officer 5x $ 6,150,000
James E. Woys
Executive Vice President, Chief Financial and Operating Officer and
Interim Treasurer
3x $ 2,363,514
Juanell Hefner
Chief Administration Officer 1x $ 546,351
Steven D. Tough
President, Government Programs 1x $ 576,823
Steven J. Sell
President, Western Region Health Plan 1x $ 557,304
(1) Based on base salary in effect as of December 31, 2015.
The Compensation Committee reviews our named executive officers’ stock ownership status and monitors
ownership progress. Currently, all of our named executive officers have met their ownership requirements and are in
compliance with our executive stock ownership guidelines.
In addition, as part of Health Net’s policy on Insider Trading and Disclosure of Material Inside Information, all
employees, including the named executive officers, are prohibited from certain speculative trading activities, including
selling our securities “short,” holding our securities in margin accounts, pledging our securities or engaging in hedging
transactions with respect to our securities. These restrictions prohibit certain transactions whereby the individual
continues to own our stock but without the full risks and rewards of ownership.
Tax and Accounting Considerations
Internal Revenue Code Section 162(m)
Section 162(m)(1) of the Code generally disallows a tax deduction for compensation in excess of $1 million paid
to our CEO and our three other most highly compensated named executive officers employed at the end of the year
(other than our Chief Financial Officer). Certain compensation is specifically exempt from the deduction limit to the
extent that it does not exceed $1 million during any fiscal year or is “performance-based” as defined in Section 162(m)
of the Code.
The ACA amended the Code to add Section 162(m)(6) which limits the amount of compensation that certain health
care insurers, including the Company, may deduct for tax years starting after 2012. Unlike Section 162(m)(1) of the
Code, Section 162(m)(6) limits the tax deduction to $500,000 per individual, and makes no exception for performance-
based compensation. In addition, the limit applies to all compensation, including deferred compensation, paid to all
current and former employees and most independent contractors, not just to compensation paid to a narrow group of
current top executives. The new rule is effective for employer tax years beginning after December 31, 2012. As a result,
commencing with compensation determinations made in 2013, the Compensation Committee no longer structures its
compensation determinations based on the requirements of Section 162(m) of the Code.
Internal Revenue Code Section 409A
Section 409A of the Code requires programs that allow executives to defer a portion of their current income-such
as our Deferred Compensation Plan and SERP-to meet certain requirements regarding risk of forfeiture and election and
distribution timing (among other considerations).
Section 409A of the Code requires that “nonqualified deferred compensation” be deferred and paid under plans or
arrangements that satisfy the requirements of the statute with respect to the timing of deferral elections, timing of
payments and certain other matters. Failure to satisfy these requirements can expose employees and other service
providers to accelerated income tax liabilities and penalty taxes and interest on their vested compensation under such
plans. Accordingly, as a general matter, it is our intention to design and administer our compensation and benefits plans