DEF 14A 1 d341546ddef14a.htm DEF 14A DEF 14A

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934

(Amendment No.    )

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Soliciting Material Pursuant to Section 240.14a-12

Anthem, Inc.

 

(Name of Registrant as Specified In Its Charter)

 

          

 

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2017 PROXY STATEMENT

 

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Annual Meeting of Shareholders

Indianapolis, IN

May 18, 2017


 

 

 

About Anthem, Inc.

Anthem is working to transform health care with trusted and caring solutions. Our health plan companies deliver quality products and services that give members access to the care they need. With over 73 million people served by our affiliated companies, including more than 40 million enrolled in our family of health plans, we are one of the nation’s leading health benefits companies. We are an independent licensee of the Blue Cross Blue Shield Association. We serve our members as the Blue Cross licensee for California; as the Blue Cross and Blue Shield licensee for Colorado, Connecticut, Georgia, Indiana, Kentucky, Maine, Missouri (excluding 30 counties in the Kansas City area), Nevada, New Hampshire, New York (as the Blue Cross Blue Shield licensee in 10 New York City metropolitan and surrounding counties, and as the Blue Cross or Blue Cross Blue Shield licensee in selected upstate counties), Ohio, Virginia (excluding the Northern Virginia suburbs of Washington, D.C.) and Wisconsin. We also conduct business through arrangements with other Blue Cross and Blue Shield licensees in South Carolina and Western New York. We also conduct business through our Amerigroup subsidiary in Florida, Georgia, Iowa, Kansas, Louisiana, Maryland, Nevada, New Jersey, New Mexico, New York, Tennessee, Texas and Washington. In addition, we conduct business through our Simply Healthcare subsidiary in Florida. We also serve customers throughout the country as HealthLink, UniCare (including a non-risk arrangement with Massachusetts), and in certain Arizona, California, Nevada and Virginia markets through our CareMore subsidiary. We are licensed to conduct insurance operations in all 50 states through our subsidiaries. To find out more about us, go to antheminc.com.


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March 31, 2017

To Our Shareholders:

The Board of Directors joins us in extending to you a cordial invitation to attend the 2017 Annual Meeting of Shareholders of Anthem, Inc. The meeting will be held at the Conrad Indianapolis Hotel, 50 West Washington Street, Indianapolis, Indiana 46204 at 8:00 a.m., Eastern Daylight Time, on Thursday, May 18, 2017. At the meeting, we will be voting on the matters described in this proxy statement.

We are providing access to our proxy materials over the Internet at www.envisionreports.com/antm. On or about March 31, 2017, we will mail a Notice of Internet Availability of Proxy Materials (the “E-Proxy Notice”) to the majority of our shareholders of record, and on or about the same date, we will mail to our other shareholders who have requested them a printed copy of this proxy statement and a proxy card. On the mailing date of the E-Proxy Notice, all shareholders of record and beneficial owners will have the ability to access all proxy materials at the website listed above. Our 2016 Annual Report on Form 10-K, which is our Annual Report to Shareholders, is being made available with the accompanying proxy statement.

If you are unable to attend the Annual Meeting, it is still important that your shares be represented and voted. Therefore, regardless of the number of shares you own, PLEASE VOTE THROUGH THE INTERNET, BY TELEPHONE OR BY MAIL. Any shareholder who attends the Annual Meeting may vote in person, even if the shareholder has voted through the Internet, by telephone or by mail, provided that if your shares are registered in the name of a bank or your broker or other nominee, you must obtain a legal proxy from your bank, broker or other nominee and bring it with you to the Annual Meeting.

Any shareholder planning to attend the Annual Meeting must comply with the requirements for admission set forth in the accompanying proxy statement under “Annual Meeting Admission” on page 78. An admission ticket, which is required for admission to the Annual Meeting, will be mailed to you upon your request. Our Shareholder Services Department must receive your written request for an admission ticket on or before May 9, 2017 to ensure sufficient time for delivery to you.

We hope that you will be able to attend the Annual Meeting, and we look forward to seeing you.

Sincerely,

 

 

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Joseph R. Swedish

Chair, President and Chief Executive Officer

 


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Notice of Annual Meeting of Shareholders of Anthem, Inc.

 

Date and Time:    Thursday, May 18, 2017 at 8:00 a.m. Eastern Daylight Time
Location:    Conrad Indianapolis Hotel
   50 West Washington Street
   Indianapolis, Indiana 46204
Items of Business:   

•    To elect the two members of the Board of Directors identified in the accompanying proxy statement.

 

•    To ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for 2017.

 

•    To hold an advisory vote to approve the compensation of our named executive officers (“Say-on-Pay”).

 

•    To hold an advisory vote on the frequency of the Say-on-Pay vote.

 

•    To approve proposed amendments to our Articles of Incorporation to allow shareholders to amend our By-Laws.

 

•    To approve the 2017 Anthem Incentive Compensation Plan.

 

•    To transact such other business as may properly come before the Annual Meeting and any adjournment or postponement.

Record Date:    You can vote if you are a shareholder of record on March 17, 2017.

It is important that your shares be represented and voted at the Annual Meeting. Whether or not you plan to attend the Annual Meeting, we urge you to vote your shares (as described in the accompanying materials) through the Internet, by telephone or, if you received a printed copy of the proxy card by mail, by signing, dating and mailing the proxy card in the envelope provided.

By Order of the Board of Directors,

 

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Kathleen S. Kiefer

Corporate Secretary

   Scan this QR code to
vote with your
smartphone or go to

www.envisionreports.com/antm

   LOGO

 

   You can vote in one of four ways:
  
LOGO    Visit the website listed on your notice of meeting or proxy card to vote VIA THE INTERNET
  
LOGO    Call the telephone number on your proxy card to vote BY TELEPHONE
  
LOGO    If you received printed proxy materials, sign, date and return your proxy card in the envelope provided to vote BY MAIL
  
LOGO    Attend the Annual Meeting to vote IN PERSON
  

 


2017 Proxy Statement Summary

 

 

 

The following is a summary of certain key disclosures in this proxy statement. This is only a summary, and it may not contain all of the information that is important to you. For more complete information, please review this proxy statement as well as our 2016 Annual Report on Form 10-K.

Annual Meeting of Shareholders

 

Thursday, May 18, 2017 at 8:00 a.m., EDT

Conrad Indianapolis Hotel

50 West Washington Street

Indianapolis, Indiana 46204

  

            Record Date: March 17, 2017

Proposals to be Voted on and Board Voting Recommendations

 

Proposals    Recommendations  

Election of the following persons as directors:

     FOR EACH NOMINEE  

R. Kerry Clark

     FOR  

Robert L. Dixon, Jr.

     FOR  

Ratification of Ernst & Young LLP as Auditors for 2017

     FOR  

Advisory vote to approve the compensation of our Named Executive Officers (“Say-on-Pay”)

     FOR  

Advisory vote on the frequency of the Say-on-Pay vote

     FOR ONE YEAR OPTION  

Approval of proposed amendments to our Articles of Incorporation to allow shareholders to amend our By-Laws

     FOR  

Approval of the 2017 Anthem Incentive Compensation Plan

     FOR  

2016 Business Highlights

 

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  * Please refer to the GAAP Reconciliation table on page C-1 for information on Adjusted Net Income Per Share (“Adjusted EPS”).

Other highlights include:

 

 

Operating cash flow was approximately $3.2 billion or 1.3 times net income for 2016.

 

Our closing stock price increased by 3.1% from $139.44 on December 31, 2015 to $143.77 on December 30, 2016. Additionally, the Company paid cash dividends totaling $2.60 per share in 2016.

 

Our strong performance is reflected in the compensation that our Named Executive Officers earned for 2016.



 


2017 Proxy Statement Summary (continued)

 

 

 

Compensation Highlights

 

 

To align the interests and rewards of our Named Executive Officers (“NEOs”) with the long-term interests of our shareholders and drive the achievement of our purpose and vision, while operating within our values and behaviors, our Total Rewards program emphasizes performance-based compensation in the form of our Annual Incentive Plan (“AIP”) and equity grant programs under our Incentive Compensation Plan (“Incentive Plan” or “LTIP”).

 

For 2016, the Compensation Committee implemented a balanced scorecard for the AIP for the NEOs and other members of the executive leadership team, with an 85% weighting for Adjusted Net Income Per Share (“Adjusted EPS”) and 5% weightings for measures related to each of our three strategic pillars, namely, consumer centricity, provider collaboration and clinical performance.

 

Adjusted EPS was selected because it demonstrates whether the top-line growth was profitable and is a primary measure considered by many of our shareholders in assessing our ongoing performance. In addition, earnings-based measures are the most prevalent performance measure used by our direct peers.

 

Both the AIP and our performance stock units granted under the Incentive Plan use Adjusted EPS as a performance measure, which is calculated on an adjusted, non-GAAP basis to remove certain pre-established categorical amounts, which are reported in our quarterly earnings releases and would generally not be included by the investment community in the determination of our financial results. All adjustments are reviewed and approved by the Compensation Committee.

Primary Components of 2016 Target Compensation

(Data for “Other NEOs” is an Average for NEOs Employed as of December 31, 2016)

 

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AIP and LTIP percentages are based on achievement of an award equal to 100% of target.

Corporate Governance

Our corporate governance policies reflect our commitment to effective corporate governance and high ethical standards:

 

 

Majority voting for uncontested director elections.

 

Proxy access for shareholder-nominated director nominees.

 

Eight of our nine current directors are independent and only independent directors serve on the Audit, Compensation and Governance Committees.

 

We have an independent Lead Director.

 

Board oversees succession planning for our President and CEO and our other executive officers, addressing both emergency and long-term succession.

 

Executive sessions of the independent directors are held at each in-person board meeting.

 

Short sales, hedging transactions and pledging our stock are prohibited for all directors, officers and associates.

 

Significant stock ownership requirements are in place for directors and executive officers.

 

Our clawback policy applies to executive officers’ incentive compensation in the event of a restatement of our financial statements due to misconduct.

 

Board, Committee and Director Peer performance evaluations are conducted annually, including an evaluation led by an external party at least every three years.

 

Individuals cannot stand for election as directors if 72 years of age or older.

 

Directors cannot serve on more than three other public company boards, and the CEO cannot serve on more than two other public company boards.

 

Our annual report on Political Contributions and Related Activities is available on our website at www.antheminc.com under “About Anthem, Inc. — Public Affairs — Political Contributions.”



 


2017 Proxy Statement Summary (continued)

 

 

 

Director Qualifications and Experience

The following chart provides summary information about our directors’ skills and experiences. More detailed information is provided under the description of the “Governance Committee” beginning on page 6 and in each director’s biography beginning on page 16.

 

Directors      CEO/COO    Insurance
Industry
   Finance    Health Care
Industry
  

Marketing/

Public Relations

   Information
Technology
   Regulatory/
Government
   ESG    Diversity

R. Kerry Clark

       Ö                Ö      Ö                    

Robert L. Dixon, Jr.

                           Ö      Ö                Ö

Lewis Hay, III

       Ö           Ö           Ö      Ö      Ö      Ö     

Julie A. Hill

       Ö           Ö      Ö      Ö                Ö      Ö

Ramiro G. Peru

                 Ö                Ö                Ö

William J. Ryan

       Ö      Ö      Ö           Ö                    

George A. Schaefer, Jr.

       Ö           Ö      Ö      Ö      Ö               

Joseph R. Swedish

       Ö      Ö      Ö      Ö           Ö      Ö      Ö     

Elizabeth E. Tallett

       Ö      Ö      Ö      Ö      Ö                 Ö      Ö      Ö

Shareholder Engagement

We believe that building positive relationships with our shareholders is critical to our long-term success. For this reason, we spend significant time meeting with our shareholders, listening to their concerns and responding to their feedback. Over the past year, management engaged with our largest shareholders, representing in aggregate approximately 50% of our outstanding shares, on our corporate governance practices, including follow-up on the proxy access right adopted by the Board in early 2016. In addition, our management team regularly offers shareholders the opportunity to discuss our quarterly results and other topics of interest to shareholders. We value our relationship with our shareholders and believe that we strengthen our ability to lead the Company by constructively discussing our business and strategy.

We were pleased that our shareholders overwhelmingly approved the non-binding advisory vote on our executive compensation in 2016, as approximately 97% of votes cast were voted in favor of the proposal. Nevertheless, we continue to examine our executive compensation program to assure alignment between the interests of our executive officers and our shareholders.



 


Table of Contents

 

 

 

     Page  

PROXY STATEMENT

     1  

Purpose

     1  

Record Date

     1  

Quorum

     1  

Vote Required

     1  

GOVERNANCE OF THE COMPANY

     2  

Board Leadership Structure

     2  

Board Role in Risk Oversight

     2  

Policies on Corporate Governance

     3  

BOARD AND COMMITTEE MEMBERSHIP

     5  

Director Independence

     5  

Meetings and Committees of the Board

     5  

Communications with the Board

     9  

Board Attendance at Annual Meeting of Shareholders

     9  

REVIEW AND APPROVAL OF TRANSACTIONS WITH RELATED PERSONS

     10  

Policy

     10  

Current Transactions

     10  

STANDARDS OF ETHICAL BUSINESS CONDUCT

     10  

COMPENSATION OF NON-EMPLOYEE DIRECTORS

     11  

2016 Compensation of Non-Employee Directors

     11  

Anthem Board of Directors’ Deferred Compensation Plan

     12  

Board Equity Compensation and Stock Ownership Guidelines

     12  

Matching Gift Program

     12  

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     13  

Stock Held by 5% or More Beneficial Owners

     13  

Stock Held by Directors, Nominees and Executive Officers

     13  

Section 16(a) Beneficial Ownership Reporting Compliance

     14  

PROPOSAL NO. 1 — ELECTION OF DIRECTORS

     15  

Recommendation

     15  

NOMINEES FOR DIRECTOR

     16  

Three-Year Term to Expire at the 2020 Annual Meeting of Shareholders

     16  

DIRECTORS CONTINUING IN OFFICE

     17  

Terms Expiring at the 2018 Annual Meeting of Shareholders

     17  

Terms Expiring at the 2019 Annual Meeting of Shareholders

     18  

PROPOSAL NO. 2 —  RATIFICATION OF THE APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

     20  

Appointment

     20  

Recommendation

     20  

AUDIT COMMITTEE MATTERS

     21  

Independent Registered Public Accounting Firm’s Fees

     21  

The Audit Committee’s Consideration of Independence of Independent Registered Public Accounting Firm

     21  

Audit Committee Pre-Approval Policy

     21  

Audit Committee Report

     21  

EXECUTIVE OFFICERS OF THE COMPANY

     23  

Executive Officers

     23  

PROPOSAL NO. 3 —  ADVISORY VOTE TO APPROVE THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS

     25  

Recommendation

     25  

PROPOSAL NO. 4 — ADVISORY VOTE ON THE FREQUENCY OF THE SAY-ON-PAY VOTE

     26  

Recommendation

     26  

 


Table of Contents (continued)

 

 

 

     Page  

EXECUTIVE COMPENSATION

     27  

Compensation Discussion and Analysis

     27  

Compensation Committee Report

     42  

Assessment of Compensation-Related Risks

     43  

Summary Compensation Table

     44  

Grants of Plan Based Awards

     46  

Outstanding Equity Awards at Fiscal Year-End

     48  

Option Exercises and Stock Vested in 2016

     50  

Pension Benefits

     51  

Nonqualified Deferred Compensation

     51  

Potential Payments Upon Termination or Change in Control

     52  

COMPENSATION PLANS

     55  

PROPOSAL NO. 5 —  APPROVAL OF PROPOSED AMENDMENTS TO OUR ARTICLES OF INCORPORATION TO ALLOW SHAREHOLDERS TO AMEND OUR BY-LAWS

     62  

Recommendation

     63  

PROPOSAL NO. 6 — APPROVAL OF THE 2017 ANTHEM INCENTIVE COMPENSATION PLAN

     64  

Recommendation

     75  

VOTING AND MEETING INFORMATION

     76  

Voting

     76  

Internet Availability of Proxy Materials

     76  

Shareholders

     76  

Inspector of Elections

     77  

Confidentiality of Votes

     77  

Householding

     77  

Additional Information

     77  

Annual Meeting Admission

     78  

Cost of Solicitation

     78  

Shareholder Proposals and Nominations for Next Year’s Annual Meeting

     78  

Incorporation by Reference

     79  

ANNEX A

     A-1  

Proposed Amended and Restated Articles of Incorporation of Anthem, Inc.

     A-1  

ANNEX B

     B-1  

2017 Anthem Incentive Compensation Plan

     B-1  

ANNEX C

     C-1  

GAAP Reconciliation

     C-1  

 


Proxy Statement

 

 

 

ANTHEM, INC.

120 Monument Circle

Indianapolis, Indiana 46204

Annual Meeting of Shareholders

May  18, 2017

Purpose

This proxy statement is being made available to shareholders on or about March 31, 2017 in connection with a solicitation by the Board of Directors (the “Board”) of Anthem, Inc. (“Anthem,” the “Company,” “we,” “us” or “our”) of proxies to be voted at the annual meeting of shareholders and any adjournments or postponements, to be held at 8:00 a.m., Eastern Daylight Time, Thursday, May 18, 2017, at the Conrad Indianapolis Hotel, 50 West Washington Street, Indianapolis, Indiana 46204, for the purposes set forth in the accompanying Notice of Annual Meeting of Shareholders. Shareholders will be admitted to the annual meeting beginning at 7:30 a.m., Eastern Daylight Time. You must have an admission ticket, as well as a form of government-issued photo identification, in order to be admitted to the annual meeting. For instructions on requesting admission tickets, see page 78 of this proxy statement.

Record Date

At the close of business on March 17, 2017, the record date for the annual meeting, there were 264,924,653 shares of our common stock outstanding and entitled to vote at the annual meeting.

Quorum

In order for business to be conducted at the annual meeting, 25% of the votes entitled to be cast on a matter, represented in person or by proxy, must be present.

Vote Required

You will have one vote for each share held. Shares of our common stock represented by properly executed proxies will be voted at the annual meeting in accordance with the choices indicated on the proxy. Abstentions on a specific proposal will be considered as present at the annual meeting and will be counted for purposes of determining whether a quorum is present.

If you provide specific voting instructions, your shares will be voted as you instruct. If you sign, date and return your proxy card, but do not provide instructions, your shares will be voted:

 

•   FOR Proposal 1 -

   the election of each director nominee

•   FOR Proposal 2 -

   the ratification of the appointment of the independent registered public accounting firm for 2017

•   FOR Proposal 3 -

  

the advisory vote to approve the compensation of our Named Executive Officers (“Say-on-Pay”)

•   FOR Proposal 4 -

   the one-year option on the advisory vote on Say-on-Pay frequency

•   FOR Proposal 5 -

  

the approval of proposed amendments to our Articles of Incorporation to allow shareholders to amend our By-Laws

•   FOR Proposal 6 -

   the approval of the 2017 Anthem Incentive Compensation Plan

In the case of Proposal 4, the advisory vote on the frequency of the Say-on-Pay vote, the voting standard under Indiana law is more votes “for” than “against.” However, the Board will consider the frequency receiving the most votes as representing our shareholders’ preference on how frequently to hold future Say-on-Pay votes. Proposal 6, the approval of the 2017 Anthem Incentive Compensation Plan, will be approved if a majority of the votes cast vote in favor of such proposal, in accordance with the listing standards of the New York Stock Exchange (“NYSE”). Each other proposal at the annual meeting will be approved if the proposal receives more votes “for” than “against.”

 

Anthem, Inc. 2017 Proxy Statement  |  1


Proxy Statement (continued)

 

 

 

Abstentions will be counted as votes cast on Proposal 6, the approval of the 2017 Anthem Incentive Compensation Plan, and will have the same effect as a vote against that proposal. Abstentions will have no effect on the outcome of any other proposal. If your shares of our common stock are held in street name, and you do not provide your broker with voting instructions, your broker has the discretion to vote your shares of common stock for or against Proposal 2 only, the ratification of the appointment of our independent registered public accounting firm, and not any of the other proposals. If your broker does not have discretion to vote your common stock without your instructions, this is referred to as a “broker non-vote.” Broker non-votes will not be considered as votes cast on, and will have no effect on the outcome of, the remaining Proposals other than Proposal 2.

Governance of the Company

 

 

Our business is managed under the direction of the Board. The Board has responsibility for establishing broad corporate policies and for our overall performance. We believe that the only results worth achieving are those achieved with integrity and a commitment to excellence. Accordingly, we have long recognized the importance of, and have always placed a high priority upon, having good corporate governance measures in place.

Board Leadership Structure

The Board has the flexibility to establish a leadership structure that works best for the Company at a particular time and reviews that structure periodically. At times during our past, the positions of Chair of the Board and Chief Executive Officer (“CEO”) have been held by two different people and, at other times, the positions have been combined and held by the same person. The Board believes that it is important to implement an effective and efficient leadership structure that provides stability, while maintaining strong oversight of management. As a result, in December 2015, the Board appointed Joseph R. Swedish as the Chair of the Board and combined the Chair and CEO roles. In doing so, the Board considered Mr. Swedish’s extensive experience in the health care industry and his oversight of our growth, financial performance and strategy since he was elected as our CEO in March 2013.

Our Corporate Governance Guidelines require that our independent directors elect a Lead Director annually when the positions of Chair and CEO are filled by the same person or when the Chair is not an independent director. The Board elected George A. Schaefer, Jr. to serve as the Lead Director. The Lead Director presides at meetings of the Board and shareholders in the Chair’s absence, presides at all meetings of the independent directors (which are scheduled at each in-person Board meeting), serves as a liaison between the Chair and the independent directors, approves information sent to the Board, approves Board schedules and meeting agendas, has the authority to call additional meetings of the Board and the independent directors and is available for consultation and direct communication, if requested, with major shareholders. The Board also recognizes the important leadership roles played by the chairpersons of each of the committees of the Board. The Board evaluates its leadership structure from time to time and changes it as circumstances warrant.

Board Role in Risk Oversight

Our Board of Directors oversees the risk management processes that have been designed, and are implemented by our executives, to determine whether those processes are functioning as intended and are consistent with our business and strategy. The Board oversees our exposure to major enterprise risks and, with the assistance of the Audit Committee, oversees the processes by which we assess, monitor and manage our exposure to major risks. The Board reviews and approves certain risk tolerance levels and action plans regarding major risks. In addition to the responsibilities delegated to the Audit Committee, the Board delegates to its committees responsibility for assisting in the oversight of categories of risk within their areas of responsibility. See also “Executive Compensation — Assessment of Compensation-Related Risks” in this proxy statement for a description of the Compensation Committee’s role in overseeing compensation-related risks. A description of the enterprise risks facing us is included in Part I, Item 1A “Risk Factors” in our 2016 Annual Report on Form 10-K.

 

2  |  Anthem, Inc. 2017 Proxy Statement


Governance of the Company (continued)

 

 

 

In addition to its oversight of certain risks as delegated by the Board of Directors, the Audit Committee is specifically tasked with the following as it relates to enterprise risk management activities:

 

  Review the appointment, promotion or dismissal of the Chief Risk Officer, who serves as the head of the internal enterprise risk management function;
  Review and discuss our enterprise risk management framework, processes and governance structure;
  Review and discuss our major financial risk exposures, and any other categories of risk delegated by the Board to the Audit Committee from time to time, and the steps management has taken to assess, monitor and manage such exposures; and
  Discuss the responsibilities, budget and staffing of our enterprise risk management function.

We have an Enterprise Risk Council to oversee our enterprise risk management activities. The Enterprise Risk Council is comprised of members of our executive leadership team and the Chief Risk Officer. Roles and responsibilities of the Enterprise Risk Council include:

 

  Drive an effective enterprise risk management culture;
  Continually evaluate and bring forward emerging risk insight;
  Review and approve risk tolerance levels (subject to Board review and approval where appropriate);
  Act on risk tolerance breaches;
  Engage with the Chief Audit Executive to ensure appropriate two-way communication regarding our enterprise risks;
  Review the Master Audit Plan to ensure there is appropriate coverage of the highest risk areas;
  Review and approve the evaluation and prioritization of enterprise risks;
  Review enterprise action plans against risks;
  Review and approve the policies and procedures for monitoring and mitigating enterprise risks, as well as any required regulatory filings; and
  Review and support resource requirements (subject to Board review where appropriate).

The Chief Risk Officer provides quarterly updates of enterprise risk management activities conducted through the Enterprise Risk Council to the Board of Directors and/or the Audit Committee, including separate executive sessions with the Audit Committee.

Policies on Corporate Governance

Our corporate governance policies reflect our goal of adopting best practices to promote a high level of performance from the Board and management. We believe our corporate governance practices promote the long-term interests of our shareholders and strengthen Board and management accountability.

Among the practices we adhere to are the following:

 

  Annual review of our corporate governance documents for compliance with their terms and enhancements to improve corporate governance;
  Majority voting for the election of directors in uncontested elections, with directors who fail to receive the required majority vote required to tender their resignation for consideration by the Board;
  Proxy access for shareholder nominated director nominees;
  No supermajority voting requirements in our Articles of Incorporation;
  Opted out of the Indiana Control Share Acquisitions Statute;
  Eight of our nine current directors are “independent” under all applicable standards;
  Independent Audit, Compensation and Governance Committees;
  Executive sessions between independent directors without management present at every in-person Board meeting;
  Independent Lead Director who is elected annually by the independent directors when the positions of Chair and CEO are filled by the same person or when the Chair is not an independent director;
  Board oversees succession planning for our President and CEO and our other executive officers, addressing both emergency and long-term succession;
  Rotation of lead partner of our independent registered public accounting firm at least every five years;

 

Anthem, Inc. 2017 Proxy Statement  |  3


Governance of the Company (continued)

 

 

 

  Board and its Committees have the authority to engage consultants and advisors at our expense;
  Board, Committee and Director Peer performance evaluations conducted annually, including an evaluation led by an external party at least every three years;
  Individuals cannot stand for election as a director if 72 years of age or older;
  Prohibition on service by independent directors on more than three other public company boards, and by the CEO on more than two other public company boards;
  Several avenues for shareholders to communicate with the Board and management, including periodic investor days and earnings release conference calls and webcasts, dedicated email addresses for the Board and for Committee chairs, and specific outreach to shareholders initiated by us or in response to engagement requests;
  Our Board composition is diverse in gender, race, age, geographic location, experience and skills;
  Average tenure of all directors was approximately 8.5 years at March 31, 2017;
  The Board encourages directors to participate in continuing education programs and reimburses directors for the expenses of such participation;
  Recoupment policy to recover incentive compensation payments from our executive officers in the event of a restatement of our financial statements due to misconduct;
  Prohibition on tax gross-ups on payments made in connection with a change in control or on perquisites, subject only to honoring contractual requirements when assuming agreements upon a merger or other business combination;
  Prohibition on short sales, hedging transactions and pledges of our stock by our executive officers, associates and the Board;
  Prohibition on repricing of stock options and stock appreciation rights without shareholder approval;
  Standards of Ethical Business Conduct applicable to our Board, executive officers and associates; and
  Significant stock ownership guidelines that align our executives’ and directors’ interests with those of shareholders.

Due to existing contractual obligations with the Blue Cross Blue Shield Association (“BCBSA”), we are required to maintain a classified board structure. However, our Corporate Governance Guidelines provide that, if the BCBSA requirement for a classified board structure is eliminated or is no longer applicable to us, the Board will submit amendments to our Articles of Incorporation recommending approval by the shareholders to eliminate the classified board structure. The amendment would be submitted at the next annual shareholder meeting occurring after the elimination of the requirement for a classified board, and phase in the annual election of all Directors over a three-year period. If the shareholders approve the amendments to our Articles of Incorporation to eliminate the classified board structure as set forth above, the Board will thereafter amend our By-Laws and other governing documents to implement the elimination of our classified board structure as provided in the Board policy.

Current versions of our Articles of Incorporation, By-Laws, Corporate Governance Guidelines, Standards of Ethical Business Conduct, and the charter of each standing committee of the Board are available on our website at www.antheminc.com under “Investors — Corporate Governance — Governance & Corporate Documents.”

We will continue to assess and refine our corporate governance practices and share them with you.

 

4  |  Anthem, Inc. 2017 Proxy Statement


Board and Committee Membership

 

 

 

As reflected in our Corporate Governance Guidelines, our business, property and affairs are managed under the direction of our Board. Members of our Board stay informed of our business through discussions with our CEO and other officers, by reviewing materials provided to them, by visiting our offices, by participating in meetings of the Board and its committees and through their own industry knowledge and inquiries.

Director Independence

Our Board has adopted standards to assist it in making determinations of independence and whether or not a director or director nominee has a material relationship with us. These standards are available on our website at www.antheminc.com under “Investors — Corporate Governance — Governance & Corporate Documents.” Our Board has determined that all of our directors and director nominees, other than Mr. Swedish, meet these standards, have no material relationship with us and are “independent” as defined by the NYSE listing standards and the rules of the Securities and Exchange Commission (“SEC”).

Meetings and Committees of the Board

During 2016, the Board held 19 meetings. The non-employee directors met in executive session without management at all in-person meetings. Our Board committees also conduct executive sessions that are presided over by the Chairperson of the respective committee. Each director attended at least 75% of the total meetings of the Board and each committee on which he or she served.

There are four standing committees of the Board. From time to time, the Board, in its discretion, may form other committees. The following table provides membership information for each of the Board standing committees as of March 1, 2017.

 

Directors      Audit
Committee
     Compensation
Committee
     Executive
Committee
     Governance
Committee

R. Kerry Clark

     Ö                Ö

Robert L. Dixon, Jr.

          Ö           Ö

Lewis Hay, III

          Chair      Ö     

Julie A. Hill

     Ö                Ö

Ramiro G. Peru

     Chair           Ö     

William J. Ryan

          Ö           Ö

George A. Schaefer, Jr.*

     Ö      Ö      Chair      Ö

Joseph R. Swedish**

               Ö     

Elizabeth E. Tallett

            Ö      Ö      Chair

 

  Ö Committee Member        * Lead Director        ** Chair of the Board

Set forth below are the primary responsibilities of each of the standing committees as described more fully in their charters, which are available on our website at www.antheminc.com under “Investors — Corporate Governance — Governance & Corporate Documents.”

Audit Committee

The Audit Committee represents and assists the Board in its oversight of our accounting, financial reporting and internal audit controls and procedures. In its oversight of our financial statements and the independent audit thereof, the Audit Committee is responsible for the selection, evaluation and, where deemed appropriate, replacement of the independent registered public accounting firm, and for the evaluation of the independence of the independent registered public accounting firm. The Audit Committee is also directly involved in the selection of the auditor’s lead engagement partner.

The Audit Committee is also responsible for the oversight of our Compliance Program and Standards of Ethical Business Conduct, as well as assisting the Board in overseeing the processes by which we assess, monitor and manage our exposure to major risks. The Chief Compliance Officer facilitates our compliance program and reports independently to the Audit Committee. The Audit Committee regularly receives a detailed report from the Chief Compliance Officer regarding our compliance program activities. See “Audit Committee Matters — Audit Committee Report” and “Governance of the Company — Board Role in Risk Oversight.”

 

Anthem, Inc. 2017 Proxy Statement  |  5


Board and Committee Membership (continued)

 

 

 

The Audit Committee met eight times during 2016. The Audit Committee met separately, generally at each in-person meeting during 2016, with executive management (including the General Counsel), the head of internal audit, the Chief Risk Officer, the Chief Compliance Officer and the independent registered public accounting firm. The Board has determined that each of the members of the Audit Committee is “independent” as defined by the rules of the SEC and the NYSE listing standards and that each of the members is an “audit committee financial expert” as defined by the SEC’s rules.

Compensation Committee

The Compensation Committee assists the Board in discharging its responsibilities relating to compensation and benefits provided to our executive officers (which are determined by the Compensation Committee in its sole discretion), including conducting an assessment of the risks related to our compensation policies and practices. See “Executive Compensation — Assessment of Compensation-Related Risks.” The Compensation Committee sets the compensation level of our CEO and other executive officers based on an evaluation of the executive’s performance in light of our goals and objectives. The Compensation Committee may take into consideration when setting the compensation levels of the executive officers (other than the CEO) any recommendations of the CEO with respect to the other executive officers.

In addition, the Compensation Committee has engaged directly an outside compensation consultant to assist in the evaluation of CEO and executive officer compensation, as authorized under its charter. The Compensation Committee has engaged Semler Brossy Consulting Group, LLC (“Semler Brossy”) to provide executive compensation consulting services. Semler Brossy reports directly to the Compensation Committee, participates regularly in Committee meetings and advises the Committee with respect to compensation trends and best practices, plan design and the reasonableness of individual compensation awards. Semler Brossy does not provide any other services to the Company. The Compensation Committee assessed the independence of Semler Brossy pursuant to, and based on the factors set forth in, the SEC’s and NYSE’s rules and concluded that no conflict of interest exists that would prevent Semler Brossy from independently advising the Compensation Committee.

The Compensation Committee met four times during 2016. All members of the Compensation Committee are “outside directors” within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Tax Code”), “non-employee directors” within the meaning of Section 16b-3 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and “independent” within the meaning of the NYSE listing standards.

Compensation Committee Interlocks and Insider Participation

None of the Compensation Committee members is or has been an officer or employee of the Company or was involved in a relationship requiring disclosure as an interlocking director or under Item 404 of Regulation S-K.

Governance Committee

The Governance Committee assists the Board in discharging its responsibilities relating to Board composition, director compensation and corporate governance by identifying and recommending individuals for nomination as members of the Board, recommending to the Board the overall director compensation policy and developing and recommending to the Board a set of corporate governance guidelines. The Governance Committee also is responsible for reviewing, at least annually, our political strategy, contributions and activities and overseeing compliance with our policies and procedures regarding political contributions and activities. In addition, the Governance Committee monitors the Company’s corporate social responsibility and environmental sustainability initiatives.

The Governance Committee has engaged directly Compensation Advisory Partners, LLC (“CAP”), an outside compensation consultant, to assist in the evaluation of director compensation, as authorized under its charter. CAP reports directly to the Governance Committee. During 2016, CAP advised the Committee with respect to director compensation trends and best practices, plan design and the reasonableness of director compensation. CAP does not provide any other services to the Company. The Governance Committee assessed the independence of CAP pursuant to, and based on the factors set forth in, the SEC’s and NYSE’s rules and concluded that no conflict of interest exists that would prevent CAP from independently advising the Governance Committee.

 

6  |  Anthem, Inc. 2017 Proxy Statement


Board and Committee Membership (continued)

 

 

 

The Governance Committee met four times during 2016. The Board has determined that each of the members of the Governance Committee is “independent” as defined by the NYSE listing standards.

Shareholder Recommendations

The Governance Committee considers and recommends candidates for the Board. It reviews all nominations submitted to the Company as described below under “Identifying and Evaluating Nominees for Directors,” including individuals nominated by shareholders to be included in our proxy statement. In evaluating such nominations, the Governance Committee seeks to achieve a balance of knowledge, experience and capability on the Board and to address the membership criteria set forth under “Director Qualifications.” Any shareholder recommendations proposed for consideration by the Governance Committee must include the nominee’s name and qualifications for Board membership and must be addressed to our Secretary at Anthem, Inc., 120 Monument Circle, Mail No. IN0102-B381, Indianapolis, Indiana 46204. Following verification of the shareholder status of persons recommending director candidates, recommendations are aggregated and considered by the Governance Committee at a regularly scheduled meeting. If any materials are provided by shareholders in connection with the recommendation of a director candidate, such materials are forwarded to the Governance Committee.

In addition, any shareholder who wishes to nominate a director candidate at our annual meeting or for inclusion in our proxy statement may do so by following the procedures and providing the information set forth in “Shareholder Proposals and Nominations for Next Year’s Annual Meeting” beginning on page 78 and in Sections 1.5, 1.6 and 1.16 of our By-Laws. Our By-Laws are available on our website at www.antheminc.com under “Investors — Corporate Governance — Governance & Corporate Documents.” Any materials provided by shareholders in connection with the nomination of a director candidate are forwarded to the Governance Committee. Following verification of the shareholder status of persons nominating director candidates and verification that any other required information has been properly submitted by such persons, nominations are reviewed and discussed by the Governance Committee and the Board at a regularly scheduled meeting.

Identifying and Evaluating Nominees for Directors

The Governance Committee utilizes a variety of methods for identifying and evaluating nominees for director. The Governance Committee assesses the appropriate size of the Board and whether any vacancies on the Board are expected due to retirement or otherwise. In the event that vacancies are anticipated, or otherwise arise, the Governance Committee considers, subject to the restrictions in our By-Laws, whether the vacancy should be filled and if so, various potential candidates for director. Candidates may come to the attention of the Governance Committee through current Board members, management, professional search firms, shareholders or other persons. These candidates are evaluated at regular or special meetings of the Governance Committee and may be considered at any point during the year.

Director Qualifications

The Governance Committee periodically evaluates the size and composition of the Board to assess the skills and qualifications of Board members, and compares them with those skills and qualifications that might prove valuable in the future, considering the circumstances of the Company and the then-current Board membership. This assessment enables the Board to consider whether the skills and qualifications described below continue to be appropriate as the Company’s needs evolve over time. On an ongoing basis, the Governance Committee, assisted by outside consultants, will evaluate candidates who possess qualifications that meet our strategic needs and have diverse experiences in key business, financial and other challenges that face a publicly held health benefits company.

In general, all directors must exhibit integrity and accountability, informed judgment, financial literacy, mature confidence and high performance standards. Candidates should be committed to enhancing shareholder value, have sufficient time and energy to diligently perform their duties and be able to provide insight and practical wisdom based on experience to represent the interests of all shareholders. Candidates should also have the manifest ability to work in a collegial and constructive manner with the other members of the Board. Service by candidates on other public company boards should be limited to a number that permits candidates, given their individual circumstances, to perform all director duties responsibly, but in any event, should not exceed three other public company boards.

 

Anthem, Inc. 2017 Proxy Statement  |  7


Board and Committee Membership (continued)

 

 

 

The foregoing qualifications will be applied by the Governance Committee to all candidates considered for nomination by the Board, including candidates submitted by shareholders.

Our Corporate Governance Guidelines provide that our Governance Committee is to take into account the overall diversity of the Board when identifying possible nominees for director, including gender, race, age and geographic location. The Committee implements that policy, and assesses its effectiveness, by examining the diversity of all of the directors on the Board when it selects nominees for directors. Currently, the Board has two female directors, one African-American director and one Hispanic director. Our directors range in age from early 60s to early 70s and reside in eight different states. The diversity of directors is one of the factors that the Governance Committee considers, along with the other selection criteria described above.

Below we identify and describe important skills and experiences that the Governance Committee looks for in a director candidate.

 

Current or Retired CEO/COO

   Directors who are current or former Chief Executive Officers or Chief Operating Officers provide practical understanding of how large organizations operate and have experience in strategic thinking, risk management and operations oversight. They also possess significant leadership qualities and are able to identify and develop such qualities in others.

Insurance Industry

   Directors with experience in the insurance industry bring an understanding of the unique nature of the business, including an understanding and appreciation of the regulatory requirements and restrictions with which we must comply. They can provide effective oversight of our regulatory compliance and risk management efforts.

Finance

   Directors with an understanding of finance and financial reporting processes, particularly as they relate to large, complex, highly regulated businesses, provide an important oversight role of our financial measures and processes. We use several financial targets for measuring performance, and accurate financial reporting is critical to our success.

Health Care Industry

   Directors with experience in the health care industry bring valuable insight into the activities and requirements of the providers of health care services and products that receive payments directly or indirectly from our insurance products. These directors bring knowledge of current system operations and experience with medical best practices that are valuable not only for current operations, but also for future strategic initiatives.

Marketing and Public Relations

   Directors with experience in these areas provide important skills and information to us as we deal with increased public disclosure requirements and media attention on health care and other public policy issues. They can assist us in focusing our communications to effectively present our positions. Also, directors with experience dealing with consumers, particularly in the areas of developing, marketing and selling products and services to consumers, assist us with identifying changing market conditions and consumer trends and buying habits, because they understand consumer needs.

Information Technology

   Directors with an understanding of information technology can help us focus our efforts in this important area. They are able to provide oversight of our efforts to improve efficiency and productivity through the use of new technologies in providing our products and services.

Regulatory and Government

   Directors with regulatory or government experience, whether as members of government or through extensive interactions with state or federal governmental agencies, are able to recognize, identify and understand the key issues facing us as a highly regulated entity.
Environmental, Social and Governance (“ESG”)    Directors who have worked with non-profit entities or have led projects designed to benefit society bring to us an understanding of the need to conduct business without harm to society, which could in turn, harm our reputation and decrease our long-term sustainability. They are able to provide insights to assist us in achieving our purpose of transforming health care with trusted and caring solutions. Directors with governance experience can help us focus our efforts on maintaining strong corporate governance practices.

Diversity

   Directors who are diverse in gender, race, age and geographic location bring different perspectives, backgrounds and life experiences that can foster innovative ideas to meet the needs of our customers, providers, shareholders and the communities we serve.

Each of our directors’ specific skills and experiences are included in the table below and described more fully in their individual biographies. However, the fact that we do not list a particular skill or experience for a director does not mean that the director does not possess that particular skill or experience.

 

8  |  Anthem, Inc. 2017 Proxy Statement


Board and Committee Membership (continued)

 

 

 

 

Directors    CEO/COO      Insurance
Industry
     Finance      Health Care
Industry
     Marketing/
Public
Relations
     Information
Technology
     Regulatory/
Government
     ESG      Diversity  

R. Kerry Clark

   Ö            Ö      Ö              

Robert L. Dixon, Jr.

               Ö      Ö            Ö  

Lewis Hay, III

   Ö         Ö         Ö      Ö      Ö      Ö     

Julie A. Hill

   Ö         Ö      Ö      Ö            Ö      Ö  

Ramiro G. Peru

         Ö            Ö            Ö  

William J. Ryan

   Ö      Ö      Ö         Ö              

George A. Schaefer, Jr.

   Ö         Ö      Ö      Ö      Ö           

Joseph R. Swedish

   Ö      Ö      Ö      Ö         Ö      Ö      Ö     

Elizabeth E. Tallett

   Ö      Ö      Ö      Ö      Ö               Ö      Ö      Ö  

The Governance Committee, in recommending the nominees for election as directors and in concluding that the continuing directors should serve as directors, considered the items set forth above. The Governance Committee believes that each director and director nominee possesses the judgment and integrity necessary to make independent decisions and a willingness to devote adequate time to Board duties. In addition, the Governance Committee believes that each director and director nominee brings his or her own particular experiences and set of skills, giving the Board, as a whole, competence and experience in a wide variety of areas. Additional biographical and other information concerning the qualifications, skills and experience of the directors and nominees for director can be found under “Nominees for Director” and “Directors Continuing in Office.”

Executive Committee

Between meetings of the Board, the Executive Committee has and may exercise the powers and authority of the full Board. The Executive Committee did not meet during 2016.

Communications with the Board

Individuals may communicate with the Board by submitting an e-mail to our Board at this address: boardofdirectors@anthem.com. Communications that are intended specifically for non-management directors or any individual director should be sent to the e-mail address above to the attention of the Lead Director. Individuals may also communicate with the Board by submitting a letter to our Secretary at Anthem, Inc., 120 Monument Circle, Mail No. IN0102-B381, Indianapolis, Indiana 46204.

In addition, individuals may communicate with the Chairperson of the following committees by submitting an e-mail to:

 

  Chairperson of the Audit Committee: auditchair@anthem.com
  Chairperson of the Compensation Committee: compensationchair@anthem.com
  Chairperson of the Governance Committee: governancechair@anthem.com

The process for collecting and organizing communications, as well as similar or related activities, has been approved by our independent directors. Communications are distributed to the Board, or to any individual directors as appropriate, depending on the facts and circumstances outlined in the communication. In that regard, the Board has requested that certain items which are unrelated to the duties and responsibilities of the Board should be excluded, such as spam, junk mail and mass mailings, medical claims inquiries, new product suggestions, resumes and other forms of job inquiries, surveys, and business solicitations or advertisements. In addition, material that is unduly hostile, threatening, illegal or similarly unsuitable will be excluded, with the provision that any such unsuitable communication is made available to any non-management director upon request.

Board Attendance at Annual Meeting of Shareholders

Our policy is that Board members are expected to attend each annual meeting of shareholders. All members of the Board attended the 2016 annual meeting of shareholders.

 

Anthem, Inc. 2017 Proxy Statement  |  9


Review and Approval of Transactions with Related Persons

 

 

 

Policy

The Board has adopted a written policy and procedures for review, approval and monitoring of transactions involving us and “related persons” (directors and executive officers, shareholders owning five percent or greater of our outstanding common stock, or their immediate family members). The policy covers any transaction in which we are a participant that involves amounts exceeding $120,000 in any calendar year and in which a related person has or will have a direct or indirect interest (other than solely as a result of being a director or a less than ten percent beneficial owner of another entity).

Related person transactions must be approved or ratified by the Governance Committee of the Board. In considering the transaction, the Governance Committee will take into account, among other factors it deems appropriate, whether the transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances and the extent of the related person’s interest in the transaction. The policy includes several categories of standing pre-approved transactions, including, but not limited to, transactions involving competitive bids, certain banking-related services and certain transactions involving amounts not in excess of the greater of $1 million or 2% of the other company’s total annual gross revenues. The Governance Committee periodically reviews and assesses on-going transactions to confirm that the transactions comply with the Governance Committee’s guidelines and remain appropriate.

Current Transactions

Dr. William Long, the brother-in-law of R. Kerry Clark, one of our Directors, is the physician owner of a medical provider that serves our members in New York. Anthem and its subsidiaries paid this provider approximately $466,000 for services provided to individuals covered by Anthem for the year ended December 31, 2016. Mr. Clark has no ownership interest in this provider and is not involved with the provider-payer arrangement between Anthem and the provider. In addition, the amounts paid to this provider are pursuant to a standard fee schedule for all similarly situated providers in New York. The Governance Committee approved and continues to monitor this arrangement consistent with the above policy.

In the ordinary course of business, we may, from time to time, engage in transactions with other companies whose officers or directors are also our directors. Transactions with such companies are conducted on an arm’s length basis, and in 2016, all of these transactions came within the pre-approval procedures of the Governance Committee consistent with the above policy.

Standards of Ethical Business Conduct

 

 

We have adopted Standards of Ethical Business Conduct (the “Code”) for our directors, executive officers and other associates. The purpose of the Code is to focus on areas of ethical risk, provide guidance in recognizing and dealing with ethical issues, provide mechanisms to report unethical conduct and help foster a culture of honesty and integrity. The Code is posted on our website at www.antheminc.com under “Investors — Corporate Governance — Governance & Corporate Documents.”

Everyone is required to act in accordance with the requirements of the Code. Waivers of the Code for any director, our Chair, President and Chief Executive Officer, our Chief Financial Officer and our other executive officers may only be made by the Board or by a Board committee composed of independent directors. Any such waiver and any amendment to the Code will be posted on our website at www.antheminc.com under “Investors — Corporate Governance — Governance & Corporate Documents” and otherwise disclosed as required by law. During 2016, there were no waivers of the Code for any of our directors, our Chair, President and Chief Executive Officer, our Chief Financial Officer or any of our other executive officers.

 

10  |  Anthem, Inc. 2017 Proxy Statement


Compensation of Non-Employee Directors

 

 

 

2016 Compensation of Non-Employee Directors

The compensation of our non-employee directors is paid in the form of annual retainers for Board and committee members and chairpersons and annual stock awards. An annual retainer is also paid when the Chair of the Board is not an employee or there is an independent Lead Director. Our 2016 compensation for non-employee directors was as follows:

 

Compensation Element    2016  

Annual Retainer (Cash Portion)

   $ 95,000  

Annual Retainer (Company Stock Portion)

   $ 175,000  

Annual Committee Chair Retainers

  

•      Audit Committee

   $ 25,000  

•      Compensation, Executive and Governance Committees

   $ 15,000  

Annual Committee Member Retainers

  

•      Audit Committee

   $ 15,000  

•      Compensation, Executive and Governance Committees

   $ 10,000  

Annual Retainer for Non-Executive Chair of the Board, if any

   $ 225,000  

Annual Retainer for Lead Director, if any

   $ 30,000  

The compensation actually paid to our non-employee directors for service during 2016 was as follows(1):

 

Name      Fees Earned or
Paid in Cash ($)
(2)
       Stock Awards ($)(3)        All Other
Compensation ($)
(4)
     Total ($)  

R. Kerry Clark

       $120,003 (5)         $174,997          $10,000      $ 305,000  

Robert L. Dixon, Jr.

       $115,003          $174,997          $10,000      $ 300,000  

Lewis Hay, III

       $130,003          $174,997          $  4,450      $ 309,450  

Julie A. Hill

       $120,003          $174,997          $10,000      $ 305,000  

Ramiro G. Peru

       $145,003          $174,997          $29,438      $ 349,438  

William J. Ryan

       $115,003          $174,997          $25,938      $ 315,938  

George A. Schaefer, Jr.

       $185,003          $174,997          $35,938      $ 395,938  

Elizabeth E. Tallett

       $141,565          $174,997          $  1,000      $ 317,562  

 

  (1) Employee directors do not receive any compensation for their service as a director. Mr. Swedish’s compensation for 2016 is shown in the Summary Compensation Table on page 44.

 

  (2) In addition to annual Board and committee retainer fees, amounts include $2.68 paid in cash to each non-employee director then serving or elected at the 2016 annual meeting of shareholders, which represents cash payments in lieu of issuing fractional shares in connection with the annual grant of phantom shares of our common stock received on the date of our annual meeting of shareholders.

 

  (3) The amounts in this column reflect the grant date fair value of stock awards issued to each non-employee director during the year ended December 31, 2016, in accordance with Accounting Standards Codification Topic 718, “Compensation — Stock Compensation” (“ASC Topic 718”). Each non-employee director received 1,308 deferred shares of our common stock for the annual retainer grant of shares of our common stock on the date of our annual meeting of shareholders (May 19, 2016). The deferred shares will be converted into common stock upon the lapse of the deferral period. See also “— Board Equity Compensation and Stock Ownership Guidelines.” The grant date fair value for the 2016 stock awards is calculated by multiplying the closing price of our common stock on the NYSE on the date of grant by the number of shares in the stock award. As of December 31, 2016, each non-employee director had the following number of deferred shares under our Board of Directors’ Deferred Compensation Plan (“Board Deferred Compensation Plan”) for all years of service as a director:

 

Director   

Deferred Shares

(as of 12/31/16)

 

R. Kerry Clark

     4,066  

Robert L. Dixon, Jr.

     8,995  

Lewis Hay, III

     5,933  

Julie A. Hill

     37,013  

Ramiro G. Peru

     8,995  

William J. Ryan

     8,995  

George A. Schaefer, Jr.

     8,995  

Elizabeth E. Tallett

     5,318  

 

Anthem, Inc. 2017 Proxy Statement  |  11


Compensation of Non-Employee Directors (continued)

 

 

 

No directors currently have any stock options outstanding. The deferred shares for each current director are included in the Security Ownership of Certain Beneficial Owners and Management — Stock Held by Directors, Nominees and Executive Officers table on page 14.

 

  (4)  Includes: (i) matching charitable contributions made by the Anthem Foundation on behalf of Messrs. Clark, Dixon, Hay, Peru and Schaefer, Ms. Hill and Ms. Tallett (see “— Matching Gift Program”) and (ii) dividend equivalents paid on directors’ deferred shares that vested in 2016 of $25,938 each to Messrs. Peru, Ryan and Schaefer. This column does not include perquisites received by a director to the extent the amount of all such perquisites received by such director was less than $10,000.

 

  (5)  All of Mr. Clark’s 2016 compensation was deferred by him pursuant to the Board Deferred Compensation Plan, other than the $2.68 paid in cash in lieu of a fractional share.

Anthem Board of Directors’ Deferred Compensation Plan

Cash fees paid to directors may be deferred under the Board Deferred Compensation Plan, which provides a method of deferring payment until a date selected by the director. Deferred cash fees accrue interest at a declared interest rate, which is determined on January 1 of each year and is the average of the 10-year U.S. Treasury Note monthly average rates for the 12-month period ending on September 30 of the previous year, plus 150 basis points, but not to exceed 120% of the applicable federal long-term rate, with compounding. Fees paid to non-employee directors in our common stock may also be deferred under the Board Deferred Compensation Plan, with the cash dividends accruing during the deferral period and paid in cash at the end of the deferral period. Fees paid in stock and deferred under the Board Deferred Compensation Plan are distributed in stock pursuant to their election under the plan.

Board Equity Compensation and Stock Ownership Guidelines

For 2016, each non-employee director then serving or elected at the annual meeting of shareholders received, subject to the deferral described below, an annual grant, on the date of our annual meeting of shareholders, of the number of shares of our common stock equal to $175,000 with the amount of any fractional share paid in cash. In 2016, each such non-employee director received 1,308 deferred shares based on the market price of $133.79 per share pursuant to this grant. Each annual grant of common stock is deferred for a minimum of five years from the date of grant (or in the case of grants made after the annual meeting of shareholders, five years from the date of the annual meeting of shareholders that immediately precedes the date of grant). The shares of common stock, along with the cash dividends accrued thereon, will not be distributed until the earlier of the expiration of such deferral period or the date on which a director ceases to be a member of the Board.

In addition, each non-employee director has an obligation to own at least $500,000 of our common stock by no later than the fifth anniversary of the date such director became a member of the Board. As of December 31, 2016, each non-employee director owned stock in excess of the stock ownership requirements.

Matching Gift Program

Directors are eligible to participate in the Anthem Foundation matching gift program. Under this program, the foundation matches 100% of charitable donations to qualified entities up to a maximum of $10,000 per year for each director.

 

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Security Ownership of Certain Beneficial Owners and Management

 

 

 

Stock Held by 5% or More Beneficial Owners

The following table and notes provide information about each person known by us to own beneficially more than five percent of our common stock as of January 31, 2017, except as otherwise indicated.

 

Name and Address of Beneficial Owner    Amount and Nature
of Beneficial Ownership
     Percent of
Class
 

T. Rowe Price Associates, Inc.(1)

     13,777,744        5.2

BlackRock Inc.(2)

     23,620,516        8.9

The Vanguard Group(3)

     16,624,975        6.3

 

  (1) The amount shown and the following information were provided by T. Rowe Price Associates, Inc. (“T. Rowe”) pursuant to a Schedule 13G/A filed with the SEC on February 6, 2017, indicating beneficial ownership as of December 31, 2016. In such filing T. Rowe lists its address as 100 E. Pratt Street, Baltimore, MD 21202. T. Rowe is a registered investment advisor and has (a) sole power to dispose of or direct the disposition of 13,777,744 shares of our common stock and (b) sole power to vote or direct the vote of 3,983,696 shares of our common stock.

 

  (2) The amount shown and the following information were provided by BlackRock Inc. (“BlackRock”) pursuant to a Schedule 13G/A filed with the SEC on January 19, 2017, indicating beneficial ownership as of December 31, 2016. In such filing BlackRock lists its address as 55 East 52nd Street, New York, NY 10055. BlackRock is a parent holding company or control person and has (a) sole power to dispose of or direct the disposition of 23,610,606 shares of our common stock; (b) shared power to dispose of or direct the disposition of 9,910 shares of our common stock; (c) sole power to vote or direct the vote of 20,383,409 shares of our common stock; and (d) shared power to vote or direct the vote of 9,910 shares of our common stock.

 

  (3) The amount shown and the following information were provided by The Vanguard Group (“Vanguard”) pursuant to a Schedule 13G/A filed with the SEC on February 9, 2017, indicating beneficial ownership as of December 31, 2016. In such filing Vanguard lists its address as 100 Vanguard Boulevard, Malvem, PA 19355. Vanguard is a registered investment advisor and has (a) sole power to dispose of or direct the disposition of 16,161,896 shares of our common stock; (b) shared power to dispose of or direct the disposition of 463,079 shares of our common stock; (c) sole power to vote or direct the vote of 418,353 shares of our common stock and (d) shared power to vote or direct the vote of 52,452 shares of our common stock.

Stock Held by Directors, Nominees and Executive Officers

Except as otherwise noted, the following table sets forth the number of shares of our common stock beneficially owned as of January 31, 2017, by:

 

  each of our directors or nominees,
  each of our CEO, CFO and the three other most highly compensated executive officers during 2016 and any former executive officers required to be disclosed by SEC rules (collectively, the “NEOs”), and
  all current directors and executive officers as a group.

 

Anthem, Inc. 2017 Proxy Statement  |  13


Security Ownership of Certain Beneficial Owners and Management (continued)

 

 

 

Except as otherwise indicated below, each individual directly owns such shares of common stock and has sole investment and sole voting power. In addition, unless otherwise indicated, the address for each person named below is c/o Anthem, Inc., 120 Monument Circle, Indianapolis, IN 46204. The table includes shares that may be purchased pursuant to stock options that are currently exercisable or exercisable within 60 days of January 31, 2017 (“exercisable options”) and shares of common stock underlying unvested restricted stock units and unvested performance stock units that will vest within 60 days of January 31, 2017 (“vested restricted stock units” and “vested performance stock units,” respectively). As of January 31, 2017, 275,944,591 shares of our common stock were issued and outstanding.

 

Name    Number of
Shares
Owned
(1)
     Number of
Shares
Supplementally
Owned
(2)
     Total Number
of Shares
Beneficially
Owned
     Percent of
Class
 

R. Kerry Clark

     0        4,066        4,066        *  

Robert L. Dixon, Jr.

     0        8,995        8,995        *  

Lewis Hay, III

     0        5,933        5,933        *  

Julie A. Hill

     0        37,013        37,013        *  

Ramiro G. Peru

     6,267        8,995        15,262        *  

William J. Ryan

     18,154        8,995        27,149        *  

George A. Schaefer, Jr.

     28,126        8,995        37,121        *  

Elizabeth E. Tallett

     0        5,318        5,318        *  

Joseph R. Swedish

     300,194        50,118        350,312        *  

John E. Gallina

     29,432        4,019        33,451        *  

Brian T. Griffin(3)

     71,791        11,783        83,574        *  

Peter D. Haytaian

     78,303        7,270        85,573        *  

Gloria M. McCarthy

     61,689        10,959        72,648        *  

Wayne S. DeVeydt(4)

     57,957        0        57,957        *  

All current directors and executive officers as a group (17 persons)

     762,547        186,685        949,232        *  

 

  * Less than 1%

 

  (1) Includes the following exercisable options to purchase shares of our common stock: Mr. Swedish — 300,194; Mr. Gallina — 17,568; Mr. Griffin — 40,380; Mr. Haytaian — 48,563; Ms. McCarthy — 31,531 and 534,677 for all current directors and executive officers as a group.

 

  (2) For directors, other than Mr. Swedish, this number represents the number of deferred shares which will be converted into common stock upon the lapse of the deferral period, and are considered owned under our stock ownership guidelines for directors. For executive officers, this number represents the following vested restricted stock units: Mr. Swedish — 22,725; Mr. Gallina — 1,690; Mr. Griffin — 3,679; Mr. Haytaian — 4,531; Ms. McCarthy — 4,795; and 46,167 for all current executive officers as a group; and the following vested performance stock units: Mr. Swedish — 27,393; Mr. Gallina — 2,329; Mr. Griffin — 8,104; Mr. Haytaian — 2,739; Ms. McCarthy — 6,164; and 52,208 for all current executive officers as a group.

 

  (3) Includes 14,417 shares held in a grantor retained annuity trust (“GRAT”) of which Mr. Griffin is sole trustee and 13,298 shares held in a GRAT of which Mr. Griffin’s spouse is sole trustee.

 

  (4) Mr. DeVeydt resigned from the Company effective May 31, 2016. Information in the above table is as of May 31, 2016 for Mr. DeVeydt.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires our executive officers, directors and persons who own more than 10% of our common stock, to file reports of ownership with the SEC. Such persons also are required to furnish us with copies of all Section 16(a) forms they file.

Based solely on our review of copies of such forms received by us, or written representations from certain reporting persons, we believe that during 2016, our executive officers, directors, and greater than 10% shareholders complied with all applicable filing requirements relating to our common stock, with the exception of a Form 4 for each of Mr. Swedish and Ms. McCarthy, both of which reported one transaction and were filed one day late due to an administrative error.

 

14  |  Anthem, Inc. 2017 Proxy Statement


Proposal No. 1 — Election of Directors

 

 

 

The Board currently consists of nine directors divided into three classes. This classified Board structure is one of the specific requirements imposed by the Blue Cross Blue Shield Association (“BCBSA”) in license agreements with all Blue Cross Blue Shield licensees, including us. The term of one class of directors expires each year. Generally, each director serves until the annual meeting of shareholders held in the year that is three years after such director’s election and until such director’s successor is elected and has qualified. In addition, directors are no longer eligible for election after reaching 72 years of age.

Our Articles of Incorporation provide that the total number of directors should be divided into three classes with each class containing approximately one-third of the total directors. Currently, each class contains three directors. Mr. Ryan is not eligible for election having reached 72 years of age, so only two directors have been nominated for election at the annual meeting to hold office for a term to expire at the 2020 annual meeting and until his successor is elected and qualified.

It is the intention of the persons named in the accompanying form of proxy to vote such proxy for the election to the Board of R. Kerry Clark and Robert L. Dixon, Jr. Each of the nominees for director is presently a director and each has consented to being named as a nominee in this proxy statement and has indicated a willingness to serve if elected. However, if any such person is unable or unwilling to accept nomination or election, it is the intention of the persons named in the accompanying form of proxy to nominate such other person as director as they may in their discretion determine, in which event the shares will be voted for such other person.

The election of directors will be determined by the vote of a majority of the votes cast on such election, which means that the number of shares voted “for” a director nominee must exceed the number of shares voted “against” such nominee.

Recommendation

The Board of Directors unanimously recommends a vote FOR Proposal No. 1, the election as directors of R. Kerry Clark and Robert L. Dixon, Jr.

The biographies of each of the nominees and continuing directors contain information regarding the person’s service as a director, business experience, director positions at publicly held corporations or investment companies registered under the Investment Company Act of 1940 held currently or at any time during the last five years, and the experiences, qualifications, attributes or skills that caused the Governance Committee and the Board to recommend each of the director nominees and to conclude that the continuing directors should serve as members of our Board. Unless otherwise indicated below, the principal occupation of each director or nominee has been the same for the last five years. There is no family relationship between any of our directors or executive officers. The ages listed below for each director or nominee are as of March 31, 2017.

 

Anthem, Inc. 2017 Proxy Statement  |  15


Proposal No. 1 — Election of Directors (continued)

 

 

 

Nominees for Director

Three-year Term to Expire at the 2020 Annual Meeting of Shareholders

 

LOGO

  

R. Kerry Clark has been a director of the Company since May 2014. Mr. Clark served as Chairman and Chief Executive Officer of Cardinal Health, Inc. (health care products and services), until his retirement in 2009. Mr. Clark joined Cardinal Health in April 2006 as President and Chief Executive Officer and became Chairman in November 2007. Prior to joining Cardinal Health, he held various positions at The Procter & Gamble Company (consumer products), including President of P&G Asia; President, Global Market Development and Business Operations; and Vice Chairman of the Board, President Global Family Health. He is a director of Avnet, Inc. (industrial distributors of electronic components, enterprise computer and storage products), General Mills, Inc. (consumer food products) and Textron, Inc. (aircraft, defense, and industrial products). He is also a director of Hauser Private Equity LLC (investment firm) and The Christ Hospital in Cincinnati, Ohio (hospital).

 

Skills and Qualifications

 

Mr. Clark brings to the Board extensive CEO, health care industry and marketing and public relations experience through his positions as Chairman and CEO of a major health care services organization, and as a senior executive at an international consumer products company, where he served in several positions involving marketing, advertising and product development of health care and other consumer products. Also, he has health care experience through his service on a hospital board of directors. Mr. Clark qualifies as an “audit committee financial expert” under the SEC’s rules.

 

LOGO

  

Robert L. Dixon, Jr. has been a director of the Company since July 2011. Mr. Dixon also has been the owner of The RD Factor, Inc., a digital and information technology consulting business, since December 2016. Mr. Dixon served as Global Chief Information Officer and Senior Vice President of PepsiCo, Inc. (food and beverages) from November 2007 until April 2016 and as Senior Vice President until December 2016. Prior to joining PepsiCo, Mr. Dixon held various positions with The Procter & Gamble Company (consumer household products) since 1977, including Vice President of Global Business Services from 2005 until 2007. Mr. Dixon currently serves on the Georgia Institute of Technology College of Engineering Advisory Board. He previously served on the President’s Advisory Board of the Georgia Institute of Technology and the CIO Advisory Board for International Business Machines Corp.

 

Skills and Qualifications

 

Mr. Dixon has extensive technology experience through his position as Global Chief Information Officer of a large public company and his service on the CIO advisory board for another large public company. He also has significant marketing experiences through his senior positions at two large public companies, both of which have global retail consumer product focus.

 

16  |  Anthem, Inc. 2017 Proxy Statement


Proposal No. 1 — Election of Directors (continued)

 

 

 

Directors Continuing in Office

Terms expiring at the 2018 Annual Meeting of Shareholders

 

LOGO

  

Lewis Hay, III has been a director of the Company since July 2013. Mr. Hay has served as an advisor at Clayton Dubilier & Rice (private equity investment firm) since January 2014. Mr. Hay retired as Executive Chairman of NextEra Energy, Inc. (electricity-related services and renewable energy generator) in December 2013, having served in that position since July 2012. At NextEra Energy, he served as Chief Executive Officer from June 2001 to July 2012, Chairman from January 2002 to July 2012, and President from June 2001 to December 2006. He also served as Chief Executive Officer of Florida Power & Light Company from January 2002 to July 2008. Mr. Hay is a director of Capital One Financial Corporation (financial services) and Harris Corporation (international communications and information technology). Mr. Hay was a director of the Institute for Nuclear Power Operations and the Edison Electrical Institute until 2013. At Carnegie Mellon University, he is a member of the Board of Advisors at the Tepper School of Business and the Advisory Council at the Scott Institute for Energy Innovation. He is a former member of the Business Roundtable and the President’s Council on Jobs and Competitiveness.

 

Skills and Qualifications

 

Mr. Hay brings extensive CEO, finance and regulatory and government experience to the Board through his positions as CEO, Chairman and CFO of a large utility company which was subject to significant regulation and oversight. He also has environmental, social and governance experience with his management of the utility’s expansion of renewable energy sources. In addition, Mr. Hay has marketing and public relations experience from his service as an officer of a large utility company and a director of a financial services company, and technology experience from his service as a director of an information technology company.

 

LOGO

  

Julie A. Hill has been a director of the Company since November 2004. Ms. Hill served on the former WellPoint Health Networks Inc. (“WHN”) board of directors from March 1994 until WHN’s merger with us in November 2004. Since December 2002, she has been the owner of The Hill Company (real estate company). From December 1998 to December 2002, Ms. Hill was the President and owner of Hiram-Hill Development Company (residential real estate development firm). Prior thereto, she was the Chairman, President and Chief Executive Officer of Costain Homes, Inc. (home builders), the U.S. division of Costain Group Plc, a London-based company, from 1988 to 1997. Ms. Hill is also a director of the Lord Abbett Family of Mutual Funds (mutual funds) and was a director of Lend Lease, Ltd. (international retail and residential property group) until November 2012. At the University of California at Irvine, she serves on the Paul Merage School of Business Dean’s Advisory Council and Center for Real Estate Advisory Board, the Foundation Board, the Social Ecology School’s Dean’s Leadership Council, the School of Medicine’s Dean’s Advisory Board, the Law School Board, and the Center for Digital Transformation Board.

 

Skills and Qualifications

 

Ms. Hill brings extensive CEO and finance experience to the Board gained through her ownership and management of several companies. She also has significant marketing and public relations experience, having held several positions in sales, marketing, advertising and product development. In addition, Ms. Hill has health care industry and environmental, social and governance experience through her many medical school and other university board positions and service with groups promoting environmental, sustainability and other public policy issues. Further, Ms. Hill qualifies as an “audit committee financial expert” under the SEC’s rules.

 

Anthem, Inc. 2017 Proxy Statement  |  17


Proposal No. 1 — Election of Directors (continued)

 

 

 

 

LOGO

  

Ramiro G. Peru has been a director of the Company since November 2004. Mr. Peru served on the former WHN board of directors from May 2003 until WHN’s merger with us in November 2004. During the second half of 2007, Mr. Peru was Executive Vice President and Chief Financial Officer of Swift Corporation (transportation) and prior thereto was Executive Vice President and Chief Financial Officer of Phelps Dodge Corporation (mining and manufacturing) from 1999 to 2007 (“Phelps Dodge”). Mr. Peru joined Phelps Dodge in 1979 and held various finance and accounting positions with Phelps Dodge and its affiliates. Mr. Peru is also a director of SM Energy Company (oil and gas exploration and production company) and UNS Energy Corporation (an electric and gas utility holding company).

 

Skills and Qualifications

 

Mr. Peru brings significant finance experience to the Board as a former chief financial officer of two public companies. Mr. Peru’s positions also included technology experience as Senior Vice President at Phelps Dodge with responsibility for managing both information systems and technology and human resources. Further, Mr. Peru qualifies as an “audit committee financial expert” under the SEC’s rules.

Terms expiring at the 2019 Annual Meeting of Shareholders

 

LOGO

  

George A. Schaefer, Jr. has been a director of the Company since 2001 and a director of Anthem Insurance Companies, Inc. (“Anthem Insurance”) from 1995 to May 2003. Mr. Schaefer served as Chair of the Board of the Company from May 2013 until December 2015, at which time he was elected to his current role of Lead Director. He served as President and Chief Executive Officer of Fifth Third Bancorp (banking) from 1990 to 2006, as Chairman of the Board and Chief Executive Officer until April 2007, and as Chairman of the Board until June 2008. He is also a director of Ashland Global Holdings Inc. (petroleum and chemical business). He is a board member of the University of Cincinnati Healthcare System (health care system) and the University of Cincinnati Healthcare Foundation.

 

Skills and Qualifications

 

As the former President, CEO and Chairman of a large Midwest bank holding company, Mr. Schaefer brings extensive CEO and finance experience to the Board, as well as marketing and public relations and technology experience from his involvement in retail marketing and product development for the financial institution. Also, he has health care industry experience through his service on the boards of several hospital systems and medical schools. Further, Mr. Schaefer qualifies as an “audit committee financial expert” under the SEC’s rules.

 

18  |  Anthem, Inc. 2017 Proxy Statement


Proposal No. 1 — Election of Directors (continued)

 

 

 

 

LOGO

  

Joseph R. Swedish has been a director since March 2013 when he was appointed our CEO. He was named Chair of the Company’s Board in December 2015. Prior to his appointment, Mr. Swedish served as President and CEO of Trinity Health Corporation (“Trinity”) (multi-state integrated health care delivery system) from 2004 to 2013. Prior to his service at Trinity, Mr. Swedish was President and CEO of Centura Health (large health care provider) from 1999 to 2004. Mr. Swedish served as a director of Coventry Health Care, Inc. (health insurance company) from 2010 to February 2013, Venzke Insurance Services, Ltd. from 2004 to March 2013, Cross Country Health Care, Inc. (health care staffing company) from 2002 to 2005, RehabCare Group, Inc. (health care services company) from 2003 to 2005, and BankFirst (community bank) from 1995 to 1999. Mr. Swedish has served as a director of CDW Corporation (technology) since August 2015. He also serves as a director of the Blue Cross Blue Shield Association, the National Institute for Health Care Management, America’s Health Insurance Plans (Chairman effective January 2017) and the Central Indiana Corporate Partnership, Inc. and as a member of the Business Roundtable, the Business Council, the Board of Visitors of Duke University’s Fuqua School of Business, and the Duke Margolis External Advisory Board. He also previously served as chair of the Catholic Health Association and on the Board of Loyola University Chicago.

 

Skills and Qualifications

 

Mr. Swedish brings significant CEO, health care industry, technology and insurance industry experience to the Board from his chief executive and board positions with several health care and insurance organizations and participation in numerous associations in the health care industry. Mr. Swedish’s positions also provided him with regulatory and government experience due to the highly regulated nature of these organizations. He has finance experience through his service on the board of directors of a bank and technology experience through his service on the board of directors of a technology company. Mr. Swedish also has environmental, social and governance experience, having served as chair of the Catholic Health Association.

 

LOGO

  

Elizabeth E. Tallett has been a director of the Company since October 2013. She was a principal of Hunter Partners, LLC (health care consulting) from June 2002 to February 2015. Ms. Tallett continues to operate as a consultant to health care companies. Previously, Ms. Tallett was President and Chief Executive Officer of Transcell Technologies, Inc. (specialty pharmaceuticals), President of Centocor Pharmaceuticals (biotechnology), member of the Parke-Davis (pharmaceuticals) Executive Committee and Director of Worldwide Strategic Planning for Warner-Lambert Company (pharmaceuticals). Ms. Tallett has served as a director of Meredith Corporation (magazine publisher) since 2008, Principal Financial Group, Inc. (financial services) since 1992 (as presiding director since 2007) and Qiagen, N.V. (biotechnology research equipment manufacturing) since 2011. She previously served as a director of Coventry Health Care, Inc. (health insurance) from 1998 to 2013 (including serving as lead director) and IntegraMed America, Inc. (outpatient health clinics) from 1998 to 2012.

 

Skills and Qualifications

 

Ms. Tallett brings significant CEO, finance, health care industry, insurance industry and marketing and public relations experience to the Board from her chief executive, other management and board positions in several health care, insurance and pharmaceutical organizations. These positions also provided her with regulatory and governmental experience due to the highly regulated nature of these organizations. She also has environmental, social and governance experience, having served as a presiding or lead director and as a member of the governance committees of several public companies.

 

Anthem, Inc. 2017 Proxy Statement  |  19


Proposal No. 2 — Ratification of the Appointment of Independent Registered Public Accounting Firm

 

 

 

Appointment

The firm of Ernst & Young LLP (“EY”) served as our independent registered public accounting firm for the year ended December 31, 2016. The Audit Committee is responsible for the appointment, compensation and oversight of the Company’s external auditor, and has reviewed the quality of the services and the sufficiency of the resources provided by EY during their tenure as our independent registered public accounting firm.

In evaluating the performance and considering the engagement of the Company’s external auditor, including whether to rotate audit firms, the Audit Committee considers various factors, including the auditor’s capability and expertise in handling the scope and complexity of the audit of our business operations, auditor independence and the appropriateness of fees, together with EY’s tenure as the Company’s auditor, the current level of service and quality provided by EY and the potential impact of changing auditors. Based on these factors, the Audit Committee believes that the continuance of EY as our independent registered public accounting firm is in the best interests of the Company and the shareholders. As a result, the Audit Committee has selected EY to continue in that capacity for 2017 and is submitting this matter to shareholders for their ratification as a matter of good corporate governance. EY has served as our independent registered public accounting firm since 2001. In the event this proposal is not approved, the Audit Committee will consider whether to select another independent registered public accounting firm.

A representative of EY is expected to be present at the annual meeting, will be given an opportunity to make a statement if he or she desires and is expected to be available to respond to appropriate questions. Notwithstanding ratification by the shareholders, the Audit Committee reserves the right to replace our independent registered public accounting firm at any time.

The ratification of the appointment of the Independent Registered Public Accounting Firm will be determined by the vote of a majority of the votes cast on the proposal (excluding abstentions), which means that the number of shares voted “for” the proposal must exceed the number of shares voted “against” the proposal for ratification of the appointment.

Recommendation

The Board of Directors unanimously recommends a vote FOR Proposal No. 2, the ratification of the appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for 2017.

 

20  |  Anthem, Inc. 2017 Proxy Statement


Audit Committee Matters

 

 

 

Independent Registered Public Accounting Firm’s Fees

The Audit Committee oversees the negotiation of fees associated with our retention of EY. The following table presents fees billed for all professional services provided by EY for the audit of our consolidated financial statements for the years ended December 31, 2016 and 2015, and fees billed for other services rendered by EY during those periods.

 

     Fiscal Year  
Fee Category    2016      2015  

Audit fees(1)

   $ 12,338,000      $ 13,164,000  

Audit-related fees(2)

     1,803,000        1,604,000  

Tax fees(3)

     315,000        330,000  

All other fees(4)

     20,000        21,000  
  

 

 

    

 

 

 

Total:

   $ 14,476,000      $ 15,119,000  

 

  (1) Audit fees consisted principally of fees for audit work performed on our consolidated financial statements, the audit of the effectiveness of our internal control over financial reporting as of each respective year-end, review of the quarterly financial statements, insurance statutory audits, other required audits, comfort letter procedures, review of registration statements and periodic reports filed with the SEC and other accounting and reporting consultation.

 

  (2) Audit-related fees consisted principally of fees for review of service organization controls, regulatory examinations, employee benefit plan audits, due diligence and other audit-related services.

 

  (3) Tax fees consisted principally of fees for tax compliance and tax advice.

 

  (4) All other fees represent fees for advisory services related to certain corporate functions and accounting research tools.

The Audit Committee’s Consideration of Independence of Independent Registered Public Accounting Firm

The Audit Committee has reviewed the nature of the non-audit services provided by EY and has concluded that these services are compatible with maintaining the firm’s ability to serve as our independent registered public accounting firm. Additionally, as part of the Audit Committee’s overall review of EY, it is directly involved in the selection of the auditor’s lead engagement partner in conjunction with the periodic, mandated rotation of the lead partner.

Audit Committee Pre-Approval Policy

The Audit Committee of the Board has adopted a policy concerning the pre-approval of audit and non-audit services. Pursuant to this policy, unless a type of service to be provided by the independent registered public accounting firm was approved in connection with the audit engagement letter, such service must be pre-approved by the Audit Committee. In addition, the Audit Committee has delegated its authority to pre-approve to the Chairperson of the Audit Committee for engagements of up to $500,000. The Chairperson reports any pre-approval decisions to the Audit Committee at the next regularly scheduled meeting of the Audit Committee. Procedures have been established which require that all requests for pre-approval be submitted to the Audit Committee or Chairperson by the President and Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer or other designated executive. All services performed by EY were approved by the Audit Committee and/or pursuant to the Audit Committee pre-approval policy.

Audit Committee Report

The Audit Committee of the Board is composed of the four members set forth below. The Board has determined that each current member of the Audit Committee is an “independent director” and an “audit committee financial expert” as defined by the SEC’s rules. The Audit Committee operates under a written charter adopted by the Board which details the responsibilities of the Audit Committee.

The Audit Committee oversees the Company’s financial reporting process on behalf of the Board. The Company’s management is responsible for the Company’s financial statements and reporting process, including the system of internal controls, and has represented to the Audit Committee that the Company’s consolidated financial statements were prepared in accordance with U.S. generally accepted accounting principles. The independent registered public accounting firm is responsible for performing an independent audit of the Company’s annual consolidated financial statements and expressing an opinion on the conformity of those audited consolidated financial statements with U.S. generally accepted accounting principles, as well as expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

 

Anthem, Inc. 2017 Proxy Statement  |  21


Audit Committee Matters (continued)

 

 

 

In fulfilling its responsibilities, the Audit Committee has reviewed and discussed the audited consolidated financial statements with the Company’s management and the independent registered public accounting firm. This review included a discussion of the quality and acceptability of the Company’s financial reporting and controls, including the clarity of disclosures in the consolidated financial statements. The Audit Committee reviewed, and discussed with management and the independent registered public accounting firm, management’s report and the independent registered public accounting firm’s report and audit of the Company’s internal control over financial reporting.

The Audit Committee has discussed with the independent registered public accounting firm the matters required to be discussed by the applicable rules of the Public Company Accounting Oversight Board (“PCAOB”), including the quality, not just the acceptability, of the accounting principles, the reasonableness of significant judgments, and the clarity of the disclosures in the financial statements. In addition, the Audit Committee has received the written disclosures and the letter from the independent registered public accounting firm required by applicable requirements of the PCAOB regarding communications with the Audit Committee concerning independence, and has discussed with the independent registered public accounting firm its independence from the Company and its management.

The Audit Committee further discussed with the Company’s internal auditors and independent registered public accounting firm the overall scope and plans for their respective audits. The Audit Committee meets periodically with the internal auditors and independent registered public accounting firm, with and without management present, to discuss the results of their audits, their evaluations of the Company’s internal control over financial reporting and the overall quality of the Company’s financial reporting.

Based on the reviews and discussions referred to above, the Audit Committee recommended, and the Board approved, the inclusion of the audited consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 as filed with the SEC.

 

      Audit Committee
     

Ramiro G. Peru, Chairperson

R. Kerry Clark

Julie A. Hill

George A. Schaefer, Jr.

 

 

22  |  Anthem, Inc. 2017 Proxy Statement


Executive Officers of the Company

 

 

 

Executive Officers

The following is biographical information and ages for our executive officers and Chief Accounting Officer as of March 10, 2017:

 

Name and Position   

Age

     

Joseph R. Swedish

Chair, President and CEO

   65    See the biographical information under “Directors Continuing in Office — Terms Expiring at the 2019 Annual Meeting of Shareholders” on page 19.

John E. Gallina

EVP and Chief Financial Officer

   57    Mr. Gallina has served as our Executive Vice President and Chief Financial Officer since June 2016. Mr. Gallina joined Anthem in 1994 and has held a variety of leadership roles across the organization. Prior to his current role, Mr. Gallina served as Anthem’s Chief Financial Officer for the Commercial and Specialty Business Division from December 2015 to June 2016, and as Senior Vice President and Chief Accounting Officer from December 2013 to December 2015. Other leadership positions held during his tenure include Senior Vice President, Chief Accounting Officer and Chief Risk Officer from May 2011 to December 2013, while also holding the title of Controller from May 2011 to August 2013. Before joining the Company, Mr. Gallina spent 12 years with Coopers & Lybrand as an Audit Senior Manager.

Brian T. Griffin

EVP, President of Commercial and Specialty Business Division

   58    Mr. Griffin has served as our Executive Vice President and President of Commercial and Specialty Business Division since September 2015. From January 2013 until September 2015, Mr. Griffin served as President and Chief Executive Officer of our Empire health plans based in New York. Before joining us, Mr. Griffin served from 1987 until August 2012 in positions of increasing responsibility with Medco Health Solutions, Inc., including as President, International and Subsidiaries of Express Scripts Holding Company, Inc. from April 2012 to July 2012, Chief Executive Officer of Medco International B.V. from October 2011 to April 2012 and Chief Executive Officer of Medco Celesio, B.V. from December 2010 to October 2011.

Peter D. Haytaian

EVP, President of Government Business Division

   47    Mr. Haytaian has served as our Executive Vice President and President of the Government Business Division since June 2014. Mr. Haytaian joined the Company in December 2012 with our acquisition of Amerigroup Corporation (“Amerigroup”) and served as President of our Medicaid business from August 2013 until June 2014. From 2005 to 2012, Mr. Haytaian held several leadership positions with Amerigroup, including serving as Chief Executive Officer of the North Region for Amerigroup’s Medicaid business from December 2012 until August 2013. Mr. Haytaian has extensive experience leading Medicare and Medicaid programs with Amerigroup and, prior thereto, with Oxford Health Plans, Inc. (health insurance).

Gloria M. McCarthy

EVP, Chief Administrative Officer and Chief of Staff

   64    Ms. McCarthy has served as our Executive Vice President and Chief Administrative Officer since 2013 and Chief of Staff since August 2016. She was Executive Vice President of Enterprise Execution and Efficiency from 2012 to 2013. Prior to that appointment, she served as Executive Vice President, Office of the CEO from February 2012 to October 2012, as Senior Vice President for Operational Excellence from 2008 to February 2012, as Senior Vice President of Service Operations from 2006 to 2008 and as Senior Vice President and Chief Operating Officer of our East Region from 2005 to 2006. Prior to our acquisition of WellChoice, Inc. in 2005, Ms. McCarthy served as Executive Vice President and Chief Operating Officer of WellChoice.

Craig E. Samitt, M.D.

EVP and Chief Clinical Officer

   52    Dr. Samitt has served as our Executive Vice President and Chief Clinical Officer since September 2015. Prior to joining us, Dr. Samitt was a Partner and Global Practice Leader, Health & Life Sciences, for the Oliver Wyman Consulting firm from January 2015 to September 2015; the Executive Vice President and then President and CEO, HealthCare Partners, for Davita Healthcare Partners from 2013 to 2014 and President and CEO of Dean Health Systems, Inc. from 2006 to 2013. Dr. Samitt has been a member of the Board of Directors of the National Committee for Quality Assurance since February 2016.

 

Anthem, Inc. 2017 Proxy Statement  |  23


Executive Officers of the Company (continued)

 

 

 

Name and Position    Age      

Jose D. Tomas

EVP and Chief Human Resources Officer

   49    Mr. Tomas has served as Executive Vice President and Chief Human Resources Officer since December 2013. From 2004 until he joined us in 2013, Mr. Tomas served in roles of increasing responsibility with Burger King Corporation (restaurants), including Global Chief People Officer and President, Latin America and Caribbean, from 2011 to 2013. Prior to joining Burger King in 2004, Mr. Tomas held various field and corporate human resource positions with Ryder Systems, Inc. (truck rental) and Publix Super Markets (grocery stores). Mr. Tomas is certified as a Senior Professional in Human Resources and is a board member of the Society for Human Resource Management.

Thomas C. Zielinski

EVP and General Counsel

   66    Mr. Zielinski has served as our Executive Vice President and General Counsel since June 2014, and as Interim General Counsel from February 2014 to June 2014. Prior to joining us, Mr. Zielinski was a partner in the law firm of Morgan Lewis & Bockius, LLP since 2013. He served as Executive Vice President and General Counsel of Coventry Health Care, Inc. (Coventry) (health insurance) from 2007 to 2013 and as Senior Vice President and General Counsel from 2001 to 2007. Prior to joining Coventry, Mr. Zielinski spent 19 years at the law firm of Cozen & O’Connor, P.C.

Ronald W. Penczek

SVP and Chief Accounting Officer

   52    Mr. Penczek has served as our Senior Vice President and Controller since November 2015 and as our Chief Accounting Officer since December 2015. He served as our Vice President and Controller from August 2013 to November 2015. Prior to that appointment, Mr. Penczek served as Vice President and Assistant Controller from January 2008 to August 2013 and in various other roles in our finance department from February 2006 until January 2008. Before joining us, Mr. Penczek was a Staff Vice President with CNA Insurance from 2000 to 2005 and a Manager with PricewaterhouseCoopers LLP from 1992 to 2000.

 

24  |  Anthem, Inc. 2017 Proxy Statement


Proposal No. 3 — Advisory Vote to Approve the Compensation of Our Named Executive Officers

 

 

 

Section 14A of the Exchange Act enables our shareholders to vote to approve, on an advisory (nonbinding) basis, the compensation of our Named Executive Officers (“NEOs”) (“Say-on-Pay”) as disclosed in this proxy statement in accordance with the SEC’s compensation disclosure rules. At our annual meetings of shareholders held in May 2014, May 2015 and May 2016, approximately 94%, 97%, and 97%, respectively, of the votes cast for or against the Say-on-Pay proposal at those meetings were voted in favor of the proposal. The Compensation Committee believes this affirms our shareholders’ support of our approach to executive compensation, and no significant changes were made to this approach for 2016 as a result of the vote.

Our executive compensation program (the “Total Rewards” program) is designed to attract, engage, motivate and retain a talented team of executive officers and to appropriately reward those executive officers for their contribution to our business, our members and our shareholders. Our Total Rewards program emphasizes performance-based compensation in the form of our Annual Incentive Plan (“AIP”) and equity grant programs under our shareholder approved Incentive Compensation Plan (“Incentive Plan”). In 2016, fixed compensation (salary and benefits) made up a small percentage of target total compensation for our executives, with 11% for Mr. Swedish, and a range of approximately 17% to 25% for the other NEOs. The majority of the CEO’s and other NEOs’ compensation is variable based on both individual and overall Company performance. Our Total Rewards program contains specific annual, financial and strategic goals and the value of equity based awards will depend on our long-term stock price performance. Please read the “Compensation Discussion and Analysis,” along with the tables and narrative discussion, beginning on page 27 for additional details about our executive compensation program, including information about the fiscal year 2016 compensation of our NEOs.

We are asking our shareholders to indicate their support for our NEOs’ compensation as described in this proxy statement. This proposal gives our shareholders the opportunity to express their views on our NEOs’ compensation. The Say-on-Pay vote is not intended to approve any specific item of compensation but rather the overall compensation of our NEOs and the philosophy, policies and practices described in this proxy statement. Accordingly, we recommend that our shareholders vote “for” the following resolution at the annual meeting:

“RESOLVED, that the Company’s shareholders approve, on an advisory basis, the compensation of the Named Executive Officers, as disclosed in the Company’s Proxy Statement for the 2017 Annual Meeting of Shareholders pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the Compensation Discussion and Analysis, the compensation tables and the other related disclosures.”

The Say-on-Pay vote is advisory, and therefore not binding on the Company, our Compensation Committee or our Board of Directors. Our Board of Directors and our Compensation Committee value the opinions of our shareholders and to the extent that there is any significant vote against the NEOs’ compensation as disclosed in this proxy statement, we will consider our shareholders’ concerns and the Compensation Committee will evaluate whether any actions are necessary to address those concerns.

The approval or disapproval of the Say-on-Pay proposal will be determined by the vote of a majority of the votes cast on such proposal (excluding abstentions), which means that the number of shares voted “for” the proposal must exceed the number of shares voted “against” the proposal for approval of the executive compensation proposal.

Recommendation

The Board of Directors unanimously recommends a vote FOR Proposal No. 3, the advisory vote to approve the compensation of our Named Executive Officers.

 

Anthem, Inc. 2017 Proxy Statement  |  25


Proposal No. 4 — Advisory Vote on the Frequency of the Say-on-Pay Vote

 

 

 

Section 14A of the Exchange Act also enables our shareholders to indicate how frequently we should hold future Say-on-Pay votes. By voting on this Proposal No. 4, shareholders may indicate whether they would prefer future Say-on-Pay votes be held once every year, every two years or every three years.

We are required to hold this Say-on-Pay frequency vote at least once every six calendar years. When we conducted our last Say-on-Pay frequency vote at our 2011 Annual Meeting of Shareholders, our shareholders expressed a strong preference to conduct Say-on-Pay votes on an annual basis. Consistent with that preference, since that time, we have continued to hold our Say-on-Pay vote annually. The Board has not observed any reason why the previously-expressed shareholder preference should not continue to govern and notes that market practice is for annual Say-on-Pay votes. The Board also believes that holding a vote every year allows our shareholders to provide timely input on our executive compensation philosophy, policies and practices and is consistent with our policy of seeking input from, and engaging in discussions with, our shareholders on executive compensation and corporate governance matters. As a result, the Board has determined to recommend that shareholders vote in favor of holding future Say-on-Pay votes on an annual basis.

You may cast your vote on your preferred voting frequency by choosing the option of one year, two years, three years or abstain from voting. The option of one year, two years, or three years that receives the highest number of votes cast by shareholders will be considered our shareholders’ preferred frequency for the Say-on-Pay vote. However, because this vote is advisory and not binding on the Board of Directors or the Company, the Board may decide that it is in the best interests of our shareholders and the Company to hold future Say-on-Pay votes more or less frequently than the option preferred by our shareholders.

Recommendation

The Board of Directors unanimously recommends a vote FOR the ONE YEAR option under Proposal No. 4, Advisory Vote on the Frequency of the Say-on-Pay Vote.

 

26  |  Anthem, Inc. 2017 Proxy Statement


Executive Compensation

 

 

 

Compensation Discussion and Analysis

Executive Summary

Executive Compensation Philosophy

Our compensation program, which we refer to as our Total Rewards program, is designed to attract, engage, motivate and retain a talented team of executive officers and to appropriately reward those executive officers for their contributions to our business, our members and our shareholders. We seek to accomplish this goal in a way that is closely aligned with the long-term interests of our shareholders and the expectations of our members.

The Compensation Committee of our Board of Directors (the “Committee”) oversees our Total Rewards compensation program for our executive officers, including the persons identified in the Summary Compensation Table as named executive officers, or NEOs, and determines their compensation.

2016 Business Results

We believe that the pay-for-performance philosophy of our Total Rewards compensation program played an important role in our achieving the following performance highlights in 2016:

 

 

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  * Please refer to the GAAP Reconciliation table on page C-1 regarding Adjusted Net Income Per Share (“Adjusted EPS”).

Other highlights include:

 

  Operating cash flow was approximately $3.2 billion or 1.3 times net income for 2016.
  Our closing stock price increased by 3.1% from $139.44 on December 31, 2015 to $143.77 on December 30, 2016. Additionally, the Company paid cash dividends totaling $2.60 per share in 2016.

 

Anthem, Inc. 2017 Proxy Statement  |  27


Executive Compensation (continued)

 

 

 

Primary Compensation Elements

The following chart shows the primary compensation elements for our NEOs. Additional detail on these compensation elements can be found in “Elements of Total Rewards” in this Compensation Discussion & Analysis (“CD&A”).

 

 

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Impact of Business Results, Stock Price and Shareholder Returns on Executive Compensation

As indicated in the chart above, the compensation value received by our executives is highly dependent on share price performance and relies on meeting predetermined financial and operational goals approved by the Committee. Consistent with our pay-for-performance philosophy, and based on our financial and operational results in relation to our annual business plan, performance-based variable compensation has fluctuated over the years and was paid below target in 2015 and 2012, and above target in 2016, 2014 and 2013.

In 2016, our long-term compensation, comprised of performance stock units, stock options and time-based restricted stock units, represented 73% and 64% of the target compensation for our CEO and other NEOs, respectively. Performance and restricted stock units more closely replicate shareholder return as they gain or lose value as our stock price changes, and earn dividend-equivalents equal to the cash dividend per share amount, which are paid to participants without interest upon vesting. Stock options gain value when our stock price rises over the grant price.

 

28  |  Anthem, Inc. 2017 Proxy Statement


Executive Compensation (continued)

 

 

 

2016 Compensation Considerations

Over the past five years, an overwhelming majority of our shareholders voted in favor of the advisory vote on compensation of our NEOs, commonly referred to as the “Say-on-Pay” vote.

SHAREHOLDER APPROVAL OF NEO COMPENSATION

 

 

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When determining how often to hold Say-on-Pay votes, the Board historically took into account the strong preference for an annual vote expressed by our shareholders at our 2011 annual meeting. At this annual meeting, shareholders will be asked to vote on their preferred voting frequency for future Say-on-Pay votes by choosing every year, every two years or every three years. See Proposal No. 4 — Advisory Vote on the Frequency of the Say-on-Pay Vote. The Board will determine the frequency of our future Say-on-Pay votes after taking into consideration the results of the vote on Proposal No. 4. In addition to obtaining shareholder feedback through the Say-on-Pay vote, our officers meet with large shareholders and review comments and letters from our shareholders.

At its meeting in September 2015, the Committee reviewed a presentation from our independent compensation consultant with respect to our Total Rewards program, shareholder Say-on-Pay voting results and trends in executive compensation. The Committee determined that our Total Rewards program is fundamentally sound, supports the needs of our business, is aligned with the trends in the market and, as demonstrated by our Say-on-Pay voting results, is strongly supported by our shareholders. As a result, at its December 2015 meeting, the Committee decided to retain our 2015 executive compensation philosophy, components, component mix, competitive positioning targets and many of our 2015 performance metrics for 2016 compensation. The shareholder vote in 2016 approving our 2015 compensation by a significant amount was further support for our decision not to make significant changes to executive compensation for 2016.

Compensation Changes for 2016

In 2015, Annual Incentive Plan (“AIP”) payouts to our NEOs were based on a Corporate scorecard, with the exception of one NEO whose award was based on a scorecard for our Government Business Division. The Corporate scorecard reflected our overall financial performance and was calculated based on the weighted average scorecard of all business unit scorecards. For 2016, the Committee implemented an executive leadership team balanced scorecard for our AIP for NEOs, with an 85% weighting for Adjusted EPS and 5% weightings for measures related to each of our three strategic pillars: consumer centricity, provider collaboration, and clinical performance (the “ELT balanced scorecard”). The three strategic pillars are described in more detail under “Elements of Total Rewards” below. The Committee believes the changes that it made to the AIP further strengthened our focus on financial results and aligned with our business strategy in 2016.

 

Anthem, Inc. 2017 Proxy Statement  |  29


Executive Compensation (continued)

 

 

 

The table below summarizes the compensation actions taken related to the current NEOs for 2016:

 

Named Executive Officer   Salary Increase
Percentage
  Target AIP Award Increase
as a Percent of Base Salary
 

Equity Awards (ASC Topic 718

Expense on Grant Dates)

 

2016 Earned AIP

(As a Percent of Target)(1)

Mr. Swedish(2)

  15.4%   25 points   $11,875,003   108.5%

Mr. Gallina(3)

  69.1%   40 points     $1,725,028   108.5%

Mr. Griffin(4)

    7.1%   No change     $3,000,008   108.5%

Mr. Haytaian(4)

    7.1%   No change     $3,000,008   108.5%

Ms. McCarthy(4)(5)

    0.0%   10 points     $2,500,017   108.5%

 

  (1) The earned award percentages for the AIP are in accordance with the ELT balanced scorecard results.

 

  (2) Compensation increases for Mr. Swedish were implemented to recognize his performance and to place his target pay closer to the median pay of CEOs in our comparator groups. 89% of his pay is tied to our performance. This is the first increase to salary or target AIP for Mr. Swedish since he joined the Company in March 2013.

 

  (3) Mr. Gallina’s compensation was increased due to his promotion to the EVP and CFO position. Mr. Gallina’s equity grant was based on five months as SVP and CFO, Commercial and Specialty Business Division, and seven months as our EVP and CFO.

 

  (4) Salary increases for Messrs. Griffin and Haytaian, and the target AIP adjustment for Ms. McCarthy, were based on performance and competitive market data.

 

  (5) The equity award for Ms. McCarthy included a $250,000 promotional award for assuming the role of Chief of Staff.

Changes in Executive Leadership

Wayne S. DeVeydt resigned from the Company in May 2016. Compensation information for Mr. DeVeydt is not included in the tables in this CD&A, but is included where required in the tables following this CD&A.

Compensation Program Objectives

Our Total Rewards program is designed to attract, engage, motivate and retain a talented team of executive officers, and to appropriately reward our executive officers for their contributions to our business and our members in a way that is closely aligned with the long-term interests of our shareholders. In order to achieve these objectives, we structure our compensation program in a manner that emphasizes the long-term performance of the Company by focusing on the Company’s purpose, vision and strategies, while delivering compensation that is commensurate with Company performance and the individual performance of our executives within the context of the external market.

Further, these objectives are extended beyond the executive ranks to include all associates and are intended to promote our culture and enhance teamwork and equitable treatment. To achieve these objectives, the Total Rewards program is designed to reward our associates when they create long-term value for our shareholders through sustained growth in our stock price and meeting or exceeding our annual financial plans, and to achieve our purpose, vision and strategies while operating within our values and behaviors.

 

 

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Executive Compensation (continued)

 

 

 

Pay-for-Performance Philosophy and Pay Mix

To align NEO interests and rewards with the long-term interests of our shareholders and to drive the achievement of our purpose and vision, our Total Rewards program emphasizes performance-based compensation in the form of our AIP and equity grant programs under the shareholder approved Incentive Compensation Plan (our “Incentive Plan”).

A significant portion of the compensation of each of our NEOs is delivered through performance-based programs. Most of the total target compensation opportunity available to our NEOs is in the form of variable performance-based pay that is tied to our business results.

 

 

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Elements of Total Rewards

Overview

Our 2016 Total Rewards program for our business leaders, including the NEOs, is comprised of the following financial elements:

 

  base salary;
  annual performance-based incentive awards under the AIP;
  equity awards in the form of performance stock units, time-based restricted stock units and stock options under the Incentive Plan;
  broad-based employee benefits; and
  executive benefits and perquisites.

Each year management sets the broad-based employee salary and benefits programs and budgets, and the Committee reviews and approves the executive merit salary increase budget, broad-based AIP design, measures and scales, equity awards plan, executive perquisites and executive stock ownership guidelines. The Committee bases these decisions on our business needs, best practice information, competitive market data and operating budget constraints.

The Committee reviews the business and individual performance of each executive officer and sets:

 

  the AIP award payouts for the prior year pursuant to the formulas previously established;
  prospective base salary adjustments;
  prospective adjustments to target AIP award percentages of base salary; and
  the size and type of equity awards granted to each executive officer.

Independent directors engage in a formal review process annually to evaluate the CEO’s individual performance on numerous factors, including: leadership, strategic planning, getting results, external and internal relations and inter-

 

Anthem, Inc. 2017 Proxy Statement  |  31


Executive Compensation (continued)

 

 

 

action with the Board. Directors are invited to speak directly with the Lead Director and the Chair of the Compensation Committee to provide individual feedback, and executive sessions are held at Board meetings throughout the year in which performance input from Board members is sought. The Committee’s 2016 compensation decisions were based on its evaluation of each executive’s performance (including performance assessments by the CEO for the other executive officers), as well as our 2015 and 2016 achievements, all of which reflect the NEOs’ individual performance. There is no formulaic or target-based assessment for such adjustments, but rather such determinations are based on the Committee’s subjective assessments after consideration of management recommendations, market-based compensation information and advice of the Committee’s independent compensation consultant. The assessments represent the Committee’s view of how the NEO’s performance contributed to our performance and achievements, as well as other leadership accomplishments, including the challenges associated with implementing health care reform.

These decisions are made as part of a unified process so that all components of pay are reviewed in concert with each other, and, as appropriate, decisions about one component can affect decisions regarding the other components of pay. This is intended to ensure that the Total Rewards package for the NEOs fits with our compensation objectives as described above. Additionally, individual performance is rewarded by providing executives with career growth through challenging assignments and, as positions become available, promotional opportunities.

The Committee does not have a specific target for allocating the amount of compensation among the pay elements (base salary, annual incentive and equity grants), but seeks to apply a higher weighting to performance-based variable pay than to fixed pay. In addition, the Committee has weighted the equity grants more heavily toward performance stock units than restricted stock units or stock options. Each NEO’s total compensation opportunity is targeted to the level the Committee considers market competitive and reflective of individual performance.

Primary Components of 2016 Target Compensation

(Data for “Other NEOs” is an Average for NEOs Employed as of December 31, 2016)

 

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   LOGO

AIP and LTIP percentages are based on achievement of an award equal to 100% of target.

When setting compensation for 2016, the Committee reviewed prior year compensation and compensation actions to compare year-over-year pay actions relative to year-over-year performance and internal equity factors (how the compensation of the particular executive relates to the other executives).

In February 2016, the Committee reviewed comprehensive tally sheets for each NEO, except Mr. Gallina, who became an executive officer later in the year, covering up to five years of Total Rewards data and realized equity, in addition to then current levels of unrealized vested and unvested equity. Tally sheets are only one of a number of information resources and tools made available to the Committee for its reference and use. Although tally sheets provide good background information for the Committee, the Committee did not base any specific awards for 2016 or any modifications to our compensation program on them. In 2016, the Committee did not take into account realized compensation in setting future compensation. The Committee does review unvested compensation in setting future compensation to determine its likely impact on retention of our executives.

Base Salary

Base salary provides competitive annual compensation that reflects the scope and nature of job responsibilities of our NEOs. The Committee grants merit-based salary increases to our NEOs based on the Committee’s assessment

 

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Executive Compensation (continued)

 

 

 

of an individual’s performance, whether the current salary is competitive compared to the median of the market relative to executives in comparable positions at comparator group companies, and our overall merit increase budget for the year. The Committee also grants promotional salary increases to recognize increased job responsibilities.

In March 2016, the Committee adjusted Mr. Swedish’s salary by $250,000, Mr. Griffin’s salary by $50,000 and Mr. Haytaian’s salary by $50,000 to better align their base salaries with competitive market data. In May 2016, the Committee increased Mr. Gallina’s salary to recognize his promotion to the EVP and CFO position. Base salaries for the NEOs employed with the Company as of December 31, 2016 are shown in the chart in the AIP section below.

AIP

Generally, all associates are eligible for performance-based incentives or sales incentives. The AIP is designed to motivate and reward the successful completion of our annual performance goals. AIP awards are earned to the extent we meet or exceed annual financial targets and business unit and individual performance goals.

For 2016, the Committee implemented the ELT balanced scorecard for the AIP for NEOs, with an 85% weighting for Adjusted EPS and 5% weightings for measures related to each of our three strategic pillars, namely, consumer centricity, provider collaboration, and clinical performance. The Committee believes these changes further strengthen our focus on financial results and align with our business strategy in 2016. Each performance measure has specific quantifiable objectives that the Committee considers and approves.

Each participating associate is eligible for a target award, denominated as a percentage of base salary paid during the year. Associates may earn from 0% of the target award under the AIP up to a maximum of 200% of the target award. In setting the target award percentages for the NEOs, the Committee considers competitive data in the comparator group studies (as described under “Determination of Compensation” beginning on page 38), individual performance evaluations and internal equity factors.

After consideration of the factors described above, the Committee decided in March 2016 to increase the target AIP award as a percentage of base salary for Mr. Swedish from 150% to 175% to better align his compensation with competitive market data, and for Ms. McCarthy from 90% to 100% of base salary to reflect her increased duties, both effective as of January 1, 2016. The Committee increased Mr. Gallina’s target AIP award from 60% to 100% of his base salary effective as of June 1, 2016, in connection with his promotion to the EVP and CFO position.

The Committee has the discretion to adjust AIP awards for individual performance or to reduce AIP awards when it determines that such adjustments or reductions would be appropriate based on the Company’s interests and the interests of our shareholders.

The following chart reflects the salary, target AIP percentage and dollar amounts, and total target cash for the NEOs as of December 31, 2016 as a result of the Committee’s actions during 2016. See the Summary Compensation Table for actual amounts earned by the NEOs in 2016.

 

Name      Year-End
Salary
     Target AIP (%)        Target AIP ($)       

Total Target

Cash ($)

 

Joseph R. Swedish

     $1,500,000        175      $ 2,625,000        $ 4,125,000  

John E. Gallina

     $   750,000        100      $ 750,000        $ 1,500,000  

Brian T. Griffin

     $   750,000        100      $ 750,000        $ 1,500,000  

Peter D. Haytaian

     $   750,000        100      $ 750,000        $ 1,500,000  

Gloria M. McCarthy

     $   700,000        100      $ 700,000        $ 1,400,000  

 

Anthem, Inc. 2017 Proxy Statement  |  33


Executive Compensation (continued)

 

 

 

2016 AIP Awards

2016 AIP awards were funded based on our Adjusted EPS performance in 2016. The funding scale was consistent with the Adjusted EPS goals established as part of our business planning process. After the aggregate funding for all AIP payouts is determined, awards are calculated for participants based on the results of various performance scorecards, with the opportunity for adjustments based on individual performance and contribution. The awards for our executive officers, including all NEOs, were based on the ELT scorecard result as set forth in the following table. For Adjusted EPS, Provider Collaboration and Clinical Performance, all NEOs could earn between 0% and 200% of target, and for Consumer Centricity, all NEOs could earn 0% or 100% of target for each of two metrics. The maximum total potential payment under the AIP is 200% of target. Additional discussion of the performance measures follows the chart below.

 

Performance Measure    Target    Actual    Score      Weighting      Total  

Adjusted EPS *

   $11.00    $11.00      92.6      85      78.7%  

Provider Collaboration

              

% of Anthem health care dollars
paid under value-based provider payment arrangements

   41.0%    43.4%      196      5      9.8%  

Clinical Performance

              

Realized savings from new clinical performance initiatives

   Specified
savings achieved
from new
initiatives
   Exceeded
Target
     200      5      10.0%  

Consumer Centricity

              

Net Promoter Score

 

Net Promoter Score relative to peer companies

   Improvement
over 2015
performance
       

 

100

 

100


 

     

Total Net Promoter Score

      Exceeded
Target
     200      5      10.0%  
              

 

 

 

Total Award for each

Named Executive Officer

 

 

     108.5%  

 

  * See page C-1 for the GAAP reconciliation table and information on Adjusted EPS.

Adjusted EPS was selected because it demonstrates whether the top-line growth was profitable and is a primary measure considered by many of our shareholders in assessing our ongoing performance. In addition, earnings-based measures are the most prevalent performance measure used by our direct peers.

Provider Collaboration is a focus on our relationship with providers to promote value, quality and accountability in the health care system. Our provider solutions goals are to create more consistency and less duplication in our administrative processes and policies, streamline our service models, and improve relationship management with providers to resolve questions and issues timely and clearly. The primary measure of our efforts under this pillar is the percentage of health care dollars paid out under value-based provider payment arrangements.

Clinical Performance is a focus on affordability and reducing waste in health care, while improving the quality of health care. We strive to look at members holistically and promote access to the best care available. Some of the areas in which we focus our attention include contracting consistency, competitive prescription drug pricing and availability, prevention and wellness programs and fraud abuse detection and prevention. The primary measure of this effort is realized savings from our Clinical Performance initiatives.

Consumer Centricity is a focus on the consumer. We want to deliver a consumer experience that is caring, simple, intuitive and gives consumers confidence in their health care benefits and us. One way we measure this commitment is the Net Promoter Score (“NPS”) which is an index ranging from -100 to 100 that measures the willingness of customers to recommend a company to others. It is used as a proxy for gauging the customer’s overall satisfaction with a company’s product or service, the customer’s loyalty to the brand and the customer’s economic behavior. We measure NPS both at the Company, and as compared to our peers. The NPS relative to peer companies is the difference between our NPS and the NPS average of Aetna Inc., Cigna Corporation, Humana Inc., and UnitedHealth Group Incorporated.

 

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Executive Compensation (continued)

 

 

 

The amounts paid to our NEOs for 2016 performance were approved by the Committee on March 1, 2017 and are set forth in the Summary Compensation Table on page 44. The Committee did not adjust any 2016 AIP awards for individual performance or use its discretion to reduce any 2016 AIP awards.

Historical AIP Awards

AIP Awards earned as a percent of target from 2012 to 2016 for all NEOs still serving as of December 31 in the respective year indicated are shown in the table below. The variation in the average award percentage during the five-year period shown reflects that AIP payouts are aligned with performance during those years.

EARNED AIP AWARDS AS A PERCENT

OF TARGET FROM 2012 — 2016

AVERAGE AWARD FOR ALL NEOs

 

 

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Equity Awards

The Committee granted regular equity awards to the NEOs on March 1, 2016 to coincide with the Committee’s Total Rewards review of our NEOs’ compensation. The date of the Committee meeting is set in advance and is the first business day of March every year. All of these awards were granted to encourage retention, reward performance, promote a long-term business focus and align the interests of associates and shareholders.

For 2016, the Committee retained the equity award structure mix for our executives, including our NEOs. One half of the total award continues to be structured as performance stock units, and one-quarter of the total awards are delivered in stock options and in restricted stock units. The weightings below are based on the grant date fair value, calculated in accordance with ASC Topic 718.

 

 

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Executive Compensation (continued)

 

 

 

Performance Stock Units — Measures, Vesting Schedule and Dividend Equivalents

Prior to 2015, our performance stock awards were based on one year’s performance and paid over three years. In 2015, the Committee changed the performance stock unit awards to be based on three-year cumulative Adjusted EPS and three-year cumulative operating revenue, defined as the total of premiums, administrative fees and other revenue (“Operating Revenue”). The purpose of this change was to better align rewards with our stated long-term strategy, and to balance compensation based upon both short-term and long-term results. Operating Revenue was selected as a measure of growth and success in the marketplace. Adjusted EPS was selected because it demonstrates whether the top-line growth was profitable and is a primary measure considered by many of our shareholders in assessing our ongoing performance. In addition, earnings-based measures are the most prevalent performance measure used by our direct peers.

Our long term growth plan includes organic growth, and the use of free operating cash flow for financing activities, dividends, and acquisitions. Consequently, the impact of acquisitions to Operating Revenue and Adjusted EPS is included unless the Committee determines that this would result in an undue windfall to participants. The Committee defines a set of adjustments to consider when evaluating performance and has the discretion to make adjustments as necessary to reflect management’s core operational performance.

We continued this three-year performance period approach for the 2016 grant, as follows:

 

Measure    Weighting  

Adjusted Earnings Per Share

•    2016-2018 Cumulative Adjusted EPS(1)

     75

Operating Revenue

•    2016-2018 Cumulative Operating Revenue

     25

 

  (1)  Please see Annex C to this proxy statement for the GAAP reconciliation for Adjusted EPS for the year ended December 31, 2016.

The payout scale for each measure detailed above provided for a minimum award of 0% of the units granted and a maximum award of 200% of the units granted. The targets for each of these measures were developed based on our 2014-2018 long-term plan, which was communicated to the investment community during March 2014.

We intend to provide disclosure of the performance of the 2015 performance stock unit awards (2015-2017 performance period) in the 2018 proxy, after the completion of our first three-year performance period. The resulting shares from the 2015-2017 grants will be earned and vest on March 2, 2018. Similarly, we intend to disclose results of the performance stock unit awards in subsequent proxy statements when grants are earned and vest for completed performance periods.

2016 Time-Based Restricted Stock Unit Vesting Schedule and Dividend Equivalents

The restricted stock units granted are subject to time-based vesting. The restricted stock units vest in three equal annual installments, beginning on the first anniversary of the grant date.

Restricted stock units accrue cash dividend equivalents equal to the cash dividends paid to shareholders during the vesting period. These cash payments are distributed with the underlying shares to the participants upon vesting, and are cancelled if the underlying units do not vest.

Stock Options

The stock option exercise price is the closing price of our common stock on the NYSE on each grant date. Stock options gain value when our stock price rises over the exercise price. The term of all stock options granted during 2016 was ten years, with vesting in six equal semi-annual installments over the first three years. In 2015, we extended the stock option term from seven years to ten years to conform to common competitive practices.

The purpose of providing vesting every six months is to stagger inducements for remaining with the Company over the course of any year. More specifically, incumbents must generally be employed on December 31st of each year to be eligible to receive their AIP and then must be employed on March 1st and September 1st of each year for their stock option grants to vest.

 

36  |  Anthem, Inc. 2017 Proxy Statement


Executive Compensation (continued)

 

 

 

Aggregate and Individual Grant Sizes

When determining the aggregate size of our equity awards, the Committee considers the impact of stock-based compensation expense and the share dilution run rate, in order to strike a balance between promoting our cost competitiveness and maintaining employee incentives at market-competitive levels.

The size or amount of equity awards granted to each NEO is based upon position and job level, Company and individual performance, the importance of retaining the services of the executive and the potential for his or her performance to help us attain our long-term goals.

Broad-Based Employee Benefits

Our NEOs generally participate in the broad-based employee benefits programs under the same terms and conditions as other associates. These benefit offerings include a medical plan with higher associate contributions for more highly compensated associates such that in 2016, NEOs paid in excess of 50% of the cost of the coverage, as compared with entry level associates who generally paid between 5% and 25% of the cost of their coverage. Other broad-based employee benefits include a dental plan, disability benefits, wellness benefits, life and accidental death and dismemberment insurance, business travel accident insurance, the Anthem 401(k) Retirement Savings Plan (the “401(k) Plan”), retiree health care benefits and a cash balance pension plan for associates who meet age and service criteria, adoption assistance benefits and paid time off for holidays, vacations, illnesses, bereavement leave, jury duty and military service.

Executive Benefits

Executives, including the NEOs, participate in a deferred compensation program that is subject to Section 409A of the Tax Code. Under this program, described on page 57, a participant may defer receipt of salary and AIP and continue to receive pension and 401(k) Plan credits for compensation above Tax Code earnings limits. We offer this program to provide executives with the same Company-paid retirement savings opportunities, denominated as a percent of eligible earnings, as the rest of the workforce, and under the same terms and conditions as the underlying all-associate plans. Participants choose among a subset of the market-based investments provided to all associates in the 401(k) Plan, and their account balances increase or decrease in accordance with the performance of the selected investments.

Perquisites

Executive perquisites are a small part of our competitive executive compensation package. The Committee believes that our perquisite program enables our executive officers to focus on our business with minimal disruption. As described on page 45 in this proxy statement, we offer a limited set of perquisites to all NEOs and certain enhanced safety and security benefits to our CEO.

Tax Treatment of Compensation

The Patient Protection and Affordable Care Act amended the Tax Code to add Section 162(m)(6), which limits the amount that certain health care insurers, including the Company, may deduct for tax years starting after 2012. Section 162(m)(6) limits the tax deduction to $500,000 per individual, and makes no exception for performance-based compensation or commissions. In addition, the limit applies to 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 rule became effective for employer tax years beginning after December 31, 2012. Consequently, the Company is limited to a $500,000 deduction for compensation paid to each NEO in 2016.

Section 162(m)(1) of the Tax Code limits the amount a publicly-held corporation may deduct for compensation paid to the CEO and certain NEOs to $1 million per year per executive, makes an exception for performance-based compensation and commissions, and excludes the compensation paid to former covered executives once they are no longer covered. Since the Company is subject to Section 162(m)(6), the performance-based exclusion available under Section 162(m)(1) is not available to the Company.

Section 409A of the Tax Code provides certain requirements for deferred compensation arrangements. Those requirements, among other things, limit flexibility with respect to the time and form of payment of deferred

 

Anthem, Inc. 2017 Proxy Statement  |  37


Executive Compensation (continued)

 

 

 

compensation. If a payment or award constitutes deferred compensation subject to Section 409A and the applicable requirements are not satisfied, the recipient could be subject to tax on the award and all other deferred compensation of the same type, and an additional 20% tax and interest at the underpayment rate plus 1%, at the time the legally binding right to the payment or award arises or, if later, when that right ceases to be subject to a substantial risk of forfeiture. Payments or awards under our plans and arrangements either are intended to not constitute “deferred compensation” for Section 409A purposes (and would thereby be exempt from Section 409A’s requirements) or, if they constitute “deferred compensation,” are intended to comply with the Section 409A statutory provisions and final regulations.

Determination of Compensation

Role of the Compensation Consultant

In May 2010, the Committee selected Semler Brossy Consulting Group, LLC (“Semler Brossy”) to act as its independent compensation consultant. The consultant reports directly to the Committee. The consultant reviews information provided to the Committee by management, develops its own recommendations with respect to CEO compensation decisions and provides advice to the Committee on the compensation decisions affecting all executive officers, including the other NEOs. The consultant regularly attends and participates in Committee meetings and reports on compensation trends and best practices, plan design and the reasonableness of individual compensation awards. The consultant meets with the Committee and/or its members without management present. The consultant also has informal conversations with members of the Committee to determine compensation objectives. The consultant provides expert advice and guidance on the design and implementation of performance-based compensation programs that align with Company strategy, business and market characteristics, talent requirements, culture, management style and performance and Total Rewards strategies. The Committee uses the consultant’s recommendations as one of several factors in designing our executive compensation programs, reviewing and approving annual and long-term incentive plans and metrics, and making the compensation decisions affecting the CEO and other NEOs.

Compensation Consultant Independence

Semler Brossy does not provide any services to us other than those detailed above. At our February 2016 and February 2017 meetings, the Committee determined that no conflicts of interest exist with respect to Semler Brossy continuing to serve as an advisor to the Committee. In making this determination, the Committee considered various factors, including those set forth in the SEC’s and NYSE’s rules. Among other items, the Committee reviewed Semler Brossy’s policy on Consultant Independence, and certifications made by each of our executive officers and directors that he or she did not have a business or personal relationship with Semler Brossy or any of the individuals at Semler Brossy working on our engagement.

Role of Management

In general, the Committee meets with our CEO at the beginning of each year to agree upon the CEO’s performance objectives (both individual and Company) for the year. The Board also reviews these performance objectives. At the beginning of the following year, the CEO provides to the Committee his self-assessment, and the Committee evaluates the CEO’s performance based on his self-assessment and performance updates. The Committee meets in executive session to review the performance of the CEO based on his achievement of the agreed-upon objectives, contribution to our performance and other leadership accomplishments. The results of the evaluation by the Committee are an important metric in evaluating CEO performance. This evaluation is shared with the CEO and the compensation consultant and is used by the Committee in setting the CEO’s compensation.

Our CEO and our other executive officers do not set their own compensation nor are they present when the Committee sets their specific individual compensation. Our CEO collects specific feedback from the Board with respect to the performance of our other executive officers, including our NEOs, provides his own evaluations of the other executive officers’ performance to the Committee, and makes recommendations with respect to base salary and target AIP adjustments, AIP awards and equity awards for each executive officer. This recommendation is considered by the Committee, which makes its own ultimate determinations.

 

38  |  Anthem, Inc. 2017 Proxy Statement


Executive Compensation (continued)

 

 

 

All NEOs participate in the annual and long-term business planning processes and in recommending to the Committee the AIP and performance stock unit measures and targets that result from these processes. These measures and targets impact the compensation of the associates who participate in our AIP and who are granted performance stock units.

Pay Positioning and Comparator Groups

The Committee has designed our executive compensation program to target total compensation (salary plus target AIP award plus long-term equity grant cost on the date of grant) at the median for comparable positions in our comparator groups. Individuals new to their roles may be paid below median. High performing individuals who demonstrate superior performance over a long period of time may have pay positioned above the median of the compensation paid by the companies in the comparator groups.

In setting compensation, the Committee compares base salaries, annual incentive opportunities and long-term compensation for the NEOs to two distinct comparator groups. The first group includes our six largest direct health insurance competitors. The second group represents a sample of 37 similarly-sized companies from general industry based on earnings before income tax (“EBIT Group”), with a filter for market capitalization. The Committee uses two groups because many of our direct industry competitors are substantially smaller than us. The Committee determines which companies should be in the comparator groups with the assistance of Semler Brossy.

Companies are selected on the basis of whether they compete with us in the executive labor market and whether they had comparable revenue in the prior full fiscal year. The Committee, with the assistance of Semler Brossy, set the comparator groups for 2016 as follows:

 

(1) Our six largest direct health insurance peers, five of which are significantly smaller than we are:

 

•   Aetna Inc.

  

•   Health Net, Inc.

•   Cigna Corporation

  

•   Humana Inc.

•   Centene Corporation

  

•   UnitedHealth Group Incorporated

In 2015, we entered into a definitive agreement to acquire Cigna, and Centene Corporation entered into a definitive agreement to acquire Health Net, Inc. For 2017, Health Net, Inc. will be removed from the health insurance peer group as a result of their acquisition by Centene Corporation. If we acquire Cigna, Cigna will also be removed from the health insurance peer group.

 

(2) EBIT Group:

 

American International Group, Inc.    Halliburton Company
21st Century Fox America, Inc.    HCA Holdings, Inc.
Abbott Laboratories    HP Inc.
Accenture plc    Honeywell International Inc.
Aflac Incorporated    Lockheed Martin Corporation
The Allstate Corporation    Lowe’s Companies, Inc.
American Express Company    LyondellBasell Industries N.V.
BlackRock Inc.    Marathon Petroleum Corporation
Capital One Financial Corporation    MetLife, Inc.
Caterpillar Inc.    Occidental Petroleum Corporation
Colgate-Palmolive Company    The PNC Financial Services Group, Inc.
ConocoPhillips    The Southern Company
Deere & Company    Target Corporation
Delta Air Lines, Inc.    Time Warner Inc.
The Dow Chemical Company    Time Warner Cable
Duke Energy Corporation    Travelers Companies, Inc.
Express Scripts Holding Company    U.S. Bancorp Investments, Inc.
Ford Motor Company    Valero Energy Corporation
General Motors Company   

 

Anthem, Inc. 2017 Proxy Statement  |  39


Executive Compensation (continued)

 

 

 

For purposes of pay comparisons, target total compensation for our NEOs includes annualized base salary as of April 1, 2016, target 2016 AIP award amounts, and the ASC Topic 718 expense of 2016 equity awards.

The Committee reviewed each NEO’s target total compensation package, compared to both our direct peers and the broader EBIT group using available pay data. When setting 2016 compensation, the Committee focused on trying to set pay levels, in the aggregate, within a competitive range around the median for the EBIT group. Some roles may be higher or lower in the competitive range based on performance, tenure in role, or other internal considerations. For example, Mr. Gallina’s 2016 target total compensation package was below the median due to his short tenure as CFO in 2016.

In setting 2016 compensation, the Committee reviewed the available data from each of these comparator groups to better understand the practices of companies in our size category and our direct peers. Where possible, the data that was used to make compensation decisions in March 2016 was taken from surveys of 2015 compensation of our comparator groups prepared by third-party survey companies and from the latest annual proxy statements and other public filings of these companies. In instances where a company listed above did not participate in the surveys or pay data was not available for a comparable position, the company was not included in the comparator group data for that position. In instances where our positions are structured in ways that do not match well with survey positions, the Committee compares based on target annual compensation pay rank, instead of role, as reported in the surveys.

We draw competitive compensation information from a number of nationally recognized surveys, as well as public filings and disclosures, to determine pay practices and levels of peers. The Committee’s consultant either reviews or develops this information for the benefit of the Committee.

Competitive market data is only one of several resources made available to the Committee to assist it in setting executive compensation levels. The Committee does not use the median described above as a formula to determine compensation or as a fixed target.

The Committee establishes an individual target opportunity for each NEO based on the Committee’s evaluation of the executive’s experience, level and scope of responsibility and individual performance. Actual cash compensation may be more or less than the target opportunity as a result of performance under the AIP. Realized compensation from our equity-based awards may be more or less than the target opportunity as a result of our performance relative to the performance stock unit measures and our stock price performance.

The Committee reviews actual base salaries, as well as target and actual prior year annual incentive awards to compare total target and actual cash compensation. The Committee also reviews actual ASC Topic 718 expense of the equity grants as the metric comparing long-term compensation with comparable positions, as well as the value of unvested equity awards held by the NEOs.

Benefits and perquisites represent a small proportion of the Total Rewards program for our NEOs.

 

40  |  Anthem, Inc. 2017 Proxy Statement


Executive Compensation (continued)

 

 

 

Additional Compensation Policies

Stock Ownership Guidelines and Holding Requirements

We have stock ownership guidelines for all executive officers, including the NEOs, which is a multiple of the executive’s base salary. An executive has five years to meet the guideline, and the sale of our stock is restricted for executives who have not met their ownership requirements. The stock ownership guideline is five (5) times base salary for the CEO, and three (3) times base salary for the other NEOs. For the purposes of this program, all shares directly owned, unvested restricted stock units and unvested earned performance stock units are included in the calculation. Unexercised stock options are not included in the calculation. The Committee reviews the extent to which our executive officers have complied with the guidelines. Our NEOs each owned sufficient shares to meet his or her ownership guidelines as of year-end, based on the closing stock price of $143.77 on December 30, 2016.

 

Named Executive Officer      Number of
Shares
Beneficially
Owned
       Value of Shares
Beneficially
Owned
      

Current Base

Salary

      

Required

Holding

      

Excess

Holding

    

Actual

Ownership as a
Multiple of
Base Salary

 

Mr. Swedish

       71,034        $ 10,212,558        $ 1,500,000        $ 7,500,000        $ 2,712,558        6.8X  

Mr. Gallina

       19,128        $ 2,750,033        $ 750,000        $ 2,250,000        $ 500,033        3.7X  

Mr. Griffin

       48,377        $ 6,955,161        $ 750,000        $ 2,250,000        $ 4,705,161        9.3X  

Mr. Haytaian

       45,765        $ 6,579,634        $ 750,000        $ 2,250,000        $ 4,329,634        8.8X  

Ms. McCarthy

       45,749        $ 6,577,334        $ 700,000        $ 2,100,000        $ 4,477,334        9.4X  

See “Compensation of Non-Employee Directors — Board Equity Compensation and Stock Ownership Guidelines” on page 12 for a discussion of our directors’ stock ownership requirements.

Restrictions on Hedging and Pledging

All associates, including our NEOs, are prohibited from conducting any transactions that would permit the individual to continue to own our stock without the full risks and rewards of ownership. Prohibited transactions include short sales, publicly traded options transactions, hedging transactions, including zero cost collars and prepaid forward contracts, and margin accounts and pledges involving our stock. Designated associates, including all NEOs, are also prohibited from engaging in transactions in our stock during the quarterly period commencing on the fifteenth day of the last month of each calendar quarter and ending one full business day after the release of quarterly earnings.

Recoupment Policy

We operate under a clawback/recoupment policy for incentive compensation. This policy provides that if we are required to restate our financial statements as a result of material noncompliance with a financial reporting requirement due to misconduct, the CEO, CFO and all other Section 16 officers (our executive officers and the Chief Accounting Officer) must repay any bonus or other incentive-based or equity-based compensation received during the 12 months after the inaccurate reporting, and any profits realized from the sale of stock during that 12-month period. The Board of Directors will determine, on a case by case basis, if it is in the best interest of the Company and our shareholders to pursue recoupment in individual cases.

Severance and Change in Control Arrangements

All of our NEOs are eligible for severance benefits pursuant to the Executive Agreement Plan as described beginning on page 59. We believe that a severance program is needed to attract and retain the executives that we need to achieve our business goals.

To be eligible for these benefits, executives generally agree to restrictive covenants including non-competition, non-solicitation of associates or customers, non-disparagement and confidentiality provisions, which protect us from the competitive disadvantage that would result from losing executive talent to competitors. Additionally, in order to receive benefits, executives are generally required to release any prior claims against us.

 

Anthem, Inc. 2017 Proxy Statement  |  41


Executive Compensation (continued)

 

 

 

Change in control severance benefits are subject to a double-trigger, which means that to receive such benefits there must be both: (1) a qualifying termination of employment and (2) termination occurring when a change of control is imminent or has occurred as detailed in the Executive Agreement Plan described above and in “Compensation Plans — Executive Severance Arrangements.” The Executive Agreement Plan does not provide for tax gross-up of any regular or excise taxes imposed on severance payments in connection with a change in control pursuant to Section 4999 of the Tax Code.

Compensation Committee Report

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management. Based on the review and discussions with management, the Compensation Committee has recommended to the Board that the Compensation Discussion and Analysis be included in this proxy statement and in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.

 

     Compensation Committee  
    

Lewis Hay, III, Chairperson

Robert L. Dixon, Jr.

William J. Ryan

George A. Schaefer, Jr.

Elizabeth E. Tallett

 

 

42  |  Anthem, Inc. 2017 Proxy Statement


Executive Compensation (continued)

 

 

 

Assessment of Compensation-Related Risks

In February 2017, several members of our management team, including our Chief Accounting Officer and our Chief Risk Officer, conducted an assessment of the risks related to or arising from our compensation policies and practices. In preparation for this assessment and in light of recent events at other large organizations, we conducted a random sample survey of quarterly incentive plan and sales incentive plan participants to ensure our plans incentivize the right behaviors. We also reviewed exit interview data and Company-initiated termination data to determine whether such actions were related to compensation policies, programs, and incentives. In both of these studies, we found no material risks.

This data was reviewed and discussed by the management group described above, along with the various design features and performance metrics of our Company-wide compensation policies and programs. This group also reviewed the approval mechanisms of all Total Rewards programs for all associates, including salaries, incentive plans, sales incentives, stock options, performance stock units and restricted stock units, to determine whether any of these policies or programs could create risks that are reasonably likely to have a material adverse effect on the Company. In its review and assessment, the team took into consideration the elements of our Total Rewards program for our senior executives, including the performance measures used for the AIP, performance stock unit awards and other incentive compensation arrangements, and the elements of our compensation programs for our other employees.

In March 2017, the Compensation Committee reviewed and discussed the management team’s risk assessment. As part of its review, the Compensation Committee also noted the following factors that reduce the likelihood of excessive risk-taking by executives:

 

  Our overall compensation levels are competitive with the market.

 

  Our compensation mix is balanced among (i) fixed components like salary and benefits, (ii) annual incentives that reward total Company financial performance, business unit financial performance and individual performance, and (iii) a portfolio approach for stock awards with a balance among stock options, performance stock units and time-based restricted stock units.

 

  We retained the three-year measurement period for our performance stock unit grants to balance compensation based on short- and long-term results. Having a mix of short- and long-term goals allows us to better align our compensation program with the interests of our shareholders.

 

  A significant portion of our executive compensation is tied to how our stock price performs over a period of multiple years. Equity-based awards generally vest over three years and stock options have terms of ten years starting in 2015. This minimizes the benefit of a temporary spike in stock price.

 

  Our recoupment policy covers all of our executive officers subject to Section 16 of the Exchange Act.

 

  The Compensation Committee has discretion to reduce performance-based awards when it determines that such adjustments would be appropriate based on our interests and the interests of our shareholders.

 

  Incentive programs use financial measures with sliding scales, with amounts interpolated for awards between $0, target and maximum. Awards are capped for all annual incentives and performance stock units.

 

  Payouts, if applicable, for the AIP and performance stock units are based on results audited by the Internal Audit department.

 

  Executive officers are subject to Stock Ownership Guidelines, holding requirements and our prohibition on hedging, pledging stock and short sales.

Based on its review and discussion of the assessment, the Compensation Committee determined that any risks arising from our compensation policies and practices for our employees are not reasonably likely to have a material adverse effect on the Company.

 

Anthem, Inc. 2017 Proxy Statement  |  43


Executive Compensation (continued)

 

 

 

Summary Compensation Table

The following table sets forth the compensation paid to or earned by each of our NEOs for the years ended December 31, 2016, and where applicable, December 31, 2015 and December 31, 2014.

 

Name & Principal Position   Year    

Salary

($)(1)

   

Bonus

($)

   

Stock

Awards ($)(2)

    Option
Awards ($)
(3)
    Non-Equity
Incentive
Plan
Compensation
($)
(4)
   

Change in
Pension

Value and
Nonqualified
Deferred
Compensation
Earnings

($)(5)

    All Other
Compensation
($)
(6)
   

Total

($)

 

Joseph R. Swedish

Chair, President and Chief Executive Officer

   

2016

2015

2014

 

 

 

  $

$

$

1,451,923

1,298,077

1,250,000

 

 

 

  $

$

$

0

0

0

 

 

 

  $

$

$

8,906,253

7,800,073

7,500,081

 

 

 

  $

$

$

2,968,750

2,599,957

2,499,931

 

 

 

   

$2,756,331

$1,668,678

$2,141,625

 

 

 

   

$           0

$           0

$           0

 

 

 

   

$372,440

$237,896

$140,912

 

 

 

  $

$

$

16,455,697

13,604,681

13,532,549

 

 

 

John E. Gallina

EVP and Chief Financial Officer

    2016     $ 623,918     $ 0     $ 1,293,813     $ 431,215       $   601,511       $    4,429       $  69,123     $ 3,024,009  

Brian T. Griffin

EVP and President, Commercial and Specialty Business Division

    2016     $ 740,368     $ 0     $ 2,250,090     $ 749,918       $   803,152       $           0       $  30,000     $ 4,573,528  

Peter D. Haytaian

EVP and President, Government Business Division

   

2016

2015

2014

 

 

 

  $

$

$

740,371

703,848

547,569

 

 

 

  $

$

$

0

0

0

 

 

 

  $

$

$

2,250,090

2,250,086

1,500,074

 

 

 

  $

$

$

749,918

749,943

500,007

 

 

 

   

$   803,154

$   998,760

$   876,452

 

 

 

   

$           0

$           0

$           0

 

 

 

   

$  40,600

$  40,600

$  32,900

 

 

 

  $

$

$

4,584,133

4,743,237

3,457,002

 

 

 

Gloria M. McCarthy

EVP, Chief Administrative Officer and Chief of Staff

   

2016

2015

2014

 

 

 

  $

$

$

699,999

721,154

666,926

 

 

 

  $

$

$

0

0

0

 

 

 

  $

$

$

1,875,112

1,687,638

1,687,554

 

 

 

  $

$

$

624,905

562,365

562,452

 

 

 

   

$   759,359

$   556,226

$   685,587

 

 

 

   

$142,838

$105,931

$188,270

 

 

 

   

$130,299

$141,985

$151,243

 

 

 

  $

$

$

4,232,512

3,775,299

3,942,032

 

 

 

Wayne S. DeVeydt(7)

Former EVP and Chief Financial Officer

   

2016

2015

2014

 

 

 

  $

$

$

344,614

819,229

750,002

 

 

 

  $

$

$

0

0

0

 

 

 

  $

$

$

2,625,060

2,437,569

2,437,508

 

 

 

  $

$

$

874,966

812,447

812,510

 

 

 

   

$              0

$   702,079

$   856,653

 

 

 

   

$           0

$           0

$           0

 

 

 

   

$101,354

$104,891

$114,691

 

 

 

  $

$

$

3,945,994

4,876,215

4,971,364

 

 

 

 

  (1) In a typical year, such as 2016 and 2014, our employees are paid on a bi-weekly 26 pay period schedule. 2015 included an extra pay period, resulting in salaries approximately 3.8% higher than in a typical year.

 

  (2) The amounts in the “Stock Awards” column reflect the grant date fair value of stock awards issued during the respective fiscal years pursuant to our Incentive Plan (except disregarding the estimated forfeitures related to service-based vesting conditions) in accordance with ASC Topic 718. The grant date fair value of any performance-based awards was computed based on the level of performance that was deemed probable on the grant date. Dividend equivalents on the stock awards are factored into the grant date fair value.

 

       The amounts in the “Stock Awards” column include the grant date fair values for time-based restricted stock units and performance stock units. The grant date fair value for the performance stock units was computed based on the target level of performance being achieved. The table below sets forth the grant date fair value of the restricted stock units granted in 2016 and the performance stock units granted in 2016 at the target level of performance and the maximum level of performance.

 

Name    Restricted Stock
Units Granted
     Performance
Stock
Units – Target
    

Performance
Stock

Units – Maximum

 

Joseph R. Swedish

     $2,968,795        $5,937,458        $11,874,916  

John E. Gallina

     $   431,403        $   862,410        $  1,724,820  

Brian T. Griffin

     $   750,074        $1,500,016        $  3,000,032  

Peter D. Haytaian

     $   750,074        $1,500,016        $  3,000,032  

Gloria M. McCarthy

     $   625,078        $1,250,034        $  2,500,068  

Wayne S. DeVeydt

     $   875,020        $1,750,040        $  3,500,080  

 

  (3)  The amounts in the “Option Awards” column reflect the grant date fair value of stock option awards issued during the respective fiscal years pursuant to our Incentive Plan (except disregarding the estimated forfeitures related to service-based vesting conditions) in accordance with ASC Topic 718.

 

44  |  Anthem, Inc. 2017 Proxy Statement


Executive Compensation (continued)

 

 

 

 

       The assumptions used in the calculation of the grant date fair value of the options were as follows:

 

      Dividend Yield     Volatility     Expected Life      Risk-Free
Interest Rate
 

2016

     2.00     32.00     4.1 years        1.76

2015

     1.70     31.00     3.9 years        1.96

2014

     2.00     35.00     3.8 years        2.16

 

  (4) The amounts in the “Non-Equity Incentive Plan Compensation” column represent cash AIP awards earned during the reported year, but paid in the following year. Based on Company performance, the awards earned as a percentage of their respective target awards for 2016 (and paid in 2017) were 108.5% for each of Mr. Swedish, Mr. Gallina, Mr. Griffin, Mr. Haytaian, and Ms. McCarthy. Mr. DeVeydt resigned from the Company in May 2016, so he was not eligible for an award under the terms of the plan.

 

  (5) The amounts in the “Change in Pension Value and Nonqualified Deferred Compensation Earnings” column reflect the increase in the actuarial present value of the NEO’s benefits under all pension plans established by us between such pension plans’ applicable measurement dates used for financial statement reporting purposes with respect to our audited financial statements. These amounts were determined using discount rate, lump sum interest rate, post-retirement mortality rate and payment distribution assumptions consistent with those used in our financial statements and include amounts which the NEOs may not currently be entitled to receive because such amounts are not vested. We do not provide any above market returns on deferred compensation, so no deferred compensation earnings are included.

 

  (6) The amounts in the “All Other Compensation” column for 2016 include:

 

    tax equalization payments of $16,374, $8,264 and $30,986 for Messrs. Swedish, Gallina and DeVeydt, respectively, to reimburse them for the additional nonresident state income taxes owed outside their home states for time worked in other states, and to offset the increased tax liability to the executives as a result of the state income tax reimbursements;
    $1,235 for the cost of an executive physical for Mr. Gallina;
    a supplemental pension benefit contribution to the Deferred Compensation Plan for Ms. McCarthy in the amount of $49,561 in addition to the deferred compensation match shown in the table below;
    $15,385 in earned but unused paid time off benefits paid to Mr. DeVeydt upon his resignation from the Company; and
    cash as part of the Anthem Directed Executive Compensation Plan (“DEC”), as described under “Compensation Plans — Anthem Directed Executive Compensation Plan” and matching contributions made by us under the applicable 401(k) Plan and Deferred Compensation Plan in 2016 as follows:

 

Name    DEC
Cash
     401(k) Match      Deferred Comp Match  

Joseph R. Swedish

   $ 54,000        $10,600        $114,224  

John E. Gallina

   $ 21,000      $10,600        $  28,024  

Brian T. Griffin

   $ 30,000        $         0        $           0  

Peter D. Haytaian

   $ 30,000        $10,600        $           0  

Gloria M. McCarthy

   $ 30,000        $10,600        $  40,138  

Wayne S. DeVeydt

   $ 12,500      $10,600        $  31,883  

 

  * Mr. DeVeydt’s DEC Cash amount reflects working five months during 2016. Mr. Gallina’s DEC Cash amount reflects his promotion in June 2016.

 

       In addition to the perquisites and benefits described above, the amounts in this column include the following items received by Mr. Swedish in 2016:

 

    a $10,000 matching charitable contribution made by the Anthem Foundation pursuant to the Directors’ Matching Gift Program;
    personal security benefits of $4,394; and
    $162,848 for the net aggregate incremental cost to us related to corporate aircraft usage in 2016. The incremental cost for the use of corporate aircraft is calculated based on the variable operating costs, including cost per flight hour, fuel charges, catering and landing fees, and does not include fixed operating costs such as management and lease fees. In each case, the travel undertaken by Mr. Swedish was business related, but originated or terminated at a personal location.

 

  (7)  Mr. DeVeydt resigned from the Company effective May 31, 2016.

 

Anthem, Inc. 2017 Proxy Statement  |  45


Executive Compensation (continued)

 

 

 

Grants of Plan Based Awards

 

         

 

Estimated Future Payouts Under Non-
Equity Incentive Plan Awards ($)
(1)

    Estimated Future Payouts Under
Equity Incentive Plan Awards (#)
    All Other
Stock
Awards:

# of
Shares of
Stock or
Units (#)
    All Other
Option
Awards:

# of
Securities
Underlying
Options (#)
    Exercise
Price of
Option
Awards
($/Share)
(2)
    Grant Date
Fair Value
of Stock
and Option
Awards
(3)
 
Name   Grant Date     Threshold     Target     Maximum     Threshold     Target     Maximum          

Joseph R. Swedish

    $ 0     $ 2,540,865     $ 5,081,731                
    3/1/2016 (4)            0       45,049       90,098           $ 5,937,458  
    3/1/2016 (5)                  22,525         $ 2,968,795  
    3/1/2016 (6)                    96,388     $ 131.80     $ 2,968,750  

John E. Gallina

    $ 0     $    554,490     $ 1,108,980                
    3/1/2016 (4)            0       2,750       5,500           $ 362,450  
    3/1/2016 (5)                  1,376         $ 181,357  
    3/1/0216 (6)                    5,883     $ 131.80     $ 181,196  
    6/1/2016 (4)            0       3,773       7,546           $ 499,960  
    6/1/2016 (7)                  1,887         $ 250,046  
    6/1/2016 (8)                    8,074     $ 132.51     $ 250,019  

Brian T. Griffin

    $ 0     $    740,368     $ 1,480,737                
    3/1/2016 (4)            0       11,381       22,762           $ 1,500,016  
    3/1/2016 (5)                  5,691         $ 750,074  
    3/1/2016 (6)                    24,348     $ 131.80     $ 749,918  

Peter D. Haytaian

    $ 0     $    740,371     $ 1,480,741                
    3/1/2016 (4)            0       11,381       22,762           $ 1,500,016  
    3/1/2016 (5)                  5,691         $ 750,074  
    3/1/2016 (6)                    24,348     $ 131.80     $ 749,918  

Gloria M. McCarthy

    $ 0     $    699,999     $ 1,399,998                
    3/1/2016 (4)            0       8,536       17,072           $ 1,125,045  
    3/1/2016 (5)                  4,268         $ 562,522  
    3/1/2016 (6)                    18,261     $ 131.80     $ 562,439  
    10/3/2016 (4)            0       1,017       2,034           $ 124,989  
    10/3/2016 (9)                  509         $ 62,556  
    10/3/2016 (10)                    2,175     $ 122.90     $ 62,466  

Wayne S. DeVeydt(11)

    $ 0     $    344,614     $ 689,229                
    3/1/2016 (4)            0       13,278       26,556           $ 1,750,040  
    3/1/2016 (5)                  6,639         $ 875,020  
      3/1/0216 (6)                                                              28,408     $ 131.80     $ 874,966  

 

  (1) These columns show the range of payouts targeted for 2016 performance under the AIP. The cash payouts for 2016 performance were made in March 2017 and are shown in the Summary Compensation Table in the column titled “Non-Equity Incentive Plan Compensation.” The AIP includes various measures of our performance, which each have a different weight and independent threshold performance level. For Adjusted EPS, which is weighted at 85%, there is a payout from 0% to 200% for performance between the threshold and maximum performance. Provider Collaboration and Clinical Performance results are weighted 5% each and have the same payout range as Adjusted EPS. Consumer Centricity, also weighted at 5%, has a payout of 0% for performance below target and 100% for performance at the target level, for each of two metrics, for a total of up to 200% for target performance on both metrics. Payouts may be adjusted up or down based on individual performance. The maximum total payment is 200% of target.

 

  (2) All options were granted at an exercise price equal to fair market value based on the closing market value of our common stock on the NYSE on the date of grant.

 

  (3) The grant date fair value of these awards was calculated in accordance with ASC Topic 718. There is no assurance that the value realized by an executive, if any, will be at or near the amounts shown in this column.

 

  (4) Represents the performance stock units granted to each NEO under the Incentive Plan. The final number of shares received depends on our performance versus our three-year performance goals, as detailed in the Compensation Discussion and Analysis beginning on page 27. The final number of shares received will be from 0% to 100% of target for performance between the threshold and target level and up to 200% of target for maximum performance. The Compensation Committee will determine the payout based on our performance against the performance goals at the end of the 2016-2018 performance period. Any earned performance stock units granted to the NEOs on March 1, 2016 will vest on March 1, 2019, those granted to Mr. Gallina on June 1, 2016 will vest on June 1, 2019, and those granted to Ms. McCarthy on October 3, 2016 will vest on October 3, 2019.

 

46  |  Anthem, Inc. 2017 Proxy Statement


Executive Compensation (continued)

 

 

 

 

  (5) Represents the number of restricted stock units granted to each NEO on March 1, 2016 under the Incentive Plan. The shares will vest in equal installments on March 1, 2017, March 1, 2018 and March 1, 2019.

 

  (6) Represents the number of stock options granted to each NEO as an annual grant under the Incentive Plan. These shares vest in equal semi-annual installments on September 1, 2016, March 1, 2017, September 1, 2017, March 1, 2018, September 1, 2018 and March 1, 2019.

 

  (7)  Represents the number of restricted stock units granted to Mr. Gallina on June 1, 2016 under the Incentive Plan, associated with his promotion to EVP and CFO. The shares will vest in equal installments on June 1, 2017, June 1, 2018 and June 1, 2019.

 

  (8)  Represents the number of stock options granted to Mr. Gallina as a grant under the Incentive Plan associated with his promotion to EVP and CFO. These shares vest in equal semi-annual installments on December 1, 2016, June 1, 2017, December 1, 2017, June 1, 2018, December 1, 2018 and June 1, 2019.

 

  (9)  Represents the number of restricted stock units granted to Ms. McCarthy on October 3, 2016 under the Incentive Plan, associated with her increased responsibilities. The shares will vest in equal installments on October 3, 2017, October 3, 2018 and October 3, 2019.

 

  (10)  Represents the number of stock options granted to Ms. McCarthy as a grant under the Incentive Plan associated with her increased responsibilities. These shares vest in equal semi-annual installments on April 3, 2017, October 3, 2017, April 3, 2018, October 3, 2018, April 3, 2019 and October 3, 2019.

 

  (11)  Mr. DeVeydt resigned from the Company effective May 31, 2016. Under his award agreements, all unvested equity awards were cancelled upon his departure.

 

Anthem, Inc. 2017 Proxy Statement  |  47


Executive Compensation (continued)

 

 

 

Outstanding Equity Awards at Fiscal Year-End

 

     Option Awards      Stock Awards  
Name    Number of
Securities
Underlying
Unexercised
Options
Exercisable
(#)
    

Number of
Securities
Underlying
Unexercised
Options
Unexercisable

(#)(1)

    

Option
Exercise
Price

($/Share)

     Option
Expiration
Date
    

Number of
Shares or
Units of Stock
That Have Not
Vested

(#)(2)

    

Market

Value of

Shares or

Units of Stock
That Have

Not Vested

(#)(3)

    

Equity
Incentive Plan
Awards:
Number of
Unearned
Shares, Units or

Other Rights
That Have Not
Vested

(#)(2)

    

Equity

Incentive Plan
Awards:

Market or Payout
Value of
Unearned
Shares, Units or
Other Rights
That Have Not
Vested

(#)(3)

 

Joseph R. Swedish

                 71,034        $10,212,558        80,440        $11,564,859  
     102,303        0        $  67.44        4/1/20              
     95,083        19,017        $  89.44        3/3/21              
     38,747        38,748        $146.93        3/2/25              
       16,064        80,324        $131.80        3/1/26                                      

John E. Gallina

                 7,264        $  1,044,345        9,160        $  1,316,933  
     3,948        0        $  61.88        3/1/20              
     4,849        1,617        $  89.44        3/3/21              
     2,886        2,889        $146.93        3/2/25              
     980        4,903        $131.80        3/1/26              
       1,345        6,729        $132.51        6/1/26                                      

Brian T. Griffin

                 16,966        $  2,439,202        17,255        $  2,480,751  
     9,756        0        $  61.88        3/1/20              
     12,358        2,472        $  89.44        3/3/21              
     3,744        3,745        $146.93        3/2/25              
     1,790        3,584        $152.78        8/3/25              
       4,058        20,290        $131.80        3/1/26                                      

Peter D. Haytaian

                 16,025        $  2,303,914        21,590        $  3,103,994  
     1,936        0        $  60.15        9/28/19              
     3,762        0        $  61.88        3/1/20              
     9,507        1,902        $  89.44        3/3/21              
     8,439        1,688        $100.77        5/1/21              
     11,175        11,178        $146.93        3/2/25              
       4,058        20,290        $131.80        3/1/26                                      

Gloria M. McCarthy

                 15,591        $  2,241,518        17,210        $  2,474,282  
     9,992        4,279        $  89.44        3/3/21              
     8,380        8,382        $146.93        3/2/25              
     3,043        15,218        $131.80        3/1/26              
       0        2,175        $122.90        10/3/26                                      

Wayne S. DeVeydt(4)

     None                                   0        $                0        0        $                0  

 

  (1)  The vesting schedule is shown below based on the expiration dates of the above grants:

 

Option
Expiration
   Vesting Schedule

3/3/21

   All shares vest on March 3, 2017

5/1/21

   All shares vest on May 1, 2017

3/2/25

   Vest in equal installments on March 2, 2017, September 2, 2017 and March 2, 2018

8/3/25

   Vest in equal installments on February 3, 2017, August 3, 2017, February 3, 2018, and August 3, 2018

3/1/26

   Vest in equal installments on March 1, 2017, September 1, 2017, March 1, 2018, September 1, 2018 and March 1, 2019

6/1/26

   Vest in equal installments on June 1, 2017, December 1, 2017, June 1, 2018, December 1, 2018 and June 1, 2019

10/3/26

   Vest in equal installments on April 3, 2017, October 3, 2017, April 3, 2018, October 3, 2018, April 3, 2019 and October 3, 2019

 

48  |  Anthem, Inc. 2017 Proxy Statement


Executive Compensation (continued)

 

 

 

 

  (2) The table below shows the vesting dates for the number of shares of common stock underlying unvested restricted stock unit grants, unvested performance stock units earned in 2014, and unvested performance stock units granted in 2015 and 2016. The “Restricted Stock Units” and “Performance Stock Units Earned in 2014” columns below are reflected in the “Number of Shares or Units of Stock That Have Not Vested” column. The amounts in the “Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested” column represent the target number of performance stock units granted to our Named Executive Officers in 2015 and 2016 as detailed by year below. The final number of shares earned will depend on our performance versus our performance goals over a three year period, as detailed in the Compensation Discussion and Analysis beginning on page 27.

 

Name   Vesting Date    

Restricted

Stock Units

    Performance Stock
Units Earned in 2014
    Performance Stock
Units Granted in 2015
    Performance Stock
Units Granted in 2016
 

Joseph R. Swedish

    3/1/2017       7,508                    
    3/2/2017       5,899                    
    3/3/2017       9,318       27,393              
    3/1/2018       7,508                    
    3/2/2018       5,899             35,391        
      3/1/2019       7,509                   45,049  

John E. Gallina

    3/1/2017       458                    
    3/2/2017       440                    
    3/3/2017       792       2,329              
    6/1/2017       629                    
    3/1/2018       459                    
    3/2/2018       440             2,637        
    6/1/2018       629                    
    3/1/2019       459                   2,750  
      6/1/2019       629                   3,773  

Brian T. Griffin

    3/1/2017       1,897                    
    3/2/2017       570                    
    3/3/2017       1,212       3,562              
    4/1/2017             4,542              
    8/3/2017       409                    
    3/1/2018       1,897                    
    3/2/2018       570             3,420        
    8/3/2018       410             2,454        
      3/1/2019       1,897                   11,381  

Peter D. Haytaian

    3/1/2017       1,897                    
    3/2/2017       1,702                    
    3/3/2017       932       2,739              
    5/1/2017       827       2,432              
    3/1/2018       1,897                    
    3/2/2018       1,702             10,209        
      3/1/2019       1,897                   11,381  

Gloria M. McCarthy

    3/1/2017       1,422                    
    3/2/2017       1,276                    
    3/3/2017       2,097       6,164              
    10/3/2017       169                    
    3/1/2018       1,423                    
    3/2/2018       1,277             7,657        
    10/3/2018       170                    
    3/1/2019       1,423                   8,536  
      10/3/2019       170                   1,017  

 

  (3) These amounts are calculated by multiplying $143.77, the closing price of our common stock on December 30, 2016, by the applicable number of shares or units.

 

  (4) Mr. DeVeydt resigned from the Company effective May 31, 2016. Under his award agreements, all unvested equity awards were cancelled upon his departure, and there were no equity awards outstanding as of December 31, 2016 for Mr. DeVeydt.

 

Anthem, Inc. 2017 Proxy Statement  |  49


Executive Compensation (continued)

 

 

 

Option Exercises and Stock Vested in 2016

 

       Option Awards        Stock Awards(1)  
Name      Number of Shares
Acquired on Exercise
(#)
       Value
Realized Upon Exercise
($)
       Number of Shares
Acquired on Vesting
(#)
      

Value

Realized on Vesting
($)
(2)

 

Joseph R. Swedish

       0          $              0          87,587          $12,477,246  

John E. Gallina

       0          $              0          7,910          $  1,086,850  

Brian T. Griffin

       0          $              0          23,182          $  3,212,829  

Peter D. Haytaian

       0          $              0          19,328          $  2,757,709  

Gloria M. McCarthy

       23,930          $1,356,120          19,257          $  2,637,071  

Wayne S. DeVeydt

       31,693          $1,558,845          41,246          $  5,667,681  

 

  (1)  The table includes the following shares:

 

    Shares that vested pursuant to the 2013 annual grant: Mr. Gallina – 1,374 restricted stock units and 2,977 performance stock units; Mr. Griffin – 1,132 restricted stock units and 2,451 performance stock units; Mr. Haytaian – 873 restricted stock units and 1,891 performance stock units; Ms. McCarthy – 2,425 restricted stock units and 5,252 performance stock units; Mr. DeVeydt – 4,849 restricted stock units and 10,504 performance stock units.

 

    Shares that vested pursuant to the 2014 annual grant: Mr. Swedish – 9,317 restricted stock units and 27,393 performance stock units; Mr. Gallina – 792 restricted stock units and 2,328 performance stock units; Mr. Griffin – 1,211 restricted stock units and 3,561 performance stock units; Mr. Haytaian – 932 restricted stock units and 2,739 performance stock units; Ms. McCarthy – 2,097 restricted stock units and 6,163 performance stock units; Mr. DeVeydt – 3,028 restricted stock units and 8,902 performance stock units.

 

    Shares that vested pursuant to the 2015 annual grant: Mr. Swedish – 5,898 restricted stock units; Mr. Gallina – 439 restricted stock units; Mr. Griffin – 570 restricted stock units; Mr. Haytaian – 1,701 restricted stock units; Ms. McCarthy – 1,276 restricted stock units; Mr. DeVeydt – 1,843 restricted stock units.

 

    Mr. Swedish had 19,277 restricted stock units and 25,702 performance stock units vested pursuant to a 2013 CEO new hire grant.

 

    Mr. Griffin had 5,104 restricted stock units vested and 4,202 performance stock units vested pursuant to a 2013 new hire grant; 4,542 restricted stock units vested pursuant to a 2014 promotion grant and 409 restricted stock units vested pursuant to a 2015 promotion grant.

 

    Mr. Haytaian had 1,261 restricted stock units vested pursuant to a 2012 pre-merger Amerigroup grant, 6,673 restricted stock units vested pursuant to an April 2013 retention grant related to the Amerigroup merger and 827 restricted stock units and 2,431 performance stock units vested pursuant to a May 2014 promotion grant.

 

    Ms. McCarthy had 646 restricted stock units and 1,398 performance stock units vested pursuant to a 2013 increased responsibility recognition grant.

 

    Mr. DeVeydt had 12,120 restricted stock units vested pursuant to the 2013 special recognition grant.

 

  (2)  Amounts are calculated by multiplying the number of shares vesting by the market value of our common stock on the vesting date. The amounts also include dividend equivalents, if any, paid upon vesting.

 

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Executive Compensation (continued)

 

 

 

Pension Benefits

The table below shows the present value of accumulated benefits payable to each applicable NEO, including the number of years of service credited to each such NEO, under each of the specified plans, computed as of December 31, 2016, the same pension plan measurement date used for financial reporting purposes with respect to our 2016 audited financial statements. Information regarding the specified plans can be found under the heading “Compensation Plans” beginning on page 55.

 

Name    Plan Name      Number of
Years of
Credited
Service (#)
       Present Value of
Accumulated
Benefit ($)
(1)
       Payments
During the
Last
Fiscal Year ($)
 

Gloria M. McCarthy

   Anthem Cash Balance Plan B        42.58          $1,201,938          $0  
   Empire Blue Cross and Blue Shield
Supplemental Cash Balance Pension Plan
       42.58          $2,046,014          $0  
            

 

 

      

 

 

 
   Total             $3,247,952          $0  

John E. Gallina

   Anthem Cash Balance Plan A(2)        11.58          $   177,622          $0  
            

 

 

      

 

 

 
    

Total

                  $   177,622          $0  

 

  (1) Assumptions used in the calculation of the amounts in this column are included in Note 10 to our audited consolidated financial statements for the year ended December 31, 2016, which are included in our Annual Report on Form 10-K filed with the SEC on February 22, 2017.

 

  (2) The Named Executive Officer’s years of actual service are greater than the credited service, because the predecessor plans were frozen for certain participants. There is no resulting increase in benefits, because the Named Executive Officer did not meet the Rule of 65.

Nonqualified Deferred Compensation

 

Name    Executive
Contributions in
Last Fiscal
Year
(1)
     Anthem
Contributions in
Last Fiscal
Year
(2)
     Aggregated
Earnings in
Last Fiscal
Year
    

Aggregated
Withdrawals/

Distributions

    Aggregated
Balance at
Last Fiscal
Year End
(3)
 

Joseph R. Swedish

     $138,030        $114,224        $  3,817        ($   256,955     $   269,931  

John E. Gallina

     $  60,527        $  28,024        $58,917              $1,179,788  

Brian T. Griffin

                                 

Peter D. Haytaian

                                 

Gloria M. McCarthy

     $185,683        $  89,699        $381,312              $5,232,757  

Wayne S. DeVeydt

     $  35,104        $  31,883        $162,534        ($1,768,067     $              0  

 

  (1) These amounts are also included in the “Salary” and “Non-Equity Incentive Plan Compensation” columns of the Summary Compensation Table.

 

  (2) These amounts are also included in the “All Other Compensation” column of the Summary Compensation Table.

 

  (3) Amounts in this column reflect all nonqualified deferred compensation for each NEO. Portions of such amounts are included in the “Salary,” “Non-Equity Incentive Plan Compensation” and “All Other Compensation” columns of the Summary Compensation Table for all applicable years for each NEO.

 

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Executive Compensation (continued)

 

 

 

Potential Payments Upon Termination or Change in Control

The following table describes the potential additional payments and benefits under our compensation and benefit plans and arrangements to which the NEOs would be entitled upon termination of employment. The NEOs would also be entitled to vested benefits and generally available benefits under our various plans and arrangements, as discussed after the following table. The following includes the various types of circumstances that would trigger payments and benefits under plans, agreements and arrangements currently in effect, but it is always possible that different arrangements could be negotiated in connection with an actual termination of employment or change in control. Further, the amounts shown are estimates and are based on numerous assumptions, including termination of employment on December 30, 2016 (i.e., the last business day in 2016 on which securities were traded on the NYSE). Therefore, the actual amounts of the payments and benefits that would be received by the NEOs could be more or less than the amounts set forth below, and can only be determined at the time of an actual termination of employment event.

 

    

Cash

Severance

    AIP Award for
Year of
Termination
    Acceleration or
Continuation of
Equity
Awards
(1)
    Continuation of
Executive
Benefits
    Continuation of
Health & Life
Coverage
(2)
    Post
Termination
Benefits
(3)
    Total Post
Termination
Payment &
Benefit Value
 

Joseph R. Swedish

             

Company initiated (not for cause) or good reason termination by employee following a change in control(4)

  $ 12,870,000       $2,756,331       $23,772,089       $162,000       $30,234       $14,500       $39,605,154  

Company initiated (not for cause) or good reason termination by employee during Cigna Integration Period(5)

  $ 12,375,000       $2,756,331       $23,772,089       $162,000       $30,234       $14,500       $39,110,154  

Company initiated (not for cause) or good reason termination by employee(6)

  $ 8,250,000       $2,756,331       $23,772,089       $108,000       $20,156       $14,500       $34,921,076  

Retirement(7)

  $ 0       $2,756,331       $23,772,089       $           0       $         0       $         0       $26,528,420  

Resignation(8)

  $ 0       $2,756,331       $23,772,089       $           0       $         0       $         0       $26,528,420  

Death

  $ 0       $2,756,331       $23,772,089       $           0       $         0       $         0       $26,528,420  

Long-Term Disability

  $ 0       $2,756,331       $23,772,089       $           0       $         0       $         0       $26,528,420  

For Cause

  $ 0       $              0       $                0       $           0       $         0       $         0       $                0  

John E. Gallina

             

Company initiated (not for cause) or good reason termination by employee following a change in control(4)

  $ 4,680,000       $   601,511       $  2,583,588       $  90,000       $30,234       $14,500       $  7,999,833  

Company initiated (not for cause) or good reason termination by employee during Cigna Integration Period(5)

  $ 4,500,000       $   601,511       $  2,583,588       $  90,000       $30,234       $14,500       $  7,819,833  

Company initiated (not for cause) or good reason termination by employee(6)

  $ 3,000,000       $   601,511       $  2,583,588       $  60,000       $20,156       $14,500       $  6,279,755  

Retirement(7)

  $ 0       $   601,511       $  2,583,588       $           0       $         0       $         0       $  3,185,099  

Resignation(8)

  $ 0       $   601,511       $  2,583,588       $           0       $         0       $         0       $  3,185,099  

Death

  $ 0       $   601,511       $  2,583,588       $           0       $         0       $         0       $  3,185,099  

Long-Term Disability

  $ 0       $   601,511       $  2,583,588       $           0       $         0       $         0       $  3,185,099  

For Cause

  $ 0       $              0       $                0       $           0       $         0       $         0       $                0  

Brian T. Griffin

             

Company initiated (not for cause) or good reason termination by employee following a change in control(4)

  $ 4,679,875       $   803,152       $  5,297,128       $  90,000       $30,234       $14,500       $10,914,889  

Company initiated (not for cause) or good reason termination by employee during Cigna Integration Period(5)

  $ 4,499,880       $   803,152       $  5,297,128       $  90,000       $30,234       $14,500       $10,734,894  

Company initiated (not for cause) or good reason termination by employee(6)

  $ 2,999,920       $   803,152       $                0       $  60,000       $20,156       $14,500       $  3,897,728  

Retirement(7)

  $ 0       $              0       $                0       $           0       $         0       $         0       $                0  

Resignation(8)

  $ 0       $   803,152       $                0       $           0       $         0       $         0       $     803,152  

Death

  $ 0       $   803,152       $  5,297,128       $           0       $         0       $         0       $  6,100,280  

Long-Term Disability

  $ 0       $   803,152       $  5,297,128       $           0       $         0       $         0       $  6,100,280  

For Cause

  $ 0       $              0       $                0       $           0       $         0       $         0       $                0  

 

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Executive Compensation (continued)

 

 

 

    

Cash

Severance

    AIP Award for
Year of
Termination
    Acceleration or
Continuation
of Equity
Awards
(1)
    Continuation of
Executive
Benefits
    Continuation of
Health & Life
Coverage
(2)
    Post
Termination
Benefits
(3)
    Total Post
Termination
Payment &
Benefit Value
 

Peter D. Haytaian

             

Company initiated (not for cause) or good reason termination by employee following a change in control(4)

  $ 4,679,888       $803,154       $5,826,700       $90,000       $30,234       $14,500       $11,444,476  

Company initiated (not for cause) or good reason termination by employee during Cigna Integration Period(5)

  $ 4,499,892       $803,154       $5,826,700       $90,000       $30,234       $14,500       $11,264,480  

Company initiated (not for cause) or good reason termination by employee(6)

  $ 2,999,928       $803,154       $              0       $60,000       $20,156       $14,500       $  3,897,738  

Retirement(7)

  $ 0       $0       $              0       $         0       $         0       $         0       $                0  

Resignation(8)

  $ 0       $803,154       $              0       $         0       $         0       $         0       $     803,154  

Death

  $ 0       $803,154       $5,826,700       $         0       $         0       $         0       $  6,629,854  

Long-Term Disability

  $ 0       $803,154       $5,826,700       $         0       $         0       $         0       $  6,629,854  

For Cause

  $ 0       $           0       $              0       $         0       $         0       $         0       $                0  

Gloria M. McCarthy

             

Company initiated (not for cause) or good reason termination by employee following a change in control(4)

  $ 4,577,993       $759,359       $5,175,830       $90,000       $30,234       $14,500       $10,647,916  

Company initiated (not for cause) or good reason termination by employee during Cigna Integration Period(5)

  $ 4,199,993       $759,359       $5,175,830       $90,000       $30,234       $14,500       $10,269,916  

Company initiated (not for cause) or good reason termination by employee(6)

  $ 2,799,996       $759,359       $5,175,830       $60,000       $20,156       $14,500       $  8,829,841  

Retirement(7)

  $ 0       $759,359       $5,175,830       $         0       $         0       $         0       $  5,935,189  

Resignation(8)

  $ 0       $759,359       $5,175,830       $         0       $         0       $         0       $  5,935,189  

Death

  $ 0       $759,359       $5,175,830       $         0       $         0       $         0       $  5,935,189  

Long-Term Disability

  $ 0       $759,359       $5,175,830       $         0       $         0       $         0       $  5,935,189  

For Cause

  $ 0       $           0       $              0       $         0       $         0       $         0       $                0  

Wayne S. DeVeydt

             

Resignation(9)

  $ 0       $           0       $              0       $         0       $         0       $         0       $                0  

 

  (1) For all NEOs, all unvested equity awards vest immediately upon termination following a change in control or due to death or long-term disability. Upon an eligible retirement, unvested equity awards generally continue to vest on the existing vesting schedule. Mr. Swedish, Mr. Gallina and Ms. McCarthy are currently retirement eligible under the Incentive Plan. The amounts in this column represent (1) for stock option awards, the amount that could be realized from the exercise of all unvested stock options held by the NEO that would immediately vest or continue to vest upon the indicated termination, which is calculated by subtracting the exercise price of the option from the market price of a share of our common stock on December 30, 2016, and multiplying the result by the total number of such shares that could be acquired on exercise at that exercise price, and (2) for restricted stock units and performance stock units, the value of the unvested units held by the NEO that would vest or continue to vest upon the indicated termination, which is calculated by multiplying the number of such units by the market price of a share of our common stock on December 30, 2016.

 

  (2)  Estimate based on the average Company cost per employee for these coverages.

 

  (3)  Represents outplacement services available under our policy.

 

  (4)  These amounts apply to a termination following a change in control that is a Company initiated termination not for cause, or a good reason termination by the employee, as defined in our Executive Agreement Plan. All NEOs currently employed by the Company are participants in the Executive Agreement Plan which provides the following benefits for this termination event: (1) a severance benefit of 300% of the sum of annual base salary plus target AIP award, (2) a payment equal to 4% of this amount to cover the value of the Company match under the 401(k) Plan and supplemental plan on this payment for all NEOs except Ms. McCarthy who would receive a payment equal to 9% of this amount to cover the value of the Company match under the 401(k) Plan, pension contribution and supplemental plan contributions on this payment, (3) an annual AIP award equal to the greater of the annual target AIP award or AIP award earned under the normal terms of the AIP plan for the year, (4) a payment equal to 300% of the annual value of executive benefits, and (5) a three year continuation of health and life insurance coverage.

 

  (5)  These amounts apply to a termination during the Cigna Integration Period, which is defined as the period beginning with the Hart-Scott-Rodino approval of the Cigna acquisition and ending three years after the closing of the acquisition. It applies to a company initiated termination not for cause, or a good reason termination by the employee, as defined in our Executive Agreement Plan. All NEOs would receive the following benefits for this termination event: (1) a severance benefit of 300% of the sum of annual base salary plus target AIP award, (2) a pro-rata AIP award equal to the AIP award earned under the normal terms of the AIP plan, (3) a payment equal to 300% of the annual value of executive benefits, and (4) a three year continuation of health and life insurance coverage.

 

  (6)  Executive is a participant in our Executive Agreement Plan, which provides the following benefits for this termination event: (1) a severance benefit of 200% of the sum of annual base salary plus target AIP award, (2) a two year continuation of health and life insurance coverage, (3) a payment equal to 200% of the annual value of executive benefits.

 

  (7)  Mr. Swedish, Ms. McCarthy and Mr. Gallina are eligible for retirement treatment under the AIP and Incentive Plan. No other NEOs are currently retirement eligible.

 

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Executive Compensation (continued)

 

 

 

 

  (8) Participants in the AIP are eligible for a bonus payment if they work through the last business day of the plan year, which was December 30 in 2016. Since this table assumes a resignation on December 30, a full AIP payout is earned. If the executive had resigned earlier in 2016, he or she would not be eligible for a bonus payment under the AIP.

 

  (9) Mr. DeVeydt resigned from the Company effective May 31, 2016. As shown, he received no post-termination pay or benefits.

The NEOs would also be entitled to the vested benefits included in the Outstanding Equity Awards at Fiscal Year-End table, the Nonqualified Deferred Compensation table and the Pension Benefits table. In addition, the amounts shown in the table above do not include payments and benefits to the extent they are provided on a non-discriminatory basis to salaried employees generally upon termination of employment. These include accrued salary and vacation pay, health benefits and distribution of account balances under the 401(k) Plan.

 

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Compensation Plans

 

 

 

Annual Incentive Plan

Under the Annual Incentive Plan (the “AIP”), participants are eligible to receive awards of cash or shares of restricted stock based upon the achievement of performance measures established by the Compensation Committee. Such awards are stated as a percentage of earnings payable to the eligible associates, with a range of targets from 5% to 150%. The Committee retains the discretion to adjust these earned awards to reflect individual performance. The maximum award is 200% of target. In 2016, the amounts earned by our NEOs under the AIP were paid in cash under the Anthem Incentive Compensation Plan (the “Incentive Plan”). Amounts payable under the AIP are paid during the year immediately following the performance year and are payable only upon approval of the Compensation Committee. Participants must have been employed on or before October 1st of the performance year in order to receive a payment under the AIP. Also, participants must have been actively employed by us on the last business day of the plan year to receive an award. In the event a non-executive participant is part of a reduction in force in the fourth quarter of the year or an executive participant is terminated by us, receiving a severance benefit, in the fourth quarter of the year, or in the event of a death, qualified retirement or an approved disability of a participant during a plan year, a prorated amount may be payable.

Anthem Incentive Compensation Plan

In May 2009, shareholders approved the amended and restated Incentive Plan, which plan was formerly known as the WellPoint 2006 Incentive Compensation Plan (the “2006 Stock Plan”). The 2006 Stock Plan was approved by our shareholders in May 2006. The Incentive Plan gives the authority to the Compensation Committee to make incentive awards consisting of stock options, stock, restricted stock, restricted stock units, cash-based awards, stock appreciation rights, performance shares and performance units. The Compensation Committee selects the participants from our non-employee directors, employees and consultants and determines whether to grant incentive awards, the types of incentive awards to grant and any requirements and restrictions relating to incentive awards. The Compensation Committee is also authorized to grant shares of restricted and unrestricted common stock in lieu of obligations to pay cash under other plans and compensatory arrangements, including the AIP.

The Incentive Plan reserved for issuance for incentive awards to non-employee directors, employees and consultants 60,068,344 shares of our common stock, plus any additional shares of our common stock subject to outstanding options or other awards under the 2006 Stock Plan or the Anthem 2001 Stock Incentive Plan (the “2001 Plan”) that expired, were forfeited or otherwise terminated unexercised on or after May 19, 2009 and May 16, 2006, respectively. From and after May 19, 2009, no further grants or awards were made under the 2006 Stock Plan.

Proposed 2017 Anthem Incentive Compensation Plan

Please see Proposal No. 6 in this proxy statement for a summary of the 2017 Anthem Incentive Compensation Plan, which our shareholders are being asked to approve. A copy of the 2017 Anthem Incentive Compensation Plan is attached hereto as Annex B.

Amerigroup 2009 Equity Incentive Plan

The Amerigroup Corporation 2009 Equity Incentive Plan (the “Amerigroup Plan”) was approved by Amerigroup’s shareholders in May 2009. Under the Amerigroup Plan, employees of Amerigroup and its subsidiaries received equity-based compensation, including restricted stock and stock options. Pursuant to the merger agreement between Amerigroup and us, all equity awards for Amerigroup common stock outstanding at the close of the merger were converted into equity awards for our common stock and were assumed by us. No new equity awards can be made under the Amerigroup Plan.

Employee Stock Purchase Plan

In May 2009, shareholders approved the amended and restated Employee Stock Purchase Plan (the “Stock Purchase Plan”), which is intended to comply with Section 423 of the Tax Code and to provide a means by which to encourage and assist associates in acquiring a stock ownership interest in us. The Stock Purchase Plan is administered by the Compensation Committee and amended and restated a previously approved employee stock purchase plan. The Compensation Committee has complete discretion to interpret and administer the Stock Purchase Plan and the rights granted under it and determines the terms of each offering that permits purchases of our

 

Anthem, Inc. 2017 Proxy Statement  |  55


Compensation Plans (continued)

 

 

 

common stock. Any of our associates are eligible to participate, as long as the associate does not own stock totaling 5% or more of our voting power or value. No associate is permitted to purchase more than $25,000 worth of stock in any calendar year, determined in accordance with Section 423 of the Tax Code. Based on the current terms of the Stock Purchase Plan, this value is determined based on the fair market value of the stock on the last trading day of each plan offering period. The Stock Purchase Plan reserved 14,000,000 shares of stock for issuance and purchase by associates.

Associates become participants by electing payroll deductions from 1% to 15% of gross compensation. Payroll deductions are accumulated during each plan offering period and applied toward the purchase of stock on the last trading day of each plan offering period. The purchase price per share will equal 95% (or such higher percentage as may be set by the Compensation Committee) of the fair market value of a share of common stock on the last trading day of the plan offering period. Once purchased, the stock is accumulated in the associate’s investment account.

Securities Authorized for Issuance under Equity Compensation Plans

Securities authorized for issuance under our equity compensation plans as of December 31, 2016 are as follows:

 

Plan Category(1)    Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights
(2)
     Weighted-average
exercise price of
outstanding options,
warrants and rights
     Number of securities
remaining available for
future issuance under equity
compensation plans
(3)
 
Equity compensation plans approved by security holders as of December 31, 2016      5,570,069        $103.09        20,682,963  

 

  (1) We have no equity compensation plans pursuant to which awards may be granted in the future that have not been approved by security holders.

 

  (2) Excludes 34,474 shares to be issued upon the exercise of outstanding stock options under the Amerigroup Plan assumed by us as part of the acquisition of Amerigroup as of December 31, 2016. The weighted average exercise price of these options was $102.72. Including all such assumed options and the outstanding options shown in the table, there were a total of 5,604,543 shares to be issued upon the exercise of outstanding stock options as of December 31, 2016. The weighted average exercise price of these options was $43.23. We also had 2,073,480 unvested shares of restricted stock outstanding as of December 31, 2016.

 

  (3) Excludes securities reflected in the first column, “Number of securities to be issued upon exercise of outstanding options, warrants and rights.” Includes 15,109,444 shares at December 31, 2016 available for issuance as stock options, restricted stock awards, performance stock awards, performance awards and stock appreciation rights under the Incentive Plan. Includes 5,573,519 shares of common stock at December 31, 2016 available for issuance under the Stock Purchase Plan.

Anthem Directed Executive Compensation Plan

The Anthem Directed Executive Compensation Plan (the “DEC”) is a plan that provides our officers with flexibility to tailor certain personal benefits or perquisites to meet their needs using cash credits. The amount of cash credits the executive receives is based upon his or her position with us, with the Chief Executive Officer receiving $54,000 per year in cash credits, executive vice presidents receiving $30,000 per year in cash credits and senior vice presidents and vice presidents receiving $12,000 per year in cash credits. Cash credits under the DEC are paid to the executive in cash and are in lieu of executive perquisites such as the following: automobile-related benefits, airline clubs, savings or retirement accounts and additional life insurance or long-term disability insurance.

Newly hired or promoted executives will participate in the program at the beginning of the month following their hire date or the effective date of their promotion and receive a prorated amount of credits for the year.

Anthem, Inc. Executive Salary Continuation Plan

We maintain the Anthem, Inc. Executive Salary Continuation Plan for vice presidents, senior vice presidents, and executive vice presidents. Salary continuation is provided at no cost to the executive and pays a benefit equal to 100% of base salary and is payable on the eighth consecutive calendar day of a covered disability, for up to 180 days.

Anthem 401(k) Plan

We maintain the Anthem 401(k) Plan (“401(k) Plan”). The 401(k) Plan is sponsored by ATH Holding Company, LLC and is designed to provide all of our associates with a tax-deferred, long-term savings vehicle. During 2016, we made matching contributions in an amount equal to 100% of the first 3% and 50% of the next 2% of an associate’s

 

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Compensation Plans (continued)

 

 

 

eligible earnings that he or she contributed. Annual earnings for executives are base salary, AIP cash awards and cash bonuses. Our matching contributions begin following one year of service. None of our matching contributions is in the form of our common stock. During 2016, associates could contribute 1% to 60% of his or her base salary and AIP cash award. In addition, participants who are age 50 by the end of a plan year can contribute an additional amount (a “catch-up contribution”), up to the limit described in Section 414(v) of the Tax Code as in effect for the plan year in which the contribution is made. We offered 26 investment funds for participants to invest their contributions. Our common stock is an investment option under the 401(k) Plan. Another investment option is the Vanguard Brokerage Option, which offers 401(k) Plan participants the opportunity to invest in over 10,000 mutual funds of their choice. A participant in the 401(k) Plan can change his or her election at any time (24 hours a day, seven days a week). A participant can also change how he or she wants his or her future contributions and earning on those contributions invested in multiples of 1%, and can transfer or reallocate current investments in multiples of 1% or in flat dollar amounts. Associate contributions and our matching contributions vest immediately.

Anthem, Inc. Comprehensive Non-Qualified Deferred Compensation Plan

Eligible participants may begin participation in the Anthem, Inc. Comprehensive Non-Qualified Deferred Compensation Plan (the “Deferred Compensation Plan”) once the participant reaches the maximum contribution amount for the 401(k) Plan. An eligible participant may defer a percentage not to exceed 60% of his or her eligible earnings and may defer a percentage of his or her award under the AIP, but only to the extent that his or her aggregate base salary and AIP award deferral does not exceed 80% of his or her compensation, into the Deferred Compensation Plan. Those contributions were matched by us at the same rate as they would have been in the 401(k) Plan. The annual incentive deferral option allows an additional deferral of amounts under the AIP and is matched at the same rate as the rate for the 401(k) Plan.

Investment options for the Deferred Compensation Plan mirror those for the 401(k) Plan other than our common stock and the Vanguard Brokerage Option are not available. The frequency and manner of changing investment options also mirrors the 401(k) Plan.

The Deferred Compensation Plan includes a supplemental pension benefit contribution program which in general credits eligible participants quarterly with a contribution equal to the difference between the amount which was actually credited to his or her account under the Anthem Cash Balance Plan (the “Pension Plan”) and the amount which would have been credited to his or her account had the amount not been limited as a result of Section 401(a)(17) or Section 415 of the Tax Code. None of the NEOs received contributions under either the Pension Plan or the supplemental pension provision of the Deferred Compensation Plan except Ms. McCarthy.

Account balances in the Deferred Compensation Plan are payable at the election of the participant in a single lump sum or installments.

Empire Blue Cross and Blue Shield 2005 Executive Savings Plan

The Empire Blue Cross and Blue Shield 2005 Executive Savings Plan (the “2005 Executive Savings Plan”) enabled eligible executives to defer a portion of their base salaries or incentive compensation and to receive the benefit of a matching contribution from us. Effective December 31, 2006, the 2005 Executive Savings Plan was frozen, and no new contributions will be permitted to be made to this plan. Key employees, as defined in the Tax Code, were eligible to participate in this unfunded, non-qualified executive savings plan based upon a qualifying salary range which is adjustable on a yearly basis. In 2006, employees who had an annual base salary of at least $100,000, as of December 1, 2005 (or date of hire if a newly hired employee) or total compensation earned from January 1 through December 1, 2005 of at least $140,000, could participate in the 2005 Executive Savings Plan.

Participation in the 2005 Executive Savings Plan was voluntary, and participants could make whole-year and make-up elections. A whole-year election was effective for the entire plan year and must have specified a deferral percentage between 5% and 80% of base salary (in contrast to a maximum of 33 1/3% under the old plan), of any incentive award under the annual executive incentive compensation plan, and of other performance-based awards as defined in the 2005 Executive Savings Plan. The maximum deferral percentage was subject to adjustment in our discretion. A make-up election became effective once total compensation for the plan year reached the maximum amount that would be recognized in that plan year under applicable tax laws for purposes of our 401(k) Plan. As of

 

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Compensation Plans (continued)

 

 

 

January 1, 2006, the maximum amount was $215,000. A make-up election is for any whole percentage up to 6% of total compensation in excess of $215,000. We credited the employee’s account with an employer match up to 50% of the amount of the total compensation deferred pursuant to the make-up election. The vesting period for the employer match is three years of service.

The participant may designate, from among the investment funds available for selection under the 2005 Executive Savings Plan, which are actively managed by an independent investment manager, the fund or funds to be used to attribute hypothetical investment performance to amounts added to his or her account during the plan year. Nothing in the 2005 Executive Savings Plan requires the employer to invest, earmark, or set aside its general assets in any specific manner.

The fund or funds selected are subject to market fluctuations and, as such, there are no above-market or preferential earnings on deferred compensation paid during the fiscal year, but deferred at the election of the executive.

Anthem Cash Balance Plan

We maintain the Pension Plan, which continues to be sponsored by ATH Holding Company, LLC. It is a non-contributory pension plan for certain associates that is qualified under Section 401(a) of the Tax Code and is subject to the Employee Retirement Income Security Act. On January 1, 1997, we converted the Pension Plan from a final average compensation pension plan into a cash balance pension plan. The Pension Plan covered substantially all full-time, part-time and temporary associates, including executive officers, and provides a set benefit at age 65, the normal retirement age under the Pension Plan. Effective January 1, 2006, the Pension Plan was a frozen pension plan that applies only to participants who were active as of that date. Upon the freeze of the Pension Plan, participants who were active Pension Plan participants and accruing a benefit under the Pension Plan formula, and the sum of whose age (in complete years) and years of service as defined by the Pension Plan (in complete years) equaled or exceeded 65 (“Rule of 65 Participants”), including executives, were eligible to continue to accrue benefits under the Pension Plan formula. None of the NEOs is a Rule of 65 Participant, except for Ms. McCarthy. Effective January 1, 2011, the Pension Plan was entirely frozen and we spun out the Rule of 65 Participants into a new plan, the WellPoint Cash Balance Pension Plan B, which has been renamed the Anthem Cash Balance Plan B. Effective January 1, 2012, the Pension Plan was renamed the Anthem Cash Balance Plan A.

Under the Pension Plan, at the end of each calendar quarter, a bookkeeping account for each participant is credited with interest, effective January 1, 2016, based on the average yield for the 10-year U.S. Treasury Constant Maturity Bond for the month of September of the preceding plan year but not lower than 3.85%. Account balances are payable in a single lump sum or an actuarially equivalent annuity commencing on the first of any month following termination of employment.

Empire Blue Cross and Blue Shield Supplemental Cash Balance Pension Plan

WellChoice provided a supplemental cash balance pension plan (the “Empire Supplemental Pension Plan”), which was assumed by us when we acquired WellChoice. Effective December 31, 2006, the Empire Supplemental Pension Plan was frozen. Upon the freeze of the Empire Supplemental Pension Plan, most active participants did not continue to accrue benefits, except for those participants who were active associates on December 31, 2006 and whose age (in complete years) plus years of pension service (in complete years) was greater than or equal to 65. The Empire Supplemental Pension Plan is not tax-qualified. The purpose of this plan was to replace pension benefits which were lost through the Empire Pension Plan because of an executive’s elective deferral of compensation or because of the limitations on benefits or includible compensation imposed for highly compensated employees by the Tax Code. The supplemental retirement benefit paid to each participant in the Empire Supplemental Pension Plan was equal to the difference between the participant’s benefit under the Empire Pension Plan and what the participant’s benefit under that plan would have been if the participant’s elective deferrals and the participant’s compensation in excess of the Tax Code’s limitations were included in the definition of compensation under the Empire Pension Plan. The supplemental retirement benefit is calculated pursuant to the provisions of the Empire Supplemental Pension Plan and paid in a single sum. Also, in the event of the death of a participant prior to the participant’s benefit payment date, a single sum, or payments made in installments, in accordance with the participant’s election, calculated pursuant to the provisions of the plan, is paid to the participant’s beneficiary. Benefits

 

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Compensation Plans (continued)

 

 

 

under this plan are paid only to the extent they are vested. A participant with a vested benefit under the Empire Pension Plan is paid the supplemental retirement benefit according to the schedule set forth in the plan or as soon as administratively practicable thereafter.

Executive Severance Arrangements

Anthem, Inc. Executive Agreement Plan

The Anthem, Inc. Executive Agreement Plan (the “Executive Agreement Plan”) is intended to protect our key executive employees and key employees of our subsidiaries and affiliates against an involuntary loss of employment (without cause) so as to attract and retain such employees and to motivate them to enhance our value. The Executive Agreement Plan is administered by a committee appointed by our Chief Human Resources Officer.

Our key executive employees and key employees of our subsidiaries and affiliates, including each vice president, senior vice president, executive vice president and any other key executive selected by our Chief Executive Officer, are eligible to participate in the Executive Agreement Plan. An eligible executive will only become a participant in the Executive Agreement Plan upon his or her execution of an employment agreement with us. In general, the terms of the Executive Agreement Plan will replace a participant’s pre-existing agreements for employment, severance or change in control benefits, or restrictive covenants.

Severance pay and benefits are triggered under the Executive Agreement Plan upon a termination of a participant’s employment by us for any reason other than death, disability (each as defined in the Executive Agreement Plan), “cause” (as defined below) or a “transfer of business” (as defined below). Severance pay and benefits will also be provided under the Executive Agreement Plan (at enhanced levels for each participant who is an executive vice president) upon a termination of a participant’s employment (1) by us for any reason other than death, disability, cause, or a transfer of business, during certain periods prior to, or the 36-month period after, a “change in control” (as defined in the Executive Agreement Plan), or during the period beginning with the Hart-Scott-Rodino approval of the Cigna acquisition and ending three years after the closing of the acquisition (the “Cigna Integration Period”) or (2) by the participant for “good reason” (as defined below), during the 36-month period after a change in control or during the Cigna Integration Period.

Under the Executive Agreement Plan, “cause” means any act or failure to act which constitutes:

 

  (1) fraud, embezzlement, theft or dishonesty against us;

 

  (2) a material violation of law in connection with or in the course of the participant’s duties or employment;

 

  (3) commission of any felony or crime involving moral turpitude;

 

  (4) any violation of any of the restrictive covenants contained in the Executive Agreement Plan;

 

  (5) any other material breach of the related employment agreement;

 

  (6) a material breach of any of our written employment policies;

 

  (7) conduct which tends to bring us into substantial public disgrace or disrepute; or

 

  (8) a material violation of our Standards of Ethical Business Conduct,

except that with respect to a termination of employment during the period beginning on the date of the public announcement or the making of a proposal or offer which if consummated would be a change in control, or the approval by our Board or our shareholders of a transaction that upon closing would be a change in control, and ending on the earlier to occur of the termination, abandonment or occurrence of the change in control or the first anniversary of the beginning of the period (the “Change in Control Period”), or within the 36-month period after a change in control, clause (6) and (8) will apply only if such material breach or violation is grounds for immediate termination under the terms of such written employment policy or standard of ethical business conduct; and clauses (4), (5), (6), and (7) will apply only if such violation, breach or conduct is willful. In addition, “transfer of business” means a transfer of the participant’s position to another entity, as part of either (1) a transfer to such entity as a going concern of all or part of our business function(s) in which the participant was employed, or (2) an outsourcing to another entity of our business function(s) in which the participant was employed.

 

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Compensation Plans (continued)

 

 

 

Any participant who is a vice president, senior vice president or executive vice president may terminate his or her employment for “good reason” under the Executive Agreement Plan upon (a) the occurrence of the events set forth in clauses (2) or (5) below within the 36-month period after a change in control, (b) the occurrence of the events set forth in clauses (1), (3) or (4) below at any time before or after a change in control, or (c) the occurrence of the events set forth in clauses (1), (2), (3) or (4) below during the Cigna Integration Period:

 

  (1) a material reduction during any 24 consecutive month period in the participant’s salary, or in the annual total cash compensation (including salary and target bonus), but excluding in either case any reduction both (A) applicable to management employees generally, and (B) not implemented during a Change in Control Period or within the 36-month period after a change in control;

 

  (2) a material adverse change without the participant’s prior consent in the participant’s position, duties, or responsibilities, except in connection with a transfer of business if the position offered by the transferee is substantially comparable and is not in violation of the participant’s rights under the employment agreement;

 

  (3) a material breach of the employment agreement by us;

 

  (4) a change in the participant’s principal work location to a location more than 50 miles from the participant’s prior work location and from the participant’s principal residence; or

 

  (5) the failure of any successor of ours to assume our obligations under the Executive Agreement Plan (including any employment agreements).

If a vice president, senior vice president or executive vice president terminates his or her employment without “good reason,” he or she is not entitled to any severance benefits under the Executive Agreement Plan.

In the event that severance pay and benefits are triggered, an eligible vice president, senior vice president or executive vice president will be entitled to receive severance pay in an amount equal to the participant’s applicable severance multiplier times the sum of the participant’s annual salary and annual target bonus, payable in equal installments over the participant’s applicable severance period; continued participation in our health and life insurance benefit plans during the severance period; continuation of certain executive compensation perquisite payments and benefits during the severance period; continued financial planning services, if available to current executives, and outplacement services. For participants who are executive vice presidents, the applicable severance multiplier is two (increased to three when enhanced severance is paid in circumstances relating to a change in control, as described above, or during the Cigna Integration Period) and the severance period is two years (increased to three years when such enhanced severance is paid).

Other severance benefits payable to vice presidents, senior vice presidents and executive vice presidents triggered by qualifying terminations of employment after a change in control include a pro-rata bonus for the year of termination; cash payments equivalent to our tax-qualified retirement and supplemental retirement plan contributions for the participant during the severance period; and accelerated vesting of equity grants which were outstanding on both the date of the change in control and the date of termination of employment. The annual bonus of each executive participant for the year of a change in control is guaranteed to be the greater of the participant’s target bonus for that year or the amount earned under the bonus plan formulas. The Executive Agreement Plan further provides that, in the event of certain corporate transactions, if an acquiring company does not assume our equity grants, the grants will vest and become payable upon the corporate transaction. Finally, the Executive Agreement Plan provides that in the event of a change in control, our NEOs are entitled to receive either (i) the full benefits payable in connection with a change in control under the Executive Agreement Plan or (ii) a reduced amount sufficient to avoid the imposition of any excise taxes under Section 4999 of the Tax Code or any similar tax payable under any United States federal, state, local or other law, whichever amount provides the greater after-tax value for the executive.

The Executive Agreement Plan payments and benefits of each participant are conditioned upon the participant’s compliance with restrictive covenants and execution of a release of claims against us. The Executive Agreement Plan provides that if a participant breaches any restrictive covenant or fails to provide the required cooperation, (1) such participant shall repay to us any severance benefits previously received, as well as an amount equal to the fair market value of restricted stock vested and gain on stock options exercised within the 24-month period prior to such breach, (2) no further severance pay or benefits shall be provided to such participant, and (3) all outstanding unexercised stock options and unvested restricted stock shall be cancelled and forfeited.

 

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Compensation Plans (continued)

 

 

 

Messrs. Swedish, Gallina, Griffin and Haytaian, and Ms. McCarthy participate in the Executive Agreement Plan, while Mr. DeVeydt participated in the Executive Agreement Plan until his resignation and associated employment termination. Mr. Swedish is entitled to the same severance benefits under the Executive Agreement Plan as described above for our executive vice presidents.

Employment Agreement

As set forth above, for an executive officer to become eligible to participate in the Executive Agreement Plan, he or she must enter into an employment agreement with us (the “Plan Employment Agreement”). The Plan Employment Agreement has an initial term of one year, which term is automatically extended until one year after the date on which either we or the executive officer provides notice of non-renewal. The executive officer’s employment terminates upon the disability or death of the executive officer, or we may terminate the executive officer with or without Cause (as defined in the Executive Agreement Plan). Upon termination of employment, the executive officer may be entitled to the benefits set forth in the Executive Agreement Plan as set forth above. The Plan Employment Agreement also contains the restrictive covenants set forth in the Executive Agreement Plan. Messrs. Swedish, Gallina, Griffin and Haytaian, and Ms. McCarthy are parties to the Plan Employment Agreement.

 

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Proposal No. 5 — Approval of Proposed Amendments to our Articles of Incorporation to Allow Shareholders to Amend our By-Laws

 

 

 

Our Board of Directors has unanimously adopted, and recommends that our shareholders approve, amendments to our Articles of Incorporation (“Articles”) to provide our shareholders with the ability to amend our By-Laws, except for those provisions required by our license agreements with the Blue Cross Blue Shield Association (the “BCBSA”) as described in more detail below. A form of amended and restated Articles, marked to reflect the changes contemplated by this Proposal 5, is attached to this proxy statement as Annex A. This summary of the proposed amendments to the Articles is qualified in its entirety by reference to Annex A.

Indiana law provides that, unless otherwise specified by the articles of incorporation, only a corporation’s board of directors may amend or repeal the bylaws. Our Articles currently provide our Board of Directors with the exclusive power to make, alter, amend or repeal, or to waive the provisions of, our By-Laws.

Our Board is committed to good corporate governance and has carefully considered the advantages and disadvantages of adopting a change to our Articles to allow shareholders to amend our By-Laws. Our By-Laws establish a number of fundamental corporate governance principles, including rules for meetings of directors and shareholders and the election and duties of directors and officers, among other provisions. In the past, our Board believed that the default position under Indiana law provided an effective means for our Board to ensure that any amendments to our By-Laws were prudent and designed to protect and maximize long-term value for all shareholders. More recently, and in light of the fact that the majority of the S&P 500 companies provide shareholders with the right to amend the bylaws, our Governance Committee again considered the various positions for and against allowing shareholders to amend our By-Laws. After weighing these considerations, and upon the recommendation of our Governance Committee, our Board has concluded that amending our Articles to allow shareholders to amend our By-Laws, to the extent consistent with our licensing agreements with the BCBSA, will enhance our corporate governance practices by giving shareholders a say in important governance principles.

In addition to complying with Indiana corporate law, our Articles and By-Laws must comply with our license agreements with the BCBSA. We are one of 36 independent licensees of the BCBSA, serving members in 14 states through our Blue-branded health insurance products and services. The net revenue attributable to our Blue-branded business represents a significant portion of our operating results. The BCBSA license agreements require our governing documents to provide for a staggered board, to include certain restrictions on ownership and transfers of our stock and to prohibit cumulative voting of our stock (collectively, the “BCBSA requirements”). Failure to comply with the BCBSA requirements could result in a termination of the BCBSA license agreements, which would have a material adverse effect on us. If the BCBSA license agreements were terminated, we would no longer be permitted to sell Blue Cross and Blue Shield health insurance products and services and the BCBSA would have the right to impose a “Re-establishment Fee” upon us, which would be used in part to fund a replacement licensee in the vacated areas. The Re-establishment Fee would be approximately $2.9 billion based on our licensed enrollees as of December 31, 2016.

To comply with the BCBSA requirements, under the proposed amendments to our Articles, shareholders would have the ability to amend our By-Laws by the affirmative vote of a majority of the votes entitled to be cast by the holders of the outstanding shares of all classes of our stock entitled to vote generally in the election of directors, in the case of all By-Law provisions other than those provisions relating to the BCBSA requirements, which could be amended only by the Board. The specific By-Law provisions that could be amended only by the Board and the related BCBSA requirements are as follows: (i) Section 1.7 — prohibits cumulative voting; (ii) Section 2.1 (the second sentence of the first paragraph only) — provides for a staggered board; and (iii) Sections 7.2 and 7.7 — provide for the content and form of stock certificate, including a legend on ownership restrictions.

In addition to the proposed amendments described above, our Board also approved certain typographical changes to our Articles. The general description of these changes is qualified in its entirety by reference to the text of the amendments reflected in the proposed amended and restated Articles attached as Annex A.

Approval of this Proposal 5 requires that the votes cast “for” this proposal exceed the votes cast “against” this proposal.

 

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Proposal No. 5 — Approval of Proposed Amendments to our Articles of Incorporation to Allow Shareholders to Amend our By-Laws (continued)

 

 

 

If the proposed amendments to the Articles are approved at the annual meeting, we will file amended and restated Articles with the Indiana Secretary of State shortly following the annual meeting to incorporate the approved amendments. The amended and restated Articles will become effective upon acceptance of the filing by the Indiana Secretary of State. Upon the approval of this proposal and the filing of the amended and restated Articles, our Board will approve corresponding amendments to our By-Laws.

If this proposal is not approved, the proposed amendments to our Articles will not be made and all existing provisions, including the default position under Indiana law reserving authority to amend the By-Laws solely to the Board, will remain in effect.

Recommendation

The Board of Directors unanimously recommends that shareholders vote FOR Proposal No. 5, Approval of Proposed Amendments to our Articles of Incorporation to Allow Shareholders to Amend our By-Laws.

 

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Proposal No. 6 — Approval of the 2017 Anthem Incentive Compensation Plan

 

 

 

We are asking our shareholders to approve the 2017 Anthem Stock Incentive Plan (the “2017 Incentive Plan”) and its material terms, including the eligibility requirements for participation in the 2017 Incentive Plan, the annual limits on the numbers of shares or compensation that can be granted in one fiscal year for each type of award and the performance measures with respect to awards for our chief executive officer and other highly compensated executives so such awards can be eligible for a deduction under Section 162(m) of the Internal Revenue Code (the “Tax Code”). On March 1, 2017, on the recommendation of the Compensation Committee, the Board of Directors adopted the 2017 Incentive Plan, subject to approval by our shareholders.

We currently provide stock-based compensation under the Anthem Incentive Compensation Plan (the “2006 Incentive Plan”) to employees and consultants of the Company, its subsidiaries and affiliates and non-employee directors of the Company. The Board of Directors believes that the 2006 Incentive Plan has contributed significantly to our success by enabling us to attract and retain the services of employees, including executive officers, directors and consultants of outstanding ability. Because our success is largely dependent upon the judgment, interest and special efforts of these employees, directors and consultants, we want to continue to provide stock-based incentive awards to recruit, motivate and retain these individuals. As there are only 14,260,598 shares of common stock remaining available for future grants under the 2006 Incentive Plan as of March 4, 2017, the Board of Directors adopted the 2017 Incentive Plan, which shall become effective on the date our shareholders approve the 2017 Incentive Plan (the “Effective Date”).

The 2017 Incentive Plan is intended to promote our long-term success and increase shareholder value by attracting, motivating, and retaining employees and consultants of the Company, its subsidiaries and affiliates and non-employee directors of the Company. To achieve this purpose, the 2017 Incentive Plan allows the flexibility to grant or award stock options, stock appreciation rights (“SARs”), restricted stock awards, restricted stock units, performance unit awards, performance share awards, cash-based awards and other stock-based awards to eligible persons. The 2017 Incentive Plan includes key provisions designed to protect shareholders’ interests, promote effective corporate governance and reflect our commitment to best practices in corporate governance, including the following:

 

  Dividends or Dividend Equivalents Payable only on Vested Awards. The terms of the 2017 Incentive Plan provide that no dividends or dividend equivalents will be paid unless the vesting provisions of an award, including the achievement of any performance goals, are met.

 

  No Discounted Options or SARs. Options and SARs may not be granted with exercise prices or base prices lower than the fair market value of the underlying shares on the grant date.

 

  No Repricing of Under-Water Options or SARs. The terms of the 2017 Incentive Plan do not allow for the repricing of “under-water” stock options or SARs, including the cancellation and reissuance of new options or SARs in exchange for stock options or SARs whose strike price or base price is above the then-current fair market value of our common stock.

 

  Fungible Share Counting. The pool of shares available for issuance under the 2017 Incentive Plan is generally reduced by 1.0 share for each share granted with respect to an option or SAR and is generally reduced by 3.0 shares for each share granted with respect to a restricted stock unit award, performance share award, performance unit award, or other stock-based award, provided that a restricted stock award with a per-share purchase price at least equal to 100% of the fair market value of a share on the grant date reduces the share reserve by 1.0 share.

 

  No Share Recycling for Net Exercises or Tax Withholding. Shares surrendered or withheld to pay either the exercise price of an award or to withhold taxes in respect of an award do not become available for issuance as future awards under the 2017 Incentive Plan.

 

  No Evergreen Provision. There is no “evergreen” or automatic replenishment provision pursuant to which the shares authorized for issuance under the 2017 Incentive Plan are automatically replenished.

 

  No Automatic Grants. The 2017 Incentive Plan does not provide for automatic grants to any participant.

 

  No Automatic Vesting on a Change of Control. The terms of the 2017 Incentive Plan do not provide for automatic vesting upon a change of control.

 

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Proposal No. 6 — Approval of the 2017 Anthem Incentive Compensation Plan (continued)

 

 

 

The 2017 Incentive Plan would allow us to grant these stock-based incentive awards to employees and consultants of the Company, its subsidiaries and affiliates as well as non-employee directors of the Company covering a total of up to 37,500,000 shares of our common stock, which represents the sum of (i) 16,000,000 new shares authorized under the 2017 Incentive Plan, plus (ii) up to 14,000,000 shares that have previously been approved by our shareholders for issuance under the 2006 Incentive Plan but have not been awarded, plus (iii) up to 7,500,000 shares which are subject to outstanding awards under the 2006 Incentive Plan which may be available for the grant of awards under the 2017 Incentive Plan to the extent the shares underlying such outstanding awards are not issued due to expiration, forfeiture, cancellation, settlement in cash in lieu of shares or otherwise. No awards have been made under the 2017 Incentive Plan. In determining the number of shares to be reserved for issuance under the 2017 Incentive Plan, the Board considered the following:

 

  Overhang. Overhang measures the potential dilution to which our existing shareholders are exposed due to outstanding equity awards. As of March 4, 2017, we had 7,528,354 shares subject to outstanding equity awards, of which 5,621,971 were subject to outstanding options, with a weighted-average exercise price per share of $118.84, and 1,906,383 were subject to outstanding full-value awards.

 

  Burn Rate. Burn rate measures our usage of shares for our equity incentive plans as a percentage of our outstanding common stock. For 2016, 2015, and 2014, our burn rate was 0.932%, 0.806%, and 1.224%, respectively. We have been advised by independent consultants that our average annual burn rate of 0.987% over this three-year period is considered reasonable by most institutional shareholders for a company of our size in our industry. For purposes of determining the burn rate, we count shares underlying full value awards, options and SARs as one share.

 

  Forecasted Grants. In determining our projected share utilization, the Board of Directors considered a forecast that included the following factors: (i) the shares needed for retention of key employees; (ii) forecasted future grants to all employees and (iii) the shares available for issuance under the 2006 Incentive Plan.

 

  Compensation Consultant. The Board of Directors considered the advice of our independent compensation consultant.

If our shareholders do not approve the 2017 Incentive Plan, we will continue to use our 2006 Incentive Plan until its expiration on May 20, 2019, following which we would be restricted in our ability to successfully attract and retain highly skilled employees, including members of our management team. The alternative to using equity awards for retention and incentive purposes would be to increase cash compensation. We do not believe increasing cash compensation to make up for any shortfall in equity awards would be practicable or advisable because we believe that a combination of equity awards and cash compensation provide a more effective compensation vehicle than cash alone for attracting, retaining, and motivating our employees and that equity awards align employees and shareholder interests.

Performance-Based Compensation

Section 162(m) of the Tax Code generally denies a corporate tax deduction for annual compensation exceeding $1 million paid to our chief executive officer and other “covered employees,” as determined under Section 162(m) of the Tax Code and applicable guidance. However, certain types of compensation, including “performance-based compensation,” are generally excluded from this deductibility limit. The Patient Protection and Affordable Care Act (the “ACA”) amended the Tax Code to add Section 162(m)(6) of the Tax Code, which limits the amount that certain health care insurers, including us, may deduct for a tax year to $500,000 per individual, including our chief executive officer and other “covered employees,” and makes no exception for awards that qualify as “performance-based compensation” within the meaning of Section 162(m) of the Code. However, given the political uncertainties surrounding the ACA, we designed the 2017 Incentive Plan to allow for the grant of “performance-based compensation” awards in the event we are able to utilize the “performance based compensation” exclusion from the Section 162(m) deductibility limit in the future. Accordingly, by approving the 2017 Incentive Plan, our shareholders will be approving certain provisions necessary for awards to be treated as “performance-based compensation,” including (i) limitations on the number of shares or compensation that can be granted in a single year with respect to options, SARs, restricted stock, restricted stock units, performance shares, performance units, cash-based awards and other

 

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Proposal No. 6 — Approval of the 2017 Anthem Incentive Compensation Plan (continued)

 

 

 

stock-based awards (as described under the caption “Annual Limits” below), (ii) eligibility requirements for participation in the 2017 Incentive Plan (as described under the caption “Participation” below), and (iii) the performance measures upon which specific performance goals applicable to certain awards would be based (as described under the caption “Performance-Based Awards” below). Notwithstanding the foregoing, we retain the ability to grant awards under the 2017 Incentive Plan that do not qualify as “performance-based compensation” within the meaning of Section 162(m) of the Tax Code.

Plan Summary

The principal features of the 2017 Incentive Plan are summarized below. Shareholders should read the 2017 Incentive Plan for a full statement of its legal terms and conditions. Appendix B to this proxy statement contains the full text of the 2017 Incentive Plan, as proposed to be approved by our shareholders.

Administration

Our Compensation Committee (or such other committee designated by the Board of Directors to administer the 2017 Incentive Plan) (the “Committee”) will have discretionary authority to operate, manage and administer the 2017 Incentive Plan in accordance with its terms. The Committee will determine the employees and consultants of the Company, its subsidiaries and affiliates who will be granted awards under the 2017 Incentive Plan, the size and types of awards, the terms and conditions of awards and the form and content of the award agreements representing awards. The Committee will be authorized to establish, administer and waive terms, conditions and performance goals of outstanding awards and to accelerate the vesting or exercisability of awards, in each case, subject to limitations contained in the 2017 Incentive Plan. The Committee will interpret the 2017 Incentive Plan and award agreements and will have authority to correct any defects, supply any omissions and reconcile any inconsistencies in the 2017 Incentive Plan and/or any award agreements. The Committee’s decisions and actions concerning the 2017 Incentive Plan will be final and conclusive. Within the limitations of the 2017 Incentive Plan and applicable law, the Committee may delegate its responsibilities under the 2017 Incentive Plan to persons selected by it, and the Board of Directors will be permitted to exercise all of the Committee’s powers under the 2017 Incentive Plan. Any action or determination specifically affecting or relating to an award granted to a non-employee director shall be taken, or approved or ratified, by the Board of Directors or the Governance Committee.

The Committee shall consist of not less than three non-employee directors and will satisfy independence criteria established by the Board of Directors and additional regulatory requirements, including the listing standards of the NYSE. Currently, the members of the Committee are Messrs. Dixon, Hay, Ryan and Schaefer and Ms. Tallett, each of whom is a director, but not an employee, of the Company.

Shares Subject to the 2017 Incentive Plan

A maximum of 37,500,000 shares will be available for delivery under the 2017 Incentive Plan, which represents the sum of (i) 16,000,000 new shares authorized under the 2017 Incentive Plan, plus (ii) up to 14,000,000 shares that have previously been approved by our shareholders for issuance under the 2006 Incentive Plan but have not been awarded, plus (iii) up to 7,500,000 shares which are subject to outstanding awards under the 2006 Incentive Plan which may be available for the grant of awards under the 2017 Incentive Plan to the extent the shares underlying such outstanding awards are not issued due to expiration, forfeiture, cancellation, settlement in cash in lieu of shares or otherwise. The shares of common stock that may be issued under the 2017 Incentive Plan will be either authorized and unissued shares (which will not be subject to preemptive rights) or previously issued shares that have been reacquired and are held as treasury stock. The 2017 Incentive Plan provides that for purposes of determining the number of shares of our common stock available for delivery under the 2017 Incentive Plan, each share delivered pursuant to an option shall reduce the share reserve by one share; each share subject to the exercised portion of a SAR (whether the distribution upon exercise is made in cash, shares or a combination of cash and shares) shall reduce the share reserve by one share, other than a SAR that, by its terms, from and after the grant date thereof, is payable only in cash, in which case the share reserve shall not be reduced; each share delivered pursuant to a restricted stock unit award, performance share award, performance unit award, or other stock-

 

66  |  Anthem, Inc. 2017 Proxy Statement


Proposal No. 6 — Approval of the 2017 Anthem Incentive Compensation Plan (continued)

 

 

 

based award shall reduce the share reserve by three shares; each share delivered pursuant to a restricted stock award without a purchase price, or with a per-share purchase price lower than 100% of the fair market value of a share on the grant date, shall reduce the share reserve by three shares; each share delivered pursuant to a restricted stock award with a per-share purchase price at least equal to 100% of the fair market value of a share on the grant date shall reduce the share reserve by one share; and to the extent that a distribution pursuant to an award is made in cash, other than pursuant to an award that by its terms, from and after the grant date thereof, is payable only in cash, the share reserve shall be reduced by the number of shares subject to the redeemed, paid or exercised portion of such award. Any shares that are subject to an option, SAR, or other award which for any reason expires or is terminated or canceled without having been fully exercised or satisfied, and any shares that are subject to any restricted stock award (including any shares subject to a participant’s restricted stock award that are repurchased by us at the participant’s cost), restricted stock unit award or other award granted under the 2017 Incentive Plan which are forfeited, shall, to the extent of any such expiration, termination, cancellation or forfeiture, be available for delivery in connection with future awards under the 2017 Incentive Plan. Shares withheld or tendered to pay the exercise price or withholding taxes with respect to an outstanding award shall not again be made available for issuance pursuant to awards under the 2017 Incentive Plan, and the payment of cash dividends or dividend equivalents in cash in connection with awards shall not reduce the share reserve. Any shares delivered under the 2017 Incentive Plan upon exercise or satisfaction of awards issued in substitution or exchange for options or awards of another company involved in a corporate transaction with the Company or a subsidiary shall not reduce the shares available for delivery under the 2017 Incentive Plan; provided, however, that