DEF 14A 1 d662496ddef14a.htm DEFINITIVE PROXY STATEMENT DEFINITIVE PROXY STATEMENT
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a)

of the Securities Exchange Act of 1934

(Amendment No.    )

 

 

Filed by the Registrant                               Filed by a Party other than the Registrant  

Check the appropriate box:

 

   Preliminary Proxy Statement

   CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY RULE 14A-6(E)(2))

   Definitive Proxy Statement

   Definitive Additional Materials

   Soliciting Material Pursuant to §240.14a-12

Humana Inc.

(Name of Registrant as Specified In Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

  No fee required.
  Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
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Title of each class of securities to which transaction applies:

 

     

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Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):

 

     

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Total fee paid:

 

     

  Fee paid previously with preliminary materials.
  Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
  (1)  

Amount Previously Paid:

 

     

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LOGO   

Humana Inc.

500 West Main Street

Louisville, Kentucky 40202

 

 

 

LOGO

 

LOGO

 

(Top Photo: Kurt Hilzinger;

Bottom Photo: Bruce Broussard)

 

Total Stockholder Return

 

LOGO

 

 

Returned to Stockholders

 

LOGO

  

Dear Fellow Stockholders:

 

We would like to invite you to attend the Annual Meeting of Stockholders of Humana Inc., to be held on Thursday, April 18, 2019, at 9:30 a.m., Eastern Time, at the Company’s headquarters, located at 500 West Main Street, 25th Floor Auditorium, in Louisville, Kentucky. The meeting will also be webcast via the Internet at the Investor Relations section of the Company’s website, www.humana.com. This proxy statement contains information about our Company and the four proposals to be voted upon by stockholders at the meeting. Please give this information your careful attention.

 

This year, we will once again be taking advantage of U.S. Securities and Exchange Commission rules that allow us to furnish proxy materials to our stockholders on the Internet. These materials will be available on the Internet on or about March 6, 2019. We continue to believe that Internet delivery of our proxy materials allows us to provide our stockholders with the information they need, while lowering the costs of delivery and reducing the environmental impact of our Annual Meeting.

 

We hope you can attend the meeting. However, even if you are unable to join us, we urge you to still exercise your right as a stockholder and vote by telephone, mail or using the Internet. The vote of every stockholder is important.

 

This proxy statement is being mailed or transmitted on or about March 6, 2019, to our stockholders of record as of February 25, 2019.

 

2018 Summary

 

Humana had a strong year of growth and success in 2018. We’re proud of the way we executed our plan and delivered positive results in all areas of the business. Fueled by strong Medicare Advantage results and the success of our integrated care delivery model, we reported earnings per diluted common share (EPS) of $12.16 and Adjusted EPS of $14.55*, growth of over 24% compared to Adjusted EPS of $11.71 in 2017. Strong Medicare Advantage membership growth during 2018 and the company’s transition to providing healthcare services to military service members, retirees, and their families under the new TRICARE East Region contract led to growing our membership base by over 18%, reaching 16.6 million members at year-end. Despite our exiting the individual commercial business as of January 1, 2018, we reported revenues of $56.91 billion in 2018 exceeding revenues of $53.77 billion in 2017, backed again by the strong growth of our Medicare Advantage business. As we move into 2019, we intend to continue advancing our consumer and health-focused strategy, recognizing the importance of being on the leading edge of value-based care.

 

We’re excited about our opportunity to improve the lives of the millions of people we serve while helping lead the way in transforming the future of our industry. We owe our success, in no small part, to our employees, members, clinical and governmental partners and shareholders. We especially want to thank our approximately 42,000 employees for their dedication, commitment and skill in serving our members. We’re proud to enter 2019 with employee engagement at an all-time high in the 92nd percentile, representing world-class engagement. Our thanks also goes out to our members for choosing and entrusting us to serve their most important and personal needs – their health. We would also like to thank our clinical and governmental partners for their collective commitment in working with us to improve population health through actions that put healthcare consumers first, resulting in better outcomes and reduced costs. And finally, we’d like to thank you, our shareholders. Thanks for your commitment to our organization and for believing in our mission.

 

Sincerely,

 

  

 

LOGO

 

Kurt J. Hilzinger

Chairman of the Board

and Stockholder

 

March 6, 2019

  

LOGO

 

Bruce D. Broussard

Director, President and Chief Executive Officer

and Stockholder

 

March 6, 2019

 

 

                                                             

*   Please refer to section entitled “Organization and Compensation Committee Report” in this proxy statement for a reconciliation of non-GAAP to GAAP financial measures.


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LOGO

Notice of 2019 Annual Meeting of Stockholders

 

 

Time and Date:    9:30 a.m., Eastern Time, on Thursday, April 18, 2019
Location:    Humana Inc. headquarters, located at 500 West Main Street, 25th Floor Auditorium, in Louisville, Kentucky
Agenda:   

1.  Elect the ten (10) director nominees named in the proxy statement.

 

2.  Ratify the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for 2019.

 

3.  Non-binding advisory vote to approve the compensation of the Company’s Named Executive Officers.

 

4.  Approve the Amended and Restated Humana Inc. Stock Incentive Plan.

 

5.  Consider any other business properly brought before the meeting.

Record Date:    February 25, 2019. Humana stockholders of record at the close of business on that date will be entitled to vote.
Proxy Voting:   

Your vote is important so that as many Shares as possible will be represented. Please vote by one of the following methods:

 

  BY INTERNET

 

  BY TELEPHONE

 

  BY RETURNING YOUR PROXY CARD (if you elected to receive printed materials)

 

See instructions on your proxy card or at the voting site (www.ProxyVote.com).

By Order of the Board of Directors,

 

LOGO

Joseph C. Ventura

Chief Legal Officer & Corporate Secretary

March 6, 2019


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Proxy Summary

 

 

General Information

 

Meeting:

   2019 Annual Meeting of Stockholders   Place:    Humana Inc. Headquarters

Date:

   Thursday, April 18, 2019      500 West Main Street

Time:

   9:30 a.m., Eastern Time      25th Floor Auditorium

Record Date:

   February 25, 2019      Louisville, Kentucky

Voting Overview

 

Items of Business

   Board
Recommendation
  

Page

  Reference  

1.

 

  

Elect the ten (10) director nominees named in the proxy statement.

 

   FOR

 

   18

 

2.

  

Ratify the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for 2019.

 

   FOR    49

3.

  

Non-binding advisory vote to approve the compensation of the Company’s Named Executive Officers.

 

   FOR    50

4.

 

  

Approve the Amended and Restated Humana Inc. Stock Incentive Plan

 

   FOR

 

   51

 

5.

   Consider any other business properly brought before the meeting.      

Board Nominees

 

  Name    Position    Age        First Elected Director  

Kurt J. Hilzinger

   Chairman of the Board, Independent Director    58        07/2003

Bruce D. Broussard

   Director, President and Chief Executive Officer    56        01/2013

Frank J. Bisignano

   Independent Director    59        08/2017

Frank A. D’Amelio

   Independent Director    61        09/2003

Karen B. DeSalvo, M.D.

   Independent Director    53        11/2017

W. Roy Dunbar

   Independent Director    57        04/2005

David A. Jones, Jr.

   Independent Director    61        05/1993

William J. McDonald

   Independent Director    62        10/2007

James J. O’Brien

   Independent Director    64        04/2006

Marissa T. Peterson

   Independent Director    57        08/2008


 

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2018 Board Composition and Refreshment

 

Age
LOGO

 

Tenure

LOGO

 

 

 

Gender
LOGO
Independence
LOGO
 

 

Performance Highlight

Humana had a strong year of growth and success in 2018. We’re proud of the way we executed our plan and delivered positive results in all areas of the business. Fueled by strong Medicare Advantage results and the success of our integrated care delivery model, we reported earnings per diluted common share (EPS) of $12.16 and Adjusted EPS of $14.55*, growth of over 24% compared to Adjusted EPS of $11.71 in 2017. Strong Medicare Advantage membership growth during 2018 and the company’s transition to providing healthcare services to military service members, retirees, and their families under the new TRICARE East Region contract led to growing our membership base by over 18%, reaching 16.6 million members at year-end. Despite our exiting the individual commercial business as of January 1, 2018, we reported revenues of $56.91 billion in 2018 exceeding revenues of $53.77 billion in 2017, backed again by the strong growth of our Medicare Advantage business. As we move into 2019, we intend to continue advancing our consumer and health-focused strategy, recognizing the importance of being on the leading edge of value-based care.

 

 

 

* 

Please refer to section entitled “Organization and Compensation Committee Report” in this proxy statement for a reconciliation of non-GAAP to GAAP financial measures.



 

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Frequently Asked Questions

 

Why am I receiving this Proxy Statement?

You are receiving a proxy statement because you owned shares of Humana common stock as of Monday, February 25, 2019, which we refer to as the Record Date, and that entitles you to vote at the Annual Meeting. Our Board of Directors has made these materials available to you on the Internet or, upon your request, has delivered printed versions of these materials to you by mail, in connection with the Board’s solicitation of proxies on behalf of the Company for use at our 2019 Annual Meeting of Stockholders. Your proxy will authorize specified people (proxies) to vote on your behalf at the Annual Meeting. By use of a proxy, you can vote, whether or not you attend the meeting.

This proxy statement describes the matters on which the Company would like you to vote, provides information on those matters, and provides information about the Company that we must disclose when we solicit your proxy.

Why did I receive a one-page notice in the mail regarding the Internet availability of proxy materials instead of a full set of proxy materials?

Pursuant to rules adopted by the U.S. Securities and Exchange Commission, or the SEC, we have elected to provide access to our proxy materials over the Internet. We believe that Internet delivery of our proxy materials allows us to provide our stockholders with the information they need, while lowering the costs of delivery and reducing the environmental impact of our Annual Meeting. Accordingly, we are sending a Notice of Internet Availability of Proxy Materials, which we refer to as the Notice, to our stockholders and beneficial owners as of the Record Date. All stockholders will have the ability to access the proxy materials on a website referred to in the Notice or request to receive a printed set of the proxy materials. Instructions on how to access the proxy materials over the Internet or to request a printed copy may be found on the Notice. In addition, stockholders may request to receive proxy materials in printed form by mail or electronically by e-mail on an ongoing basis by calling Broadridge Financial Solutions, Inc., or Broadridge, at 1-800-579-1639.

How can I get electronic access to the proxy materials?

The Notice provides you with instructions regarding how to:

 

   

View our proxy materials for the Annual Meeting on the Internet; and

 

   

Instruct us to send our future proxy materials to you electronically by e-mail.

Choosing to receive your future proxy materials by e-mail will save us the cost of printing and mailing documents to you and will reduce the impact of our Annual Meetings on the environment. If you choose to receive future proxy materials by e-mail, you will receive an e-mail next year with instructions containing a link to those materials and a link to the proxy voting site. Your election to receive proxy materials by e-mail will remain in effect until you terminate it.

When and where is the Annual Meeting?

The Annual Meeting will be held on Thursday, April 18, 2019, at 9:30 a.m., Eastern Time, at the Company’s headquarters, located at 500 West Main Street, 25th Floor Auditorium, in Louisville, Kentucky.

Who is entitled to vote?

Anyone who owns Humana Inc. common stock, which we refer to as Shares, as of the close of business on February 25, 2019, the Record Date, is entitled to vote at the Annual Meeting or at any later meeting should the scheduled Annual Meeting be adjourned or postponed for any reason. As of the Record Date, 135,637,749 Shares were outstanding and entitled to vote. Each Share is entitled to one vote on each of the matters to be considered at the Annual Meeting.

 

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What will I be voting on?

 

   

Election of the ten (10) director nominees named in this proxy statement to serve on the Board of Directors of the Company;

 

   

Ratification of the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for 2019;

 

   

A non-binding, advisory vote to approve the compensation of the Company’s Named Executive Officers as disclosed in this proxy statement; and

 

   

Approval of the Amended and Restated Humana Inc. Stock Incentive Plan.

The Board of Directors is not aware of any other matters to be presented for action at the Annual Meeting. However, if other matters are properly presented for a vote, the proxies will be voted for these matters in accordance with the judgment of the persons acting under the proxies.

How does the Board recommend I vote on each proposal?

The Board recommends that you vote your Shares as follows:

 

   

FOR the election of each of the ten (10) director nominees named in this proxy statement;

 

   

FOR the ratification of the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for 2019;

 

   

FOR the approval of the compensation of the Company’s Named Executive Officers as disclosed in this proxy statement; and

 

   

FOR the approval of the Amended and Restated Humana Inc. Stock Incentive Plan.

All Shares that are represented at the Annual Meeting by properly executed proxies received before or at the Annual Meeting and not revoked will be voted at the Annual Meeting in accordance with the instructions indicated in the proxies.

How will my Shares be voted if I do not specify how they should be voted?

If you sign and return your proxy card without indicating how you want your Shares to be voted, the persons acting under the proxies will vote your Shares as follows:

 

   

FOR the election of each of the ten (10) director nominees named in this proxy statement;

 

   

FOR the ratification of the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for 2019;

 

   

FOR the approval of the compensation of the Company’s Named Executive Officers as disclosed in this proxy statement; and

 

   

FOR the approval of the Amended and Restated Humana Inc. Stock Incentive Plan.

What if my Shares are not registered in my name?

If you own your Shares in “street name,” meaning that your bank, broker or other nominee is actually the record owner, you should receive the Notice from your bank, broker or other nominee. In addition, stockholders may request, by calling Broadridge at 1-800-579-1639, to receive proxy materials in printed form, by mail or electronically by e-mail, on an ongoing basis. When you own your Shares in street name, you are deemed a beneficial owner or holder for voting purposes.

If you hold Shares through an account with a bank, broker or other nominee and you do not provide voting instructions on your instruction form, your Shares may not be voted by the nominee with respect to certain proposals, including:

 

   

the election of directors;

 

   

the approval of the compensation of the Company’s Named Executive Officers as disclosed in this proxy statement;

 

   

the frequency with which future non-binding advisory stockholder votes on the compensation of the Company’s Named Executive Officers will be held; and

 

   

the approval of the Amended and Restated Humana Inc. Stock Incentive Plan.

Banks, brokers and other nominees have the authority under the regulations of the New York Stock Exchange, or the NYSE, to vote shares for which their customers do not provide voting instructions only on certain “routine” matters, including the ratification of the

 

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appointment of the Company’s independent registered public accounting firm. However, the proposals listed above are not considered “routine” matters for this purpose, and therefore your Shares will not be voted with respect to such proposals if you do not provide voting instructions on your instruction form.

How many votes are required to approve each proposal, what are the effects of abstentions and unmarked proxy cards, and is broker discretionary voting allowed?

 

Proposal

 

  

Vote Required for

Approval

 

 

Effect of

    Abstentions    

 

 

Broker

    Discretionary    
Voting
Allowed
(2)

 

 

    Unmarked/Signed    

Proxy Cards

 

Election of directors

  

 

The number of votes
cast for a nominee

exceeds the number
of votes cast against
that nominee.(1)

 

  No effect   No   Voted “For”

 

Ratification of the
appointment of the

independent registered

public accounting firm

 

   Majority of shares
present and entitled
to vote
  Counted as “Against”   Yes   Voted “For”

Approval of executive

compensation

  

 

Majority of shares

present and entitled

to vote

 

  Counted as “Against”   No   Voted “For”

Approval of the Amended and Restated Humana Inc. Stock Incentive Plan

  

 

Majority of shares
present and entitled
to vote

 

  Counted as “Against”   No   Voted “For”
(1)

Under the Company’s Majority Vote Policy, following election to our Board of Directors, a director is required to submit his or her irrevocable resignation to our Board of Directors conditioned upon (a) the director not achieving the requisite stockholder vote at any future meeting at which he or she faces re-election, and (b) acceptance of the resignation by the Board of Directors following that election. The Board of Directors has 90 days after a director fails to achieve the requisite stockholder votes to determine whether or not to accept the director’s resignation and to report this information to our stockholders.

(2)

If you are a beneficial owner whose shares are held of record by a broker or other NYSE member organization, you must instruct the broker how to vote your shares. If you do not provide voting instructions, your shares will not be voted on any proposal on which the broker does not have discretionary authority to vote. This is called a “broker non-vote.” A broker non-vote will not affect the outcome of the vote for the matters being presented for action at the Annual Meeting, because they are not considered to be votes cast.

What is a “broker non-vote”?

A broker “non-vote” occurs when a broker or other NYSE member organization holding Shares for a beneficial owner does not vote on a particular proposal because the nominee does not have discretionary voting power with respect to that item and has not received voting instructions from the beneficial owner, but does have discretionary voting power over other items and submits votes for those matters. As discussed above, if you hold Shares through a broker or other NYSE member organization and do not provide voting instructions to your broker or other NYSE member organization, your Shares may not be voted with respect to certain proposals, including the proposals listed above that are not considered routine.

What is a “quorum”?

A “quorum” is a majority of the outstanding Shares. Shares may be voted at the Annual Meeting by a signed proxy card, by telephone instruction, or electronically on the Internet. There must be a quorum for the Annual Meeting to be held. Abstentions and broker “non-votes” are counted as present and entitled to vote for purposes of determining whether a quorum exists.

 

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How do I vote?

There are four ways that you can vote your Shares. Voting by any of these methods will supersede any prior vote you made regardless of how that vote was made. PLEASE CHOOSE ONLY ONE OF THE FOLLOWING:

 

  1)

By Internet.   The website for voting is http: //www.ProxyVote.com. In order to vote on the Internet, you need the control number on your proxy card. Each stockholder has a unique control number so we can ensure all voting instructions are genuine and prevent duplicate voting. The Internet voting system is available 24 hours a day, seven days a week, until 11:59 p.m., Eastern Time, on Wednesday, April 17, 2019, the day before the Annual Meeting. Once you are logged on the Internet voting system, you can record and confirm (or change) your voting instructions. If you use the Internet voting system, you do not need to return your proxy card.

 

  2)

By telephone.   If you are a registered holder in the United States or Canada, you may call 1-800-690-6903. The telephone voting system is available 24 hours a day, seven days a week, until 11:59 p.m., Eastern Time, on Wednesday, April 17, 2019, the day before the Annual Meeting. In order to vote by telephone, you need the control number on your proxy card. Each stockholder has a unique control number so we can ensure all voting instructions are genuine and prevent duplicate voting. Once you are logged on the telephone voting system, a series of prompts will tell you how to record and confirm (or change) your voting instructions. If you use the telephone voting system, you do not need to return your proxy card.

 

  3)

By mail.   Mark your voting instructions, sign and date the proxy card and then return it in the postage-paid envelope provided. If you mail your proxy card, we must receive it before 12:00 p.m., Eastern Time, on Friday, April 12, 2019. If you are returning your proxy card to Broadridge, they must receive it before 10:00 a.m., Eastern Time, on Wednesday, April 17, 2019, the day before the Annual Meeting.

 

  4)

In person.   Attend the Annual Meeting. Mark your voting instructions and deliver to the Inspectors of Election. However, you can vote by methods 1, 2 or 3 above prior to the meeting and still attend the Annual Meeting. In all cases, a vote at the Annual Meeting will revoke any prior votes. Please note that if your Shares are held through a bank, broker or other nominee, you will need to bring proof of ownership to the Annual Meeting in order to vote.

How do I vote the share equivalent units held in the Humana Common Stock Fund of the Humana Retirement Savings Plan or the Humana Puerto Rico Retirement Savings Plan?

If you have an interest in the Humana Common Stock Fund of the Humana Retirement Savings Plan or the Humana Puerto Rico Retirement Savings Plan on the Record Date, you may vote. Under the Humana Retirement Savings Plan and the Humana Puerto Rico Retirement Savings Plan, your voting rights are based on your interest, or the amount of money you and the Company have invested in your Humana Common Stock Fund.

You may exercise these voting rights in almost the same way that stockholders may vote their Shares, but you have an earlier deadline, and you should provide your voting instructions to Broadridge. Broadridge will aggregate the votes of all participants and provide voting information to the Trustee for the applicable plan. If your voting instructions are received by 11:59 p.m., Eastern Time, on Wednesday, April 10, 2019, the Trustee will submit a proxy that reflects your instructions. If you do not give voting instructions (or give them later than that time), the Trustee will vote your interest in the Humana Common Stock Fund in the same proportion as the Shares attributed to the Humana Retirement Savings Plan, or the Humana Puerto Rico Retirement Savings Plan, as applicable, are actually voted by the other participants in the applicable plan.

You must provide your instructions to Broadridge by using the Internet, registered holder telephone number (1-800-690-6903) or mail methods described above. Please note that you cannot vote in person at the Annual Meeting. Your voting instructions will be kept confidential under the terms of the Humana Retirement Savings Plan or the Humana Puerto Rico Retirement Savings Plan, as applicable.

Who will count the votes?

Broadridge will tabulate the votes cast by proxy, whether by proxy card, Internet or telephone. Additionally, the Company’s Inspectors of Election will tabulate the votes cast at the Annual Meeting together with the votes cast by proxy.

 

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How do I revoke my proxy?

You have the right to revoke your proxy at any time before the Annual Meeting.

Your method of doing so will depend upon how you originally voted (a later vote will supersede any prior vote you made regardless of how that vote was made):

 

  1)

By Internet — simply log in and resubmit your vote — Broadridge will only count the last instructions;

 

  2)

By Telephone — simply sign in and resubmit your vote — Broadridge will only count the last instructions;

 

  3)

By Mail — you must give written notice of revocation to Broadridge, 51 Mercedes Way, Edgewood, NY 11717 or by fax at 1-515-254-7733, submit another properly signed proxy with a more recent date, or vote in person at the Annual Meeting. For written and fax notices, you must include the control number that is printed on the upper portion of your proxy card.

What is the due date for stockholder proposals, including stockholder nominees for director, for inclusion in the Company’s proxy materials for the 2020 Annual Meeting?

Stockholder proposals, or stockholder nominees for director at the 2020 Annual Meeting, as permitted by SEC regulations for inclusion in our proxy materials relating to the 2020 Annual Meeting, must be submitted to the Corporate Secretary in writing no later than November 7, 2019. Proposals should be submitted to the attention of the Corporate Secretary, Humana Inc., 500 West Main Street, 21st Floor, Louisville, Kentucky 40202.

May a stockholder present a proposal not included in our Proxy Statement at the April 18, 2019, Annual Meeting?

A stockholder can present a proposal at the Annual Meeting (a so-called “floor resolution”) only if certain notice requirements are met. The SEC does not directly regulate meeting conduct. State law imposes only limited requirements, so meetings are governed by procedures set forth in our Bylaws. Humana’s Bylaws require that a stockholder provide written notice of intent to bring a proposal no less than 60 days or more than 90 days prior to the scheduled date of the Annual Meeting of stockholders. If less than 70 days’ notice of the Annual Meeting is given, written notice by a stockholder would be deemed timely if made no later than the 10th day following such notice of the Annual Meeting. A proposal must also meet other requirements as to form and content set forth in our Bylaws. Stockholder proposals should be sent to the attention of the Corporate Secretary, Humana Inc., 500 West Main Street, 21st Floor, Louisville, Kentucky 40202. A copy of our Bylaws is available on our website. From the www.humana.com website, click on “Investor Relations,” and then click on “Corporate Governance,” and then click on the link entitled, “Bylaws.”

How will Humana solicit votes and who pays for the solicitation?

We have engaged D. F. King & Co., Inc. to assist in the distribution of proxy materials and solicitation of votes for approximately $12,000 plus expenses. We have also engaged Broadridge to assist in the distribution of proxy materials and the accumulation of votes through the Internet, telephone and coordination of mail votes for approximately $253,000 plus expenses. We will reimburse banks, brokers and other nominees for their reasonable out-of-pocket expenses for forwarding proxy and solicitation material to our stockholders.

How can I obtain additional information about the Company?

Included with this proxy statement (either in printed form or on the Internet) is a copy of our Annual Report on Form 10-K for the year ended December 31, 2018, which also contains the information required in our Annual Report to Stockholders. Our Annual Report on Form 10-K and all our other filings with the SEC also may be accessed via the Investor Relations section on our website at www.humana.com. We encourage you to visit our website. From the www.humana.com website, click on “Investor Relations,” and then click on the report you wish to review under the “SEC Filings & Financial Reports” subcategory.

 

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Where can I find voting results for this Annual Meeting?

The voting results will be published in a current report on Form 8-K which will be filed with the SEC no later than four business days after the Annual Meeting. The Form 8-K will also be available on our website at www.humana.com.

What is “householding”?

“Householding” occurs when a single copy of our Annual Report, proxy statement and Notice is sent to any household at which two or more stockholders reside if they appear to be members of the same family. Although we do not “household” for registered stockholders, a number of brokerage firms have instituted householding for Shares held in street name. This procedure reduces our printing and mailing costs and fees. Stockholders who participate in householding will continue to receive separate proxy cards, and householding will not affect the mailing of account statements or special notices in any way. If you wish to receive separate copies of our Annual Report, proxy statement or Notice in the future, please contact the bank, broker or other nominee through which you hold your Shares.

 

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Company Overview

 

 

Headquartered in Louisville, Kentucky, Humana Inc. is a leading (Fortune rank #56) health and well-being company focused on making it easy for people to achieve their best health with clinical excellence through coordinated care. Our strategy integrates care delivery, the member experience, and clinical and consumer insights to encourage engagement, behavior change, proactive clinical outreach and wellness for the millions of people we serve across the country. As of December 31, 2018, we had approximately 16.6 million members in our medical benefit plans, as well as approximately 6.1 million members in our specialty products.

Our Strategy

We are committed to helping our millions of medical and specialty members achieve their best health. Our successful history in care delivery and health plan administration is helping us create a new kind of integrated care with the power to improve health and well-being and lower costs. Our efforts are leading to a better quality of life for people with Medicare, families, individuals, military service personnel, and communities at large. To accomplish that, we support physicians and other health care professionals as they work to deliver the right care in the right place for their patients, our members. Our range of clinical capabilities, resources and tools — such as in-home care, behavioral health, pharmacy services, data analytics and wellness solutions — combine to produce a simplified experience that makes health care easier to navigate and more effective.

Humana’s innovative strategy continues to capitalize on industry changes which continue to progress toward our goals of making benefits more affordable while improving the overall cost of care and consumer experience — through our integrated care delivery model. We understand that healthcare is complicated, and dealing with multiple physicians and other healthcare professionals can be a confusing and daunting task. That is one of the principal reasons why Humana continues to enhance its integrated care delivery strategy in key areas to enable a better and more seamless locally delivered health care experience for our members.

One of the areas in which we strive to improve is the health of seniors living with chronic conditions. Our integrated care delivery model brings simplicity and connectivity to the healthcare experience of our senior members. We thrive in this area by (i) partnering with providers to evolve incentives from treating health episodically to managing health holistically; (ii) integrating clinical programs that intersect healthcare and lifestyle- helping people at key moments of need; and (iii) by simplifying processes through leveraging technology, consumer segmentation and analytics.

We offer insurance and non-insurance products to consumers through our various subsidiaries. Our medical and specialty insurance products allow members to access health care services primarily through our networks of health care providers with whom we have contracted. In addition, we offer services to our health plan members as well as to third parties including pharmacy solutions, provider services, and clinical programs, such as home health and other services and capabilities to promote wellness and advance population health. At the core of our strategy is our integrated care delivery model, which unites quality care, high member engagement, and sophisticated data analytics. Three core elements of the model are to improve the consumer experience by simplifying the interaction with us, engaging members in clinical programs, and offering assistance to providers in transitioning from a fee-for-service to a value-based arrangement. Our approach to primary, physician-directed care for our members aims to provide quality care that is consistent, integrated, cost-effective, and member-focused. The model is designed to improve health outcomes and affordability for individuals and for the health system as a whole, while offering our members a simple, seamless healthcare experience.

Our Performance

With significant progress made on our strategic initiatives, 2018 was an extremely successful year during which we returned strong financial performance:

 

   

We reported diluted earnings per common share (EPS) of $12.16 and adjusted EPS of $14.55*, exceeding our initial Adjusted EPS guidance of $13.50 to $14.00, as we increased our public adjusted earnings estimate four times over the course of the year as a result of strong performance across our operating segments.

 

   

Our 2018 earnings outperformance was fueled by continued strong Medicare Advantage results.

 

   

We returned over $1.3 billion to our stockholders in the form of share repurchases and in dividends, and also increased our quarterly dividend to $0.50 per share from $0.40 per share (with a further ten percent increase to $0.55 per share in February 2019).

 

* 

Please refer to section entitled “Organization and Compensation Committee Report” in this proxy statement for a reconciliation of non-GAAP to GAAP financial measures.

 

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Corporate Governance

 

 

Humana is committed to having sound corporate governance principles and operates within a comprehensive plan of corporate governance for the purpose of defining responsibilities, setting high standards of professional and personal conduct, and assuring compliance with such responsibilities and standards. Sound corporate governance is essential to running our business effectively and to maintaining our reputation of integrity in the marketplace. At the heart of these efforts lie our company values, the guiding forces behind all our actions — Inspire Health, Cultivate Uniqueness, Rethink Routine, Pioneer Simplicity, and Thrive Together. Our Board of Directors has adopted Corporate Governance Guidelines, which we refer to as the Guidelines, intended to comply with the requirements of Section 303A.09 of the NYSE Listed Company Manual. The Guidelines may be viewed on our website at www.humana.com. From the www.humana.com website, click on “Investor Relations,” then click on “Corporate Governance,” and then click on the link entitled “Corporate Governance Guidelines.”

Role of the Board and Board Leadership

Role of the Board

The business of the Company is managed under the direction of the Board, whose members are elected annually by the Company’s stockholders. The basic responsibility of the Board is to lead the Company by exercising its business judgment to act in what each director reasonably believes to be in the best interests of Humana and its stockholders, while engaging in active and independent oversight of the management of the Company’s business affairs and assets. In order to fulfill its responsibilities to the Company’s stockholders, the Board, both directly and through its committees, regularly engages with management, ensures management accountability and reviews the most critical issues that face the Company, such as approval of the Company’s strategy and mission, execution of the Company’s financial and strategic goals, oversight of risk management, succession planning, and determination of executive compensation.

Board Oversight of Risk

While management is responsible for designing and implementing the Company’s risk management process, controls and oversight, the Board, both as a whole and through its committees, has overall responsibility for oversight of the Company’s risk management. The full Board regularly reviews risks that may be material to the Company, including those detailed in the Audit Committee’s reports and as disclosed in the Company’s quarterly and annual reports filed with the SEC.

 

   

    

            

Board of Directors

 

Oversees Major Risks

                     

 Legal/Regulatory

Financial

     

Succession Planning

Strategic

     

Legal/Policy

Reputation

 

      Cyber Security        Investment Objectives

LOGO

 

   

LOGO

 

   

LOGO

 

   

LOGO

 

   

LOGO

 

Audit

Committee

    Organization & Compensation Committee     Nominating & Corporate Governance Committee    

Technology

Committee

   

Investment

Committee

         

 Financial Statement integrity and reporting

 Legal, regulatory and compliance

 Internal Controls

   

 Executive compensation policies and practices

 Non-executive compensation policies and practices

 Succession planning

 

   

 Governance structure and processes

 Legal and policy matters

 Shareholder concerns

 Board Refreshment

   

 Information security, technology and privacy & data protection

 Company IT strategy and consumer facing technology

   

 Investment objectives and policies

 Investment results and performance evaluation

               

Management

Business Units identify and manage business risks; Central functions design risk framework (setting boundaries and monitoring risk appetite); and Internal Audit provides independent assurance on design and effectiveness of internal controls and governance processes.

 

 

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The goal of these processes is to achieve serious and thoughtful board-level attention to the Company’s risk management process and system, the nature of the material risks faced by the Company, and the adequacy of the Company’s risk management process and system designed to respond to and mitigate these risks.

Board Leadership

Leadership of the Board is essential to facilitate the Board acting effectively as a working group to the benefit of the Company and its performance. As Chairman of the Board, Mr. Kurt J. Hilzinger serves as Chair of regular sessions of the Board, runs the Board process and ensures effectiveness and collaboration in all aspects of the Board’s role, and leads the Board in anticipating and responding to crises.

The Board believes that the advisability of having a separate or combined chairman and chief executive officer positions is dependent upon the strengths of the individual or individuals that hold these positions and the most effective means of leveraging these strengths, in light of the challenges and circumstances facing the Company, which may change over time. At this time, given the composition of the Company’s Board, the effective interaction between Mr. Hilzinger, as Chairman, and Mr. Broussard, as Chief Executive Officer, Mr. Hilzinger’s status as an independent director and previous service as our Lead Director, and the current challenges faced by the Company, the Board believes that separating the chief executive officer and Board chairman positions provides the Company with the right foundation to pursue the Company’s strategic and operational objectives, while maintaining effective independent oversight and objective evaluation of the performance of the Company.

Qualifications and Process for Nominating Directors

Identifying Nominees for Directors

The Board has delegated an established screening process for director nominees to the Nominating & Corporate Governance Committee, with counsel from our Chairman, our Chief Executive Officer, and outside consultants as appropriate. The goal of the screening process is to assemble a group of potential board members with deep, varied experience, sound judgment, and commitment to the Company’s success.

The Committee receives notice of potential candidates through any of the following avenues: (i) Board self-identification; (ii) third-party recommendations; and (iii) stockholder nominations. While director nominees may be presented to the Board for consideration by the Committee through any of these methods, the Board is ultimately responsible for selecting its own members — with annual stockholder voting thereafter for a director’s continued tenure on the Board. Once the Committee has compiled its group of suitable candidates and conducted appropriate diligence, it then meets with the Board to review the candidates for further consideration.

Board Self-Identification. The Committee regularly assesses the appropriate size of the Board, the areas of expertise required to effectively contribute to the Board process, and whether any vacancies are anticipated. It also annually assesses the director qualification criteria to ensure the Board has appropriate skill composition aimed at the Company’s long-term business strategy, operations, risks, thought and perspective. As a result, the Committee may recommend to the Board a need for an additional director, Board refreshment for certain requisite skills and qualifications, and/or suggest the replacement of an existing director for other credible reasons. The self-identification process may also incorporate responses, as appropriate, from the Board’s annual individual self-evaluations. Such evaluations require each director to honestly reflect upon and recount their personal contributions to the Board in the prior year and to provide feedback regarding their performance, the overall Board performance and the performance of certain other key Board positions. The self-evaluations are provided to the Chairman of the Board and to the CEO for their review.

Third-Party Recommendations. From time to time, we engage a professional third-party search firm to assist the Board of Directors and the Committee in identifying and recruiting candidates for Board membership. We have committed to requiring any third-party search firm engaged in this process to include candidates with diversity of race, ethnicity, and gender in the pool supplied to the Committee for consideration.

Stockholder Nominees. The policy of the Nominating & Corporate Governance Committee is to consider properly submitted stockholder nominations for candidates for membership on the Board as described above under “Identifying Nominees for Directors.” Stockholder nominations for election to the Board of Directors are governed by specific provisions in our Bylaws, a copy of which is available on our website at www.humana.com. From the www.humana.com website, click on “Investor Relations,” and then click on “Corporate Governance,” and then click on the link entitled, “By-Laws.” The Bylaws require that a stockholder provide written notice of intent to nominate a candidate for director no less than 60 days or more than 90 days prior to the scheduled date of the Annual Meeting of stockholders. If less than 70 days’ notice of the Annual Meeting is given, written notice by a stockholder would be deemed timely if made no later than the 10th day following such notice of the Annual Meeting. Any stockholder nominations proposed for consideration by the Nominating & Corporate Governance Committee should include, among other information required by the Bylaws, the nominee’s name, qualifications for Board membership and compliance with our Director Resignation Policy discussed in this proxy statement and should be sent to: Joseph C. Ventura, Chief Legal Officer & Corporate Secretary, Humana Inc., 500 West Main Street, 21st Floor, Louisville, Kentucky 40202.

 

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Director Qualifications

In assessing a director nominee, the Nominating & Corporate Governance Committee considers the appropriate balance of experience, skills and other qualifications required for service on our Board, including (i) qualifications or characteristics that are expected and befitting of all directors, and (ii) specific skills, experience or qualifications that should be represented collectively on our Board. Our Corporate Governance Guidelines contain Board membership criteria that apply to all nominees recommended for a position on the Board.

The following are core criteria that are expected of each director or nominee:

 

   

Independent under our Corporate Governance Guidelines and applicable New York Stock Exchange (NYSE), Securities and Exchange Commission (SEC) and, as applicable, Internal Revenue Code (IRS) independence requirements;

 

   

Service on a maximum of three public company boards other than our Company;

 

   

High integrity and ethical standards;

 

   

Standing and reputation in the individual’s field;

 

   

Risk oversight ability with respect to the particular skills of the individual director;

 

   

Understanding of and experience with complex public companies or like organizations; and

 

   

Ability to work collegially and collaboratively with other directors and our management team.

Our director nominee screening process is designed to ensure that the Board includes members with diverse backgrounds, including race, ethnicity, gender, skills, thought, perspective and experience, such as appropriate financial and other expertise relevant to the Company’s business. The Nominating & Corporate Governance Committee has demonstrated its commitment to board diversity by revising its charter in December 2018 to expressly state that it shall include, and require any third-party search firm that it engages to include, candidates with diversity of race, ethnicity and gender in the pool considered by the Nominating & Corporate Governance Committee and/or the Board for nomination to the Board. The director nominee analysis also helps to determine whether a nominee would meet the criteria for independence set forth in the Guidelines established by the Board and in accordance with independence requirements of the NYSE and the SEC.

Our Nominating & Corporate Governance Committee recognizes that our Board should represent a diverse group of experience, skills and other qualities, and as a collective group should have expertise in certain substantive areas including: corporate governance, finance/capital markets, board of directors experience, health care industry experience, CEO or other C-suite experience with significant business acumen, direct to consumer marketing, diversity, experience with complex organizations, technology/business processes, clinical practice and government relations and/or public policy and regulatory knowledge. Certain directors or director nominees may possess expertise in the designated areas however a director or director nominee need not individually possess the experience, skill or other requisite qualification in all areas.

The Nominating & Corporate Governance Committee has determined that our Board collectively satisfies all of the above core criteria, complementing each other’s skills, background and perspectives to create a collection of diverse, knowledgeable and experienced directors. For a discussion of the individual experience and qualifications of our Board members, please refer to the section entitled, “Proposal One: Election of Directors” in this proxy statement.

 

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Board Evaluation Practices

The Board is committed to a rigorous self-evaluation process. Through evaluation, directors review the Board’s performance and their own individual contributions, including areas where the Board feels it functions effectively, and most importantly, areas where the Board can improve. The Nominating & Corporate Governance Committee, with participation from our Chairman and Chief Executive Officer, initiates the annual Board evaluation process. Our Board, Board Committees and each individual director are evaluated annually to assess their performance. We believe that having a review process for each group helps to (i) ensure an adequate representation of requisite skills; (ii) encourage high levels of engagement from directors; and (iii) strengthen the overall effectiveness of our Board. These evaluations may be in written or oral questionnaire form and may be administered by Board members, management or third-party consultants. Results of the evaluations are shared with the Chairman of the Board and the Chairman of the Nominating & Corporate Governance Committee and then later discussed with the entire Board in an aggregated manner.

 

       

 

Board Evaluation

 

      
  

 

The Board evaluation typically consists of a written questionnaire containing qualitative scaled and open-ended questions related to the effectiveness of the Board during the prior year. The questionnaire hones in on specific areas of responsibility and critical attributes of the Board in order to solicit candid feedback from each director. The questionnaire also seeks practical input as to what the Board is doing well, areas in which the Board could improve and any undertakings that the Board should commence or terminate. Another benefit of the questionnaire is that it allows each board member to evaluate the effectiveness of the Chairman of the Board.

 

 
  

 

Director Self-Evaluation

 

 
  

 

The director self-evaluation requires each director to honestly reflect upon and carefully consider his or her performance based on key characteristics that are expected of all board members. The self-evaluation also allows each director to provide additional or updated information regarding their skills and qualifications which in turn helps the Nominating & Corporate Governance Committee make future assessments and determinations regarding Board composition. The Company encourages directors to participate in continuing education programs focused on the Company’s business and industry, their Committee roles and responsibilities, as well as legal and ethical matters.

 

 
  

 

Committee Evaluation

 

 
  

 

Each of our Board Committees engages in an annual performance evaluation and a general charter adequacy review. Each Committee is responsible for determining the manner of evaluation and for carrying out the evaluation. Further, the Board evaluation questionnaire includes a section specifically concerning Board Committee structure and performance, which is an opportunity for board members to provide feedback on each Committee, regardless of their individual Committee membership.

 

 
    

2018 Board Evaluation

For the 2018 evaluation period the Chairman of the Board and the Chairman of the Nominating & Corporate Governance Committee employed an independent third-party consulting firm to assist with the Board and Committee evaluation process. Directors were interviewed individually by firm representatives regarding individual directors, committees and the Board effectiveness in general. Following discussions with each director, the firm compiled and aggregated the comments received and then distributed a report to the Chairman of the Board and the Chairman of the Nominating & Corporate Governance Committee. At subsequent meetings, the findings were presented to the Nominating & Corporate Governance Committee and then shared with the full Board for review, discussion and collective action planning.

 

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Director Independence

The Guidelines contain independence standards to assist the Board in its determination of director independence. In addition, to qualify as independent under the Guidelines, the Board of Directors must affirmatively determine that a director has no material relationship with the Company, other than as a director.

Pursuant to the Guidelines, the Board undertakes an annual review of director independence. During this review, the Board considers transactions and relationships between each director or any member of his or her immediate family and the Company and its subsidiaries and affiliates, including transactions or relationships that are reported under “Certain Transactions with Management and Others” in this proxy statement. As provided in the Guidelines, the purpose of this review is to determine whether any such transactions or relationships are inconsistent with a determination that a director is independent.

In the course of this review for the current year, the Board specifically analyzed and discussed several matters:

 

(1)

a relationship between the Company and Pfizer Inc., or Pfizer, for which Frank A. D’Amelio, one of our current directors, serves as an executive officer; and

 

(2)

a relationship between the Company and The University of Texas System, an organization comprised of fourteen academic and health institutions focused on education, research and health care, one of which, The University of Texas at Austin Dell Medical School, employs Dr. Karen B. DeSalvo, one of our current directors, as a part-time faculty member; and

 

(3)

a relationship between the Company and National Seating and Mobility Inc., or National Seating, for which Kurt J. Hilzinger, the Chairman of our Board, serves as a director; and

 

(4)

a relationship between the Company and Chrysalis Ventures, LLC, for which David A. Jones, Jr., one of our current directors, serves as Chairman and Managing Partner, is a greater than 5% stockholder; and

 

(5)

a relationship between the Company and JAPC, Inc., or JAPC, which is owned by the father of Mr. Jones, Jr.; and

 

(6)

a relationship between the Company and ANI Pharmaceuticals, Inc., or ANI, for which Dr. David B. Nash, one of our directors, serves as a director; and

 

(7)

relationships between the Company and certain of our health insurance customers affiliated with one of our current directors or a relative of that director.

Pfizer and ANI. The relationship between the Company, and each of Pfizer and ANI consists of a negotiated rebate based on the volume of prescriptions of Pfizer and ANI drugs obtained by Humana members, respectively, which volume includes claims paid by Humana for our members and the co-payments paid by our members. Payments to Humana from Pfizer or ANI result from activity with many intermediaries over whom Humana exercises no control (i.e., the providers who prescribe these medications, the distributors who sell to the retailers, and the retailers from which our members get prescriptions). In 2018, the Pfizer and ANI rebates amounted to approximately $235.6 million and $622,870, respectively, substantially all of which were passed through to our members in the form of lower premiums and/or richer benefits.

The University of Texas System. The University of Texas System serves as a provider in our network, for which services we paid approximately $6.7 million in 2018, collectively, to certain of its health care institutions, which is an amount that is comparable to other non-affiliated vendors for the provision of similar services, is not material to the Company, and does not represent a direct or indirect material interest for Dr. DeSalvo.

National Seating. We purchase certain medical equipment from National Seating, for which we paid approximately $5.8 million in 2018, which is an amount that is comparable to other non-affiliated vendors, is not material to the Company, and does not represent a direct or indirect material interest for Mr. Hilzinger.

JAPC. In 2018, we provided hangar space, pilot services and maintenance for an airplane owned by JAPC, for which we were fully reimbursed by JAPC in the aggregate amount of approximately $575,411, at a rate at least as favorable to the Company as market rates.

 

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Health Insurance Customers. In 2018, we received health care premium payments from certain customers with whom one of our current directors or a relative of that director has a relationship. Under each such arrangement, the premiums charged and benefits provided are comparable to those extended to our other non-affiliated customers. The following relationships were included in this review:

 

   

Main Street Realty, from which we received approximately $219,815 in premium payments, and which is owned by the father of David A. Jones, Jr.

 

   

Pfizer, from which we received approximately $189,597 in premium payments, and by which Mr. D’Amelio is employed as Executive Vice President, Business Operations and Chief Financial Officer.

At the conclusion of its review for the current year, the Board affirmatively determined that in each case the relationship between the Company or its affiliate and each director-related entity was not material, was below the thresholds for independence prescribed by the NYSE, and did not impact the independence of any of our directors. Each director recused themselves from the independence assessment relative to himself or herself. Consistent with these considerations, and based on its review of director independence in light of the standards contained in the Guidelines, the Board determined that each member of the Board of Directors (except Mr. Broussard, as a current employee of the Company) is independent.

Committee Membership and Attendance

The Board of Directors has the following standing committees: Audit; Organization & Compensation; Nominating & Corporate Governance; Executive; Technology and Investment. Only directors meeting the applicable SEC and NYSE director independence standards and Internal Revenue Code “outside director” criteria may serve on the Audit Committee, the Organization & Compensation Committee, and the Nominating & Corporate Governance Committee. Each standing Board committee operates pursuant to a charter, which may be viewed on our website at www.humana.com. From the www.humana.com website, click on “Investor Relations,” then click on “Corporate Governance,” and then you will see a link to the Committee Charters. The number of Board committee meetings held in 2018 and membership as of March 1, 2019, were as follows:

 

Director

  Audit        

 

Organization      

&      

Compensation      

 

 

Nominating &      
Corporate      
Governance      

  Executive         Technology         Investment      

Frank J. Bisignano

                 

 

LOGO       

   

Bruce D. Broussard

             

 

LOGO       

       

Frank A. D’Amelio

  LOGO             

 

LOGO       

           

Karen B. DeSalvo, M.D.

                 

 

LOGO       

   

W. Roy Dunbar

      LOGO         

 

LOGO       

           

Kurt J. Hilzinger

             

 

LOGO       

       

David A. Jones, Jr.

      LOGO          LOGO         

 

LOGO       

       

William J. McDonald

  LOGO                         

 

LOGO       

William E. Mitchell

      LOGO         

 

LOGO       

           

David B. Nash, M.D.

      LOGO                     

 

LOGO       

James J. O’Brien

  LOGO                         

 

LOGO       

Marissa T. Peterson

               

 

LOGO       

   

 

Number of Meetings in 2018

 

  9         7         5         0         6         4      

LOGO  = Chair         LOGO  = Member

Audit Committee

Committee Responsibilities

Pursuant to its charter, the Audit Committee:

 

   

assists the Board of Directors with the oversight of the integrity of our financial statements and disclosures and internal controls, our compliance with legal and regulatory requirements, the independent registered public accounting firm’s qualifications and independence and the performance of our internal audit function and the independent registered public accounting firm;

 

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bears responsibility for the appointment, compensation, retention and oversight of the work of the independent registered public accounting firm engaged to prepare the audit report or perform other audit, review or attest services;

 

   

reviews with the independent registered public accounting firm, our internal audit department, and our financial and accounting personnel, the effectiveness of our accounting and financial controls and, where appropriate, makes recommendations for the improvement of these internal control procedures;

 

   

reviews the scope, funding and results of our internal audit function, including the independence and authority of our reporting obligations, the proposed audit plans for the year, and the coordination of these plans with the independent registered public accounting firm;

 

   

reviews the scope, funding and results of our Enterprise Risk Management program and compliance program, including receiving, at least quarterly, an update from our Chief Risk Office and internal compliance department regarding any significant matters regarding our risk management and compliance with regulatory requirements and contracts with government entities, respectively;

 

   

reviews the financial statements and other information contained in our Annual Report and other reports to stockholders with management and the independent registered public accounting firm to determine that the independent registered public accounting firm is satisfied with the disclosure and content of the financial statements to be presented to the stockholders and reviews any changes in accounting principles;

 

   

confers independently with our internal auditors, Chief Risk Officer, internal compliance department, key members of management, and the independent registered public accounting firm;

 

   

determines and approves the appropriateness of the fees for audit and permissible non-audit services performed by the independent registered public accounting firm;

 

   

discusses with management our compliance with applicable legal requirements and with our internal policies regarding related party transactions and conflicts of interest;

 

   

discusses our policies with respect to risk assessment and risk management;

 

   

maintains free and open means of communication between the members of our Board of Directors, the independent registered public accounting firm, our internal audit department, our Chief Risk Officer, our internal compliance department, and our financial management; and

 

   

annually evaluates its performance.

Corporate Governance Determinations

The Board of Directors has determined that each of the members of the Audit Committee at February 21, 2019 is independent according to SEC and NYSE requirements, and each is financially literate, as defined in the NYSE listing standards. The Board of Directors has determined further that Messrs. D’Amelio and O’Brien meet the definition of “audit committee financial expert.” PricewaterhouseCoopers LLP, our independent registered public accounting firm, reports directly to the Audit Committee. No member of the Board’s Audit Committee serves on the audit committees of more than three publicly traded companies. The Report of the Audit Committee for the year ended December 31, 2018, is set forth in this proxy statement under the caption “Audit Committee Report.”

Organization & Compensation Committee

Committee Responsibilities

Pursuant to its charter, the Organization & Compensation Committee:

 

   

reviews and approves our goals and objectives relevant to the compensation of our Chief Executive Officer, or CEO, evaluates the CEO’s performance in light of those goals and objectives, and, either as a Committee or together with the other independent directors, determines and approves the CEO’s compensation level based on this evaluation;

 

   

review and approves all elements of compensation paid to our current or prospective executive officers, including without limitation, base compensation, incentive-compensation plans and equity-based plans, employment, change in control or severance programs and agreements, and any special compensation or benefits, including supplemental retirement benefits and any perquisites;

 

   

approves equity-based grants to our executive officers and other associates;

 

   

reviews and discusses with management the Company’s compensation plans and policies for all employees (including the Named Executive Officers) with respect to risk management and risk-inducing incentives;

 

   

ensures preparation of the Compensation Discussion and Analysis and the Compensation Committee Report as required by SEC regulations;

 

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monitors compliance of executive officers and non-employee directors with relevant stock ownership guidelines;

 

   

reviews with management periodically, as it deems appropriate, management succession and inclusion and diversity practices;

 

   

administers our Executive Management Incentive Compensation Plan and other substantially similar or successor incentive compensation plans; and

 

   

annually evaluates its performance.

Scope of Authority, Processes and Procedures

The Organization & Compensation Committee acts on behalf of the Board of Directors to establish the compensation of our executive officers and provides oversight of our compensation philosophy, as described in this proxy statement under the caption “Compensation Discussion and Analysis.” The role of the executive officers and the outside compensation consultant in establishing executive compensation is discussed in this proxy statement under the caption “Compensation Discussion and Analysis.” Other than routine administrative matters and the ability of our CEO to approve grants of equity awards subject to certain individual and annual thresholds, no executive compensation decisions are delegated to management.

Compensation Committee Interlocks and Insider Participation

No member of the Organization & Compensation Committee: (i) is or has ever been an officer or employee of the Company; or (ii) is or was, during the last fiscal year, a participant in a “related person” transaction requiring disclosure under Item 404 of the SEC’s regulations (see discussion in this proxy statement under the caption “Certain Transactions with Management and Others”); or (iii) is an executive officer of another entity at which one of our executive officers serves either as a director or on its compensation committee.

Corporate Governance Determinations

Considering (i) the source of each director’s compensation, including any consulting, advisory or other compensatory fees paid by the Company; and (ii) whether each director has an affiliate relationship with the Company, a subsidiary of the Company or an affiliate of a subsidiary of the Company, the Board has determined that each member of the Organization & Compensation Committee at February 21, 2019, is independent, as defined by the SEC and the NYSE, and is considered to be an “outside director” under Section 162(m) of the Internal Revenue Code.

Compensation Risk Determination

In 2018, the Organization & Compensation Committee reviewed management’s assessment of the risks associated with the Company’s compensation practices and policies for employees, including a consideration of the counterbalance of risk-taking incentives and risk-mitigating factors in Company practices and policies. Following a review of this assessment, the Organization & Compensation Committee determined that the risks arising from the Company’s compensation practices and policies are not reasonably likely to have a material adverse effect on the Company.

Nominating & Corporate Governance Committee

Committee Responsibilities

Pursuant to its charter, the Nominating & Corporate Governance Committee:

 

   

recommends to the full Board criteria for the selection and qualification of the members of the Board;

 

   

evaluates and recommends for nomination by the Board candidates to be proposed for election by the stockholders at each annual meeting;

 

   

seeks out and assists in the recruitment of highly qualified candidates to serve on the Board;

 

   

recommends for Board approval candidates to fill vacancies on the Board which occur between annual meetings;

 

   

develops, periodically reviews and recommends to the Board revisions to the Guidelines;

 

   

studies and reviews with management the overall effectiveness of the organization of the Board and the conduct of its business, and makes appropriate recommendations to the Board;

 

   

reviews the overall relationship of the Board and management;

 

   

reviews issues and developments pertaining to corporate governance;

 

   

reviews our public policy and political spending practices through regular reviews of our policy on political expenditures, expenditures and payments made with corporate funds, and overall political activity, including review of our Political Contributions and Related Activity Report; and

 

   

annually evaluates its performance.

 

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Executive Committee

Pursuant to its charter, the Executive Committee possesses the authority to exercise all the powers of the Board of Directors except as otherwise provided by Delaware law and our Bylaws during intervals between meetings of the Board. The Executive Committee does not have the power, to, among other things, declare a dividend, issue stock, adopt a certificate of merger or sell substantially all of the Company’s business.

Investment Committee

Pursuant to its charter, the Investment Committee establishes investment objectives and policies for our various investment portfolios and investment options available under various employee benefit plans, reviews investment results, and annually evaluates its performance.

Technology Committee

Pursuant to its charter, the Technology Committee represents and assists the Board of Directors with the oversight of:

 

   

Our process, awareness, evaluation and perspective on potentially disruptive technologies and convergences that may represent threats or opportunities for our business operations;

 

   

Our process and perspective on strategic technology capabilities that enable transformational business capabilities;

 

   

Our process, execution roadmaps, requisite capital, progress in delivering technology-enabled transformational capabilities and their related outcomes; and

 

   

Management’s focus on organizational, talent and cultural enablers required to ensure achievement of those outcomes.

The Technology Committee may also assist the Audit Committee in its oversight of our information technology internal controls, cyber security, business continuity and disaster recovery programs.

Corporate Governance Policies

Majority Vote Policy

Under our Bylaws, a director nominee will be elected if the number of votes cast for the nominee exceeds the number of votes cast against the nominee. In contested elections, those in which a stockholder has nominated a person for election to the Board, the voting standard is a plurality of votes cast. The Board has also adopted a policy to require the Board to nominate for election only nominees who agree that, if they are elected to the Board, they will tender an irrevocable resignation conditioned on, first, the failure to achieve the required vote for re-election at any future meeting at which they face re-election, and second, the Board’s acceptance of their resignation following that election. In addition, the Board may fill director vacancies and new directorships only with candidates who agree to tender, promptly following their appointment to the Board, the same form of resignation tendered by other directors, as described above. The Nominating & Corporate Governance Committee will submit a recommendation for prompt consideration by the Board whether to accept the resignation. Any director whose resignation is under consideration will abstain from participating in any decision regarding that resignation. The Bylaws also require stockholder nominees for director election to notify the Company whether or not such nominees intend to tender the same type of resignation required of the Board’s director nominees.

Change in Director’s Primary Position

The Board has adopted a policy requiring that a director whose primary position or affiliation changes must promptly notify the Board and the Nominating & Corporate Governance Committee of the change so that a determination may be made as to the value of his or her continued service on the Board.

Director Stock Ownership Policy

Our Board believes that directors should be stockholders and have a significant personal financial stake in the company. Consequently, the Board has adopted the following stock ownership guidelines:

 

   

Each non-employee director must maintain a minimum equity ownership level of five times the annual cash retainer.

 

   

Shares deferred at the election of the director are considered owned for purposes of the calculation of the ownership requirement.

 

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Any shares owned by a non-employee director (or shares received upon the exercise of options or vesting of restricted stock or restricted stock units, less an amount to cover the exercise price and/or current tax liabilities) must be held by the director until the minimum equity ownership level is reached and thereafter maintained.

 

   

Once the minimum equity ownership level has been achieved, any shares received upon the vesting of restricted stock or restricted stock units, less an amount to cover current tax liabilities, must be held by the director until one year following the vesting date.

Compliance with these guidelines is monitored by the Organization & Compensation Committee.

Director Attendance

The Board has developed a number of specific expectations of directors to define their responsibilities and to promote the efficient conduct of the Board’s business. With respect to the level of commitment expected of directors and related attendance protocols, as part of the Guidelines, the Board formally adopted a policy that all directors should make every effort to attend all meetings of the Board and the Committees of which they are members, and the Company’s Annual Meeting of Stockholders. Attendance by telephone or video conference may be used to facilitate a Director’s attendance.

During 2018, the Board of Directors met 17 times. All directors attended at least 75% of the scheduled Board of Directors’ meetings and meetings held by Committees of which they were members. All director nominees serving as directors at that time attended the Annual Meeting of Stockholders held on April 19, 2018, with the exception of Mr. Mitchell and Dr. DeSalvo who were each absent due to prior commitments.

Executive Sessions of Non-Management Directors

In 2018, our non-management directors held regularly scheduled, formal executive meetings, separate from management and led by our Chairman. Additional executive sessions of the Board are held as necessary or appropriate or upon the request of the Chairman, the Nominating & Corporate Governance Committee or any two other non-management directors. In addition, our non-management directors who qualify as independent within the meaning of our director independence guidelines meet in executive session at least once annually, and, in fact, met in 2018 in connection with each regularly scheduled Board of Directors meeting.

Code of Ethics and Code of Business Conduct

The Company has adopted the “Code of Conduct for the Chief Executive Officer and Senior Financial Officers,” which we refer to as the Executive Code of Ethics, violations of which are reported to the Audit Committee. In addition, we operate under the omnibus Humana Inc. Ethics Every Day, which we refer to as the Code of Ethics, which applies to all associates (including executive officers) and directors. The Humana Ethics Office is responsible for the design and enforcement of our ethics policies, the goal of which is to create a workplace climate in which ethics is so integral to day-to-day operations that ethical behavior is self-enforcing. All employees are required annually to review and affirm in writing their acceptance of the Code of Ethics. The Code of Ethics and the Executive Code of Ethics may be viewed on our website at www.humana.com. Any waiver for directors or executive officers from the provisions of the Code of Ethics or the Executive Code of Ethics must be made by the Board of Directors, and will be disclosed within four days of the waiver on our website at www.humana.com. To see either the Code of Ethics or the Executive Code of Ethics or any waivers to either policy, go to www.humana.com, then click on “Investor Relations,” then click on “Corporate Governance,” and then click on the relevant link.

Policy Regarding Transactions in Company Securities

The Company has a policy prohibiting all associates (including executive officers) from hedging or pledging transactions using Company stock, including: (1) engaging in short sales of Company securities; (2) engaging in transactions in puts, calls or other derivative securities designed to hedge or offset any decrease in the market value of the Company’s equity securities, on an exchange or in any other organized market; or (3) engaging in certain monetization transactions, including holding Company securities in margin accounts or pledging Company securities as collateral. This policy also applies to all directors.

Communication with Directors

Stockholders and other interested parties may communicate directly with our Chairman, non-management directors as a group, or any other individual director by writing to the special e-mail address published on our website at www.humana.com. Specifically, interested parties may visit our website at http://apps.humana.com/bod/contact.asp, where instructions for contacting these persons are available. All directors have access to this e-mail address. We use the staff of our Corporate Secretary to review correspondence received in this manner, and to filter advertisements, solicitations, spam, and other such items. Concerns related to accounting, internal controls or auditing matters are required to be brought immediately to the attention of our Chief Legal Officer and the Board and handled in accordance with procedures established by the Audit Committee with respect to such matters.

 

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Proposal One

Election of Directors

 

 

The Board of Directors of the Company, in accordance with the provisions of the Company’s Articles of Incorporation and Bylaws, has determined that the number of directors to be elected at the Annual Meeting of the Company shall be ten. The directors are elected to hold office until the Annual Meeting of Stockholders in 2020 and until a successor is elected and qualified.

Each of the nominees has consented to be named as a nominee and agreed to serve if elected. If any nominee becomes unable to serve for any reason (which is not anticipated), the Shares represented by the proxy granted to Messrs. Hilzinger and Broussard may be voted for the substituted nominee as may be designated by the Board of Directors. The Board has established a policy that non-employee directors must retire at the first annual meeting following his or her seventy-third birthday.

The following table shows certain information concerning the nominees at March 1, 2019.

 

Name

    Age         Position

First Elected

Director

Kurt J. Hilzinger

58

Chairman of the Board, Independent Director

07/2003

Bruce D. Broussard

56

Director, President and Chief Executive Officer

01/2013

Frank J. Bisignano

59

Independent Director

08/2017

Frank A. D’Amelio

61

Independent Director

09/2003

Karen B. DeSalvo, M.D.

53

Independent Director

11/2017

W. Roy Dunbar

57

Independent Director

04/2005

David A. Jones, Jr.

61

Independent Director

05/1993

William J. McDonald

62

Independent Director

10/2007

James J. O’Brien

64

Independent Director

04/2006

Marissa T. Peterson

57

Independent Director

08/2008

Director Skills & Qualifications

In evaluating a director candidate, the Committee considers factors that are in the best interests of the Company and its stockholders, including the knowledge, experience, integrity and judgment of each candidate, the potential contribution of each candidate to the diversity of backgrounds, experience and competencies which the Board desires to have represented, each candidate’s ability to devote sufficient time and effort to his or her duties as a director, independence and willingness to consider all strategic proposals, and any core competencies or technical expertise necessary to staff Board committees. In addition, the Committee assesses whether a candidate possesses: the integrity; independence; business judgment; health care industry, clinical practice and technical knowledge; government relations and/or public policy experience; and other skills and expertise that are likely to enhance the Board’s ability to manage and direct the affairs and business of the Company. We believe that the current Board members not only have and demonstrate these attributes, but also have a deep commitment to the Company’s success, as evidenced by the key qualifications, skills and experiences of each director described below. For additional information, please refer to the section entitled, “Qualifications and Process for Nominating Directors” in this proxy statement. The information given in this proxy statement concerning the nominees is based upon statements made or confirmed to the Company by or on behalf of the nominees.

 

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Director Nominees’ Biographies

 

 

Kurt J. Hilzinger

   

 

Age 58    Director since 2003

      
 

LOGO

Chairman of the Board

 

Committees:

  Executive

 

 

 

    

 

Kurt J. Hilzinger was initially elected to the Board in July 2003, and was elected Chairman of the Board effective January 1, 2014. Mr. Hilzinger served as Lead Director from August 2010 until his appointment as Chairman. Mr. Hilzinger is a Partner at Court Square Capital Partners, an independent private equity firm, having held this position since November 2007. Prior to that, he was a Director of AmerisourceBergen Corporation from March 2004 to November 2007; having previously served as President and Chief Operating Officer of AmerisourceBergen Corporation from October 2002 to November 2007, and as Executive Vice President and Chief Operating Officer from August 2001 to October 2002. Mr. Hilzinger also serves on the following public or privately held boards: Integrated Prescription Management, Inc., National Seating and Mobility, Inc., NDC, Inc. and Celerion, Inc.

 

 
   

 

Skills and Qualifications    

 

   
   

 

The Board believes that Mr. Hilzinger is a strong operating executive with a finance and strategic background, whose operational experience and financial expertise in the health care sector contributes valuable insight to the Board.

 

 
       
       

 

Bruce D. Broussard

   

 

Age 56    Director since 2013

      
 

LOGO

Director, President and

Chief Executive Officer

 

Committees:

  Executive (Chair)

 

 

 

    

 

Bruce D. Broussard, President and CEO, joined Humana in 2011. Under his leadership, Humana has created an integrated care delivery model centered on improving health outcomes, driving lower costs, enhancing quality, and providing a simple and personalized member experience. With its holistic approach, Humana is dedicated to improving the health of the communities it serves by making it easy for people to achieve their best health.

 

Bruce brings to Humana a wide range of executive leadership experience in publicly traded and private organizations within a variety of healthcare sectors, including oncology, pharmaceuticals, assisted living/senior housing, home care, physician practice management, surgical centers and dental networks. Prior to joining Humana, Bruce was Chief Executive Officer of McKesson Specialty/US Oncology, Inc. US Oncology was purchased by McKesson in December 2010. At US Oncology, Bruce served in a number of senior executive roles, including Chief Financial Officer, President, Chief Executive Officer and Chairman of the Board.

 

Bruce plays a leadership role in key business advocacy organizations such as The Business Council and the American Heart Association CEO Roundtable. He is also a member of the Board of Directors of KeyCorp and the World Economic Forum Health Governors Board.

 

 
   

 

Skills and Qualifications    

 

   
   

 

The Board believes that Mr. Broussard’s wide range of executive leadership experience in publicly traded and private organizations within a variety of healthcare sectors, including oncology, pharmaceuticals, assisted living/senior housing, home care, physician practice management, surgical centers, and dental networks, as well as his in-depth knowledge of the Company’s operations, finances and strategy, brings valuable insight to the Board.

 

 
       

 

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Frank J. Bisignano

 

   

 

Age 59    Director since 2017

 

      
 

LOGO

Independent Director

 

Committees:

  Technology

 

 

    

 

Frank J. Bisignano was initially elected to the Board in August 2017. He is Chairman of the Board and Chief Executive Officer of First Data Corporation, Inc., having held this position since 2013 (adding the title of Chairman of the Board in 2014). Prior to joining First Data, Mr. Bisignano was the co-chief operating officer for J.P. Morgan Chase and the chief executive officer of its Mortgage Banking unit. Born and raised in Brooklyn, Mr. Bisignano serves on the boards of the Partnership for New York City, the National September 11 Memorial and Museum, Mount Sinai Health System, the advisory board for the Syracuse University Institute for Veterans and Military Families (IVMF), and is a trustee of The Battery Conservancy and St. Patrick’s Cathedral. Mr. Bisignano was previously vice chairman of the Options Clearing Corporation and a board member for the Depository Trust and Clearing Corporation, the Alliance for Downtown New York, the Lower Manhattan Cultural Council, and PENCIL. He also is a member of the Board of Directors for the Metro Atlanta Chamber, The Commerce Club of Atlanta and Perelman Center for Performing Arts. Mr. Bisignano is a member of the Partnership for New York City and a Centennial Society member of The Economic Club of New York.

 

 
    Skills and Qualifications      

 

 

  

 

 
   

 

The Board believes that Mr. Bisignano is a proven business leader who understands the importance of technology as a solution to complex problems, which is a key part of the Company’s strategy to integrate a fragmented health care system through leveraging technology. This integration sits at the heart of a health care system that considers and cares for the ‘whole person’ while delivering true value, and the Board believes that the depth and breadth of Mr. Bisignano’s experiences and insights are valuable to the Board’s function.

 

 
       
       

 

Frank A. D’Amelio

 

   

 

Age 61    Director since 2003

 

      
 

LOGO

Independent Director

 

Committees:

  Audit (Chair)

  Nominating/Corporate Governance

 

 

    

 

Frank A. D’Amelio was initially elected to the Board in September 2003. He is Executive Vice President, Business Operations and Chief Financial Officer of Pfizer Inc., having held this position since December 2010, and having served as Chief Financial Officer since September 2007. Prior to that, Mr. D’Amelio was Senior Executive Vice President of Integration and Chief Administrative Officer at Alcatel-Lucent from December 2006 to August 2007, and Chief Operating Officer of Lucent Technologies Inc. from February 2006 to November 2006. From May 2001 until January 2006, he was Executive Vice President, Administration and Chief Financial Officer of Lucent. Mr. D’Amelio also serves on the Board of Directors of Zoetis, Inc. and on the board of the Independent College Fund of New Jersey.

 

 
    Skills and Qualifications      

 

 

  

 

 
   

 

The Board believes that Mr. D’Amelio’s skills, global experience and proven leadership in both financial and operational roles contribute greatly to the Board’s composition. As a senior executive at various global companies undergoing the kind of rapid and complex changes that the Company has undertaken in response to the rapidly changing markets and regulatory environment, Mr. D’Amelio has extensive knowledge of the capital markets as well as broad experience working with the investment community, regulatory bodies and rating agencies.

 

 
       

 

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Karen B. DeSalvo

   

 

Age 53    Director since 2017

      
 

LOGO

Independent Director

 

Committees:

  Technology

 

 

    

 

Karen DeSalvo, M.D., MPH, MSc was initially elected to the Board in November 2017. Dr. DeSalvo is a physician whose career has been dedicated to improving the health of all people, with a particular focus on vulnerable populations, through patient care, education, policy and administrative roles, research, and public service. Her commitment to improving the public’s health includes ensuring access to quality, affordable health care, strengthening the public health infrastructure, and creating public-private partnerships to address the social determinants of health. Dr. DeSalvo most recently served as Acting Assistant Secretary for Health at the U.S. Department of Health and Human Services (HHS), a position President Barack Obama nominated her for in May of 2015. In that role, she oversaw 12 core public health offices and 10 regional health offices across the nation, and the development of public health policy recommendations, most notably Public Health 3.0 — a blue print for the future of public health. Under Dr. DeSalvo’s leadership as Delivery System Reform strategy co-lead, HHS set and met historic goals in payment reform, supported transformed models of care delivery including in primary care, and changed the approach to information distribution in the health system. Most recently, Dr. DeSalvo is employed as a part-time faculty member at The University of Texas at Austin Dell Medical School. Dr. DeSalvo also serves on the Board of Welltower, Inc., as a commissioner for the Medicare Payment Advisory Commission (MedPAC), as an advisor to Verily Life Sciences, LLC and LVR Health, and is President of the Society of General Internal Medicine.

 

 
    Skills and Qualifications      

 

 

  

 

 
   

 

The Board believes that Dr. DeSalvo’s extraordinarily varied and successful career in medical practice and health administration are a tremendous addition to Humana’s Board, as the Company continues to evolve from a traditional health insurer to a consumer-focused enterprise dedicated to measurably improving the health of our members. An important part of health improvement is deploying technology to simplify the experience of our members, and Dr. DeSalvo’s experience as our nation’s Health Information Technology coordinator and as a national leader in delivery system transformation will prove invaluable to our company’s relationships with our members and our physician partners, as Humana continues to innovate in the area of health data analytics.

 

 
       
       

 

W. Roy Dunbar

   

 

Age 57    Director since 2005

      
 

LOGO

Independent Director

 

Committees:

  Organization/ Compensation (Chair)

  Nominating/Corporate Governance

 

 

    

 

W. Roy Dunbar was initially elected to the Board in April 2005. Mr. Dunbar was the Chairman of the Board of NetworkSolutions, and was the Chief Executive Officer from January 2008 to November 2009. Mr. Dunbar also served as the President of Global Technology and Operations for MasterCard Incorporated from September 2004 until January 2008. Mr. Dunbar worked at Eli Lilly and Company for 14 years, latterly as President of Intercontinental Operations from 2003 until he joined MasterCard, and Chief Information Officer from 1999 to 2003. Mr. Dunbar also serves on the Board of Directors of Johnson Controls International plc and SiteOne Landscape Supply, Inc.

 

 
    Skills and Qualifications      

 

 

  

 

 
   

 

The Board believes that Mr. Dunbar’s innovative, consumer-focused approach to information technology at a variety of global companies brings a valuable advantage to the Board. The Board benefits from Mr. Dunbar’s expertise in leading companies focused on the development of information systems that are easy for consumers to understand and use effectively, which is critical to the Company’s extension of its position as a leader in health care information technology. Mr. Dunbar’s extensive experience in health care over three decades further contributes to the strategic composition of the Board.

 

 
       

 

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David A. Jones, Jr.

   

 

Age 61    Director since 1993

      
 

LOGO

Independent Director

 

Committees:

  Nominating/Corporate Governance (Chair)

  Organization/ Compensation

  Executive

 

 

 

    

 

David A. Jones, Jr. was initially elected to the Board in May 1993 and served as Chairman of the Board of the Company from April 2005 through August 2010, and Vice Chairman of the Board from September 1996 through April 2005. He is Chairman of Chrysalis Ventures, LLC, headquartered in Louisville, Kentucky, and also serves on the board of directors of several private companies.

 

 
   

 

Skills and Qualifications    

 

 

 

 

  

 

 
   

 

As a successful venture capitalist, the Board believes that Mr. Jones brings strategic insight and leadership and a wealth of experience in health care to the Board, both in the Company’s core businesses as well as in emerging technologies and business models.

 

 
       
       

 

William J. McDonald

   

 

Age 62    Director since 2007

      
 

LOGO

Independent Director

 

Committees:

  Audit

  Investment

 

 

 

    

 

William J. McDonald was initially elected to the Board in October 2007. Mr. McDonald is the managing partner of Wild Irishman Advisory, LLC, a marketing consulting firm. Prior to that, he was Executive Vice President, Brand Management of Capital One Financial Corporation, having held that position from 1998 until his retirement in 2013. Mr. McDonald also serves on the advisory board of The University of Texas at Austin Longhorn Family Leadership Council.

 

 
   

 

Skills and Qualifications    

 

 

 

 

  

 

 
   

 

The Board believes that Mr. McDonald’s service in various senior executive marketing positions contributes significant experience and expertise in brand development, marketing and related disciplines.

 

 
       

 

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James J. O’Brien

   

 

Age 64    Director since 2006

      
 

LOGO

Independent Director

 

Committees:

  Investment (Chair)

  Audit

 

 

 

    

 

James J. O’Brien was initially elected to the Board in April 2006. Until his retirement on December 31, 2014, Mr. O’Brien was the Chairman of the Board and Chief Executive Officer of Ashland Inc. Prior to being named to this position, Mr. O’Brien was President and Chief Operating Officer of Ashland Inc., and before that, Senior Vice President and Group Operating Officer. He also serves on the board of directors of Albemarle Corporation and Eastman Chemical Company.

 

 
   

 

Skills and Qualifications    

 

 

 

 

  

 

 
   

 

As a highly respected leader in the global business community with an extraordinary track record of success, the Board believes that Mr. O’Brien’s breadth of management experience adds valuable expertise and insight to the Board.

 

 
       

 

 

Marissa T. Peterson

   

 

Age 57    Director since 2008

      
 

LOGO

Independent Director

 

Committees:

  Technology (Chair)

 

 

 

    

 

Marissa T. Peterson was initially elected to the Board in August 2008. Ms. Peterson is President and Chief Executive Officer of Mission Peak Executive Consulting, which provides client-focused executive coaching and management consulting services. Ms. Peterson was formerly Executive Vice President, Worldwide Operations, Services & Customer Advocacy for Sun Microsystems Inc. in Santa Clara, California, until her retirement in 2005 after 17 years with the company. Ms. Peterson currently serves on the Board of Directors of Ansell Limited and previously served on the board of directors of Oclaro, Inc., SUPERVALU INC., and Lucile Packard Children’s Hospital at Stanford, and the board of trustees of Kettering University. Ms. Peterson holds an honorary doctorate in management and a bachelor’s degree in engineering from Kettering University where she graduated magna cum laude. She received her MBA from Harvard Business School with the distinction of being a GM Fellow.

 

 
   

 

Skills and Qualifications    

 

 

 

 

  

 

 
   

 

The Board believes that Ms. Peterson’s operating and consumer-focused leadership, and experience developing and managing programs designed to help companies reduce the time, cost and risk of transforming their businesses by leveraging technology to architect, implement and maintain customers’ network computing infrastructures, bring valuable insights to the Board. Her commitment to a “customer first” ethic at Sun Microsystems Inc. established an industry leadership position for high quality and cost-effective product execution to a global customer base, a commitment that aligns with the Company’s focus on consumerism.

 

 
       

Vote Required and Recommendation of the Board of Directors

A director nominee will be elected if the number of votes cast for the nominee exceeds the number of votes cast against the nominee. Shares not present at the Annual Meeting and shares voting “abstain” or broker “non-votes” have no effect on the election of directors. Under the Company’s Majority Vote Policy, following election to our Board of Directors, a director is required to submit his or her irrevocable resignation to our Board of Directors, conditioned upon (i) the director not achieving the requisite stockholder vote at any future meeting at which they face re-election, and (ii) acceptance of the resignation by the Board of Directors following that election. The Board of Directors has 90 days to determine whether or not to accept the director’s resignation and to report this information to our stockholders.

FOR THE REASONS STATED ABOVE, THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR ALL NOMINEES.

 

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Director Compensation

 

 

2018 Director Compensation Program

During 2018, our directors were compensated pursuant to the following schedule:

 

   

 

Annual Retainer (1)

 

  

 

$115,000  

 

 

 

Non-Employee Chairman of the Board

Additional Annual Retainer

 

  

 

$210,000  

 

 

 

Committee Chairman fee per year:

1. Audit Committee Chair

2. Organization & Compensation Committee Chair

3. All other Committee Chairs

  

 

$25,000  

$20,000  

$15,000  

 

 

Executive Committee Member fee per year

 

  

 

$12,000  

 

 

 

Common Stock per year

(1st Business Day of January)(1)(2)

 

  

 

$165,000 in common stock  

(variable # of shares)  

 

 

 

Charitable Contributions Annual Match

 

  

 

up to $40,000  

 

 

 

Group Life and Accidental Death Insurance —

(except Chairman)(3)

 

  

 

$150,000 of coverage  

 

 

 

Group Life and Accidental Death Insurance — Chairman

 

  

 

$400,000 of coverage  

 

 

 

Business Travel Accident Insurance

 

  

 

$250,000 of coverage  

 

 

 

Restricted Stock Units

Granted Initial Date of Election(4)

 

  

 

Restricted Stock Unit grant equal to the dollar value  

of the then current annual stock grant for directors  

 

(1)

As an employee director elected to our Board, Mr. Broussard will not receive the annual retainer or annual stock grant for service as a director. For all other directors, the annual common stock retainer is paid in the form of restricted stock units, vests at the end of the year of service related to the retainer, and will be pro-rated for any service of less than the full year in respect of which the award is granted, as is the cash-based annual retainer.

(2)

Pursuant to our revised Directors Stock Retention Policy, each non-employee director must maintain a minimum equity ownership level of five times the annual cash retainer. As of March 1, 2019, all of our non-employee directors satisfy this requirement. For additional information, please refer to “Corporate Governance — Corporate Governance Policies — Director Stock Ownership Policy” in this proxy statement.

(3)

Coverage amount decreases 50% at age 70.

(4)

This initial award of restricted stock units is forfeited if the director serves less than one year on our Board of Directors.

 

24       Humana  |  2019 Proxy Statement    Director Compensation


Table of Contents

2018 Compensation of Our Directors

The following table shows the compensation earned by our non-employee directors in 2018 in connection with their service on our Board of Directors:

 

Name(1)

(a)

Fees
Earned
or

Paid in

Cash

($)(2)

(b)

Stock

Awards

($)(2)(3)(4)
(c)

Option

Awards

($)

(d)

Non-Equity

Incentive Plan

Compensation

($)

(e)

Change in
Pension

Value and
Nonqualified
Deferred

Compensation

Earnings($)(5)

(f)

All Other

Compensation

($)(7)

(g)

Total

($)

(h)

Frank J. Bisignano

 

115,000

 

164,786

 

 

 

—  

 

43,233

 

323,019

Frank A. D’Amelio

 

140,000

 

164,786

 

 

 

—  

 

1,876

 

306,662

Karen B. DeSalvo, M.D.

 

115,000

 

164,786

 

 

 

—  

 

17,156

 

296,942

W. Roy Dunbar

 

139,000

(6)

 

 

164,786

 

 

 

—  

 

27,451

 

331,237

Kurt J. Hilzinger

 

337,000

 

164,786

 

 

 

—  

 

42,074

 

543,860

David A. Jones, Jr.

 

142,000

 

164,786

 

 

 

(25,922

)

 

42,579

 

323,443

William J. McDonald

 

115,000

 

164,786

 

 

 

—  

 

43,240

 

323,026

William E. Mitchell

 

115,000

 

164,786

 

 

 

—  

 

33,486

 

313,272

David B. Nash, M.D.

 

115,000

 

164,786

 

 

 

—  

 

26,194

 

305,980

James J. O’Brien

 

140,500

(6)

 

 

164,786

 

 

 

—  

 

41,879

 

347,165

Marissa T. Peterson

 

130,000

 

164,786

 

 

 

—  

 

1,788

 

296,574

(1)

During 2018, Mr. Broussard served as President and Chief Executive Officer of the Company, and therefore, as an employee director, did not earn compensation in connection with his service on our Board. Mr. Broussard’s compensation as our Chief Executive Officer is discussed under “Executive Compensation” in this proxy statement.

(2)

Under the Humana Inc. Deferred Compensation Plan for Non-Employee Directors, which we refer to as the Deferred Compensation Plan, non-employee directors may make an irrevocable election each year to defer compensation paid to them by the Company in the form of cash or stock for services rendered as Board members. For 2018, Messrs. D’Amelio, Hilzinger, McDonald, Mitchell and O’Brien and Drs. Nash and DeSalvo each deferred their stock compensation. Refer to footnote 1(d) to the section entitled “Stock Ownership Information — Security Ownership of Directors and Executive Officers” for a disclosure of the number of shares of our common stock that have been deferred by each director. A director electing to defer cash can choose any of the investment options offered in the Deferred Compensation Plan using Charles Schwab’s Retirement Plan Services (other than the Humana Common Stock Fund) or can invest in stock units that have a value relative to that of our common stock. For 2018, Messrs. Hilzinger, Jones, McDonald and Dr. Nash and Ms. Peterson each elected to defer a portion or all of their cash compensation under the Schwab program.

(3)

On January 2, 2018, when the fair market value of our common stock was $250.435, each director in office at that time, other than Mr. Broussard, was granted a stock award of 658 shares, representing the annual grant of approximately $165,000 in common stock. The amount shown in column (c) (“Stock Awards”) above is the grant-date fair market value times the number of shares awarded calculated in accordance with Financial Accounting Standards Board Accounting Standards Codification (FASB ASC) Topic 718.

(4)

Vested restricted stock units with a payout deferral election made by the director accrue quarterly dividends equivalent rights that are reinvested into the director’s account as additional restricted stock units and will be included in the final restricted stock unit payment when the shares are issued in accordance with the director’s payout election. This column does not include dividend equivalent units that have accrued through December 31, 2018 nor includes dividend equivalent rights paid on any such deferred shares.

(5)

Non-employee directors elected subsequent to 1997 do not receive any retirement benefits. As he was first elected to the board in 1993, David A. Jones, Jr. is the only director that will have retirement benefits under this former retirement policy, including: (A) at the director’s election, either: (x) an annual retirement benefit for the life of the director in the amount of $38,000, the annual retainer fee in effect for 1997; or (y) in lieu thereof, an actuarially equivalent joint and survivor annuity payment; and (B) an annual matching charitable contribution benefit of $19,000 for the life of the director.

(6)

Cash compensation for Messrs. Dunbar and O’Brien includes service during 2017 as Chairman of the Organization & Compensation Committee and Chairman of the Investment Committee, respectively.

(7)

We pay for or reimburse our directors’ travel, lodging and other reasonable out-of-pocket expenses in connection with attendance at board, committee and stockholder meetings. From time to time, we may transport one or more directors and members of their immediate family to and from such meetings or other Company business on Company aircraft. Directors may elect to participate in the medical and dental benefit programs offered to all our employees at a rate comparable to the rate paid by employees. In 2018,

 

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Table of Contents
    

Messrs. Dunbar, McDonald and Mitchell, and Dr. DeSalvo and Ms. Peterson, elected to participate. Under the terms of our director compensation policy, each non-employee director who participates in medical and dental plans provided by Humana will, for two years following the date of completion of a change in control, be eligible to participate in medical and dental plans on substantially the same terms as immediately prior to the change in control, including the requirement to pay premiums at the same rates as our associates. We also reimburse the director for other reasonable expenses related to board service, such as director education, which amounts are not included in the table above. In addition, we paid certain local occupational taxes and life and accidental death insurance premiums per outside director, in each case as disclosed below, and provided a matching charitable gift program. The “All Other Compensation” amount above includes the following amounts earned in connection with service on our Board of Directors:

 

Director

Matching
Charitable Gift

($)

Occupational
Tax

($)

Life
Insurance

($)

Other

($)

Total –

All Other
Compensation

($)

Frank J. Bisignano

 

40,000

 

2,459

 

774

 

0

 

43,233

Frank A. D’Amelio

 

0

 

688

 

1,188

 

0

 

1,876

Karen B. DeSalvo, M.D.

 

0

 

1,742

 

414

 

15,000

(1)

 

 

17,156

W. Roy Dunbar

 

25,000

 

1,677

 

774

 

0

 

27,451

Kurt J. Hilzinger

 

40,000

 

10

 

2,064

 

0

 

42,074

David A. Jones, Jr.

 

40,000

 

1,391

 

1,188

 

0

 

42,579

William J. McDonald

 

40,000

 

114

 

1,188

 

1,938

 

43,240

William E. Mitchell

 

31,000

 

632

 

1,854

 

0

 

33,486

David B. Nash, M.D.

 

25,000

 

6

 

1,188

 

0

 

26,194

James J. O’Brien

 

40,000

 

691

 

1,188

 

0

 

41,879

Marissa T. Peterson

 

0

 

1,014

 

774

 

0

 

1,788

  (1)

Dr. DeSalvo also serves as an internal advisory board member for one of our product lines, for which she receives an annual retainer.

 

26       Humana  |  2019 Proxy Statement    Director Compensation


Table of Contents

Stock Ownership Information

 

 

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934, or the Exchange Act, requires our directors and executive officers, and persons who beneficially own more than ten percent of a registered class of our equity securities, to file with the SEC and the NYSE reports of ownership and reports of changes in ownership of our common stock and our other equity securities. These reports generally are due within two business days of the transaction. Executive officers, directors, and greater than ten percent stockholders are required to furnish us with copies of all the forms they file.

During the year ended December 31, 2018, based solely on a review of the reports furnished to the Company, or written representations by persons subject to Section 16(a), the Company believes that all executive officers, directors, and greater than ten percent beneficial owners of our common stock complied with Section 16(a) filing requirements applicable to us; except for the inadvertent failure to file five reports by Mr. Jones, one of our directors, relating to the disposition of shares in years prior to 2018 from each of two trusts for which Mr. Jones is trustee for the benefit of his children. We have a program to oversee the compliance of our executive officers and directors in their reporting obligations, and following our becoming aware of this omission, we completed a review of our controls and procedures governing transactions in Company securities.

Security Ownership of Certain Beneficial Owners of Company Common Stock

We know of no person or entity that may be deemed to own beneficially more than 5% of our outstanding common stock except for:

 

  Number of Shares

 

Percent of  Class
Outstanding
(1)

   

 

BlackRock, Inc.

55 East 52nd Street

New York, New York 10055

 

 

 

12,003,052 shares

 

 

8.9%(2)

 

 

Capital International Investors

11100 Santa Monica Boulevard, 16th Floor

Los Angeles, California 90025

 

 

 

8,199,249 shares

 

 

6.1%(3)

 

FMR LLC

245 Summer Street

Boston, Massachusetts 02210

 

 

 

12,332,738 shares

 

 

9.1%(4)

 

 

The Vanguard Group

100 Vanguard Boulevard

Malvern, Pennsylvania 19355

 

 

 

10,345,164 shares

 

 

7.6%(5)

 

(1)

The percentage of ownership is based on 135,566,672 shares of our common stock outstanding as of December 31, 2018.

(2)

Based upon a Schedule 13G filed with the SEC for the period ended December 31, 2018, BlackRock, Inc. reports that through various subsidiaries, it has sole power to vote 10,475,133 shares and has sole dispositive power over 12,003,052 shares.

(3)

Based upon a Schedule 13G filed with the SEC for the period ended December 31, 2018, Capital International Investors reports that as a result of Capital Research and Management Company acting as investor adviser to various investment companies registered under Section 8 of the Investment Company Act of 1940, Capital International Investors is deemed to be the beneficial owner of 8,199,249 shares over which it has sole power to vote 8,177,719 shares and sole dispositive power over 8,199,249 shares.

(4)

Based upon a Schedule 13G filed with the SEC for the period ended December 31, 2018, FMR LLC reports that through various subsidiaries, it has sole power to vote 1,227,589 shares and sole dispositive power over 12,332,738 shares.

(5)

Based upon a Schedule 13G filed with the SEC for the period ended December 31, 2018, The Vanguard Group reports that through various subsidiaries, it has sole power to vote 168,731 shares, shared power to vote 35,794 shares, sole dispositive power over 10,143,879 shares, and shared dispositive power over 201,285 shares.

 

Stock Ownership Information    2019 Proxy Statement  |  Humana

 

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Table of Contents

Security Ownership of Directors and Executive Officers

The following table shows stock ownership as of January 15, 2019, by (i) each of our directors, (ii) Bruce D. Broussard, our President and Chief Executive Officer, (iii) Brian A. Kane, our Chief Financial Officer, (iv) each of our three other highest compensated executive officers serving at December 31, 2018, (we collectively refer to these officers in this proxy statement as our Named Executive Officers, or NEOs), and (v) by all our directors and executive officers as a group, including those named above.

 

    

 

Company Common    

Stock Beneficially    

Owned as of    

January 15, 2019    

(1)(2)    

  

 

Percent
of
Class as of
December 31, 2018
(3)

 
   

 

Frank J. Bisignano

 

  

 

    1,283

 

        

 

Frank A. D’Amelio

 

  

 

  20,634

 

        

 

Karen B. DeSalvo, M.D.

 

  

 

      634

 

        

 

W. Roy Dunbar

 

  

 

    1,839

 

        

 

Kurt J. Hilzinger

 

  

 

  19,448

 

        

 

David A. Jones, Jr.

 

  

 

  88,284

 

        

 

William J. McDonald

 

  

 

    2,276

 

        

 

William E. Mitchell

 

  

 

      100

 

        

 

David B. Nash, M.D.

 

  

 

      118

 

        

 

James J. O’Brien

 

  

 

    2,646

 

        

 

Marissa T. Peterson

 

  

 

    1,434

 

        

 

Bruce D. Broussard

 

  

 

206,337

 

        

 

Brian A. Kane

 

  

 

  79,777

 

        

 

Jody L. Bilney

 

  

 

  45,826

 

        

 

Timothy S. Huval

 

  

 

  23,746

 

        

 

William K. Fleming

 

  

 

  22,119

 

        

 

All directors and executive officers as a group (27 in number, including those named above)

 

  

 

736,101

 

  

 

 

 

 

0.54%

 

 

 

 

(1)

Beneficial ownership of Shares, for purposes of this proxy statement, includes Shares as to which a person has or shares voting and/or investment power. Therefore, any restricted stock for which a person has voting power and all share equivalents in the Humana Retirement Savings Plan are included. These footnotes describe whenever an individual shares voting and/or investment power over the Shares beneficially owned by them.

The number of Shares listed:

 

  (a)

Includes certain Share equivalents held for the benefit of the individuals in the Humana Retirement Savings Plan as of December 31, 2018, over which the employee participant has voting power and investment power. As of December 31, 2018, our Named Executive Officers held 116 such Share equivalents in the Humana Retirement Savings Plan, while all of our executive officers as a group (16 in number, including our NEOs) held 1,900 such Share equivalents.

 

28       Humana  |  2019 Proxy Statement    Stock Ownership Information


Table of Contents
  (b)

Includes Shares which may be acquired by these individuals through the exercise of options, which are exercisable currently or within 60 days after January 15, 2019. As of January 15, 2019, none of our non-employee directors held exercisable options. Exercisable options held by our NEOs and other executive officers as of January 15, 2019, or exercisable within 60 days thereof, were as follows:

 

 

Bruce D. Broussard

 

  

 

 

 

 

124,216

 

 

 

 

 

Brian A. Kane

 

  

 

 

 

 

59,162

 

 

 

 

 

Jody L. Bilney

 

  

 

 

 

 

33,208

 

 

 

 

 

Timothy S. Huval

 

  

 

 

 

 

14,915

 

 

 

 

 

William K. Fleming

 

  

 

 

 

 

15,340

 

 

 

 

 

All executive officers as a group (numbering 16, including our NEOs)

 

  

 

 

 

 

392,422

 

 

 

 

 

  (c)

Does not include stock awards to certain of our directors that have been deferred pursuant to our Deferred Compensation Plan for Non-Employee Directors. These deferred stock awards include the initial award of 7,500 restricted stock units to each of Messrs. McDonald, Mitchell and O’Brien, Dr. Nash and Ms. Peterson when first elected as a director, which by its terms must be held until the recipient is no longer serving on our Board of Directors. As of January 15, 2019, the Shares deferred were as follows (includes accrued dividend equivalent units on deferred shares and deferred cash that was invested in the Humana Common Stock Fund):

 

 

Frank J. Bisignano

 

  

 

 

 

 

0

 

 

 

 

 

Frank A. D’Amelio

 

  

 

 

 

 

25,396

 

 

 

 

 

Karen B. DeSalvo, M.D.

 

  

 

 

 

 

662

 

 

 

 

 

W. Roy Dunbar

 

  

 

 

 

 

21,300

 

 

 

 

 

Kurt J. Hilzinger

 

  

 

 

 

 

29,972

 

 

 

 

 

David A. Jones, Jr.

 

  

 

 

 

 

5,987

 

 

 

 

 

William J. McDonald

 

  

 

 

 

 

35,330

 

 

 

 

 

William E. Mitchell

 

  

 

 

 

 

25,232

 

 

 

 

 

David B. Nash, M.D.

 

  

 

 

 

 

21,669

 

 

 

 

 

James J. O’Brien

 

  

 

 

 

 

29,074

 

 

 

 

 

Marissa T. Peterson

 

  

 

 

 

 

17,856

 

 

 

 

 

  (d)

Does not include the January 2, 2019, annual stock retainer of 588 restricted stock units granted to each of our directors (other than Mr. Broussard) pursuant to our director compensation program, which restricted stock units are expected to vest on December 31, 2019.

 

(2)

As of March 1, 2019, no Shares are pledged by any of our executive officers or directors in accordance with our policy prohibiting pledging or hedging transactions.

 

(3)

Based on 135,566,672 Shares outstanding as of December 31, 2018. Unless indicated, ownership is less than 1% of the class.

 

Stock Ownership Information    2019 Proxy Statement  |  Humana

 

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Table of Contents

Compensation Discussion and Analysis

 

 

This Compensation Discussion and Analysis (CD&A) presents in detail our compensation policies and practices, describing each element of compensation and the decision-making process by our Organizational and Compensation Committee (“Committee”) that supports it. We encourage you to read this CD&A in conjunction with the compensation tables that follow for additional context to the Committee’s decisions with respect to the 2018 compensation of our Named Executive Officers (“NEOs”), as listed below.

 

2018 Named Executive

Officers

 

Bruce D. Broussard

President and Chief Executive Officer

 

Brian A. Kane

Chief Financial Officer

 

Jody L. Bilney

Chief Consumer Officer

 

Timothy S. Huval

Chief Human Resources Officer

 

William Fleming

Segment President, Healthcare Services

CD&A Table of Contents

 

LOGO

   Executive Summary    31 
   Key Accomplishments    31 
   Summary of Performance    32 
   Compensation Program Enhancements    33 

LOGO

   Compensation Framework    34 
   Compensation Program Design Principles    34 
   Key Program Design Components    34 
   Inputs into Compensation Decisions    35 
   Independent Compensation Consultant    35 
   2018 Stockholder Engagement and Say-on-Pay    36 
   2018 Peer Group    37 

LOGO

   2018 Compensation Decisions    39 
   Overview of Compensation Elements    39 
   Base Salary    40 
   Short-Term and Long-Term Incentive Plan Design    40 
   Associate Incentive Plan    40 
   Long-Term Incentives    42 
   Other Benefits and Perquisites    43 

LOGO

   Compensation Risk Management, Policies and Practices    44 
   Clawback Policy    44 
   Hedging and Pledging Policy    44 
   Stock Ownership Guidelines    44 
  

Compensation Committee Report

 

  

45 

 

 

30       Humana  |  2019 Proxy Statement    Compensation Discussion and Analysis


Table of Contents

Executive Summary

We continue to strengthen our consumer-centric strategic approach, moving from a health insurance company to a health company with elements of insurance. Our focus of providing a holistic care approach came to life this year through focused efforts in five areas of influence – Primary Care, the Home, Pharmacy, Behavioral Health and Social Determinants. In 2018, we made advancements in each of these five areas.

 

 

LOGO

Key Accomplishments

In addition to our strong financial performance, we are proud of the many strategic accomplishments the Company made in 2018 and have highlighted below just a few of the most outstanding.

 

   

We have improved the experience for our members, providers and other partners through targeted investments and initiatives, which have helped to advance our Net Promoter Score (NPS). The decrease in call transfers, increase in digital self-service and the consistency and stability of our IT infrastructure give light to our efforts.

 

   

We deepened our clinical capabilities through completing our minority ownership acquisitions of Kindred at Home and Curo Health. We are now testing and learning new care and payment models in five markets in order to improve health outcomes of members with multiple chronic conditions. Likewise, we also continued to advance our primary care capabilities through our 233 owned, joint venture and alliance clinics. Additionally, we are pleased to report that our two Partners in Primary Care clinics located inside Walgreens stores in Kansas City, Missouri experienced positive results.

 

   

We surpassed our STAR-rating goal, with 84 percent of our members enrolled in Medicare Advantage (MA) 4 STAR-rated plans or higher (vs. 74% last year). These ratings are important as they help consumers compare and shop for MA plans based on quality and performance. They also represent a victory for our members in that higher ratings enable us to improve their benefits, such as enhancing clinical programs that encourage positive lifestyle changes.

 

   

We also expanded our internal behavioral health model to our nearly 6 million TRICARE members and are now beginning to insource our Medicare Advantage and Medicaid behavioral health offerings, beginning in Florida. This is an important capability given the role mental health plays in an individual’s overall health.

 

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Table of Contents

Summary of Performance

 

     

 

FINANCIAL

 

 

MEMBER

 

 

QUALITY

 

     

•  Full year 2018 earnings per diluted common share (EPS of $12.16 on a GAAP basis, $14.55* on an Adjusted basis), a growth of over 24% compared to the prior year’s Adjusted EPS

 

•  Outperformed 2018 earnings projections by strong Medicare Advantage results

 

•  Returned over $1.3 billion to stockholders through dividends and share repurchases

 

•  Awarded statewide Medicaid contract in Florida for 2019 and expect membership to grow between 120,000 and 140,000 members

 

•  Individual MA membership grew by 203,200 members during 2018

 

•  Surpassed Commercial membership goals: 1.49M

 

•  D-SNP growth of 30,000 members

 

•  Ranked #1 in customer satisfaction for U.S. mail order pharmacies in the J.D. Power 2018 U.S. Pharmacy study

 

 

•  Net Promoter Score had a year over year improvement of approximately 9%

 

•  Received a 5-star rating on two MA contracts in Florida and Tennessee

 

•  Overall 12 contracts rated 4-star or above, representing 84% of our MA membership

 

•  Ranked #1 on Temkin’s 2018 annual health insurance survey for best customer experience

 

•  We made continued progress in our Bold Goal:

 

–  Seniors in 4 of our 7 phase-one Bold Goal communities improved their Healthy Days.

 

–  Both of our Louisiana (New Orleans and Baton Rouge) communities saw a 4% or higher improvement and Knoxville experienced a 5.4% improvement in Healthy Days.

 

–  Associates accumulated 1.8M more Healthy Days over last 5 years, achieving an overall 18% improvement.

 

–  Expanded clinical and community interventions around food insecurity, loneliness and social isolation

 

   

 

STRATEGIC

 

 

LEADERSHIP

 

   

•  Completed the acquisition of Kindred at Home and Curo Health to be a leader in managing the continuum of home health, palliative care and hospice in an integrated fashion

 

•  Kansas City, Missouri partnership with Walgreens that brings together primary care, pharmacy, in-person health plan support and other services for Medicare beneficiaries

 

•  Acquired Family Physicians Group in central Florida, one of the largest at-risk providers serving Medicare Advantage and Managed Medicaid HMO patients

 

•  12% growth in home health episodes

 

•  Exited non-strategic business lines including Long-Term Care and Voluntary insurance

 

•  Expanded primary care capabilities including relationships with various joint venture partners

 

 

•  Recognized by Newsweek in 2019 as “Best in Customer Service” among health insurance companies

 

•  Highlighted by Forbes in 2019 as one of the “Best Employers for Diversity”

 

•  Appeared on two separate lists published by DiversityInc, in 2018, ranking #48 on its top 50 companies for diversity and #10 on its top 18 companies for Veterans

 

•  Ranked #69 on Corporate Responsibility Magazine’s 100 Best Corporate Citizens list in 2018

 

•  Received the top ranking among health care providers on the JUST 10 list published by JUST Capital with a #11 ranking among companies overall in 2018

 

•  Achieved world class associate engagement at 92nd percentile

 

 

 

LOGO

 

* 

Please refer to section entitled “Organization and Compensation Committee Report” in this proxy statement for a reconciliation of non-GAAP to GAAP financial measures.

 

32       Humana  |  2019 Proxy Statement    Compensation Discussion and Analysis


Table of Contents

Compensation Program Enhancements

We routinely engage with our stockholders to receive feedback on our compensation programs, among other matters. In 2018, we reached out to our top 20 stockholders, representing approximately 50% of our outstanding shares, seeking a dialogue and feedback on issues raised in our 2018 proxy statement. As a result of this stockholder feedback, the Committee approved several changes to our compensation program in an effort to simplify and enhance the performance-based nature of the program, and increase overall transparency. This follows a number of enhancements made to the program following stockholder feedback in prior years.

 

 

WHAT WE HEARD

     

 

WHAT WE DID

 

  Strong support for pay programs and stockholder returns

   

 

  Retained general components of pay programs, while enhancing certain aspects, including change in control and severance policies, and stock ownership guidelines

  Concerned by certain incentive compensation exceptions approved by the Committee that increased the overall payouts

   

  While under unique circumstances following the terminated merger agreement with Aetna, the Committee acknowledged feedback from investors regarding exceptions

 

       No exceptions to incentive compensation payouts were approved for 2018 incentive programs

  Concerned by lack of performance-based equity awards for 2017 long-term incentive program

   

  Reaffirmed commitment to performance-based long-term incentive awards with the inclusion of 50% PSUs as part of the 2018 annual equity awards

  Clawback provision should include all-incentive-based compensation, including equity awards

   

  Enhanced clawback provision to include provision for equity awards granted on or after March 1, 2019

 

   

 

 

 

OTHER PROGRAM ENHANCEMENTS

 

 

    

  

 

Incentive Plans. New plan designs provide balance between Short-Term Incentive (“STI”) and Long-Term Incentive (“LTI”) plan measures to balance short-term decisions for long-term stockholder value creation.

 

 

    

  

 

Stock Ownership Guidelines. To align interests of our executives with the interests of our stockholders, we increased the CEO stock ownership holdings requirement to 6x base salary (from 5x base salary) and implemented 1x base salary guidelines for our Senior Vice President population.

 

 

    

  

 

CIC and Executive Severance Policies. Extended the duration period of restrictive covenants to align with the severance period for any benefits. We also moved the CEO to company-wide Severance Policy and Change in Control Policy benefits to align with other top executives (effective January 1, 2019).

 

 

    

  

 

Peer Group. Revised peer group for 2018 compensation decisions to reflect recent consolidation in the managed care industry and alignment of our pay practices with leaders in the health care services industry.

 

For additional details, see section titled, “2018 Stockholder Engagement and Say-on-Pay.”

 

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Compensation Framework

Compensation Program Design Principles

Our executive compensation programs support our philosophy of attracting, retaining and motivating leaders that align with our strategy of creating an integrated care-delivery model that will generate strong operating results and long-term stockholder value. We design our executive compensation programs to challenge participants as well as reward them for superior performance for our Company and our stockholders. We believe that our compensation program must include three design principles:

 

 

LOGO

Key Program Design Components

The Committee believes strong corporate governance is imperative for prudent compensation decision-making. Highlighted below are some of the key elements of our compensation programs. In addition, we also identify certain pay practices that we do not follow because we believe they do not serve the long-term interest of our stockholders.

 

WHAT WE DO

       WHAT WE DON’T DO
  Majority of NEO pay is at risk      ×   No stock option repricing without stockholder approval
  Clawbacks that allow us to recoup cash-based and equity-based compensation      ×   No single trigger vesting of equity or cash severance payments upon change in control
  Double-trigger for benefits under our Change in Control Policy and equity agreements applicable to our NEOs      ×   No hedging or pledging of Humana securities by associates (including executive officers and directors)
  Robust stock ownership guidelines      ×   No tax gross-ups for our NEOs, and no excessive perquisites, as all have a specific business rationale
  Robust commitment to stockholder engagement      ×   No positive discretion for incentive-based awards
  Dividend equivalent rights on restricted stock units only paid upon final vesting of the award       
  Conduct annual compensation risk assessment       
                

 

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Inputs into Compensation Decisions

For 2018, the Committee received input from a number of sources and reference points to guide in its design of the Company’s executive compensation programs and individual pay decisions. These various perspectives allow the Committee to have visibility into our peer companies’ practices, investor viewpoints, changes in external market practices and each executive’s individual performance, as part of its review of compensation. The Committee regularly reviews input from its independent compensation consultant and our stockholders, external market practices and individual performance to inform compensation decisions for our NEOs. In addition, the Committee reviews tally sheet information that provides a comprehensive look at total compensation for each of our NEO’s as part of its decision-making process. The chart below describes the primary sources contributing to the Committee’s decision-making process.

 

 

LOGO

Committee Inputs Into Compensation Decisions Provides the Committee with We regularly engage withour Reviewed annually, our peer CEO provides input regarding objective information needed st ockholders and believe that group is comprised of the duties and responsibilities to make informed decisions in our outreach process continues companies with whom we may of his direct reports and the the best interests of to st rengthen our compete for talent and whose results of his evaluation of their st ockholders based on compensation understanding of our revenues, market capitalization annual performance trends and practices In public stockholders viewpoints and and business focus are generally CEO provides recommendations companies, including an evaluation of issues on which they are similar to our own. for the compensation of his our executive compensation focused. Provides reference point in direct reports and rational for policies and programs In addition, the Committee making compensation decisions, these decisions. considers the results of the including but not limited to annual advisory vote (say-on- base salaries, short-termand pay) in determining the long-term incentive programs Company's compensation and awards and determining policies and decisions competitivenessofour total compensation packages. For more information, please refer to thesection titled, "2018 stockholder Engagement and Say-on-Pay" in thisCD&A.

 

Independent Compensation Consultant

For 2018, the independent compensation consultant for the Committee was Willis Towers Watson, and a representative of Willis Towers Watson attended all of the regularly scheduled Committee meetings in 2018, including, when invited, executive sessions. In addition, in 2018 management utilized Aon Hewitt to provide certain advice to management regarding executive compensation, independent of advice provided to the Committee. In accordance with the Committee’s Charter, the Committee has the sole authority to determine the compensation for, and to terminate the services of, the independent compensation consultant.

With regard to Willis Towers Watson and Aon Hewitt, the Committee has considered certain factors to determine whether such firm’s service as a compensation consultant raised a conflict of interest, including, among other things:

 

   

Whether the firm provided other services to the Company;

 

   

The amount of fees received by the firm from the Company, as a percentage of such firm’s total revenue;

 

   

The firm’s policies and procedures that are designed to prevent conflicts of interest;

 

   

Whether the firm’s representatives providing services to the Committee have any business or personal relationship with a member of the Committee;

 

   

Whether the firm’s representatives providing services to the Committee own Company stock; and

 

   

Whether the firm’s representatives providing services to the Committee, or the firm itself, have any business or personal relationship with any of our executive officers.

 

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In 2018, we paid Willis Towers Watson approximately $321,000 for executive compensation advisory support services provided to the Committee. In addition, the Committee considered certain advisory services provided by Willis Towers Watson, including corporate risk and broking, and fees for data, surveys and technology, in addition to risk consulting, for which services we paid approximately $1,400,000. After considering the above factors, the Committee determined that the service as an independent compensation consultant of each of Willis Towers Watson and Aon Hewitt did not raise any conflict of interest.

2018 Stockholder Engagement and Say-on-Pay

Our Board and Committee routinely review our compensation and governance practices and policies, including our stockholder engagement practices, with a focus on continual improvement and enhancements. We share our stockholder input regularly with our Board, its committees, and our management team, creating a feedback loop that provides stockholders with transparency into those practices and considerations. In addition to stockholder feedback, our Board considers trends in compensation and governance practices and regularly reviews the voting results of our meetings of stockholders, the governance practices of our peers and other large companies, and current trends in governance. Our regular stockholder outreach follows a cyclical process:

 

 

 

LOGO

 

During the 2018 proxy season, following disparate voting recommendations issued by proxy advisory firms with respect to our say-on-pay advisory vote, we reached out to our top 30 stockholders (representing approximately 67% of our outstanding shares), seeking a dialogue and feedback on issues raised in our 2018 proxy statement. During these discussions, we heard from our stockholders that our supplemental proxy materials provided additional context into the rationale and considerations that the Committee evaluated when making 2017 compensation decisions, that our stockholders understood the challenges to our operating environment due to our failed merger, and an appreciation for our pay for performance culture and strong total stockholder return.

 

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Despite these productive conversations, during our 2018 Annual Meeting, our say-on-pay proposal received approval of 66% of our stockholders who voted, as compared to previous years’ support of 95% in 2017 and 97% in 2016. We were disappointed with this lower level of support, and therefore engaged with our stockholders again in the Fall of 2018, seeking additional dialogue regarding our executive compensation program and practices, Board refreshment process, and environmental, social and governance (ESG) practices. The Chairman of our Board and the Chair of the Committee participated, when requested, in certain of these conversations with our stockholders.

 

 

What We Heard During Our 2018 Stockholder Outreach

 

•  Stockholders were supportive of our approach to Board composition and refreshment and our deliberate process for director succession planning;

 

•  Stockholders understood the Committee’s rationale for 2017 compensation decisions, appreciated the Committee’s return to granting performance-based long-term incentive awards in 2018, and were generally supportive of our compensation programs and overall design;

 

•  Stockholders appreciated meeting with the Chairman of our Board and the Chair of the Committee, and hearing directly from them regarding our Board’s oversight of the Company’s strategy, compensation practices, and corporate governance matters; and

 

•  Stockholders were interested in the culture of our Board and how directors influence management’s execution of our Company’s values and risk management practices.

 

 

 

What We Did In Response to What We Heard

 

As part of our Board’s commitment to engagement with our stockholders, we evaluate and respond to the views voiced by our stockholders on a regular basis. This dialogue with our stockholders has led to the reaffirmation of, or enhancements to, certain of our corporate governance, ESG, and executive compensation practices, which our Board believes are in the best interest of our Company and our stockholders, including:

 

•  Reaffirming our commitment to pay-for-performance by granting performance-based long-term incentive awards and avoiding exceptions to performance-based compensation elements in 2018;

 

•  Continuing to refine our stockholder engagement process to connect with our stockholders;

 

•  Adopting the so-calledRooney Rule,” by amending the charter of our Nominating & Corporate Governance Committee to provide that the Nominating & Corporate Governance Committee will include, and require any third-party search firm that it engages to include, candidates with diversity of race, ethnicity and gender in the pool considered by the Nominating and Corporate Governance Committee and/or the Board for nomination to the Board;

 

•  Providing additional disclosure in our proxy statement regarding our human capital management practices; and

 

•  Adding to our corporate governance disclosures regarding our Board’s aggregate composition, diversity, skills, background and experience, and self-evaluation process in 2018.

 

2018 Peer Group

Our Peer group is used as a reference point in making compensation decisions, such as developing base salary ranges, developing short-term and long-term incentive award ranges, determining competitiveness of the total compensation package for our NEO’s and comparing our performance in order to validate if our compensation programs are informed by market practices.

We believe that our peer group is comprised of companies with whom we may compete for talent and whose revenues, market capitalization, and business focus are similar to our own. Using different screening criteria (e.g., line of business, industry, market cap, etc.) yields multiple perspectives that enrich our understanding of competitive executive pay practices. The Committee reviews the inclusion of each company every year to ensure continued appropriateness of our overall peer group.

 

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For 2018 compensation decisions, with advice from the Committee’s independent compensation consultant, the Committee approved the following peer group:

 

 

Managed Care Peers

      

 

Healthcare Services &

Facilities

 

     

 

Financial & Insurance

   Aetna

    

   AmerisourceBergen Corporation

   

   Aflac, Inc.

   Anthem

    

   CVS Health Corporation

   

   The Allstate Corporation

   Centene Corporation

    

   Cardinal Health, Inc.

   

   MetLife, Inc.

   Cigna Corporation

    

   DaVita Healthcare Partners

   

   The Progressive Corporation

   UnitedHealth Group Inc.

    

   Express Scripts Holding

   

   Prudential Financial, Inc.

    

   HCA Healthcare, Inc.

   

   The Travelers Companies, Inc.

    

   Laboratory Corporation of America Holdings, Inc.

   

 

 

New for 2018: Centene, CVS Health, HCA Healthcare, Laboratory Corp. and MetLife Inc.

Removed for 2018: Eli Lilly and Company, McKesson Corp, Hartford Financial Services Group, Inc. and Unum Group

 

Humana’s 2018 Peer Group Financial Comparison

 

 

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The above illustration represents Humana’s position relative to the Revenue, Market Cap and Net Income position of our peer group.

 

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2018 Compensation Decisions

Overview of Compensation Elements

We believe that having a combination of pay elements motivates and challenges our executives to achieve positive returns for our stockholders, by placing a substantial portion of pay at-risk. The material components of our executive compensation programs are summarized as follows:

 

Fixed Compensation      

Base Salary

 

  

Cash

 

  

Market competitive fixed compensation, reflecting executive’s scope of responsibility

 

Reviewed annually for market alignment, with adjustments as appropriate

 

               
At Risk Compensation      

Short-Term Incentives

 

  

Cash

 

  

 

Cash-based incentive to reward performance for achievement of short-term business objectives

 

Measures align to interest of stockholders of optimizing profitability while balancing the short-term and long-term success of the organization

 

  Long-Term
Incentives
   Humana Equity   

 

Promote retention of our executives

 

Significant portion of executive pay, promoting alignment with stockholders interests of long-term success of the organization

 

Long-term incentive awards, combined with stock ownership guidelines, mitigate excessive risk taking

 

Elements of Compensation — 2018

 

 

LOGO

 

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Base Salary

On an annual basis the Committee, in consultation with their independent compensation consultant, reviews the market data and current base salaries for our executive’s, considering adjustments as deemed appropriate. For 2018, there were no base salary increases for our NEOs. The table below represents base salaries for our CEO and other NEOs for 2018.

 

 

Named Executive Officer

 

  

 

2018 Base Salary  

 

 

Bruce D. Broussard

 

  

 

$1,273,080

 

 

Brian A. Kane

 

  

 

$   700,000

 

 

Jody L. Bilney

 

  

 

$   590,921

 

 

Timothy S. Huval

 

  

 

$   590,921

 

 

William K. Fleming

 

  

 

$   475,000

 

Short-Term and Long-Term Incentive Plan Design

For 2018 compensation decisions, the Committee evaluated our Short-Term Incentive (STI) and Long-Term Incentive (LTI) plan design to ensure alignment with our strategy, sustainability, external market practices and an appropriate balance of risk and reward to retain, motivate and engage our executives.

In consultation with the Committee’s independent compensation consultant, we conducted a thorough review of our Short-Term and Long-Term incentive plans considering:

 

   

Alignment to our long-term strategic plan and correlation to shareholder value creation;

 

   

Measures to include the holistic performance of the organization;

 

   

Measures in our STI and LTI plans should provide a balance between short-term results and long-term shareholder value creation;

 

   

Established market research of measures and mix used by top performing companies in our peer group;

 

   

Feedback from our stockholders; and

 

   

A goal of setting targets that demonstrate year-over-year improvement, with over performance resulting in additional payout opportunity.

Associate Incentive Plan

The Associate Incentive Plan (AIP) is a discretionary, annual cash-based incentive plan that recognizes and rewards all of our full-time and part-time associates, including our executives, who contribute to our Company’s overall performance. On an annual basis the Committee, in consultation with its independent compensation consultant, reviews and approves the AIP as outlined below:

 

 

LOGO

Approve performance Measure Approve individual Target Approve performance Result Approve performance measures and goals, aligned to our business strategy and objectives for the performance year in Q1 2018. Goals are set by the Committee in Q1 of the performance year and align to the Company's overall strategy and our annual financial and operating plans. Review and approve individual, compared to market, based on the executive's scope and responsibilities. Committee certifies the Company performance results against the measures and goals approved in Q1 2018.

 

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The Committee selected the performance measures for the 2018 AIP, aligning our executives to the key financial and operational objectives of our overall strategy:

2018 AlP Organizational Performance Measures

 

 

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STRATEGIC MEASURES Strategic initiatives that will improve relationships with our providers, improve member health and position the organization for long-term sustainable growthPROFITABILITY Bottom-line measure of our organizations profitability (adjusted Earnings Per Share)MEMBER EXPERIENCE Aligned to our strategy to be a consumer-centric organization and continuous improvement on the member experience (Net Promoter Score)

The Committee also established a funding gate for our executive officers, whereby no AIP would be paid unless the Company achieves threshold Adjusted EPS performance. In addition, the Committee retains the ability to exercise negative discretion (but not positive discretion) with respect to the payout results. For 2018, based on our performance, the Committee approved a funding rate of 145.1% of target for the CEO and other NEOs as follows:

 

Measure

     Weighting     

 

Minimum

(50%)

 

    

 

Target

(100%)

 

    

 

Maximum

(200%)

 

    

 

Results

 

     Funding Rate      Total Payout  

 

Adjusted EPS

     60%      $12.58      $13.75      $14.93      $14.55      167.8%      100.7%
             

 

 

LOGO

 

                    

 

Net Promoter

Score

     20%

 

     50%

 

     100%

 

     200%

 

     97.1%

 

     97.1%

 

     19.4%

 

             

 

 

LOGO

 

                    

 

Strategic

Measures

     20%      50%      100%      200%      125%      125%      25.0%
             

 

 

LOGO

 

                    
                                         

 

Total Payout

 

     145.1%

 

 

 

Named Executive Officer

   2018 Earnings     

 

2018 Target
Opportunity

 

     Payout Rate      Actual Payout  

 

Bruce D. Broussard

 

  

 

 

 

 

$1,273,080

 

 

 

 

  

 

 

 

 

$2,227,890

 

 

 

 

     

 

 

 

 

3,232,669

 

 

 

 

 

Brian A. Kane

 

  

 

 

 

 

$   700,000

 

 

 

 

  

 

 

 

 

$   700,000

 

 

 

 

     

 

 

 

 

1,015,700

 

 

 

 

 

Jody L. Bilney

 

  

 

 

 

 

$   590,921

 

 

 

 

  

 

 

 

 

$   590,921

 

 

 

 

    

 

 

145.1%

 

 

 

 

 

  

 

 

 

 

857,427

 

 

 

 

 

Timothy S. Huval

 

  

 

 

 

 

$   590,921

 

 

 

 

  

 

 

 

 

$   590,921

 

 

 

 

     

 

 

 

 

857,427

 

 

 

 

 

William K. Fleming

 

  

 

 

 

 

$   475,000

 

 

 

 

  

 

 

 

 

$   356,250

 

 

 

 

           

 

 

 

 

516,919

 

 

 

 

 

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Long-Term Incentives

Long-Term Incentives provide a vital link between the long-term results achieved for our stockholders and the financial rewards provided to our NEOs. In February 2018, our Committee reaffirmed its commitment to performance-based compensation by approving the following mix of long-term incentive awards for our NEOs:

 

 

LOGO

STOCK OPTIONS Aligns the interest of executive officers with stockholders by emphasis on long-term stockholder creation by promoting growth in our stock pricePERFORMANCE-BASEDSTOCK UNITS Three-year cumulative goals for adjusted return on invested capital (ROIC)Represents managements ability to build long-term value of the organization and returns generated by investments in the CompanyHighly correlated with value creation for our stockholdersTSR modifier to adjust final award payouts up or down based on how the Company performs relative to our 2018 peer groupRESTICTED STOCK UNITS Aligns the interest of executive officers with stockholders by emphasis on long-term stockholder creation and assists in retaining talent

The Committee believed that the combination of award ratio, performance measures and the inclusion of the TSR modifier:

 

   

Aligns executives with the interests of our stockholders;

 

   

Allows executives to focus on measures they have the ability to influence while also satisfying stockholder expectations of using a relative measure;

 

   

Ensures that our long-term incentive compensation program is not overly dependent upon rTSR as an independent measure; and

 

   

Adjusts to general economic conditions that would impact all companies in our peer group.

The Committee, in consultation with its independent compensation consultant, determined the 2018 aggregate amounts and terms of equity compensation awards for each NEO. The Committee performed a review of stock programs and competitive practices of peer companies, as well as the outstanding equity information for each executive officer using tally sheets to examine the value of prior compensation decisions. The 2018 approved equity awards for the CEO and other NEOs are as follows:

 

Named Executive Officer

 

  

 

PSUs

50%

 

    

 

RSUs

25%

 

    

 

Options

25%

 

    

 

Total 2018
LTI Award

 

 

 

Bruce D. Broussard

 

  

 

$

 

 

5,500,000

 

 

 

 

  

 

$

 

 

2,750,000

 

 

 

 

  

 

$

 

 

2,750,000

 

 

 

 

  

 

$

 

 

11,000,000

 

 

 

 

 

Brian A. Kane

 

  

 

$

 

 

1,500,000

 

 

 

 

  

 

$

 

 

750,000

 

 

 

 

  

 

$

 

 

750,000

 

 

 

 

  

 

$

 

 

3,000,000

 

 

 

 

 

Jody L. Bilney

 

  

 

$

 

 

775,000

 

 

 

 

  

 

$

 

 

387,500

 

 

 

 

  

 

$

 

 

387,500

 

 

 

 

  

 

$

 

 

1,550,000

 

 

 

 

 

Timothy S. Huval

 

  

 

$

 

 

825,000

 

 

 

 

  

 

$

 

 

412,500

 

 

 

 

  

 

$

 

 

412,500

 

 

 

 

  

 

$

 

 

1,650,000

 

 

 

 

 

William K. Fleming

 

  

 

$

 

 

1,000,000

 

 

 

 

  

 

$

 

 

500,000

 

 

 

 

  

 

$

 

 

500,000

 

 

 

 

  

 

$

 

 

2,000,000

 

 

 

 

 

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Other Benefits and Perquisites

We operate in a highly competitive, complex and consolidating industry and offer certain benefits that we believe are critical to attract and retain talent. In general, our NEO’s are eligible for the same benefits as our associate population. In addition, we offer a limited number of perquisites to attract and retain our executives but we do not provide any tax reimbursements or “gross-ups” for these benefits.

 

     

      Health and Retirement Benefits

 

         

                

 

            

                                                                          
 
 

•  Our NEO’s participate in the broad-based employee health and retirement programs under the same terms and conditions as other associates.

   

 
 
 

•  Such benefits include: medical, dental, vision, disability, wellness, life and AD&D insurance, as well as 401(k) retirement plan, supplemental 401(k) plan and the option to participate in our Nonqualified Deferred Compensation Plan.

 

   

 
            
     

      Perquisites

 

         

                

 

            

                                                                          
 
 

•  We provide limited perquisites to our NEOs, which are aligned with market practices and are reviewed on a regular basis.

   

 
 
 

•  Perquisites may include limited personal use of the Company aircraft, an annual physical, a matching charitable gift program, a supplemental life insurance benefit, financial planning assistance and, if applicable, relocation assistance.

 

   

 
            
     

      Executive Severance and Change in Control

 

         

                

 

            

                                                                          
 
 

•  The Severance Policy, effective as of January 1, 2019, provides for benefits in the event employment is terminated without cause, for a defined severance period during which certain restrictive covenants would apply (e.g., non-compete, non-solicit and non-disparagement covenants).

 

-  CEO: 24 months base salary and target bonus, with two year restrictive covenants;

 

-  Other NEOs: 18 months base salary only, with 18 month restrictive covenants.

   

   

   

 
 
 

•  The Change in Control Policy (CIC Policy), effective as of January 1, 2019, provides for benefits in the event that employment is terminated under certain circumstances in connection with a Change in Control transaction, with restrictive covenants binding the executive during the applicable severance period.

 

-  CEO: lump sum payment of 30 months base salary and target bonus, with 30 month restrictive covenants;

 

-  Other NEOs: lump sum payment of 24 months base salary and target bonus, with 24 month restrictive covenants.

 

   

   

   

 
       

 

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Compensation Risk Management, Policies and Practices

We review our compensation programs to ensure appropriate governance and risk management practices. We believe that our policies and practices align with evolving best practices, while ensuring appropriate balance of risk and reward. Certain key risk management policies that pertain to executive compensation are as follows:

 

     

      Clawback Policy

 

         

                

 

            

                                                                          
 
 

•  Effective as of February 21, 2019, our Committee adopted a revised Humana Inc. Compensation Recoupment Policy that covers each of our Executive Officers (including our Named Executive Officers) and applies to incentive compensation, including any cash incentive or equity award paid or awarded during the period in which he or she is designated as an Executive Officer. For all Executive Officers, the Company may recoup such incentive compensation in the event of: (a) a material restatement of the Company’s financial statements; or (b) certain specified conduct that in the discretion of the Committee, is likely to cause or has caused material financial, operational or reputational harm to the Company.

 

   

 
            
     

      Hedging and Pledging Policy

 

         

                

 

            

                                                                          
 
 

•  Our Board has adopted a policy prohibiting all employees, including NEOs and Directors, from engaging in short-term, speculative transactions in Company securities and therefore prohibits any hedging or pledging of Company securities, including puts, calls or other derivative securities.

 

   

 
            
     

      Stock Ownership Guidelines

 

         

                

 

            

                                                                          
 
 

•  Our stock ownership guidelines link a significant amount of our executives’ current and potential net worth to the Company’s success in alignment with the interests of our stockholders.

   

 
 
 

•  Ownership guidelines are expressed as a multiple of base salary and must be held until the relevant multiple is reached and maintained thereafter, as follows:

 

-  Chief Executive Officer: 6x base salary (increased from 5x base salary effective April 2018)

 

-  CEO Direct Reports (including all NEOs): 3x base salary

 

-  Senior Vice Presidents: 1x base salary (new executive tier effective April 2018)

 

   

   

   

   

 

 

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Organization & Compensation Committee Report

 

 

The Organization & Compensation Committee of the Company has reviewed and discussed the Compensation Discussion and Analysis for the year ended December 31, 2018 with management. In reliance on these reviews and discussions, the Organization & Compensation Committee recommended to the Company’s Board of Directors, and the Board of Directors has approved, the inclusion of this Compensation Discussion and Analysis in this proxy statement.

All members of the Organization & Compensation Committee of the Company whose names follow submit the foregoing report:

ORGANIZATION & COMPENSATION COMMITTEE

W. Roy Dunbar, Chairman

David A. Jones, Jr.

William E. Mitchell

David B. Nash, M.D.

 

*

We have included an Adjusted EPS financial measure (not in accordance with Generally Accepted Accounting Principles (GAAP)) in our proxy statement as we believe that this measure, when presented in conjunction with the comparable GAAP measure, is useful to both management and our investors in analyzing our ongoing business and operating performance. The following excluded items are not recurring parts of our operating plan: (i) loss of approximately $786 million pretax, associated with the Company’s sale of its wholly-owned subsidiary, KMG America Corporation (KMG) with GAAP measures affected including consolidated pretax and EPS; (ii) put/call valuation adjustments of approximately $33 million associated with the Company’s 40% minority interest in Kindred at Home (Kindred), with GAAP measures affected including consolidated pretax and EPS; (iii) amortization expense for identifiable intangibles of approximately $90 million pretax, with GAAP measures affected including consolidated pretax income, EPS, and segment earnings (for respective amortization expense for the Retail and Group and Specialty segments); (iv) segment earnings of approximately $74 million for the Company’s Individual Commercial segment given the Company’s exit on January 1, 2018, with GAAP measures affected including consolidated pretax income, EPS, consolidated revenues, consolidated benefit ratio and consolidated operating cost ratio; and (v) adjustment related to provisional estimates for the income tax effects related to the tax reform law enacted on December 22, 2017 (Tax Reform Law), with EPS being the only GAAP measure affected. Consequently, we use this non-GAAP financial measure as an indicator of business performance, as well as for operational planning and decision making purposes. Non-GAAP financial measures should be considered in addition to, but not as a substitute for, or superior to, financial measures prepared in accordance with GAAP. To reconcile the non-GAAP to the GAAP amount each of the following should each be considered, to arrive at GAAP EPS of $12.16:(i) a favorable adjustment on the Company’s sale of KMG in the amount of $2.41; (ii) put/call valuation adjustments associated with the 40% minority interest in Kindred of $0.18; (iii) amortization associated with identifiable intangibles of $0.49; (iv) segment losses (earnings) associated with the Individual Commercial segment of ($0.41); (v) and adjustments to provisional estimates for the income tax effects related to Tax Reform Law ($0.28).

 

Organization & Compensation Committee Report    2019 Proxy Statement  |  Humana

 

        45  


Table of Contents

Executive Compensation

 

 

Summary Compensation Table

The following Summary Compensation Table shows the compensation earned for the time period served as an executive officer during the last three fiscal years by (i) Bruce D. Broussard, our President and Chief Executive Officer, (ii) Brian A. Kane, our Chief Financial Officer, and (iii) each of our three other highest compensated executive officers serving at December 31, 2018 (we collectively refer to these officers in this proxy statement as our “Named Executive Officers”).

 

Name and Principal

Position

Year

Salary

($)

 Bonus 

($)

Stock

Awards

($)(1)(3)

Option

Awards

($)(2)

Non-Equity

Incentive

Plan

 Compensation 

($)(3)

Change in

Pension Value

and

Nonqualified

Deferred

 Compensation 

Earnings

($)

All

Other

 Compensation 

($)(4)

Total

($)

 

Bruce D. Broussard,
President and Chief Executive Officer

 

 

 

2018

 

 

 

 

1,273,080

 

 

 

 

—  

 

 

 

 

8,610,778

 

 

 

 

2,740,664

 

 

3,232,669

 

—  

 

455,326

 

 

 

16,312,517

 

 

 

 

2017

 

 

 

 

1,272,367

 

 

 

 

—  

 

 

 

 

10,196,821

 

 

 

 

5,279,241

 

 

2,671,970

 

—  

 

348,124

 

 

 

19,768,525

 

 

 

 

2016

 

 

 

 

1,235,446

 

 

 

 

—  

 

 

 

 

11,888,551

 

 

 

 

4,370,743

 

 

1,973,624

 

—  

 

254,036

 

 

 

19,722,400

 

 

Brian A. Kane,
Chief Financial Officer

 

 

 

2018

 

 

 

 

700,000

 

 

 

 

—  

 

 

 

 

2,348,490

 

 

 

 

747,426

 

 

1,015,700

 

—  

 

193,409

 

 

 

5,005,025

 

 

 

 

2017

 

 

 

 

698,779

 

 

 

 

—  

 

 

 

 

2,367,097

 

 

 

 

1,494,046

 

 

   978,291

 

—  

 

120,261

 

 

 

5,658,476

 

 

 

 

2016

 

 

 

 

636,254

 

 

 

 

—  

 

 

 

 

2,588,908

 

 

 

 

774,252

 

 

   677,610

 

—  

 

106,617

 

 

 

4,783,641

 

 

Jody L. Bilney,
Chief Consumer Officer

 

 

 

2018

 

 

 

 

590,921

 

 

 

 

—  

 

 

 

 

1,213,344

 

 

 

 

386,158

 

 

   857,427

 

—  

 

157,096

 

 

 

3,204,946

 

 

 

 

2017

 

 

 

 

590,590

 

 

 

 

—  

 

 

 

 

2,029,669

 

 

 

 

1,157,928

 

 

   826,826

 

—  

 

138,740

 

 

 

4,743,755

 

 

 

 

2016

 

 

 

 

573,452

 

 

 

 

—  

 

 

 

 

2,277,660

 

 

 

 

774,252

 

 

   610,726

 

—  

 

101,215

 

 

 

4,337,305

 

 

Timothy S. Huval,
Chief Human Resources Officer

 

 

 

2018

 

 

 

 

590,921

 

 

 

 

—  

 

 

 

 

1,291,525

 

 

 

 

411,112

 

 

   857,427

 

—  

 

162,451

 

 

 

3,313,436

 

 

 

 

2017

 

 

 

 

590,590

 

 

 

 

—  

 

 

 

 

2,029,669

 

 

 

 

1,157,928

 

 

   826,826

 

—  

 

134,783

 

 

 

4,739,797

 

 

 

 

2016

 

 

 

 

573,453

 

 

 

 

—  

 

 

 

 

2,277,660

 

 

 

 

774,252

 

 

   610,727

 

—  

 

  87,704

 

 

 

4,323,796

 

 

William K. Fleming,
Segment President, Healthcare Services

 

 

 

 

2018

 

 

 

 

475,000

 

 

 

 

—  

 

 

 

 

1,548,730

 

 

 

 

495,114

 

 

   516,919

 

—  

 

120,915

 

 

 

3,156,678

 

(1)

The amounts listed under the column “Stock Awards” in the Summary Compensation Table above disclose the aggregate grant date fair value of equity awards granted in fiscal years 2016, 2017 and 2018, calculated in accordance with FASB ASC Topic 718, “Compensation — Stock Compensation.” Note 13 to the Notes to Consolidated Financial Statements of our Annual Report on Form 10-K for the year ended December 31, 2018, describes the assumptions used to determine the grant date fair value for overall Company equity awards. Performance-based units are disclosed at target value — for a presentation of the ranges of potential values of these performance-based awards at vesting dependent upon the achievement of performance measures, please refer to the table entitled, “Grants of Plan-Based Awards” in this proxy statement.

(2)

The amounts listed under the “Option Awards” column in the Summary Compensation Table above disclose the aggregate grant date fair value of stock option awards granted in fiscal years 2016, 2017 and 2018, calculated in accordance with FASB ASC Topic 718, “Compensation — Stock Compensation.” Note 13 to the Notes to Consolidated Financial Statements of our Annual Report on Form 10-K for the year ended December 31, 2018, describes the assumptions used to determine the grant date fair value for overall Company stock options.

The assumptions used for valuing the Named Executive Officers’ stock options as a group, applying the Black-Scholes methodology, were as follows:

 

     
    

2018

 

    

2017

 

    

2016

 

 
     

 

Weighted Average Fair Value at Grant Date

  

 

$

 

63.67

 

 

  

 

$

 

49.85

 

 

  

 

$

 

37.22

 

 

     

 

Expected Option Life (Years)

  

 

 

 

4.1

 

 

  

 

 

 

4.1

 

 

  

 

 

 

4.2

 

 

     

 

Expected Volatility

  

 

 

 

26.1

 

  

 

 

 

27.1

 

  

 

 

 

27.5

 

     

 

Risk Free Interest Rate

  

 

 

 

2.5

 

  

 

 

 

2.0

 

  

 

 

 

1.1

 

     

 

Dividend Yield

  

 

 

 

0.7

 

  

 

 

 

0.7

 

  

 

 

 

0.7

 

 

(3)

For a discussion of the potential ranges that could have been earned in 2018 under our short-term incentive compensation plan, see the Grants of Plan-Based Awards table, and for a discussion of the actual amounts awarded to our Named Executive Officers in light of the Company’s performance, see the section entitled, “2018 Compensation Decisions — 2018 AIP Organizational Performance Measures” in this proxy statement.

(4)

The amounts listed under the column entitled “All Other Compensation” in the Summary Compensation Table above include: Company contributions to the Humana Retirement Equalization Plan and the Humana Retirement Savings Plan; personal use of Company aircraft; a matching charitable gift program; financial planning assistance; basic life insurance benefits; wellness incentives; and physicals, as further described in the table below.

 

46       Humana  |  2019 Proxy Statement    Executive Compensation


Table of Contents
   

 

Company
  Contributions to  
Humana
Retirement
Equalization  Plan

($)(a)

 

 

 

Company
  Contributions to  
Humana
Retirement
Savings  Plan

($)

 

 

  Personal Use of  
Company Aircraft

($)(b)

 

 

Matching
Charitable
  Contributions  

($)

 

 

Financial
  Planning  

($)

 

 

  Other  

($)(c)

 

 

 

Bruce D. Broussard  

   

 

 

 

281,711

 

   

 

 

 

20,625

 

   

 

 

 

72,910

 

   

 

 

 

40,000

 

   

 

 

 

20,280

 

   

 

 

 

19,800    

 

 

 

Brian A. Kane

   

 

 

 

107,701

 

   

 

 

 

20,625

 

   

 

 

 

11,937

 

   

 

 

 

30,000

 

   

 

 

 

19,404

 

   

 

 

 

3,742    

 

 

 

Jody L. Bilney

   

 

 

 

87,704

 

   

 

 

 

20,625

 

   

 

 

 

0

 

   

 

 

 

20,000

 

   

 

 

 

19,619

 

   

 

 

 

9,148    

 

 

 

Timothy S. Huval

   

 

 

 

87,704

 

   

 

 

 

20,625

 

   

 

 

 

0

 

   

 

 

 

29,681

 

   

 

 

 

19,548

 

   

 

 

 

4,893    

 

 

 

William K. Fleming

   

 

 

 

46,615

 

   

 

 

 

20,625

 

   

 

 

 

0

 

   

 

 

 

30,000

 

   

 

 

 

19,742

 

   

 

 

 

3,933    

 

  (a)

This amount is also listed in the Nonqualified Deferred Compensation table.

  (b)

The costs of personal use of Company aircraft was based on the aggregate incremental costs to the Company, including the lost tax deduction to the Company and personal deadhead hours.

  (c)

Includes basic life insurance premiums, wellness incentives and physicals.

CEO Pay Ratio

In 2018, we made a number of investments in our Associate population which included the following:

 

   

We raised the minimum pay for continental U.S. based full-time and part-time associates to $15 per hour;

 

   

Introduced the all Associate Incentive Plan (AIP), which now includes an additional 26,000 associates in an incentive plan, that aligns to our overall strategy;

 

   

Expanded our focus on recognition to positively support our culture and guiding behaviors; and

 

   

Increased matching for charitable contributions.

In addition, we were recognized during 2018 for our strides in diversity, inclusion and corporate responsibility including the following recognitions:

 

   

Our CEO was one of the first to sign the CEO Action For Diversity and Inclusion pledge, to cultivate a trusting environment where all ideas are welcomed and employees feel comfortable and empowered to discuss Diversity and Inclusion

 

   

Named by the Human Rights Campaign Foundation on its Best Places to Work for LGBTQ Equality

 

   

Forbes Best Employers for Women

 

   

DiversityInc, Top 18 Companies for Veterans

 

   

#7 of Healthiest 100

2018 CEO Pay Ratio: ~231:1

Calculation Approach

 

   

Our CEO Pay Ratio was calculated in compliance with the requirements set forth in Item 402(u) of Regulation S-K;

 

   

We identified our median employee using our associate population as of December 31, 2018, which included 41,600 global full-time, part-time, temporary and seasonal associates employed on that date;

 

   

We consistently applied 2018 W-2 earnings as compensation measure for the median employee;

 

   

For 2018, our median employee participated in the AIP, as discussed further in this proxy statement under the section titled “Compensation Discussion & Analysis - 2018 Compensation Decisions - Associate Incentive Plan.” The 2018 AIP compensation was not included within the 2018 W-2 earnings, as this cash compensation, although earned for 2018, is payable during 2019. Therefore, to determine the median employee compensation, we applied the final AIP payout of 145.1% of the target opportunity (based on overall Company performance, as discussed in the above referenced section) to the median employee’s total W-2 compensation. This payout as a percentage of target was consistent across our population of eligible employees, before any adjustments for individual contributions, including the final payout for our CEO and other NEOs;

 

   

We then calculated the median employee’s compensation in the same manner as the NEOs in the Summary Compensation Table;

 

   

Applying this methodology, our median employee total compensation was $70,498, which includes a base salary of $60,373 and 2018 AIP achievement of $10,125; and

 

   

Our Chief Executive Officer total compensation was $16,312,517.

 

Executive Compensation    2019 Proxy Statement  |  Humana

 

        47  


Table of Contents

Grants of Plan-Based Awards

The following table provides information about equity awards granted in 2018 under our 2011 Stock Incentive Plan, which we refer to as the 2011 Stock Plan, and the range of potential payments earned in 2018 under our short-term incentive compensation plan. A discussion of the features of each type of award is included in the footnotes that follow the table.

 

   Name

   (a)

 

Grant
Date

          (b)          

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

 

Estimated Future Payouts
Under Equity Incentive
Plan
Awards(2)

   

 

All
Other

Stock

Awards:

Number

Of
Shares

Of
Stock

or Units

(#)(3)

(i)

   

All

Other

Option

Awards:

Number of

Securities

Underlying

Options

(#)(4)

(j)

   

Exercise

or Base

Price

of

Option

Awards

($/Sh)(5)
(k-1)

   

Closing
Market
Price
on
Grant
Date
($/Sh)(6)

(k-2)

   

Grant
Date Fair
Value of
Stock
and
Option
Awards
($)(7)

(l)

 
 

Threshold
($)

(c)

   

Target
($)

(d)

   

Maximum
($)

(e)

   

Threshold
(#)

(f)

   

Target
(#)

(g)

   

Maximum
(#)

(h)

 

 

Bruce D. Broussard

 

 

02/19/2018

 

 

 

 

1,113,945

 

 

 

 

 

 

2,227,890

 

 

 

 

 

 

4,455,780

 

 

                                                               
 

 

02/19/2018

                         

 

 

 

8,194

 

 

 

 

 

 

20,486

 

 

 

 

 

 

40,972

 

 

                         

 

 

 

269.00

 

 

 

 

 

 

5,860,840

 

 

 

 

02/19/2018

                                                 

 

 

 

10,243

 

 

                 

 

 

 

269.00

 

 

 

 

 

 

2,749,938

 

 

 

 

02/19/2018

                                                         

 

 

 

     372

 

 

 

 

 

 

268.47

 

 

 

 

 

 

269.00

 

 

 

 

 

 

23,091

 

 

   

 

02/19/2018