DEF 14A 1 d341407ddef14a.htm DEFINITIVE PROXY STATEMENT Definitive Proxy Statement
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

 

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of

the Securities Exchange Act of 1934

(Amendment No.     )

 

 

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Tenet Healthcare Corporation

(Name of Registrant as Specified in Its Charter)

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LOGO

 

 

 

Tenet Healthcare Corporation

2017 Annual Meeting of Shareholders

 

Proxy Statement

 

 


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MESSAGE FROM OUR CHAIRMAN AND CEO

     LOGO  

 

Dear Fellow Shareholders:

In 2016, we continued to build upon our fundamental strengths and implement our strategy. Tenet has a diversified business model aligned with key trends shaping the industry today; a quality network of care sites in growing communities; a dedicated, compassionate group of caregivers and supporting staff; and an enterprise commitment to make the healthcare delivery system work better for our patients, physicians, partners and clients.

We took a number of steps last year to grow and strengthen our business. These actions were guided by the strategic priorities we established over the last few years, which will continue to serve as the foundation for our growth plans in 2017 and beyond.

 

    We enhanced our care network and further refined our portfolio – both within our hospital and ambulatory operations, including strategic expansion and asset divestitures.

 

    We delivered service-line growth and added important care access points, extending our reach to additional communities, often using new and innovative types of facilities.

 

    We drove efficiencies and mitigated expense growth through disciplined cost controls.

 

    We strengthened our relationships with the health system and physician partners in our ambulatory business and increased our ownership stake in United Surgical Partners International (USPI).

 

    We broadened Conifer Health’s client base by winning new engagements.

We made progress on our efforts to diversify our sources of revenue and earnings, expanding contributions from our faster-growing, stronger free cash flow generating Ambulatory Care and Conifer Health businesses and enhancing the mix of revenue and EBITDA that come from operations less reliant on government healthcare programs. These businesses contributed roughly 37 percent of Adjusted EBITDA in 2016, up from 15 percent in 2014. Continuing to invest in the growth of these businesses – organically and through acquisitions – remains an important component of our long-term strategy.

We are excited about the recent opening of our new, state-of-the-art teaching hospital that we built in collaboration with Texas Tech University Health Sciences Center in El Paso, Texas. We also are nearing completion on expansion projects that will add capacity and enable us to address unmet needs and better serve patients in some of our largest markets. We expect these projects will drive incremental revenue and EBITDA growth in our hospital segment, and as the investment period associated with these projects comes to a close, we expect to reduce capital expenditures by $150 million, or over 15 percent, this year while maintaining a competitive level of capital expenditures in our ongoing businesses.

We are choosing not to launch large capital-intensive projects at this time because of the inherent uncertainties facing our industry, most notably the continuing lack of clarity surrounding the future of the Affordable Care Act. We began shortening our capital planning horizon in 2015, and we think it’s appropriate to continue this approach while we gain visibility on the regulatory outlook. We’re also placing an even greater emphasis on cost management, finding opportunities to enhance efficiencies wherever possible.

Our work in 2016 led to total year-over-year revenue and Adjusted EBITDA growth of 5% and 6%, respectively. While we drove incremental growth during the year, Adjusted EBITDA of $2.413 billion was at the lower end of our range of expectations. The shortfall compared to the midpoint was driven primarily by unanticipated losses in our health plans, which we are in the process of exiting. In addition, we expected to deliver improvements in cash flow generation in 2016, and we were disappointed that our Adjusted Free Cash Flow performance was weaker than we had anticipated.

As these are important metrics by which we measure our success, executive compensation in 2016 decreased accordingly. We are committed to holding ourselves accountable when financial performance falls below our expectations.

Looking ahead, we are confident we have the right strategy in place to grow our business, including delivering growth in each of our operating segments. We honor the trust you place in us as stewards of your company. The board and management team remain focused on building sustainable value for shareholders by improving our business mix; delivering EBITDA growth across the enterprise; increasing free cash flow; and reducing our ratio of debt to EBITDA.

On behalf of my fellow directors, I would like to take this opportunity to thank Jim Unruh and Freda Lewis-Hall, M.D., for their dedicated service and numerous contributions to the board and the company. Both are retiring from the board in May.

I am extremely honored to work alongside 130,000 colleagues, whose resolve and altruistic nature truly define who we are as an organization. All of us at Tenet are grateful for the support of our shareholders and want to thank you for your investment in the company.

 

Sincerely,

 

LOGO

Trevor Fetter

 

Chairman and

Chief Executive Officer

 


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MESSAGE FROM OUR LEAD DIRECTOR

     LOGO  

 

Dear Fellow Shareholders:

It has been a great privilege to serve on the Tenet board for the last several years, and I am pleased to now have the opportunity to share my thoughts as lead director. As outlined in detail in this proxy, the board has spearheaded a number of governance enhancements in recent years, including those related to board composition, shareholder engagement on governance matters, and adjustments to our executive compensation metrics. What follows in this letter are some of the recent governance highlights, which reflect our continued commitment to active shareholder engagement, board refreshment, and effective, independent oversight.

Shareholder Outreach

We regularly solicit input from shareholders, and we pride ourselves on being responsive. To that end, we initiated a comprehensive outreach program in 2015 that was constructive for both the board and our shareholders. We held a series of meetings with shareholders in 2015 and again in 2016, which enabled us to obtain insights that informed our decision-making, including making adjustments to certain elements of our executive compensation program. This involved changing performance metrics and targets to better reflect the company’s current business model and strategic priorities, while continuing to align compensation with company performance. These changes, which became effective in 2016, underscore our commitment to regularly review and refine our executive compensation program.

Board Composition and Leadership

We have made substantial changes to the composition of our board, including adding five independent directors in the last two years. Two current directors will also be retiring from the board in May: Jim Unruh and Freda Lewis-Hall, M.D., each of whom has been an outstanding and dedicated member of the Board.

Most recently, we appointed two new independent directors in November 2016: John Byrnes, former chairman and CEO of Lincare Holdings, and Pete Wilver, who recently announced his retirement as executive vice president and chief administrative officer of Thermo Fisher Scientific. This follows the January 2016 appointments of Matt Ripperger and Randy Simpson, partners and co-heads of healthcare for our largest shareholder, Glenview Capital Management, and the March 2015 appointment of Tammy Romo, executive vice president and chief financial officer of Southwest Airlines. Collectively, these directors have a strong combination of operational skills, financial acumen, leadership experience, and deep knowledge across different dimensions of healthcare.

In addition to these changes, Ed Kangas transitioned his responsibilities as lead director to me in 2016. I would like to express my tremendous gratitude to Ed, who served with distinction on the board during transformative periods in Tenet’s evolution – first as non-executive chairman and later as lead director. Ed continues to provide valuable counsel on our board as chair of the Nominating and Corporate Governance Committee and through his membership on two other board committees.

The recent enhancements made by the board have coincided with a structural transformation of the company over the last several years, which has been implemented to directly address a rapidly changing healthcare environment. We believe the actions taken related to strategy and governance have further strengthened the company and positioned it to succeed.

In closing, I want to thank you for your continued support and investment in Tenet Healthcare. We look forward to maintaining a collaborative relationship with you, and we are committed to enhancing long-term value creation and serving your best interests in 2017 and well into the future.

Sincerely,

 

LOGO

Ronald A. Rittenmeyer

Lead Director


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TENET HEALTHCARE CORPORATION

1445 Ross Avenue, Suite 1400

Dallas, Texas 75202

(469) 893-2200

 

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

to be held on Thursday, May 4, 2017

March 24, 2017

To Our Shareholders:

Our Annual Meeting of Shareholders will be held on Thursday, May 4, 2017, at 8:00 a.m. Central time at Tenet Corporate Headquarters, 1445 Ross Avenue, Suite 1400, Dallas, Texas, for the following purposes:

 

1. To elect the 12 directors named in the accompanying Proxy Statement, each to serve until the next annual meeting of shareholders or until his or her successor is duly elected and qualified, whichever is later, or until the director’s earlier resignation or removal;

 

2. To vote, on an advisory basis, to approve the company’s executive compensation;

 

3. To vote, on an advisory basis, on the frequency of future advisory votes to approve the company’s executive compensation;

 

4. To approve the material terms of the performance goals under the Third Amended Tenet Healthcare Corporation Annual Incentive Plan;

 

5. To ratify the selection of Deloitte & Touche LLP as independent registered public accountants for the year ending December 31, 2017; and

 

6. To transact any other business that properly comes before the meeting or any adjournment or postponement.

Only shareholders of record of our common stock at the close of business on March 13, 2017 are entitled to vote at the Annual Meeting.

It is important that your shares be represented and voted at the Annual Meeting. You may vote your shares via the Internet, by telephone or by completing and returning a proxy card. Specific voting instructions are set forth in the “General Information Regarding the Annual Meeting and Voting” section of the accompanying Proxy Statement and on both the Notice of Internet Availability of Proxy Materials and proxy card. You may revoke a proxy at any time prior to its exercise at the Annual Meeting by following the instructions in the “General Information Regarding the Annual Meeting and Voting” section of the Proxy Statement. If you attend the Annual Meeting, you may, if you wish, withdraw your proxy and vote in person.

 

/s/ Paul A. Castanon

Vice President, Deputy General Counsel

and Corporate Secretary

 

Important Notice Regarding the Availability of Proxy Materials

for the Shareholder Meeting To Be Held on May 4, 2017

The accompanying Proxy Statement and proxy card, as well as our Annual Report on

Form 10-K for the year ended December 31, 2016, are available at www.proxyvote.com.


Table of Contents

 

TABLE OF CONTENTS

 

 

     Page  

PROXY STATEMENT SUMMARY

     1  

PROPOSAL 1–ELECTION OF DIRECTORS

     6  

CORPORATE GOVERNANCE AND BOARD PRACTICES

     15  

DIRECTOR COMPENSATION

     22  

SECURITIES OWNERSHIP

     24  

HUMAN RESOURCES COMMITTEE REPORT

     26  

COMPENSATION DISCUSSION AND ANALYSIS

     27  

EXECUTIVE COMPENSATION TABLES

     47  

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

     61  

PROPOSAL 2–ADVISORY VOTE TO APPROVE EXECUTIVE COMPENSATION

     62  

PROPOSAL 3–ADVISORY VOTE ON FREQUENCY OF FUTURE ADVISORY VOTES TO APPROVE EXECUTIVE COMPENSATION

     63  

PROPOSAL 4–APPROVAL OF THE MATERIAL TERMS OF THE PERFORMANCE GOALS UNDER THE THIRD AMENDED ANNUAL INCENTIVE PLAN

     64  

AUDIT COMMITTEE REPORT

     68  

PROPOSAL 5–RATIFICATION OF THE SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS

     70  

GENERAL INFORMATION REGARDING THE ANNUAL MEETING AND VOTING

     71  

OTHER INFORMATION

     74  

APPENDIX A–THIRD AMENDED TENET HEALTHCARE CORPORATION ANNUAL INCENTIVE PLAN

     A-1  

APPENDIX B–NON-GAAP FINANCIAL MEASURES

     B-1  

 

This Proxy Statement includes certain non-GAAP measures, such as Adjusted EBITDA and Adjusted Free Cash Flow. Definitions of these measures and reconciliations to the most comparable GAAP measure are contained in Appendix B.

 


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PROXY STATEMENT SUMMARY  

 

 

Below are highlights of certain information in this Proxy Statement. As it is only a summary, please refer to the complete Proxy Statement and our Annual Report on Form 10-K for the year ended December 31, 2016 before you vote.

2017 ANNUAL MEETING OF SHAREHOLDERS

 

Date and Time:

Thursday, May 4, 2017, at 8:00 a.m. Central Time

Place:

Tenet Corporate Headquarters

1445 Ross Avenue, Suite 1400

Dallas, Texas 75202

Record Date:

March 13, 2017

Information:

This Proxy Statement, the proxy card and our Annual Report on Form 10-K are available at www.proxyvote.com

 

 

VOTING MATTERS AND BOARD RECOMMENDATIONS

 

MANAGEMENT PROPOSALS

     BOARD’S
RECOMMENDATION
           PAGE          

Election of 12 Director Nominees (Proposal 1)

     FOR each of the Director Nominees      6  

Advisory Approval of the Company’s Executive Compensation (Proposal 2)

     FOR      62  

Advisory Approval of the Frequency of Future Advisory Votes to Approve the Company’s Executive Compensation (Proposal 3)

     ONE YEAR      63  

Approval of the Material Terms of the Performance Goals Under the Third Amended Tenet Healthcare Corporation Annual Incentive Plan (Proposal 4)

     FOR      64  

Ratification of the Selection of Deloitte & Touche LLP as Independent Registered Public Accountants for 2017 (Proposal 5)

     FOR      70  

BUSINESS OVERVIEW

Tenet Healthcare Corporation (“Tenet” or the “company”) is a diversified healthcare services company with three complementary business segments. Our care network is comprised of over 575 facilities in growing urban and suburban communities. We have 80 acute care hospitals and an outpatient network inclusive of the largest ambulatory and short-stay surgery platform in the country – operated by our United Surgical Partners International (USPI) subsidiary. Our Conifer Health Solutions (Conifer) subsidiary provides revenue cycle management and value-based care services to over 800 clients, including hospitals, physicians, health plans and employers. With our hospitals, USPI and Conifer, we believe we are well-positioned in some of the most relevant segments of healthcare.

 

LOGO

 

TENET HEALTHCARE 2017 PROXY STATEMENT    

 

1

 


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PROXY STATEMENT SUMMARY

 
     

 

LONG-TERM STRATEGIC PRIORITIES

We are focused on improving our business mix, delivering EBITDA growth in each of our operating segments, increasing free cash flow, and reducing our ratio of debt to EBITDA.

 

LOGO

BOARD AND CORPORATE GOVERNANCE HIGHLIGHTS

Board Refreshment and Self-Evaluations

Our Board of Directors utilizes a comprehensive, year-round director succession planning process designed to provide for a highly independent, well-qualified Board, with the diversity, experience and background to provide strong, effective oversight. To further ensure that we maintain an effective and engaged Board, the Board’s Nominating and Corporate Governance Committee (Governance Committee) regularly conducts comprehensive self-evaluations and performance assessments for all directors. These evaluations inform our Board’s refreshment practices, which include the identification of new directors, the review of our Board and committee leadership structures and rotation of committee memberships. For several years, the Governance Committee has retained a third party advisor to facilitate the annual self-evaluation, which the Board believes promotes a robust and candid process. The Board believes the self-evaluation process assists in maintaining a high performing Board with the right mix of directors to properly oversee management and its execution of the company’s strategy. For more information regarding the Board’s nomination process, succession planning and self-evaluations, please see “Director Nomination Process” beginning on page 12.

In November 2016, the Board appointed two new independent directors: John P. Byrnes, former chairman and CEO of Lincare Holdings, Inc., and Peter M. Wilver, former executive vice president and chief financial officer of Thermo Fisher Scientific Inc. Effective upon the conclusion of the 2017 annual meeting, the size of our Board will be reduced from 14 to 12 directors following the retirement of two incumbent members of the Board: Jim Unruh and Freda Lewis-Hall, M.D. The appointments and reduction in the size of the Board are in accordance with the Support Agreement between the company and Glenview Capital Management, LLC, which is further described on page 6 under “Nominees for Election to the Board of Directors.” After giving effect to the retirements, the average tenure of the 11 non-employee directors will be approximately seven years, with five directors having served on the Board for less than three years.

Active Shareholder Engagement Program

Our Board of Directors regularly and actively solicits input from investors and governance groups to better inform decision-making and gain insight into shareholder perspectives on a broad range of topics. In 2015, we initiated a new investor outreach program to more actively seek specific investor feedback regarding the company’s corporate governance practices, Board composition and executive compensation program, and those discussions resulted in the Human Resources Committee taking a number of actions to redesign the company’s executive compensation program in 2016, which are described in the Compensation Discussion and Analysis section of this Proxy Statement beginning on page 27.

As we continue to engage with shareholders and proxy advisors, feedback is regularly reviewed by our Human Resources Committee and the Governance Committee. Shareholders have generally expressed satisfaction with the company’s corporate governance practices and the Board’s responsiveness. Investors also continued to assign significant importance to the substantial board refreshment efforts since 2014 and the Board’s robust self-evaluation process, which was praised for its use of a third-party consultant to facilitate an assessment of individual director performance and director succession planning.

 

 

2

 

    TENET HEALTHCARE 2017 PROXY STATEMENT


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PROXY STATEMENT SUMMARY

      

 

Director Nominees

 

    NAME   INDEPENDENT  

DIRECTOR

SINCE

  OCCUPATION   COMMITTEE
MEMBERSHIP
    OTHER PUBLIC  
COMPANY
BOARDS

 

LOGO

 

Trevor Fetter

Chairman

  No   September 2003   Chairman & CEO,
Tenet Healthcare
  Executive   1

 

LOGO

  Ronald A. Rittenmeyer Lead Director   Yes   June 2010  

Chairman & CEO, Millennium Health, LLC;

Former Chairman,

President & CEO, Electronic Data Systems

 

Audit

Human Resources (Chair)

Executive (Chair)

  2

 

LOGO

  John P. Byrnes   Yes   November 2016   Former Chairman & CEO, Lincare Holdings  

Audit

Governance

  1

 

LOGO

  Brenda J. Gaines   Yes   March 2005   Retired President & CEO, Diners Club North America  

Audit (Chair)

Human Resources

Executive

  0

 

LOGO

  Karen M. Garrison   Yes   March 2005   Retired President, Pitney Bowes Business Services  

Governance

QCE

  2

 

LOGO

  Edward A. Kangas   Yes   April 2003   Retired Chairman & CEO, Deloitte Touche Tohmatsu  

Governance (Chair)

QCE

Executive

  3

 

LOGO

  J. Robert Kerrey   Yes  

November 2012

(prior service as director from March 2001 to March 2012)

 

Managing Director,

Allen & Company;

Former Governor and U.S. Senator from Nebraska

 

Governance

QCE

  0

 

LOGO

  Richard R. Pettingill   Yes   March 2004   Retired President & CEO, Allina Hospitals and Clinics  

Human Resources

QCE (Chair)

Executive

  2

 

LOGO

  Matthew J. Ripperger   Yes   January 2016   Partner, Glenview Capital Management   Human Resources   0

 

LOGO

  Tammy Romo   Yes   March 2015  

Executive VP & CFO,

Southwest Airlines

 

Audit

Governance

  0

 

LOGO

  Randolph C. Simpson   Yes   January 2016   Partner, Glenview Capital Management  

Governance

QCE

  0

LOGO

  Peter M. Wilver   Yes   November 2016   Former Executive VP
& CFO, Thermo Fisher Scientific
 

Audit

Human Resources

  1

 

TENET HEALTHCARE 2017 PROXY STATEMENT    

 

3

 


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PROXY STATEMENT SUMMARY

 
     

 

Overview of 2017 Director Nominees

 

LOGO

Board Practice Highlights for 2016

 

    Average Board meeting attendance of 97% during 2016

 

    Independent directors met in executive session 16 times in 2016

 

    Board, with assistance of outside advisor, conducted a comprehensive self-evaluation and director performance assessment

 

    All directors in compliance with stock ownership and retention requirements

 

    Independent directors participated with management in broad-based investor outreach program to solicit input on the company’s corporate governance and executive compensation practices

 

    Six audit committee financial experts served on Audit Committee

Corporate Governance Practices

Tenet Healthcare is committed to sound corporate governance practices. Our corporate governance practices are intended to protect the long-term interests of shareholders and promote Board and management accountability. We continually review our corporate governance profile to ensure alignment with evolving market best practices. For further information on our corporate governance practices, please see “Corporate Governance and Board Practices” beginning on page 15.

 

      Annual election of directors

 

  

      Comprehensive self-evaluation and performance assessments for all directors

 

      Majority vote standard and director resignation policy in uncontested elections

 

  

      No supermajority vote requirements

 

      Independent Lead Director with clearly defined and robust responsibilities

 

  

      Board members routinely interact with government regulators and engage in meetings with shareholders

 

      Commitment to Board refreshment practices, including committee Chair rotation

 

  

      Board oversight of political contributions

 

 

 

4

 

    TENET HEALTHCARE 2017 PROXY STATEMENT


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PROXY STATEMENT SUMMARY

      

 

EXECUTIVE COMPENSATION PROGRAM HIGHLIGHTS

Compensation Philosophy and Practices

Tenet Healthcare’s executive compensation program is designed to promote pay-for-performance principles. Our Human Resources Committee reviews our compensation programs annually to ensure they are consistent with our philosophy and objectives. Our practices are intended to incentivize the company’s management to meet our strategic objectives and position the company for both short- and long-term success:

 

    A substantial majority of Named Executive Officer compensation is “at risk” or contingent upon our meeting predetermined financial, operating, quality and service goals that are key drivers of shareholder value

 

    We use a mix of financial and operational performance goals and set different goals for the annual and long-term incentive programs to mitigate against the risk that Named Executive Officers focus on short-term financial rewards at the expense of our long-term growth

 

    We require that all executive officers own a significant amount of stock in the company to ensure their interests are aligned with shareholders

2016 Compensation Program

In 2016, we used the following elements to compensate our executives:

 

     Key Elements of Our Program   2016 CEO Target Pay Mix  
Base Salary   

Fixed compensation component payable in cash

 

 

 

 

LOGO

 

 

    
Annual
Incentive
Plan
  

Performance-based cash compensation

– Performance measured against a “balanced scorecard” of Cost, Growth, Quality, Service and People metrics

 
Long-Term
Incentive
Program
  

Performance-based RSUs (50%)

– Performance based on achievement of four equally-weighted performance metrics

Time-based RSUs (50%)

 

Compensation Governance

Tenet Healthcare is committed to strong compensation program governance practices that reflect market best practices and the input of our shareholders. These practices include:

 

      Commitment to pay-for-performance philosophy, with a substantial majority of executive compensation “at risk”

 

  

      Compensation programs designed to mitigate risk and continuous active monitoring of compensation-related risk

 

      Balanced mix of financial and operational performance goals

 

  

      Anti-hedging and anti-pledging policies

 

      Clawback provisions applicable to all performance-based compensation paid to NEOs

 

  

      No single trigger change-of-control benefits

 

      Significant stock ownership and retention requirements for executives and directors

 

  

      No excise tax gross-ups

 

      No employment agreements

  

      Robust target-setting process resulting in rigorous performance targets

 

      Limited perquisites

 

  

      Independent compensation consultant

 

 

TENET HEALTHCARE 2017 PROXY STATEMENT    

 

5

 


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PROPOSAL 1–ELECTION OF DIRECTORS

 

 

Nominees for Election to the Board of Directors

Tenet’s Board of Directors is elected annually by shareholders. Our nominees for election include 11 independent directors and our Chief Executive Officer and Chairman.

On January 18, 2016, the company entered into a Support Agreement (Support Agreement) with Glenview Capital Management, LLC (Glenview) and other entities affiliated with Glenview. Concurrently with the execution of the Support Agreement, the company appointed Messrs. Ripperger and Simpson to the Board. Pursuant to the Support Agreement, Glenview also proposed Messrs. Byrnes and Wilver as two additional independent nominees for appointment as directors, which appointment occurred on November 2, 2016. Each of the nominees listed below, other than Messrs. Byrnes and Wilver, was last elected by the company’s shareholders at the 2016 annual meeting of shareholders. The company’s Current Reports on Form 8-K, filed with the Securities and Exchange Commission (SEC) on January 19, 2016 and November 4, 2016, contain more information with respect to the Support Agreement and include copies of the Support Agreement and the related Letter Agreement between the company and Glenview dated November 2, 2016.

Under the terms of the Support Agreement, the company agreed to reduce the size of the Board from 14 to 12 members, effective as of the 2017 annual meeting of shareholders. In effect, this provision requires that two incumbent directors (other than the four directors designated or proposed by Glenview) step down from the Board at the annual meeting. In light of the requirements of the Support Agreement, the Board, based upon the recommendation of its Governance Committee, has selected the nominees listed below to serve as directors until the next annual meeting, or until their successors are elected or appointed. The incumbent directors who are not standing for election at the 2017 annual meeting are Mr. Unruh, who has reached the mandatory retirement age for directors set forth in the company’s Corporate Governance Principles, and Dr. Lewis-Hall, who will retire from the Board when her term expires at the 2017 annual meeting in order to focus on her other business and professional responsibilities.

The Board recommends that you vote “FOR” the election of each of the following nominees.

 

 

LOGO

 

Committee

Membership:

Executive

  

Trevor Fetter, 57        Director Since: September 2003

Chairman and CEO

 

Career Highlights

Mr. Fetter was named Tenet’s president in November 2002, and was appointed chief executive officer in September 2003 and chairman in May 2015. From March 2000 to November 2002, Mr. Fetter was chairman and chief executive officer of Broadlane, Inc. From October 1995 to February 2000, he served in several senior management positions at Tenet, including chief financial officer. Mr. Fetter began his career with Merrill Lynch Capital Markets, where he concentrated on corporate finance and advisory services for the entertainment and healthcare industries. In 1988, he joined Metro-Goldwyn-Mayer, Inc., where he had a broad range of corporate and operating responsibilities, rising to executive vice president and chief financial officer. Mr. Fetter holds a bachelor’s degree in economics from Stanford University and an M.B.A. from Harvard Business School.

 

Skills and Qualifications

Healthcare industry experience: Has more than 20 years of senior leadership experience in the healthcare industry at Tenet and Broadlane

Accounting and financial expertise: Served as CFO in the healthcare and entertainment sectors at Tenet and Metro-Goldwyn-Mayer; early in his career at Merrill Lynch Capital Markets, he concentrated on corporate finance and advisory services

 

Other Public Company Directorships

Current: The Hartford Financial Services Group, Inc.

Others in Past 5 Years: None

 

 

6

 

    TENET HEALTHCARE 2017 PROXY STATEMENT


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PROPOSAL 1–ELECTION OF DIRECTORS 

      

 

 

 

LOGO

 

Committee
Membership:

Audit

Human Resources
(Chair)

Executive (Chair)

 

Ronald A. Rittenmeyer, 69        Director Since: June 2010

Lead Director

 

Career Highlights

Mr. Rittenmeyer is the chairman and chief executive officer of Millennium Health, LLC, a health solutions company that delivers personalized medication intelligence to inform treatment decisions. He previously served as the chairman, president and chief executive officer of Expert Global Solutions, Inc., a provider of business process outsourcing services, from 2011 to 2014. From 2005 to 2008, Mr. Rittenmeyer held a number of senior management positions with Electronic Data Systems Corporation (EDS), including chairman and chief executive officer from 2007 to 2008, president from 2006 to 2008, chief operating officer from 2005 to 2007 and executive vice president, global service delivery, from 2005 to 2006. Prior to that, he was a managing director of the Cypress Group, a private equity firm, serving from 2004 to 2005. He served as chairman, chief executive officer and president of Safety-Kleen Corp. from 2001 to 2004. Mr. Rittenmeyer received his bachelor of science degree in commerce and economics from Wilkes University and his M.B.A. from Rockhurst University.

 

Skills and Qualifications

 Accounting and financial expertise: Served as chairman, president and chief executive officer of Expert Global Solutions, Inc., is a former chairman, president and chief executive officer of EDS, and holds an advanced degree in business administration

 Technology and manufacturing sectors: Served as the chief executive officer of EDS, a major information technology outsourcing corporation, and brings knowledge and experience in the information technology industry that is particularly valuable in the healthcare sector where significant capital investment in health information technology systems is required

 

Other Public Company Directorships

Current: American International Group, Inc. (AIG); QuintilesIMS Holdings, Inc.

Others in Past 5 Years: IMS Health Holdings, Inc.

 

 

LOGO

 

Committee
Membership:

Audit

Governance

  

John P. Byrnes, 58        Director Since: November 2016

 

Career Highlights

Mr. Byrnes served as the Chief Executive Officer of Lincare Holdings, Inc., a provider of home respiratory care, infusion therapy and medical equipment from 1997 until March 2015 and its President from June 1996 until April 2003. Mr. Byrnes was a director of Lincare from May 1997 to March 2015 and served as its Chairman from March 2000 through August 2012. He currently serves on the board of directors of one other public company, Halyard Health, Inc., and he formerly served as a director of U.S. Renal Care, Inc. and Kinetic Concepts, Inc.

 

Skills and Qualifications

 Healthcare industry experience: Served as a healthcare services executive for nearly 30 years (Lincare Holdings, Inc.) and possesses a broad range of leadership experience in, and knowledge of, the healthcare industry, including international healthcare experience

 

Other Public Company Directorships

Current: Halyard Health, Inc.

Others in Past 5 Years: Lincare Holdings, Inc.

 

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LOGO

 

Committee
Membership:

Audit (Chair)

Human Resources

Executive

 

Brenda J. Gaines, 67        Director Since: March 2005

 

Career Highlights

Ms. Gaines served as president and chief executive officer of Diners Club North America, a financial services company and a division of Citigroup Inc., from 2002 until her retirement in March 2004. She also served as president of Diners Club, the nation’s oldest credit card company, from 1999 to 2002 and held a number of senior management positions within Citigroup from 1988 to 1999. From 1983 to 1987, she worked in various management positions for the City of Chicago, including Commissioner of Housing and Deputy Chief of Staff to the Mayor. Ms. Gaines received her bachelor’s degree from the University of Illinois at Champaign-Urbana and her master’s degree in public administration from Roosevelt University in Chicago.

 

Skills and Qualifications

 Accounting and financial expertise: Possesses a broad range of experience in the consumer credit industry (Citigroup, Federal National Mortgage Association, CNA Financial), and provides the Board with a valuable perspective on patient billing systems and accounts receivable collections

 

Other Public Company Directorships

Current: None

Others in Past 5 Years: AGL Resources Inc., Federal National Mortgage Association (Fannie Mae), NICOR Inc. and Office Depot, Inc.

 

 

LOGO

 

Committee
Membership:

Governance

QCE

  

Karen M. Garrison, 68        Director Since: March 2005

 

Career Highlights

Ms. Garrison served as president of Pitney Bowes Business Services, a business services company and a division of Pitney Bowes Inc., from 1999 until her retirement in 2004. From 1978 to 1999, she held a number of senior management positions at Pitney Bowes and Dictaphone Corporation (then a subsidiary of Pitney Bowes), including vice president of operations and vice president of finance and chief financial officer. Ms. Garrison received her bachelor of science degree in accounting from Rollins College and her M.B.A. from the Florida Institute of Technology.

 

Skills and Qualifications

 Accounting and financial expertise: Previously served as the president of a major business unit of Pitney Bowes Inc. (Pitney Bowes Business Services), an S&P 500 corporation, and holds an advanced degree in business administration

 Technology and manufacturing sectors: Has extensive experience in business reorganizations and restructurings, as well as crisis management, having led a team of Pitney Bowes executives in managing the dislocation of personnel and business services following the September 11, 2001 terrorist attacks against the United States

 

Other Public Company Directorships

Current: Kaman Corporation and SP Plus Corporation

Others in Past 5 Years: None

 

 

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LOGO

 

Committee
Membership:

Governance
(Chair)

QCE

Executive

 

Edward Kangas, 72        Director Since: April 2003

 

Career Highlights

Mr. Kangas served as global chairman and chief executive officer of Deloitte Touche Tohmatsu, an international public accounting and consulting firm, from 1989 until his retirement in 2000. He also served as the managing partner of Deloitte & Touche (USA) from 1989 to 1994. He was elected managing partner and chief executive officer of Touche Ross in 1985, a position he held through 1989. Mr. Kangas began his career as a staff accountant at Touche Ross in 1967, where he became a partner in 1975. Mr. Kangas holds a bachelor’s degree in business administration and an M.B.A. from the University of Kansas.

 

Skills and Qualifications

 Accounting and financial expertise: Served as chairman and chief executive officer of Deloitte Touche Tohmatsu, an international public accounting and consulting firm, gaining significant experience in the public accounting field and in advising large public corporations on a range of financial reporting and compliance matters

 

Other Public Company Directorships

Current: Hovnanian Enterprises, Inc.; Intelsat S.A.; and United Technologies Corporation

Others in Past 5 Years: Allscripts Healthcare Solutions, Inc.; Eclipsys Corporation; and Intuit Inc.

 

 

LOGO

 

Committee
Membership:

Governance

QCE

  

J. Robert Kerrey, 73        Director Since: November 2012

(prior service as a director from March 2001 to March 2012)

 

Career Highlights

Mr. Kerrey is a former governor and U.S. Senator from Nebraska. He has served as managing director at Allen & Company, an investment banking firm, since January 2014. He also has served as executive chairman of The Minerva Institute for Research and Scholarship, a non-profit institute that aims to offer exceptional educational experiences to students and advance faculty research, since January 2013. Between January 2011 and February 2013, Mr. Kerrey was President Emeritus of The New School University in New York City, and from 2001 to 2010, he served as president of The New School University. From July 2011 to March 2012, he served as the chairman of M & F Worldwide Education Holdings, a provider of business and home office, technology, data management and education products and services. From January 1989 to December 2000, he served as a U.S. Senator for the State of Nebraska. Before his election to the U.S. Senate, Mr. Kerrey was Governor of the State of Nebraska from January 1982 to December 1987. Prior to entering public service, he founded and operated a chain of restaurants and health clubs. A former member of the elite Navy SEAL Team, Mr. Kerrey is a highly decorated Vietnam veteran who was awarded the Congressional Medal of Honor – America’s highest military honor. Mr. Kerrey holds a degree in pharmacy from the University of Nebraska.

 

Skills and Qualifications

 Accounting and financial: Has extensive experience in finance and public policy derived from his service at the investment banking firm Allen & Company and as a member of the U.S. Senate and as a state Governor; also served as the president of a major university and held senior executive positions with a number of corporations and foundations operating in the private education sector

 Public sector: Has 18 years of experience in the public sector as a former U.S. Senator and Governor of Nebraska, experience that the Board deems particularly relevant given the highly regulated nature of the healthcare sector

 

Other Public Company Directorships

Current: None

Others in Past 5 Years: Chart Acquisition Corp.; U.S. Rare Earths, Inc.; Genworth Financial, Inc.; and Scientific Games Corporation

 

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LOGO

 

Committee
Membership:

Human Resources

QCE (Chair)

Executive

 

Richard R. Pettingill, 68        Director Since: March 2004

 

Career Highlights

Mr. Pettingill served as president and chief executive officer of Allina Hospitals and Clinics, a network of healthcare providers in Minneapolis, Minnesota, from 2002 until his retirement in 2009. While in this role, he also served on the board of directors of the Minnesota Hospital Association and the Minnesota Business Partnership. Prior to joining Allina Hospitals and Clinics, Mr. Pettingill served as executive vice president and chief operating officer of Kaiser Foundation Health Plans and Hospitals from 1996 to 2002. From 1991 to 1995, he served as president and chief executive officer of Camino Healthcare. Mr. Pettingill received a bachelor’s degree from San Diego State University and a master’s degree in health care administration from San Jose State University. He was a 2010 Fellow in the Advanced Leadership Initiative program at Harvard University.

 

Skills and Qualifications

 Healthcare industry experience: Has more than 40 years of experience in executive leadership roles in the healthcare industry (Allina Hospitals and Clinics, Kaiser Foundation Health Plans and Hospitals, and Camino Healthcare) and completed academic work on public health policy issues as a 2010 Senior Fellow in the Advanced Leadership Initiative program at Harvard University

 

Other Public Company Directorships

Current: Accuray Incorporated and Hanger, Inc.

Others in Past 5 Years: MAKO Surgical Corp.

 

 

LOGO

 

Committee
Membership:

Human Resources

  

Matthew J. Ripperger, 45        Director Since: January 2016

 

Career Highlights

Mr. Ripperger joined Glenview Capital Management, an investment fund, in February 2008 and was named a partner and co-head of Healthcare in December 2013. Prior to joining Glenview, he was a managing director at Citigroup, where he spent four years following healthcare facilities and providers. Before Citigroup, Mr. Ripperger researched small and mid-cap healthcare service companies at JP Morgan, where he was a vice president. Prior to JP Morgan, he worked as a senior analyst at UBS for two years. Mr. Ripperger received his bachelor of arts degree from Columbia University in 1994.

 

Skills and Qualifications

 Accounting and financial / Healthcare expertise: Has broad-based accounting and finance background derived from his career in investment banking and equity analysis, focusing especially on the healthcare sector, as well expertise in mergers and acquisitions and other significant transactions

 

Other Public Company Directorships

Current: None

Others in Past 5 Years: None

 

 

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LOGO

 

Committee
Membership:

Audit

Governance

  

Tammy Romo, 54        Director Since: March 2015

 

Career Highlights

Ms. Romo is executive vice president and chief financial officer of Southwest Airlines Co., a major passenger airline, where she is responsible for strategic planning and overall finance activities, including reporting, accounting, investor relations, treasury, tax and financial planning and analysis. Ms. Romo also oversees supply chain management. Ms. Romo previously served in a number of financial management and leadership positions at Southwest Airlines, including senior vice president of planning, vice president and controller, vice president and treasurer, and senior director of investor relations. Before joining Southwest Airlines in 1991, Ms. Romo was an audit manager at Coopers & Lybrand, LLP. She received a B.B.A. in accounting from the University of Texas at Austin, and she is a Certified Public Accountant in the State of Texas.

 

Skills and Qualifications

 Accounting and financial expertise: Serves as EVP & CFO of Southwest Airlines Co., where she is responsible for the airline’s strategic planning and overall finance activities including reporting, accounting, investor relations, treasury, tax and financial planning and analysis

 

Other Public Company Directorships

Current: None

Others in Past 5 Years: None

 

 

LOGO

 

Committee
Membership:

Governance

QCE

  

Randolph C. Simpson, 47        Director Since: January 2016

 

Career Highlights

Mr. Simpson joined Glenview Capital Management, an investment fund, in September 2005 and was named a partner in April 2011. He is the co-head of Glenview’s Healthcare team and oversees the Consumer team. Prior to joining Glenview, Mr. Simpson was an equity research analyst at Goldman Sachs from 2003 until 2005. Prior to his work at Goldman Sachs, Mr. Simpson spent three years in the M&A group at Credit Suisse First Boston as a generalist. Mr. Simpson received his M.B.A. in finance and accounting from the University of Chicago in 2000, where he graduated Beta Gamma Sigma. Mr. Simpson also earned a J.D. from Georgetown University Law Center in 1994 and a bachelor of arts in quantitative economics with high honors from the University of California, San Diego in 1991.

 

Skills and Qualifications

 Accounting and financial / Legal / Healthcare expertise: Has broad-based accounting and finance background derived from his career in investment banking and equity analysis, focusing especially on the healthcare sector, as well expertise in mergers and acquisitions and other significant transactions, regulatory and legal matters

 

Other Public Company Directorships

Current: None

Others in Past 5 Years: None

 

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PROPOSAL 1–ELECTION OF DIRECTORS 

 
     

 

 

 

LOGO

 

Committee
Membership:

Audit

Human Resources

  

Peter M. Wilver, 57        Director Since: November 2016

 

Career Highlights

Mr. Wilver served as Executive Vice President and Chief Administrative Officer of Thermo Fisher Scientific Inc., a company dedicated to serving science through systems, consumables and services for researchers, with responsibility for the company’s global business services, human resources and legal functions, from August 2015 to March 2017. From October 2004 until July 2015, Mr. Wilver served as Senior Vice President and Chief Financial Officer of Thermo Fisher Scientific, with responsibility for all aspects of finance for the company, including financial planning and analysis, SEC reporting, transaction processing, treasury, tax, investor relations and mergers and acquisitions. Mr. Wilver is a graduate of The Ohio State University, where he earned a bachelor’s degree in business administration with a major in accounting.

 

Skills and Qualifications

 Accounting and financial expertise: Served as CFO of a multinational biotechnology and life sciences company for 11 years and has broad experience in strategic planning and expertise in leading financial, accounting and investor relations functions of a large manufacturing company

 

Other Public Company Directorships

Current: CIRCOR International, Inc.

Others in Past 5 Years: None

Director Nomination Process

Our Board employs a comprehensive, year-round director succession planning process designed to provide for a highly independent, well-qualified Board, with the diversity, experience and background to deliver strong, effective oversight. Our Board constantly evaluates the company’s needs and adds new skillsets to the Board as necessary to best position the company to navigate the rapidly evolving competitive landscape. Under our Corporate Governance Principles, the Governance Committee is responsible for nominating, and the Board is responsible for selecting, individuals to fill vacancies on the Board and to stand for election at each annual or special meeting. The Governance Committee considers candidates based on the recommendation of, among others, existing and former Board members, our shareholders and other investors. The Governance Committee also engages professional search firms and other consultants to assist in identifying, evaluating and conducting due diligence on potential candidates. Shareholders may propose nominees for election in accordance with the terms of our bylaws or recommend candidates to the Board for consideration by writing to the Governance Committee in care of the Corporate Secretary at our offices in Dallas, Texas, or by e-mail to boardofdirectors@tenethealth.com. The Governance Committee evaluates nominees recommended by shareholders using the same criteria as it uses to evaluate all other candidates.

 

 

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Assessment of Board Composition and Criteria for Board Membership

The Governance Committee evaluates the composition of the Board on an ongoing basis and considers potential nominees to the Board as appropriate. As part of this process, the Governance Committee reviews the composition of the Board as a whole, including the balance of business backgrounds, qualifications, skillsets and other qualities represented on the Board to ensure the right balance to effectively oversee management. In light of our current structure and operations, and in consideration of the evaluation of the Board’s composition, the Governance Committee believes the following criteria best represent the qualities required for service on the company’s Board:

 

 

     Professionalism, dedication, business judgment, integrity and commitment to our core ethical and other values

 

     Current or past service as the chief executive officer, chief financial officer, chief operating officer or other senior officer of a public or private company, chief executive officer of a business unit of a major corporation, or similar leadership position in a major governmental, professional or non-profit organization

 

     Expertise in financial and accounting matters, familiarity with the regulatory and corporate governance requirements applicable to public companies, and/or expertise in other areas enhancing the Board’s performance

 

     Experience in the healthcare industry or other relevant industry experience

 

     Government, regulatory and public relations experience

 

     Ability and willingness to commit adequate time to Board and committee matters

 

     Degree to which the individual’s skills complement those of other directors and potential directors

 

     Diversity of viewpoint, background, experience and other demographics

 

     Familiarity with the communities in which we do business

 

The Governance Committee also reviews updated biographical information for each incumbent director on an annual basis, including information relating to changes in professional status, independence, other professional commitments and public company directorships, as well as input derived from the Board’s annual self-evaluation process with respect to each individual director’s performance on the Board.

Board Evaluations

The Governance Committee conducts comprehensive self-evaluations and performance assessments to determine whether the Board, its committees and individual directors are functioning well in view of their responsibilities and the company’s business. To ensure that the self-evaluation process is conducted with transparency and rigor, the Board retains a third party advisor to interview individual directors, compile their feedback and facilitate a discussion of the evaluation results at a special executive session of the Board.

The Board completed its most recent self-evaluation discussion in December 2016. As a follow-up to the discussion, the Lead Director instructed the third party advisor to meet with each board member separately to share feedback on his or her individual performance. In addition, the Board discussed (i) long-term director succession planning, (ii) management succession planning and talent development and (iii) enterprise risk management, including the Board’s oversight of regulatory and litigation risk and compliance matters. The Board also provided management with feedback intended to enhance the quality of presentations and the efficiency of Board meetings. Based on the evaluation, and in accordance with the requirements of the company’s Corporate Governance Principles, the Board concluded that, at the time, no changes were necessary in the Board’s leadership or committee structure, including Chair assignments. In addition, the Board concluded that its processes and committees were functioning properly. As part of its review, the Board noted in particular that none of its members was over-boarded or otherwise had experienced a material change in professional status.

 

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Directors’ Qualifications and Experience

Based on the review and evaluation process described above, the Governance Committee concluded that our 12 director nominees possess a diversity of experience, skills and other characteristics best suited to meet the needs of the Board and the company in light of our current business and operating environment. The following table highlights the core skills and experiences of our current nominees. Each nominee possesses skills and experiences in addition to the ones highlighted below (as noted in the director biographies outlined above).

 

SKILLS AND EXPERIENCES

  BYRNES   FETTER   GAINES   GARRISON   KANGAS   KERREY   PETTINGILL   RIPPERGER   RITTENMEYER   ROMO   SIMPSON   WILVER    

Executive Leadership

                         

Healthcare Industry

                         

Accounting and Finance

                         

Public Sector

                         

Technology and Manufacturing Sectors

                         

Public Company Board Service

                         

Personal Qualities and Diversity. Based on the Board’s annual self-evaluation process, the Governance Committee determined that each nominee embodies a demonstrated commitment to professionalism and integrity. In particular, the Governance Committee noted that each nominee has demonstrated an ability to work effectively with other directors and management, provide candid and direct feedback, and work constructively to bridge diverse viewpoints to provide oversight of the company’s operations on behalf of all shareholders. Our Board includes a balanced regional representation of our country. Additionally, our Board currently includes individuals of differing ages, backgrounds and genders.

Special Considerations Regarding Service on Other Boards. Nominees must seek approval prior to serving on another public company’s board. In addition, the Governance Committee limits the number of public boards on which a nominee may serve to three in addition to our Board (two in the case of directors currently serving as chief executive officers or in equivalent positions of public companies). None of the company’s current directors serves on more than three other public company boards. The only current director who is a chief executive officer of a public company (Mr. Fetter) serves on only one other public company board.

Director Independence

Under our Corporate Governance Principles, at least two-thirds of the Board must consist of “independent” directors. The Board will not consider a director to be independent unless the Board affirmatively determines that the director has no material relationship with Tenet, and the director otherwise qualifies as independent under the corporate governance standards of the New York Stock Exchange (NYSE). The Board reviews each director’s independence at least annually and has made the affirmative determination that each of our current non-employee directors (Byrnes, Gaines, Garrison, Kangas, Kerrey, Lewis-Hall, Pettingill, Ripperger, Rittenmeyer, Romo, Simpson, Unruh and Wilver) has no material relationship with the company and is independent. All members of our Board during the past eleven years have been independent directors with the exception of one employee director, Trevor Fetter, our Chief Executive Officer.

In making its independence determinations, the Board broadly considers all relevant facts and circumstances and, in particular, looks closely at the organizations with which each director has an affiliation. If a director or member of the director’s immediate family has a material relationship with the company, the Board reviews the interest to determine if it would preclude an independence determination.

The Audit, Human Resources, and Nominating and Corporate Governance Committees are composed exclusively of independent directors as required by the NYSE. Also, all directors serving on the Audit Committee meet the more stringent independence standards for audit committee members required by the SEC. In addition, the Human Resources Committee is composed exclusively of “outside directors” within the meaning of Section 162(m) of the Internal Revenue Code and “non-employee directors” within the meaning of Rule 16b-3 under the Securities Exchange Act of 1934, as amended. All directors serving on the Human Resources Committee meet the more stringent independence standards for compensation committee members required by the NYSE.

 

 

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CORPORATE GOVERNANCE AND BOARD PRACTICES  

 

 

Commitment to Sound Corporate Governance Practices

Tenet Healthcare is committed to maintaining corporate governance policies and practices that protect the long-term interests of shareholders and promote Board and management accountability. Our Board recognizes that this requires us to continually review and refine our corporate governance practices, in order to ensure continued alignment with evolving market practices and the best interests of our company and all our shareholders. Some of our key corporate governance policies and practices include:

 

Shareholder Rights   

       Annual election of directors

  

       Majority vote standard in uncontested elections

  

       Director resignation policy

  

       No supermajority vote requirements

  

       No poison pill

Board Composition and Practices   

       All directors are independent other than the CEO

  

       Highly diverse and experienced Board

  

       Independent Lead Director with clearly defined and robust responsibilities

  

       Comprehensive Board self-evaluation process and performance assessments for all directors

  

       Commitment to Board refreshment practices, including committee Chair rotation

  

       Director overboarding policy

  

       Board conducts annual evaluation and succession plan review for the CEO

  

       Board members routinely interact with government regulators and engage in meetings with shareholders

  

       Board oversight of political contributions

Our Board of Directors has also adopted a set of Corporate Governance Principles that provide the framework for our existing governance practices. These Corporate Governance Principles more fully address such matters as director independence, director qualifications and responsibilities, director compensation, director and officer stock ownership and retention guidelines, and Board and individual director performance evaluations. To learn more about our current corporate governance structures, please see our Corporate Governance Principles, which may be found in the “Corporate Governance” section under the “For Investors” tab on our website at www.tenethealth.com.

Board Leadership Structure

During 2016, after 13 years serving in the role of either non-executive chairman of the Board or independent Lead Director, Mr. Kangas advised the Board that he believed that it would be appropriate to transition a new Board member into the role of Lead Director. Mr. Kangas further advised the Board that, as chair of the Nominating and Corporate Governance Committee, he intends to concentrate his efforts on Board refreshment, succession planning, shareholder engagement and other critical governance initiatives. In September 2016, the independent directors of the Board named Mr. Rittenmeyer as the company’s new independent Lead Director. Mr. Rittenmeyer has been a member of Tenet’s Board since June 2010 and serves on the Board’s Audit Committee and as Chair of the Human Resources Committee. Mr. Rittenmeyer was named to The National Association of Corporate Directors’ (NACD) 2016 Directorship 100 list, a distinguished honor that annually recognizes the most influential leaders in the boardroom and corporate governance community.

Role of Lead Director of the Board

There have been no changes in the role of Lead Director in connection with the appointment of the new Lead Director. Mr. Rittenmeyer, as an independent Lead Director of the Board, coordinates the activities of the Board and exercises a robust set of duties. Among other things, he:

 

    Presides at all meetings at which the Chairman is not present

 

    Chairs executive sessions of the Board

 

    Serves as the liaison between the Chairman and independent directors

 

    Reviews and approves information sent to the Board

 

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CORPORATE GOVERNANCE AND BOARD PRACTICES

 
     

 

 

    Reviews and approves Board meeting agendas and schedules

 

    Calls meetings of independent directors if necessary

 

    Is available for consultation and direct communication with stockholders, including representing the Board in meetings with investors, legislators, regulators and other government officials

 

    Serves a role (in conjunction with the Governance Committee) in the Board performance evaluation process

In line with the company’s governance practices, the Board will continue to regularly review and assess the leadership structure to confirm that it best suits the evolving needs and circumstances of the company.

Board and Committee Organization and Responsibilities

Board Meetings and Attendance

We are governed by our Board of Directors. Members of our Board are kept informed of our business through discussions with our Chief Executive Officer and other senior officers, by reviewing materials provided to them and by participating in meetings of the Board and its committees. Significant business decisions are generally considered by the Board as a whole. The Board met 18 times during 2016. The Board regularly meets in executive sessions. Mr. Fetter is considered an employee director and all other directors are considered non-employee directors. Each incumbent director who served during 2016 participated in at least 75% of the aggregate meetings of the Board and the committees on which he or she served, during the period he or she served as a director and committee member. All Board members are encouraged to attend our annual meeting of shareholders. All 12 of the directors then-serving attended last year’s annual meeting.

Committees

The Board has delegated certain responsibilities to the following standing committees: Audit Committee; Human Resources Committee; Nominating and Corporate Governance Committee (Governance Committee); Quality, Compliance and Ethics Committee (QCE Committee); and Executive Committee. The following table identifies the members of each of our committees.

 

DIRECTOR

       AUDIT         HUMAN
RESOURCES
   GOVERNANCE        QCE        EXECUTIVE

John Byrnes

              

Trevor Fetter

              

Brenda J. Gaines

   Chair            

Karen M. Garrison

              

Edward A. Kangas

         Chair      

J. Robert Kerrey

              

Freda C. Lewis-Hall, M.D.

              

Richard R. Pettingill

            Chair   

Matthew J. Ripperger

              

Ronald A. Rittenmeyer

      Chair          Chair

Tammy Romo

              

Randolph C. Simpson

              

James A. Unruh

              

Peter Wilver

              

Each of the Board’s committees, except the Executive Committee, operates under a written charter that is reviewed and approved annually by the respective committee. The charters are available for viewing in the “Corporate Governance” section under the “For Investors” tab on our website at www.tenethealth.com. The Board and each committee may from time to time retain independent advisors and consultants, at the company’s cost, to assist the directors in carrying out their responsibilities.

 

 

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CORPORATE GOVERNANCE AND BOARD PRACTICES

      

 

 

    The Audit Committee    Meetings Held in 2016: 8

 

Membership: Gaines (Chair), Byrnes, Rittenmeyer, Romo, Unruh, Wilver (All Independent)

 

 

Primary Responsibilities

 

  

Key Skills and Experience

 

     Assist Board in oversight of (1) accounting, reporting and financial practices, including the integrity of financial statements, (2) compliance with legal and regulatory requirements with respect to applicable accounting and auditing matters, (3) independent registered public accountants’ qualifications, independence and performance, (4) internal audit function and (5) cybersecurity

     Establish and maintain policies and procedures for the receipt, retention and treatment of complaints and concerns regarding accounting, internal accounting controls and auditing matters

     Authority to select, retain and review the independent registered public accountants qualifications, independence and performance

 

  

  Expertise in auditing, accounting and tax-related matters

  Preparation or oversight of financial statements

  Extensive knowledge of compliance and relevant regulatory issues

 

    The Human Resources Committee    Meetings Held in 2016: 8

 

Membership: Rittenmeyer (Chair), Gaines, Pettingill, Ripperger, Unruh, Wilver (All Independent)

 

 

Primary Responsibilities

 

  

Key Skills and Experience

 

     Establish general compensation policies for the company that:

¡       Support overall business strategies and objectives

¡      Enhance efforts to attract and retain skilled employees

¡       Link compensation with business objectives and organizational performance

¡      Provide competitive compensation opportunities for key executives

     Oversee the administration of executive compensation programs with responsibility for establishing and interpreting the company’s compensation policies and approving compensation paid to executive officers

     Make all compensation decisions regarding non-employee directors, the company’s executive officers and other members of the senior management team

     Review the performance of the Chief Executive Officer

     Discuss and evaluate, in consultation with the Chief Executive Officer, the performance of other executives

     Oversee the administration of employee benefit plans and the qualified retirement plans

     Provide perspectives to management regarding the company’s talent management programs and processes, which may include performance management, succession planning, leadership development, diversity, recruiting, retention and employee training

 

  

  Executive compensation best practices

  Human capital management

  Expertise in evaluating executive performance and determining appropriate compensation programs

 

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CORPORATE GOVERNANCE AND BOARD PRACTICES

 
     

 

 

    The Nominating and Corporate Governance Committee    Meetings Held in 2016: 6

 

Membership: Kangas (Chair), Byrnes, Garrison, Kerrey, Lewis-Hall, Romo, Simpson (All Independent)

 

 

Primary Responsibilities

 

  

Key Skills and Experience

 

      Identify and evaluate existing and potential corporate governance issues, and make recommendations to the Board concerning our Corporate Governance Principles and other corporate governance matters

      Review and recommend individuals qualified to become Board members and recommend to the Board candidates to stand for election or re-election to the Board

      Consider amendments to the company’s Articles of Incorporation and Bylaws with respect to corporate governance and make recommendations to the Board concerning such proposed amendments

      Review and make recommendations to the Board regarding Board size, composition and structure

      Review proposed related-party transactions and determine whether such transactions are appropriate for the Board to consider

 

  

   Corporate governance expertise

   Board succession planning

   Public company Board service and experience overseeing large organizations

 

    The Quality, Compliance and Ethics Committee    Meetings Held in 2016: 4

 

Membership: Pettingill (Chair), Garrison, Kangas, Kerrey, Lewis-Hall, Simpson (All Independent)

 

 

Primary Responsibilities

 

  

Key Skills and Experience

 

      Assist the Board with overseeing and reviewing Tenet’s significant healthcare-related regulatory and compliance issues, including its compliance programs and the status of compliance with applicable laws, regulations and internal procedures

      Oversee performance under the company’s Quality, Compliance and Ethics Program charter

      Receive, review and consult with management on periodic reports from the Ethics and Compliance department on all aspects of the compliance program, including efforts in risk assessment, development of policies and procedures, training, auditing and monitoring, and investigations and remediation of potential compliance matters

      Receive and review periodic reports from Clinical Quality department as to efforts to advance quality healthcare

      Oversee performance under the company’s non-prosecution agreement, including interacting with the independent compliance co-monitors appointed thereunder

      Oversee the performance of the company’s Chief Compliance Officer, who reports directly to the QCE Committee

 

  

   Experience in establishing and ensuring adherence to quality and compliance controls

   Expertise in compliance-related policies and procedures

   Knowledge of and commitment to ethical business practices

 

    The Executive Committee    Meetings Held in 2016: 3

 

Membership: Rittenmeyer (Chair), Fetter, Gaines, Kangas, Pettingill, Unruh

 

 

Primary Responsibilities

 

  

Key Skills and Experience

 

      Exercise all of the powers of the Board in the management of business and affairs when the Board is not in session, but may not:

¡      Fill vacancies on the Board

¡      Change the membership of, or fill vacancies in, any committee of the Board

¡       Adopt, amend or repeal bylaws

¡       Declare dividends

 

  

   Executive leadership experience

   Public board service

   Service as a board committee chair

 

 

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CORPORATE GOVERNANCE AND BOARD PRACTICES

      

 

Other Board Committees

In March 2017, the Board of Directors approved the retirement of its ad hoc committee on health information technology matters. The Board had formed the Health IT Committee in 2010 primarily to oversee implementation of the company’s “Impact Program,” which involved the implementation during the period 2010 to 2015 of various capital investments intended to achieve compliance with the health information technology requirements of the American Recovery and Reinvestment Act of 2009. The Board concluded that, due to the leadership and efforts of the Health IT Committee, the Impact Program had been successfully implemented and the primary mission of the Health IT Committee achieved.

Human Resources Committee Interlocks and Insider Participation

During 2016, directors Rittenmeyer, Gaines, Pettingill, Ripperger, Unruh and Wilver served on the Human Resources Committee. No member of the Human Resources Committee was at any time during 2016 or at any other time an officer or employee of the company, and no member had any relationship with the company requiring disclosure as a related-party transaction under “Certain Relationships and Related Person Transactions” on page 21 of this Proxy Statement. None of our executive officers has served on a board of directors or compensation committee of any other entity that has or has had one or more executive officers who served as a member of our Board of Directors or Human Resources Committee during 2016.

Role of Board and its Committees in Risk Oversight

The primary responsibility for the identification, assessment and management of the various risks that we face belongs with management. The Board’s oversight of these risks occurs as an integral and continuous part of the Board’s oversight of our business. The Board receives regular reports from the heads of our principal business and corporate functions that include discussions of the risks involved in their respective areas of responsibility. The Board is routinely informed of developments that could affect our risk profile or other aspects of our business. Among other things, the Board has requested that the company’s management and its internal and external legal counsel advise it promptly of any material developments relating to litigation, regulatory proceedings and investigations and compliance issues. The Board considers the oversight of regulatory and litigation risk to be one of its highest priorities. In addition, the Board has identified the oversight of cybersecurity risks to be one its priorities and receives regular reports from the company’s management on the security of the company’s information technology systems.

The Board is kept informed of its committees’ risk oversight and other activities through reports of the committee Chairs to the full Board. These reports are presented at every regular Board meeting. As risk-related issues sometimes overlap, committees hold joint meetings where appropriate, while addressing certain issues at the full Board level. In addition, as part of its annual self-evaluation process, the Board discusses and evaluates its ongoing role in enterprise risk oversight.

Role of Audit Committee in Risk Oversight

Our Audit Committee is primarily responsible for overseeing risk management processes relating to our accounting practices, financial reporting, corporate finance and general business operations. Among other responsibilities, the Audit Committee:

 

    Receives quarterly reports from management on business and operational risks, internal audit reports relating to the integrity of our internal financial reporting controls and procedures, potential loss contingencies resulting from pending or threatened litigation or regulatory proceedings and investigations and reports made to the company from our Ethics Action Line or any other sources relating to allegations of financial fraud or other infractions, as described below.

 

    Meets regularly with our Chief Executive Officer, Chief Financial Officer, Controller, General Counsel and Chief Compliance Officer, as well as our external and internal auditors, to discuss potential risks and other contingencies relating to our business.

 

    Meets on a quarterly basis to review these topics with selected chief executive officers and/or other senior officers of our major operating units and regions.

 

    Reviews material risk issues in connection with its review of our quarterly and annual filings with the SEC.

 

    Reviews the company’s cybersecurity program at least annually and receives frequent updates on cybersecurity matters.

 

    Reports and discusses the outcome of its meetings to the full Board, including any other material risks identified by the Audit Committee in the course of its deliberations that require discussion or action by the full Board.

 

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CORPORATE GOVERNANCE AND BOARD PRACTICES

 
     

 

Role of QCE Committee in Risk Oversight

Our Quality, Compliance and Ethics Committee is primarily responsible for overseeing our assessment and management of regulatory and compliance risk and also reports regularly to the full Board. In particular, the QCE Committee:

 

    Oversees our information, procedures and reporting systems to provide reasonable assurance that: (1) our operations comply with applicable laws and regulations, particularly those related to healthcare providers; (2) we, including our directors and employees, act in accordance with appropriate ethical standards; and (3) our subsidiaries’ hospitals and other facilities deliver quality medical care to their patients.

 

    Oversees our Compliance Program, which is governed by our Quality, Compliance & Ethics Program Charter. Our Compliance Program is intended to foster compliance with federal and state laws and regulations applicable to healthcare providers, and receives periodic reports from our Chief Compliance Officer (who reports directly to the QCE Committee), our Ethics and Compliance Department, and our internal and external legal, regulatory and other officers and advisors.

 

    Oversees the company’s compliance with its non-prosecution agreement, including the company’s ongoing work with the independent co-monitors appointed pursuant to the terms of the agreement.

 

    Beginning in 2017, meets on a quarterly basis to review these topics with selected chief executive officers of our major operating units and regions.

Role of Human Resources Committee in Risk Oversight

Our Human Resources Committee is responsible for assessing our compensation policies and practices relative to all our employees, including non-executive officers, to determine if the risks arising from these policies and practices are reasonably likely to have a material adverse effect on our company. In performing its duties, the Human Resources Committee meets at least annually with our management and the Human Resources Committee’s independent compensation consultant to review and discuss potential risks relating to our employee compensation plans and programs. The Human Resources Committee reports to the Board on a regular basis any risks associated with our compensation plans and programs, including recommended actions to mitigate such risks.

The Human Resources Committee has determined that there are no risks arising from our compensation policies and practices that are reasonably likely to have a material adverse effect on our company. This finding is based upon the Committee’s ongoing review of our compensation programs and practices, the mechanisms in our compensation plans and programs intended to reduce the risk of conduct reasonably likely to have a material adverse effect on our company, and an overall risk assessment of such programs. Among other things, the Human Resources Committee has reviewed our pay philosophy, balance of cash and equity compensation, balance of long-term and short-term performance periods of our plans and programs, and the use of our “balanced” approach to annual incentive compensation (which rewards employees based on a broad range of financial and operational metrics and company initiatives as opposed to a single target). The Committee has also considered our equity grant administration policy, stock ownership guidelines, clawback incentive pay policies, as well as our internal financial reporting and regulatory compliance procedures.

Policies on Ethics and Conduct

Standards of Conduct

All of our employees, including our Chief Executive Officer, Chief Financial Officer and Controller, are required to abide by Tenet’s policies on business conduct summarized in our Standards of Conduct to ensure that our business is conducted in a legal and ethical manner. The members of our Board of Directors and many of our contractors are also required to abide by our Standards of Conduct. Tenet’s policies form the foundation of a comprehensive process that includes compliance with corporate policies and procedures, an open relationship among colleagues to foster good business conduct, and a high level of integrity. Our policies and procedures cover all major areas of professional conduct, including quality patient care, compliance with all applicable laws and regulations, appropriate use of our assets, protection of patient information, avoidance of conflicts of interest and employment practices.

Employees are required to report any conduct that they believe in good faith to be an actual or apparent violation of Tenet’s policies on business conduct. Retaliation against any employee who in good faith seeks advice, raises a concern, reports misconduct, or provides information in an investigation is strictly prohibited. The full text of our Standards of Conduct is published in the “Ethics and Compliance” section under the “About” tab on our website at www.tenethealth.com. In addition, amendments to the Standards of Conduct and any grant of a waiver from a provision of the Standards of Conduct requiring disclosure under applicable SEC rules will be disclosed at the same location as the Standards of Conduct on our website at www.tenethealth.com.

 

 

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CORPORATE GOVERNANCE AND BOARD PRACTICES

      

 

As part of the program, we provide annual ethics and compliance training sessions to every employee, as well as our Board of Directors and certain physicians and contractors.

Quality, Compliance and Ethics Program Charter

We operate our ethics and compliance program through a Quality, Compliance and Ethics Program Charter, which has been approved by our QCE Committee. The charter requires all company employees and many of our contractors to:

 

    Follow our Standards of Conduct

 

    Participate in annual ethics training and specialized compliance training tailored to the individual’s job duties

 

    Work with our hospital, regional, corporate and business unit compliance teams to resolve issues of concern

 

    Contact the Tenet Ethics Action Line at 1-800-8ETHICS to report any conduct that they believe in good faith to be an actual or apparent violation of Tenet’s policies

Our Quality, Compliance and Ethics Program Charter may be found in the “Ethics and Compliance” section under the “About” tab on our website at www.tenethealth.com.

Certain Relationships and Related Person Transactions

Our written Standards of Conduct require all employees, including our executive officers, and members of our Board of Directors to report conflicts of interest and also those situations in which there may be the appearance of a conflict of interest. The full text of our Standards of Conduct is published on our website at www.tenethealth.com, and a description of our policies on ethics and conduct can be found above. In the event that a related person transaction (as defined under the SEC rules) involving Tenet or its subsidiaries is identified, our policy is to require that any such transaction be reviewed and approved by the Governance Committee, which is comprised entirely of independent directors. Under SEC rules, a related person is a director, executive officer, nominee for director, or 5% shareholder of Tenet, and their immediate family members. There were no “related person” transactions that require disclosure under the SEC rules since the beginning of our last completed fiscal year.

Communications with the Board of Directors by Shareholders and Other Interested Parties

Shareholders may communicate with the Board of Directors by e-mail to boardofdirectors@tenethealth.com or by writing to the Board in care of the Corporate Secretary at our office in Dallas, Texas. Shareholder communications will be reviewed internally to determine if the shareholder’s concern can best be addressed by referral to a Tenet department such as Investor Relations. All other communications will be referred to the Corporate Secretary, who will determine if the communication should be brought to the attention of the full Board, the Chairman of the Board or a particular Board committee or Board member.

Other interested parties may make their concerns known to our non-employee directors by following the procedures for reporting concerns to the Audit Committee set forth in our Corporate Governance Principles, which are available on our website at www.tenethealth.com.

 

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DIRECTOR COMPENSATION

 

 

Our non-employee directors, which include all our directors except Mr. Fetter, each receives a $95,000 annual retainer fee. The non-employee directors also receive $2,000 per committee meeting attended and for Board meetings receive:

 

    no fee for the first seven meetings each year; and

 

    for additional meetings, $3,000 per in-person meeting and $1,500 per telephonic meeting attended.

Each non-employee director serving as the Chair of a committee receives an annual fee of $15,000, except that the Chairs of the Audit Committee and the Human Resources Committee receive an annual chair fee of $25,000 and $20,000, respectively, given the demands and responsibilities placed on those committees. Our Lead Director receives an annual fee of $200,000 in addition to other Board and committee compensation, which is typically comprised of $150,000 in cash and restricted stock units valued at $50,000. All annual fees are prorated for partial year service. All directors are reimbursed for travel expenses and other out-of-pocket costs incurred while attending meetings.

Our non-employee director compensation also includes an annual award of restricted stock units equal in value to $175,000, which award is prorated for partial service in the initial year of service. The 2016 awards are shown in the Stock Awards column in the table below.

2016 Director Compensation Table

 

NAME

  

FEES EARNED OR
PAID IN CASH

($)

     STOCK AWARDS
($)(1)(2)
           TOTAL     
($)
 

John Byrnes

     15,231        152,740 (3)         167,971  

Brenda Gaines

     188,000        175,006          363,006  

Karen Garrison

     145,000        175,006          320,006  

Edward Kangas

     289,733        225,004          514,737  

J. Robert Kerrey

     143,000        175,006          318,006  

Freda Lewis-Hall

     144,000        175,006          319,006  

Richard Pettingill

     176,000        175,006          351,006  

Matthew Ripperger

     138,063        295,143 (4)         433,206  

Ronald Rittenmeyer

     259,308        175,006          434,314  

Randy Simpson

     132,563        295,143 (4)         427,706  

James Unruh

     184,000        175,006          359,006  

Tammy Romo

     159,000        175,006          334,006  

Peter Wilver

     17,231        152,740 (3)         169,971  

 

(1)  Amounts shown in this column reflect the grant date fair value, computed in accordance with FASB ASC Topic 718, of awards granted under our stock incentive plans, as described under “Compensation Plans Applicable to Directors—Stock Incentive Plans” below. Assumptions used in the calculation of these amounts are discussed in the footnotes below and/or in Note 8 to our consolidated financial statements for the year ended December 31, 2016 included in our Annual Report on Form 10-K.

 

(2)  The 2016 stock awards shown in this column reflect annual grants applicable to the 2016-2017 board service year to each director (other than Messrs. Byrnes and Wilver) valued at $175,000 on the date of grant. We calculated the grant date fair value of these restricted stock units based on the NYSE closing price per share of our common stock on such date, adjusted for a 22.9% discount for illiquidity to reflect the mandatory post-vest holding period applicable to the 2016 annual director restricted stock unit awards. On May 13, 2016, based on the NYSE closing price of $28.43 per share of our common stock (adjusted as described in the preceding sentence), each non-employee director was granted 7,984 restricted stock units under the program. On the same date, Mr. Kangas, who was serving as our Lead Director at that time, was granted an additional 2,281 restricted stock units valued at $50,000 for a portion of the annual Lead Director fee. All such awards are consistent with our policies for director grants and are described in further detail below under “Compensation Plans Applicable to Directors.”

 

(3)  Upon joining the Board in November 2016, Messrs. Byrnes and Wilver were each granted an initial stock award of 4,008 restricted stock units and a prorated annual director grant of 7,017 restricted stock units applicable to the 2016-2017 board service year. These grants were based on the NYSE closing price of $16.22 per share of our common stock on November 25, 2016 and, in the case of the prorated annual grant, also reflected the 22.9% discount for illiquidity to reflect the mandatory post-vest holding period applicable to the 2016 annual director restricted stock unit awards. The initial stock grant is not subject to the mandatory post-vesting holding period.

 

(4)  In addition to the annual grant applicable to the 2016-2017 board service year described in Note 2 above, on January 28, 2016, Messrs. Ripperger and Simpson were each granted an initial stock award of 2,542 restricted stock units and a prorated annual director grant of 2,807 restricted stock units applicable to the 2015-2016 board service year. These grants were based on the NYSE closing price of $25.58 per share of our common stock on January 28, 2016 and, in the case of the prorated annual grant, also reflected a 23.2% discount for illiquidity to reflect the mandatory post-vest holding period applicable to the 2015 annual director restricted stock unit awards. The initial stock grant is not subject to the mandatory post-vesting holding period.

 

 

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DIRECTOR COMPENSATION

      

 

Compensation Plans Applicable to Directors

Stock Incentive Plans

Each non-employee director receives an annual grant under our 2008 Stock Incentive Plan of restricted stock units that is meant to compensate the director for service on the Board beginning on the date of that year’s annual shareholders meeting and ending on the date of the following year’s annual shareholders meeting. These grants are typically made on the first business day following the annual shareholders meeting and vest immediately on the grant date. Beginning with the 2015 annual grants, a mandatory post-vest holding period of three years was applied to the annual restricted stock unit awards and such awards will be settled in shares of our common stock on the third anniversary of the date of grant (unless a non-employee director elects, under the Special RSU Deferral Plan described below, to defer settlement of the units). For 2016, the annual grants were made on May 13, 2016 and had a grant date fair value of $175,006. In addition, on that date our Lead Director at the time, Mr. Kangas, received an additional grant of restricted stock units a with grant date fair value of $50,000 as a portion of the annual Lead Director fee. In September 2016, the Board appointed Mr. Rittenmeyer as its new Lead Director and he received a prorated portion of the annual Lead Director fee, paid entirely in cash.

On the last Thursday of any month in which a new non-employee director is elected to the Board, the director receives an automatic grant of that number of restricted stock units equal to $65,000 divided by the NYSE closing price per share of our common stock on the date of the grant. These one-time grants vest immediately on the grant date and are settled in shares of our common stock within 60 days of the director’s termination of service on the Board. In addition, newly appointed directors receive a prorated annual restricted stock unit grant for the portion of the board service year that they serve.

In the event of a change of control of the company as defined in Section 409A of the Internal Revenue Code (“Section 409A”), the restricted stock units would be settled within 60 days of the change of control. In the event of a change of control of the company that does not comply with Section 409A, the restricted stock units would be converted to cash and paid within 60 days of the earlier of the third anniversary of the date of grant or termination of service on the Board, in the case of the annual grants (including the grant related to the annual Chairman fee), and within 60 days of the termination of service on the Board, in the case of the new director grants.

Special RSU Deferral Plan

We adopted the Special RSU Deferral Plan to permit directors to elect to defer the settlement of their annual restricted stock unit grants under the 2008 Stock Incentive Plan for a period of five years as provided under the terms of the award agreement. In the event of a change of control of the company, the restricted stock units will be settled on the subsequent deferral date irrespective of whether the underlying award agreement would provide for earlier settlement by reason of such change in control. As of March 13, 2017, Richard Pettingill was our only director that had elected to defer settlement of certain restricted stock unit grants pursuant to the terms of the Special RSU Deferral Plan.

Deferred Compensation Plan

Under our 2006 Deferred Compensation Plan (the “2006 DCP”), directors and eligible employees may defer all or a portion of their compensation paid during a given calendar year. For directors, compensation is defined as cash compensation from retainers, meeting fees and committee fees. None of our non-employee directors participated in the 2006 DCP in 2016. A more complete description of the 2006 DCP can be found under “Deferred Compensation Plans” beginning on page 54.

Director Stock Ownership and Retention Requirements

The Board has adopted stock ownership and retention requirements that require each non-employee director with more than one year of service on the Board to own shares of our stock. In addition, each non-employee director is required to own shares of our stock with a value equal to five times the annual director retainer within five years after the date on which the director joins the Board. As of March 13, 2017, all of our non-employee directors were in compliance with the requirements. Mr. Ripperger and Mr. Simpson are senior executives of Glenview Capital Management, LLC (Glenview) and serve on the Board as Glenview’s representatives. Pursuant to the Glenview Director Compensation Policy, Messrs. Ripperger and Simpson have each agreed to pay and/or otherwise distribute to Glenview the right to any and all compensation received in connection with their service as directors on our Board. Therefore, for purposes of determining compliance with our director stock ownership requirements, we attribute Glenview’s stock holdings in Tenet to Messrs. Ripperger and Simpson.

Directors who have not satisfied their ownership requirements must retain 100% of any “net shares” received upon the exercise of stock options and the vesting of restricted stock or restricted stock units until such time as the requirements are met. For this purpose, “net shares” means the number of shares received upon exercise of stock options or upon vesting of restricted stock or restricted stock units less the number of shares sold or deducted to pay the exercise price (in the case of options), withholding taxes and any brokerage commissions. A detailed discussion of these requirements can be found beginning on page 46.

 

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SECURITIES OWNERSHIP

 

 

Securities Ownership of Management

The table below indicates the shares, options and other securities beneficially owned by our directors, each of our Named Executive Officers and our directors and executive officers as a group, as of March 13, 2017. No director or current executive officer has pledged any shares of our common stock.

 

       SHARES BENEFICIALLY OWNED(1)  

NAME

    

SHARES OF

COMMON STOCK(2)

       OPTIONS
EXERCISABLE ON
OR BEFORE
MAY 12, 2017
    

PERCENT

OF CLASS
AS OF
    MARCH 13, 2017    

 

Audrey Andrews

       46,648          -0-        *  

John P. Byrnes

       11,025 (3)         -0-        *  

Daniel J. Cancelmi

       201,344          54,688        *  

Eric Evans

       34,861          -0-        *  

Trevor Fetter

       1,115,411 (4)         912,198        2.0

Brenda J. Gaines

       75,884 (5)         -0-        *  

Karen M. Garrison

       79,860 (6)         -0-        *  

Edward A. Kangas

       71,092 (7)         -0-        *  

J. Robert Kerrey

       22,772 (8)         -0-        *  

Freda C. Lewis-Hall

       15,314 (9)         -0-        *  

Richard R. Pettingill

       105,601 (10)         -0-        *  

Keith B. Pitts

       184,219          -0-        *  

Matthew J. Ripperger

       9,000 (11)         -0-        *  

Ronald A. Rittenmeyer

       46,134 (12)         -0-        *  

Tammy Romo

       14,543 (13)         -0-        *  

Randolph C. Simpson

       -0- (11)         -0-        *  

James A. Unruh

       73,292 (14)         -0-        *  

Peter M. Wilver

       16,025 (15)         -0-        *  

Executive officers and directors as a group (18 persons)

       2,123,025          966,886        3.1

 

* Less than 1%.

 

(1)  Except as indicated, each individual named has sole control as to investment and voting power with respect to the securities owned. Where applicable, the number of shares in this table and throughout this Proxy Statement have been adjusted for the reverse stock split effective October 11, 2012.

 

(2)  As noted in the footnotes below, some amounts in this column include stock units representing the value of the owner’s deferred compensation invested in stock units at his or her election under the terms of one or both of our deferred compensation plans. These units are settled in shares of our common stock upon termination of service. In addition, as noted below, the totals in this column for each non-employee director include restricted stock units granted under the terms of our stock incentive plans. These restricted stock units are settled in shares of our common stock either upon termination of service or upon the third anniversary of the date of grant (unless deferred under the Special RSU Deferral Plan).

 

(3)  Represents 11,025 restricted stock units granted under our stock incentive plans.

 

(4)  Includes 2,550 shares held by Mr. Fetter’s spouse and 4,699 stock units representing the value of Mr. Fetter’s deferred compensation invested in stock units at his election under the terms of our deferred compensation plans.

 

(5)  Includes 408 shares held in trust and 29,202 restricted stock units granted under our stock incentive plans.

 

(6)  Includes 29,202 restricted stock units granted under our stock incentive plans.

 

(7)  Includes 31,370 restricted stock units granted under our stock incentive plans.

 

(8)  Includes 16,539 restricted stock units granted under our stock incentive plans.

 

(9)  Represents 15,314 restricted stock units granted under our stock incentive plans.

 

(10)  Includes 22,730 stock units representing the value of Mr. Pettingill’s deferred compensation invested in stock units at his election under the terms of our deferred compensation plans and 46,947 restricted stock units granted under our stock incentive plans.

 

(11) 

Mr. Ripperger and Mr. Simpson are senior executives of Glenview Capital Management, LLC and serve on the Board as Glenview’s representatives. Pursuant to the Glenview Director Compensation Policy, Messrs. Ripperger and Simpson have each agreed to pay and/or otherwise distribute to Glenview the right to any and all compensation received in connection with their service as directors on our Board, and, as such, neither Mr. Ripperger nor

 

 

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SECURITIES OWNERSHIP

      

 

  Mr. Simpson has any right to any compensation received in connection with their service on the Board, and the shares delivered upon settlement of their equity grants will be issuable directly to Glenview. Therefore, their equity grants are reflected as part of Glenview’s beneficial ownership in the “Securities Ownership of Certain Shareholders” below.

 

(12)  Includes 15,000 shares held by Mr. Rittenmeyer’s spouse and 20,057 restricted stock units granted under our stock incentive plans.

 

(13)  Represents 14,543 restricted stock units granted under our stock incentive plans.

 

(14)  Includes 314 stock units representing the value of Mr. Unruh’s deferred compensation invested in stock units at his election under the terms of our deferred compensation plans and 26,613 restricted stock units granted under our stock incentive plans.

 

(15)  Includes 11,025 restricted stock units granted under our stock incentive plans.

Securities Ownership of Certain Shareholders

Based on reports filed with the SEC, each of the following entities owns more than 5% of our outstanding common stock. We know of no other entity or person that beneficially owns more than 5% of our outstanding common stock.

 

NAME AND ADDRESS

   NUMBER OF SHARES
BENEFICIALLY OWNED
    

    PERCENT OF CLASS    

AS OF

MARCH 13, 2017

 

Glenview Capital Management, LLC

    767 Fifth Avenue, 44th Floor

    New York, NY 10153

     17,916,896 (1)       17.9

BlackRock, Inc.

    55 East 52nd Street

    New York, NY 10055

     13,510,104 (2)       13.5

Harris Associates L.P.

    111 S. Wacker Drive, Suite 4600

    Chicago IL 60606

     7,459,265 (3)       7.4

The Vanguard Group, Inc.

    100 Vanguard Blvd.

    Malvern, PA 19355

     6,426,545 (4)       6.4

 

(1)  Based on a Schedule 13D/A filed with the SEC on February 1, 2016 by Glenview Capital Management, LLC, and its named subsidiaries and affiliates (collectively, “Glenview”), and Lawrence M. Robbins, as of January 28, 2016, and additional information available to the company as described in this footnote. Glenview Capital Management, LLC serves as an investment manager to various Glenview funds and Mr. Robbins is the Chief Executive Officer of Glenview Capital Management. Glenview and Mr. Robbins reported shared voting and investment power with respect to all of the shares indicated above. The 17,916,896 shares includes 17,900,928 shares reflected in the Schedule 13D/A (which also reflected the 10,698 shares issuable by the company upon settlement of the restricted stock units granted to Mr. Ripperger and Mr. Simpson on January 28, 2016) and 15,968 shares issuable by the company upon settlement of the restricted stock units granted to Mr. Ripperger and Mr. Simpson on May 13, 2016. The annual equity grants will be settled in shares on the third anniversary of the applicable grant date, and initial equity grants (a total of 5,084 shares) will be settled in shares within 60 days of the termination of the director’s service on the Board. As described in footnote 10 to the “Securities Ownership of Management” table above, the income derived in connection with these directors’ service on the company’s Board belongs, in economic terms, to certain investment funds managed by Glenview Capital Management and the shares delivered upon settlement of these equity grants will be issuable directly to Glenview Capital Management.

 

(2)  Based on a Schedule 13G/A filed with the SEC on January 17, 2017 by BlackRock, Inc. on behalf of itself and its named subsidiaries and affiliates (collectively, “BlackRock”), as of December 31, 2016. BlackRock reported sole voting power with respect to 13,140,690 of the shares indicated above and sole investment power with respect to all of the shares indicated above.

 

(3)  Based on a Schedule 13G/A filed with the SEC on February 10, 2017 by Harris Associates L.P. (“Harris”), along with its general partner Harris Associates, Inc. (“HAI”), as of December 31, 2016. Harris and HAI reported sole voting power with respect to 5,481,183 shares and sole investment power with respect to 7,459,265 of the shares indicated above.

 

(4)  Based on a Schedule 13G/A filed with the SEC on February 10, 2017 by The Vanguard Group, Inc., on behalf of itself and its named subsidiaries and affiliates (collectively, “Vanguard”), as of December 31, 2016. Vanguard reported sole voting power with respect to 46,629 of the shares indicated above, shared voting power with respect to 10,697 of the shares indicated above, sole investment power with respect to 6,374,527 of the shares indicated above and shared investment power with respect to 52,018 of the shares indicated above.

 

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HUMAN RESOURCES COMMITTEE REPORT

 

 

Our Human Resources Committee has reviewed and discussed with management the Compensation Discussion and Analysis below. Based on this review and these discussions, the Human Resources Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be incorporated by reference in the company’s Annual Report on Form 10-K for the year ended December 31, 2016 and included in this Proxy Statement.

Members of the Human Resources Committee

Ronald A. Rittenmeyer, Chair

Brenda J. Gaines

Richard R. Pettingill

Matthew J. Ripperger

James A. Unruh

Peter M. Wilver

 

 

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COMPENSATION DISCUSSION AND ANALYSIS  

 

 

This Compensation Discussion and Analysis (CD&A) describes the components of our executive compensation packages, the way in which the Human Resources Committee makes decisions about each component, the philosophy behind each component and the way these decisions and philosophies were applied to each Named Executive Officer (NEO) for 2016. Our NEOs for 2016 were:

 

NAMED EXECUTIVE OFFICER

  

TITLE

Trevor Fetter

  

Chief Executive Officer

Daniel Cancelmi

  

Chief Financial Officer

Keith Pitts

  

Vice Chairman

Eric Evans

  

President of Hospital Operations

Audrey Andrews

  

Senior Vice President and General Counsel

The CD&A and Executive Compensation Tables are organized as follows:

 

TABLE OF CONTENTS    PAGE  

Executive Summary

     28  

•  Business Overview and Strategic Priorities

     28  

•  Financial Performance and Link to Executive Compensation

     29  

•  Active Shareholder Engagement Program

     30  

•  Executive Compensation Program Key Changes

     31  

    ¡  Substantial Redesign for 2016

     31  

    ¡  2017 Compensation Actions

     32  

•  Components of 2016 Compensation and Alignment with Performance

     33  

    ¡  Significant Levels of Pay At Risk

     33  

    ¡  CEO Realizable Pay

     34  

•  Compensation Design and Target-Setting Process

     34  

•  Sound Compensation Governance and Practices

     35  

Compensation, Discussion and Analysis: In Detail

     36  

•   Description and Analysis of Our Program and 2016 Compensation Decisions

     36  

    ¡  Base Salary

     36  

    ¡  Performance-Based Annual Incentive Plan

     36  

    ¡  2016 Long-Term Incentive Compensation Program

     39  

•  The Compensation Process

     41  

    ¡  Role of the Human Resources Committee

     41  

    ¡  Independent Compensation Consultant

     42  

    ¡  Performance Review Process

     42  

    ¡  Benchmarking Against Peer Companies

     42  

•  Other Compensation, Benefits and Considerations

     44  

•  Compensation Governance Practices

     46  

Executive Compensation Tables

     47  

 

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COMPENSATION DISCUSSION AND ANALYSIS

 
     

 

EXECUTIVE SUMMARY

Business Overview and Strategic Priorities

Tenet Healthcare is a diversified healthcare services company with three complementary business segments. Our care network is comprised of over 575 facilities in growing urban and suburban communities. We have 80 acute care hospitals and an outpatient network inclusive of the largest ambulatory and short-stay surgery platform in the country – operated by our United Surgical Partners International (USPI) subsidiary. Our Conifer Health Solutions (Conifer) subsidiary provides revenue cycle management and value-based care services to over 800 clients, including hospitals, physicians, health plans and employers. With our hospitals, USPI and Conifer, we believe we are well-positioned in some of the most relevant segments of healthcare.

Our long-term strategic priorities by business segment are as follows:

 

LOGO

 

 

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COMPENSATION DISCUSSION AND ANALYSIS

      

 

Over the last several years, we have successfully increased the proportion of our revenues from higher margin, higher free cash flow generating businesses, and enhanced the mix of revenue and EBITDA that come from operations less reliant on government healthcare programs. As illustrated in the charts below, we generated 37% of our Adjusted EBITDA in 2016 from our Ambulatory and Conifer segments, up significantly from 15% in 2014.

 

LOGO

See Appendix B for definitions and reconciliations of non-GAAP measures

Financial Performance and Link to Executive Compensation

Nearly all healthcare provider companies experienced a challenging year for stock price performance in 2016. The year culminated with considerable uncertainty, partly driven by the results of the Presidential and Congressional elections, which created uncertainties regarding, among other things, the potential repeal of the Affordable Care Act. While we continued our history of generating increasing levels of Net Revenue and Adjusted EBITDA, our stock price declined by 51% in 2016 and we did not achieve certain objectives in our 2016 business plan.

 

 

With a compensation program that is closely linked to the company’s performance, each of our NEO’s total compensation reported in the Summary Compensation Table on page 47 decreased in 2016. In addition, the realizable value of outstanding long-term incentive awards held by our NEOs (which are all stock based), declined by an amount equal to the decline in the stock price during 2016.

 

Our Human Resources Committee closely monitors pay-for-performance alignment and also took the following actions with respect to 2016 pay for our NEOs:

 

    Targeted 2016 total compensation opportunity for NEOs at reduced levels—generally between the 25th and 50th percentiles of peers.

 

    Approved 2016 annual incentive plan (AIP) payouts at 67% of target for most corporate participants, which are among the lowest levels since 2003.

 

    Significantly reduced 2016 long-term equity grant values.

 

    Made no base salary increases for incumbent NEOs other than a market-based adjustment for Ms. Andrews.

 

    Made no increases in AIP target award levels for incumbent NEOs.

 

 

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COMPENSATION DISCUSSION AND ANALYSIS

 
     

 

Active Shareholder Engagement Program

Our Board of Directors regularly and actively solicits input from investors and governance groups to better inform decision-making and gain insight into shareholder perspectives on a broad range of topics. The feedback received from our shareholders in 2015—particularly regarding the design of the company’s long-term incentive (LTI) compensation awards—resulted in the Human Resources Committee taking several actions in 2016 to modify the structure and design of the company’s executive compensation program, as described in more detail below under “Executive Compensation Program Key Changes—Substantial Redesign for 2016.” We believe that these changes, which we first disclosed in our 2016 proxy statement, and our enhanced shareholder outreach efforts throughout 2015 and 2016, contributed to the significant improvement in the results of our advisory vote on executive compensation—from approximately 82% of votes cast approving our say-on-pay proposal in 2015 to approximately 90% in 2016.

After the 2016 annual meeting of shareholders, we again reached out to a number of shareholders to offer a meeting with members of our management team and/or an independent director. In particular, the Board solicited feedback on the recent compensation program changes as well as recent changes in Board composition and leadership. In total, during our 2016 Fall and Winter engagement, we held discussions with shareholders representing in aggregate approximately 25% of our outstanding common stock (which did not include the input we regularly receive from our largest shareholder, Glenview Capital Management, which has two of its partners serving on our Board of Directors), as well as with proxy advisory firms. Two of our independent directors, Mr. Rittenmeyer, Lead Director and Chair of the Human Resources Committee; and Mr. Unruh, then the Chair of our Health IT Committee and the former Chair of our Audit Committee, participated in several of these meetings.

In early 2017, the Board reviewed the feedback communicated to us by our shareholders and noted that investors generally expressed satisfaction with the Board’s responsiveness—particularly the steps taken by the Human Resources Committee and Board to redesign the performance-based LTI awards made to executives. Certain shareholders raised questions with respect to past practices of targeting above-median compensation for certain officers and the company’s executive compensation peer group. In response to these points, we have included additional information with respect to target-setting on page 34 under “Compensation Design and Target-Setting Process” and the company’s 2016 peer group selection process on page 43 under “Benchmarking Against Peer Companies—2016 Peer Group.”

 

 

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COMPENSATION DISCUSSION AND ANALYSIS

      

 

Executive Compensation Program Key Changes

Substantial Redesign for 2016

In response to feedback received from investors, and as part of the Human Resources Committee’s ongoing review and refinement of Tenet’s executive compensation program, the Committee made several significant changes to the executive compensation program for 2016, which were previously disclosed in our 2016 proxy statement:

 

COMPENSATION ELEMENT

   ACTION TAKEN FOR 2016 PROGRAM

Long-Term Incentive Plan Performance Period

  

  The one-year performance period for performance-based restricted stock units (RSUs) was replaced with a cumulative three-year performance period.

 

  The three-year ratable vesting schedule for performance-based RSUs was replaced with a three-year cliff vesting schedule.

 

  Both changes were intended to better align executive incentives with the long-term performance of the company.

 

Long-Term Incentive Plan Performance Metrics

  

  The single performance metric used in past years (Adjusted EBITDA) for performance-based RSUs was replaced with a basket of four new equally-weighted metrics:

 

¡ Adjusted Earnings Per Share (EPS), which is a measure of the company’s per-share profitability, excluding certain gains and losses.

 

¡  Adjusted Free Cash Flow Less Cash Payments to Noncontrolling Interests, which measures the company’s ability to sustainably generate cash that can be used for purposes such as acquisitions, purchasing equity interests in joint ventures or repurchasing debt.

 

¡ Adjusted Return on Invested Capital (ROIC), which measures capital efficiency and management’s ability to generate economic returns on capital investments and acquisitions.

 

¡ Relative Total Shareholder Return (TSR), which compares the company’s shareholder return (i.e., share price appreciation plus dividends) with that of its four direct publicly-traded competitors.

 

  The change in metrics is intended to incentivize management to perform in the key areas that the Board and the Human Resources Committee believe will drive shareholder value going forward and to provide for greater differentiation between the performance metrics for our short- and long-term incentive plans.

 

  For further discussion of the Committee’s view of these metrics and their connections to the company’s strategies, please see “2016 Long-Term Incentive Compensation Program,” beginning on page 39 below.

 

Long-Term Incentive Plan Clawback

  

  Equity grants made to our NEOs in 2016 and later years are subject to clawback if, within three years following the end of the performance period, the company materially restates its financial results with respect to the performance period and the recipient’s fraud or misconduct caused or partially caused the need for the restatement.

 

  This new requirement is in addition to the clawback policy that is already embedded in our AIP such that now all performance-based incentive compensation awarded to our NEOs is subject to clawback provisions.

 

Annual Incentive Plan Performance Metrics

  

  The EBITDA metric under our AIP is now Adjusted EBITDA minus net income attributable to noncontrolling interests (Adjusted EBITDA Less NCI), and the free cash flow metric is now Adjusted Free Cash Flow minus cash distributions paid to noncontrolling interests (Adjusted FCF Less Cash NCI).

 

  The company’s strategy to pursue joint venture partnerships, including USPI, has resulted in an increase in Tenet’s net income attributable to noncontrolling interests and a related increase in cash distributions paid to noncontrolling interests. The revised EBITDA and free cash flow metrics are designed to reflect this strategy and are intended to serve as better measurements of performance driven by Tenet’s management team relative to the benefits received by the company’s shareholders.

 

 

 

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COMPENSATION DISCUSSION AND ANALYSIS

 
     

 

2017 Compensation Actions

The Human Resources Committee continues to refine the company’s executive compensation programs to take into account additional shareholder and proxy advisor feedback and other factors, including input from its independent compensation consultant regarding current market practices. In designing the 2017 executive compensation program, the Committee’s primary objectives were continuing to align pay delivery with company performance, maintaining rigorous goals, and retaining talent during a period of great uncertainty in the healthcare sector. In total, approximately 90% of the CEO’s target 2017 pay opportunity will be “at-risk” (i.e., contingent upon our meeting performance goals and/or increasing shareholder value), and approximately 65% of the total is subject to performance metrics.

With respect to the design of 2017 LTI awards, the Committee moved a larger percentage of the overall award toward performance-based elements (now two-thirds of the total), utilizing the following structure:

 

    One-third of the total target LTI award to each of the NEOs will again be delivered in the form of time-based RSUs that vest ratably over three years.

 

    One-third will be delivered in the form of performance-based cash, with actual payouts ranging from 0% to 200% of the target level based upon three performance metrics: Adjusted EPS, Adjusted FCF Less Cash NCI and Relative TSR, each measured over a three-year period and each of which was used as a metric for the 2016 performance-based RSUs.

 

    One-third will be delivered in the form of performance-based stock options that are subject to the satisfaction of a stock price performance condition requiring the company’s stock price to increase 25% and close at or above such level for 20 consecutive trading days at any time during the three-year period following the date of grant.

The Committee believes that the 2017 LTI structure will continue to challenge management to achieve results for our shareholders while also resulting in a more efficient utilization of authorized equity under its stock incentive plan. Moreover, the LTI program is specifically designed such that realized compensation will fall significantly short of target if the company’s shareholders do not benefit from a sustained increase in the company’s stock price. In determining target LTI opportunities for our NEOs in 2017, the Committee took into account, among other things, the greater emphasis on performance-based pay elements in 2017 and the significant reduction in LTI grant levels in 2016.

 

 

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COMPENSATION DISCUSSION AND ANALYSIS

      

 

Components of 2016 Compensation and Alignment with Performance

Our executive compensation program is designed to promote prudent pay practices that support pay-for-performance principles. Our Human Resources Committee reviews our compensation program annually to ensure it is consistent with these objectives. The following table outlines the components of our NEO’s 2016 compensation:

 

ELEMENT   FORM   KEY FEATURES
Base Salary   Fixed Cash  

Fixed compensation component payable in cash

 

Set annually based on peer group and market survey data, as well as individual performance, experience and tenure

 

Annual

Incentive Plan

 

Performance-

Based Cash

 

Performance-based cash compensation payable based on company’s achievement of short-term performance goals set by the Committee

Performance measured against a “Balanced Scorecard“ which includes the following broad categories (which we call “pillars”):

 

   

Cost: 75%

 

  

  Adjusted EBITDA Less NCI (60%)

  Adjusted FCF Less Cash NCI (15%)

 

   

Growth: 5%

 

  

  Inpatient Admissions (2.5%)

  Outpatient Visits (2.5%)

 

   

Quality: 5%

 

  

  Quality Composite Index (5%)

 

   

Service: 10%

 

  

  Inpatient Satisfaction (5%)

  Physician Net Promoter Score® (5%)

 

   

People: 5%

 

  

  Employee Turnover (5%)

 

Long-Term

Incentive Plan

 

 

Performance-

Based RSUs (50%)

 

Focuses management on creating long-term shareholder value

Cumulative three-year performance period; cliff vesting on the third anniversary of the grant date

Based on achievement of rigorous goals under four equally-weighted performance metrics aligned with the company’s strategies

 

 

Time-Based

RSUs (50%)

 

 

Aligns economic interests of executives and shareholders

Three-year ratable vesting schedule

 

Significant Levels of Pay At Risk

The substantial majority of all NEO compensation is “at risk” (i.e., contingent upon our meeting performance goals and/or increasing shareholder value). Specifically, for 2016, 87.7% of the Chief Executive Officer’s target compensation and, on average, 78.8% of other NEO’s target compensation was tied to company performance, including stock price.

 

LOGO

 

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COMPENSATION DISCUSSION AND ANALYSIS

 
     

 

CEO Realizable Pay

To illustrate the link between executive compensation and company performance, the following charts compare Mr. Fetter’s target compensation and realizable pay as of December 31, 2016, for compensation opportunities awarded to him in 2014, 2015 and 2016.

 

LOGO

 

(1) Target Value at Award Date reflects: (i) base salary at year end, (ii) target AIP award, and (iii) grant date value (at target) of LTI awards.

 

(2) Realizable Value at 12/31/2016 reflects: (i) paid base salary during the calendar year; (ii) the actual AIP award earned for that year, and (iii) the actual prevailing LTI value at 12/31/2016. For 2014 and 2015 performance-based RSU awards: reflects achievement and vesting at 200% and 164.7% of target, respectively. For 2016 performance-based RSU awards: assumes achievement at target level.

Compensation Design and Target-Setting Process

A significant portion of the compensation of our NEOs is subject to the company achieving targeted levels of financial and operating performance under both our short and long-term plans. These predetermined performance levels are derived from the performance goals in the company’s annual business plan, which is reviewed and approved by the Board of Directors prior to the beginning of each fiscal year. Our Human Resources Committee also establishes operational targets intended to incentivize our officers to improve patient care and other quality metrics, which we believe are critical to achieving success as a healthcare provider.

Near the end of each year, the Committee begins its target-setting process and undertakes a comprehensive review of the design of both the short and long-term incentive programs for the upcoming fiscal year. The goal is to identify performance metrics and establish targets that the Committee believes will motivate our executives to deliver the performance that drives shareholder value creation in both the short and longer term. As part of its target-setting process, the Committee also reviews the historical achievement of targets by management to assess whether targets have been sufficiently rigorous. An overview of the typical target-setting process is outlined below.

 

NOVEMBER       DECEMBER       FEBRUARY-MARCH

The Committee reviews competitive pay benchmarking data, along with market practices and trends. The Committee discusses compensation plan design options and provides feedback to management on proposals for the AIP and LTI plans.

  LOGO  

The Board reviews and approves the upcoming year’s business plan.

 

The Committee reviews the goals and objectives in the company’s annual business plan, and considers how proposed target levels for the AIP metrics will correlate to the earnings outlook that management believes it will disclose to investors for the following year.

 

The Committee approves the AIP structure, including weightings and the threshold, target and maximum goal for each financial or operational performance metric.

 

LOGO

  The Committee finalizes the design of the annual long-term incentive program (including all performance metrics and targets) and approves the target AIP opportunity for each NEO and LTI grant amounts as part of the overall compensation package for each NEO.

 

 

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COMPENSATION DISCUSSION AND ANALYSIS

      

 

The levels of NEO bonuses under our performance-based AIP are determined by the company’s achievement of pre-specified financial, operating, quality and service performance targets focused on a balanced mix of value-driving metrics.

 

    Cost and growth (financial) metric targets are challenging yet attainable goals, based on the annual business plan and the earnings outlook disclosed to investors.

 

    Quality, service and people (operational) metric targets are established with the aim of achieving performance benchmarks that we believe represent improvements in care quality and/or continued internal improvement on operating metrics (such as employee retention) that contribute to reductions in operating costs.

A substantial portion (50% in 2016 and 66.7% in 2017) of the equity grants made to NEOs under our LTI plan are subject to performance-based vesting requirements that require the company to achieve specified financial targets established by the Human Resources Committee, with the remaining awards subject to time-based vesting conditions.

 

    Prior to 2016, the Committee historically had used Adjusted EBITDA as a key performance metric under both its long and short-term incentive plans. The Committee’s selection of Adjusted EBITDA was based primarily on its assessment that this is the metric primarily used by financial analysts and investors to measure the performance of the company.

 

    As discussed on page 31 under “Executive Compensation Program Key Changes—Substantial Redesign for 2016,” the Committee evaluated and changed performance metrics in 2016, both under the short and long-term plans, to better align with strategic objectives in 2016.

Sound Compensation Governance and Practices

We maintain the following compensation-related governance best practices that support our compensation philosophy and alignment of pay and performance for our NEOs.

 

       Commitment to pay-for-performance philosophy, with a substantial majority of executive compensation “at risk”

 

       Regular outreach to shareholders to request feedback regarding corporate governance and executive compensation practices

 

       Clawback provisions applicable to all performance-based compensation paid to NEOs

 

       Significant stock ownership and retention requirements for executives (6x base salary for CEO) and directors (5x annual cash retainer)

 

       Anti-hedging and anti-pledging policies

 

       No single trigger change-of-control benefits

 

       No excise tax gross-ups

 

       No employment agreements

 

       Limited perquisites

 

       Independent compensation consultant

 

 

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COMPENSATION DISCUSSION AND ANALYSIS

 
     

 

COMPENSATION, DISCUSSION AND ANALYSIS: IN DETAIL

Description and Analysis of Our Program and 2016 Compensation Decisions

This section describes the components of our executive compensation program, the way in which the Human Resources Committee makes decisions about each component, the philosophy behind each component and how these decisions and philosophies were applied to each NEO in 2016. The following table shows the target component pay mix across all our NEOs and lists where we discuss each component in this section.

 

2016 COMPENSATION ELEMENT

   PERCENTAGE OF
TOTAL TARGET
COMPENSATION
FOR CEO
  

AVERAGE
PERCENTAGE OF TOTAL

TARGET COMPENSATION
FOR ALL OTHER NEOS

  

WHERE

    DISCUSSED    

Base Salary

       12.3 %        21.2 %        Page 36

Annual Incentive Plan

       18.4 %        19.9 %        Page 36

Long-Term Incentive Program, comprised of:

      Performance-based RSUs (50%)

      Time-based RSUs (50%)

       69.3 %        58.9 %        Page 39

Base Salary

Base salary provides our NEOs with a fixed annual income. The Human Resources Committee approves the base salary of each NEO on an annual basis based on its assessment of each NEO’s individual performance and experience level, internal equity considerations, and a review of peer group and market survey data provided by our independent compensation consultant. The following table summarizes the annualized base salaries approved by the Committee for 2016 and the increase from each NEO’s annualized salary as of December 31, 2015:

 

NAMED EXECUTIVE OFFICER

     2015
SALARY
     2016
SALARY
   INCREASE
    FROM 2015    

Trevor Fetter

         $1,275,000        $ 1,275,000        0.0 %

Daniel Cancelmi

         $   618,000        $ 618,000        0.0 %

Keith Pitts

         $   925,000        $ 925,000        0.0 %

Eric Evans

         not in current role        $ 650,000        N/A

Audrey Andrews

         $   489,250        $ 525,000        7.3 %

Mr. Evans was promoted to President of Hospital Operations in March 2016 and received an increase in base salary at that time from the salary he was receiving in his previous role as the CEO of the company’s Texas region. Mr. Evans’ 2016 annualized base salary in his current role is approximately 10% less than the annual base salary that the company’s former President of Hospital Operations was receiving, due to Mr. Evans’ relatively short tenure in the role. Ms. Andrews was the only other NEO to receive any increase in base salary from 2015 levels. The increase was intended to align her compensation toward the median pay of chief legal officers of our peer companies after taking into account her tenure in the role.

Performance-Based Annual Incentive Plan

The Human Resources Committee annually determines the payment of cash bonuses for NEOs under our Annual Incentive Plan (AIP), which is a broad-based management compensation program in which approximately 3,000 of our employees participate. Payment of a bonus is based on the company’s achievement of performance goals established by the Committee. If the threshold performance goals are not exceeded, no bonus is paid. The Committee has the discretion to reduce bonus payments for failure to comply with the company’s standards of conduct or in response to other quality, safety or compliance events that put the company’s reputation or financial results at risk. In addition, AIP awards to NEOs are subject to a clawback provision under which the Board of Directors may require reimbursement to the company of a cash bonus in the event of a material restatement of our financial results caused by the recipient’s fraud or in other circumstances involving fraud or misconduct that causes substantial harm to the company even in the absence of a restatement of financial statements.

 

 

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COMPENSATION DISCUSSION AND ANALYSIS

      

 

2016 Target Annual Incentive Award Levels for Named Executive Officers

In 2016, the Human Resources Committee approved the following target bonus award levels for each NEO. The target award level represents the amount of potential cash bonus that might be paid to an officer if the company meets pre-established performance goals set by the Committee:

 

NAMED EXECUTIVE OFFICER

  

    TARGET AWARD EXPRESSED    

AS A PERCENTAGE

OF BASE SALARY

Trevor Fetter

   150%

Daniel Cancelmi

   100%

Keith Pitts

   100%

Eric Evans

   100%

Audrey Andrews

     75%

These target award levels remain unchanged from the levels established for 2015 AIP bonus, with the exception of the level established for Mr. Evans, which, in connection with his recent promotion to his current role, was set based on market data for comparable positions at peer companies and in recognition of the critical role he plays in executing the business plan of the company’s largest business segment. The target award percentages for Messrs. Fetter and Pitts have not increased since 2013.

2016 AIP Performance Metrics

For 2016, consistent with prior practice, the Committee selected metrics to measure management’s performance with respect to the AIP under a “Balanced Scorecard.” The Balanced Scorecard measures the company’s performance in the following broad categories, which we call “pillars”: Cost, Growth, Quality, Service and People. Points are awarded for each metric under the Balanced Scorecard based on the degree to which the pre-determined goals for that metric are achieved. The aggregate target number of points under the Balanced Scorecard is 100 and the maximum is 200.

 

PILLAR METRIC

     WEIGHTING(1)      MEASUREMENT    LINK TO PERFORMANCE
   

Cost

     75%      Financial Objectives   

Adjusted EBITDA Less NCI (60%)

Adjusted FCF Less Cash NCI (15%)

Growth

     5%        

Inpatient Admissions (2.5%)

Outpatient Visits (2.5%)

   

Quality

     5%        

Quality Composite Index (5%)

   

Service

     10%              Operational Objectives           

Inpatient Satisfaction (5%)

Physician Net Promoter Score® (5%)

   

People

     5%          

Employee Turnover (5%)

 

(1)  The weightings reflected in the table apply to most corporate personnel, including Messrs. Fetter, Cancelmi and Pitts and Ms. Andrews. For Mr. Evans and the Hospital Operations personnel reporting to him, a scorecard with slightly different weightings among the pillars is used to evaluate performance (65% on Cost, 10% on Growth, 10% on Quality, 10% on Service and 5% on People).

Goal-Setting Process for the Balanced Scorecard

Financial Pillars. The Committee assigned the greatest weight within the Balanced Scorecard (80%) to management’s performance on Cost and Growth metrics. This was an increase from the 75% weighting applied to these metrics for 2015 and reflects the Committee’s desire to place an increased emphasis on the company’s financial performance. It is the Committee’s expectation that achievement of target-level performance under the Cost and Growth metrics requires management to perform at levels exceeding the prior year’s performance, which is consistent with the Committee’s objective of challenging management to deliver on performance that increases shareholder value. The Committee believes that achievement of above-target performance under the Cost and Growth metrics requires the company’s management to achieve the “stretch” goals embedded in the company’s annual business plan. To achieve this level of performance, management must not only meet the basic objectives of the business plan, but also execute at superior levels on all aspects of the plan.

 

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Adjusted EBITDA is a primary metric that financial analysts and investors use to measure the company’s financial performance, and for many years, the Committee has used Adjusted EBITDA as the key financial performance metric driving the majority of the Balanced Scorecard calculation, with Adjusted Free Cash Flow as the secondary financial metric. In 2016, the Committee made an important change in the way that these metrics would be defined and calculated in response to the company’s changing strategies. As the company has entered into a number of significant joint venture partnerships, particularly including USPI, Tenet’s net income attributable to noncontrolling interests and its cash distributions paid to noncontrolling interests have increased. The revised EBITDA and free cash flow metrics used in the AIP— Adjusted EBITDA Less NCI and Adjusted FCF Less Cash NCI—are designed to reflect this strategic change and are intended to serve as better measurements of performance driven by Tenet’s management team relative to the benefits received by the company’s shareholders.

The 2016 targets set by the Committee for the Cost metrics matched the company’s 2016 business plan and the midpoint of the company’s outlook provided to investors in February 2016. The Committee chose to set the threshold level for each metric at 10% below target, and the maximum level at 10% above target.

Operational Pillars. The remaining metrics of the Balanced Scorecard measure our management’s achievement of healthcare and other operational performance goals. The Committee selected the metrics discussed below to incentivize management to focus on improving the quality of the healthcare we provide our patients and reducing healthcare costs. The Committee believes that these operational metrics are critical drivers of value as patients are increasingly adopting a consumer orientation in the selection of their healthcare providers and taking more ownership of their healthcare spending. In addition, achieving operational excellence benefits shareholders by enhancing the company’s competitive position in the market.

The Committee established performance goals for each of these metrics based on achieving national performance benchmarks and/or continued internal improvement. Targets are designed to be challenging yet attainable, and take into consideration results from the prior year. The following table sets forth a description of each Quality, Service and People metric and how the targets were set by the Committee.

 

BALANCED SCORECARD OPERATIONAL METRICS

Quality

Quality Composite Index

  

Measures the company’s performance on eight equally-weighted sub-measures that target the company’s focus areas for clinical improvement in 2016. The measures within the index fall into one of four quality drivers identified by the company: Process, Safety, Outcomes and Value. Several of the measures also correspond with the evidence-based indicators used by the Centers for Medicare and Medicaid Services (CMS) to reward hospitals based on the quality of patient care they deliver.

 

2016 target performance goal was set at the 60th percentile of Tenet’s 2015 performance on the same index—requiring year over year improvement to reach the target.

Service

Inpatient Satisfaction

  

Measures inpatient satisfaction scores via the company’s internally-conducted patient surveys that correlate to the national patient satisfaction scoring tool used by CMS, known as HCAHPS.

 

2016 target performance goal was set at a level designed to equal a “3 star” score on the 5 star HCAHPS scoring scale.

Service

Physician Satisfaction Net Promoter Score®

  

Measures physician engagement and loyalty (which the Committee believes is correlated to better patient care outcomes) by using the results of a physician survey taken at various times each year.

 

2016 target performance goal was set at the 60th percentile of Tenet’s 2015 performance on the same metric—requiring year over year improvement to reach the target.

People

Employee Turnover

  

Measures the percentage of employees who terminate their employment with the company. High turnover among skilled healthcare workers requires the company to incur higher recruiting and training expenses, costs associated with contract or temporary labor, and other intangible costs associated with loss of productivity.

 

2016 target performance goal was set at the 50th percentile of Tenet’s 2015 performance on the same metric due to the expectation that turnover would continue to be elevated in light of the competition for talent within the industry and ongoing shortage of qualified healthcare workers.

 

 

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2016 Balanced Scorecard Performance

The following tables set forth the individual component metrics of the five Balanced Scorecard pillars, the target level of points allocated to each metric and the actual performance levels achieved by management in 2016.

 

COST AND GROWTH

(FINANCIAL) METRIC

   THRESHOLD
LEVEL
   TARGET
LEVEL
   MAXIMUM
LEVEL
   ACTUAL
PERFORMANCE
   TARGET
BALANCED
SCORECARD
POINTS
  

ACTUAL
BALANCED
  SCORECARD  

POINTS
EARNED

Adjusted EBITDA Less NCI(1)

   $1.914 billion    $2.127 billion    $2.340 billion    $2.058 billion            60        40.6

Adjusted FCF Less Cash NCI(2)

   $245 million    $272 million    $299 million    $163 million            15        0.0

Inpatient admissions(3)

   645,146    679,101    692,683    677,361            2.5        2.4

Outpatient visits(3)

   8,085,991    8,694,613    9,042,398    8,562,859            2.5        2.0

TOTAL:

                   80        45.0

 

(1) Adjusted EBITDA (see Appendix B for definition and reconciliation) minus net income attributable to noncontrolling interests as reported on the company’s consolidated statement of operations, excluding approximately $14 million of noncontrolling interest expense related to gains and charges not included in Adjusted EBITDA.
(2) Adjusted Free Cash Flow (see Appendix B for definition and reconciliation) minus cash distributions paid to NCI reflected on the company’s consolidated statements of cash flow.
(3)  Targets and results are adjusted by the Human Resources Committee to exclude charity and self-pay admissions/visits.

 

NON-FINANCIAL METRIC

     TARGET BALANCED
SCORECARD POINTS
   ACTUAL BALANCED
SCORECARD POINTS EARNED

Quality (Quality Composite Index)

         5.0        10.0

Service (Inpatient Satisfaction)

         5.0        1.6

Service (Physician Satisfaction)

         5.0        4.2

People (Employee Turnover)

         5.0        6.5

TOTAL:

         20.0        22.3

Calculation of Actual AIP Award Payments

Based on the AIP performance targets described above, the company’s 2016 performance resulted in achievement under the Balanced Scorecard of 67.3 points, which corresponds with award payouts for most corporate participants at only 67.3% of target. Mr. Evans and other corporate Hospital Operations personnel received payouts based on a scorecard with slightly different weightings (additional emphasis on Quality and Service metrics); Mr. Evans’ award level was also calculated to account for the timing of his assumption of his current role in March 2016 and resulted in a payout at 69.5% of target.

Consistent with the company’s pay-for-performance philosophy, these award levels were among the lowest paid by the company under its annual incentive plan since 2003 and reflected significant decreases in the AIP payouts as compared to 2015, as reflected in the table below.

 

NAMED EXECUTIVE OFFICER

  

2015 ACTUAL

AIP PAYOUT

  

2016 TARGET

AIP PAYOUT

  

2016 ACTUAL

AIP PAYOUT

Trevor Fetter

     $ 2,807,550      $ 1,912,500      $ 1,287,113

Daniel Cancelmi

       950,484        618,000        415,914

Keith Pitts

       1,422,650        925,000        622,525

Eric Evans

       Not in current role        619,583        430,848

Audrey Andrews

       564,350        393,750        264,994

2016 Long-Term Incentive Compensation Program

As discussed above, significant changes were made to the design of the performance-based LTI awards in 2016. These changes were implemented in response to specific shareholder feedback that the Committee establish longer performance periods and reconsider the performance metrics in order to better connect with the company’s long-term strategies. We believe that our long-term incentive compensation program now better aligns the economic interests of our NEOs with those of our shareholders.

 

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2016 LTI Grant Values for Named Executive Officers

The Committee evaluated total pay levels in light of the significant decline in the company’s stock price during the second half of 2015 and the first several months of 2016. As a result of this review, the Committee reduced the target value of LTI compensation awards made in March 2016 to Mr. Fetter by 20% from the prior year target award level and to most other senior officers of the company by similar levels. These reductions resulted in Mr. Fetter’s 2016 total target direct compensation (i.e., base salary plus target AIP plus target value of LTI awards) being set at approximately the 25th percentile of our 2016 peer group, Mr. Pitts’ being set at approximately the 50th percentile, and the other NEOs’ being set between the 25th and 50th percentiles.

The following table summarizes the LTI awards granted to each of our NEOs in 2016:

 

NAMED EXECUTIVE OFFICER

    

NUMBER OF

RESTRICTED

STOCK UNITS

  

    TARGET LONG-TERM    
INCENTIVE

AWARD VALUE(1)

Trevor Fetter

         282,354      $ 7,200,027

Daniel Cancelmi

         72,158      $ 1,840,029

Keith Pitts

         122,354      $ 3,120,027

Eric Evans(2)

         50,256      $ 1,400,096

Audrey Andrews

         47,060      $ 1,200,030

 

(1)  Target value is based on the NYSE closing price per share of our common stock on the date of grant (March 10, 2016: $25.50 for the awards to all NEOs other than Mr. Evans and for 15,688 RSUs granted to Mr. Evans on such date; March 31, 2016: $28.93 for the additional 34,568 RSUs granted to Mr. Evans in connection with his promotion) and values performance-based RSUs at target level.

 

(2)  Mr. Evans received an initial annual grant of 15,688 RSUs prior to assuming his current role and an additional grant of 34,568 RSUs upon his promotion to President of Hospital Operations. Both grants are subject to the same vesting and performance structure set forth below.

2016 Long-Term Incentive Components and Performance Metrics

The following table summarizes the awards in our 2016 long-term incentive compensation program, including the types of LTI awards that we granted, and the purpose, performance measured and vesting period of each type.

 

TYPE OF AWARD   PURPOSE   PERFORMANCE MEASURED   VESTING PERIOD

Performance-Based Restricted Stock Units (50% of the total award to each NEO)

 

Encourages retention

 

Focuses management on activities that increase long-term shareholder value consistent with financial forecasts

 

Four equally weighted performance metrics:

Adjusted EPS

Adjusted FCF Less Cash NCI

Adjusted ROIC

Relative TSR

  Three years (cliff vesting contingent upon attainment of performance goals set for each metric)

Time-Based Restricted Stock Units (50% of the total award to each NEO)

 

Encourages retention

 

Fosters shareholder alignment among the executive team

  Stock price performance  

Three years

(1/3 after each year)

As discussed above under “Executive Compensation Program Key Changes—Substantial Redesign for 2016,” one of the most significant recent changes made to our compensation program in response to investor feedback was the adoption of a cumulative three-year performance period and four new performance metrics for all performance-vested RSUs granted to the NEOs in 2016. Performance equity had previously been measured based on one year of total Adjusted EBITDA performance.

In early 2016, the Committee, with input from company management and the other independent directors, undertook a comprehensive review of metrics used by the company and other peer companies to measure performance under incentive compensation programs, and particularly the specific financial and performance metrics that had been suggested by a number of investors as part of the 2015 shareholder engagement program. Discussions focused on the long-term strategies articulated by the Board in its most recent strategic retreat and business plan review and how best to measure management’s performance in driving shareholder value. There was broad agreement among the Committee members that performance must be measured by a number of important metrics so as not to cause undue focus on any one measure, and final agreement was reached on a “basket” of four metrics that would each determine the payout for 25% of the total number of

 

 

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performance-based RSUs granted to each NEO. The actual awards received will range from 0% to 200% of the target level, depending on the degree to which the performance goals are met. More information with respect to each metric and the reason it was selected appears in the table below.

 

 LTI PERFORMANCE METRIC    DESCRIPTION

Adjusted Earnings Per Share

  

  Measures the company’s per-share profitability, excluding certain gains and losses.

 

  Many analysts and investors use the ratio of a company’s stock price to its earnings per share as a valuation tool and the Committee believes that greater earnings per share correlates with higher share prices.

 

  Likewise, Adjusted EPS incorporates interest expense and noncontrolling interest expense, which are meaningful uses of the company’s cash.

Adjusted Free Cash Flow Less
Cash Payments to
Noncontrolling Interests

  

  Measures the company’s ability to sustainably generate cash that can be used for purposes such as acquisitions, purchasing equity interests in joint ventures, repurchasing outstanding equity or debt securities, or other general corporate purposes.

 

 The Committee believes that free cash flow generation is an important determinant in long term shareholder value creation, since it allows the company to fund growth without raising additional debt and also to retire existing indebtedness.

Adjusted Return on Invested Capital

  

  Measures capital efficiency and management’s ability to generate economic returns on capital investments and acquisitions.

 

  The Committee believes that ROIC is an important metric to properly evaluate if the company is generating attractive financial returns.

Relative Total Shareholder Return

  

  Compares the company’s shareholder return (i.e., share price appreciation plus dividends) with those of its four direct publicly-traded competitors: Community Health Systems, HCA Holdings, LifePoint Health and Universal Health Services.

 

 The Committee recognizes that investors have the option to invest in other companies and it believes that incorporating Relative TSR as a performance measure will provide an even greater direct financial incentive for management to act in ways that they believe will result in superior returns for the company’s shareholders.

Equity Grant Timing and Stock Option Exercise Prices

Historically, we have made annual equity awards to the NEOs and other employees during the first quarter of the year in connection with annual executive compensation decisions. In accordance with the terms of our equity plans, the grant date of these awards is the date the Human Resources Committee approves the grant, which usually occurs at a meeting date which is scheduled more than one year in advance.

We occasionally may grant equity awards, including stock options to newly hired employees, employees who have been promoted to officer-level positions, or for special recognition or retention outside of the annual grant process. For equity grants awarded outside of the annual grant process cycle, the grant date generally is the last trading day of the month of hire or the approval of the promotion or retention award. Mr. Evans was the only NEO to receive any such special award in 2016, as described above when he was promoted into his current role. The exercise price for all stock options is the NYSE closing price per share of our common stock on the date of grant or on the immediately preceding trading day if the date of grant is a non-trading day. Human Resources Committee approval is required in all cases where the recipient of the equity grant is a NEO or other senior officer.

The Compensation Process

Role of the Human Resources Committee

The Human Resources Committee of our Board of Directors, which is comprised entirely of independent directors, makes all compensation decisions regarding our NEOs. The Committee considers input from (i) the other independent members of our Board of Directors, (ii) the company’s shareholders and (iii) its independent compensation consultant. In the case of NEOs other than the Chief Executive Officer, the Committee also considers input and recommendations from the Chief Executive Officer. The Committee’s decisions regarding compensation of our NEOs are made outside the presence of these officers. The Committee is also responsible for approving our executive compensation program and general compensation policies, all new or materially amended broad-based compensation plans, and the performance measures used in our executive compensation programs.

 

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Independent Compensation Consultant

The Human Resources Committee has retained an independent consultant, Frederic W. Cook & Co. (the “Consultant”), to provide data on market compensation practices and advise the Committee on executive compensation decisions generally as well as the design and structure of our executive compensation plans and policies. In 2016, the Consultant participated in or provided input with respect to all meetings of the Committee.

Subject to the approval of the Committee, the Consultant meets with members of management to:

 

    review management’s proposed compensation recommendations to the Committee;

 

    discuss compensation trends and best practices;

 

    review company compensation data, including management’s calculations of the value of equity grants, hypothetical change of control payments and calculations of tally sheets for individual officers; and

 

    review and provide input on meeting agendas and presentation materials that management proposes to submit for the consideration of the Committee.

Any material information provided to management by the Consultant is disclosed to the Committee.

To safeguard the independence of the Consultant:

 

    the Committee retains the Consultant, determines the terms and conditions of the Consultant’s engagement, and has the sole authority to approve the Consultant’s fees and other retention terms or to terminate the engagement;

 

    the Consultant reports directly to the Committee and has direct access to the Committee Chair during and between meetings; and

 

    the Consultant provides no services to the company or management except as related to executing the Human Resources Committee Charter and with the knowledge and approval of the Committee Chair.

The Committee has assessed the independence of the Consultant pursuant to SEC and NYSE rules and concluded that no conflict of interest exists in connection with the Consultant’s service as an independent advisor to the Human Resources Committee.

Performance Review Process

Each year, the Human Resources Committee reviews the performance of the Chief Executive Officer with the other independent members of the Board in executive session. This review is based on the performance evaluations of the Chief Executive Officer by each of the independent Board members as well as other data provided to the Committee, including the Chief Executive Officer’s self-evaluation and the feedback provided by selected members of management. As part of the Board’s annual self-evaluation, the independent members of the Board provide feedback on their assessment of the performance of the NEOs and selected senior officers. The Committee also receives an assessment by the Chief Executive Officer of the performance of every other NEO. To maintain the integrity of the review process, the contents of individual reviews and related discussions are kept confidential. If and to the extent that performance factors addressed in any individual review affect an individual NEO’s compensation, those factors are discussed above.

Benchmarking Against Peer Companies

In setting compensation for our NEOs, the Human Resources Committee reviews comparative compensation data derived from the companies that comprise our peer group as well as market survey data provided to us by the Consultant. The Committee believes it is appropriate to evaluate the compensation of the NEOs against a blend of peer group and market survey data given the small number of publicly held healthcare services companies comparable in size to Tenet and the fact that hospital companies comprise only a small portion of the publicly held healthcare service companies. We describe each of the data sources in more detail below.

The Human Resources Committee seeks to compensate our NEOs, as a group, at competitive compensation levels relative to our peer group when target-levels of performance goals are met. The Committee considers the “market median” to be a helpful benchmark in setting compensation levels for our NEOs. Recognizing the need to retain key executives in a highly competitive market for talent, the Committee has at times targeted total compensation for certain NEOs above the market median. However, in light of recent company stock price and financial performance below many of our peers, the Committee kept most senior officer base salary levels unchanged in 2016 and reduced the value of LTI awards granted in 2016, targeting total compensation at or below the median for all of our NEOs.

 

 

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2016 Peer Group

The company’s executive compensation peer group has traditionally been comprised of public companies in a number of healthcare-related industry classification groups, including the company’s Health Care Facilities classification, but also health services and managed care categories. The changing healthcare landscape, including the consolidation among health care providers, has left only four other similarly-sized publicly-traded “direct” competitors that are engaged primarily in the operation of acute care hospitals: Community Health Systems, Inc., HCA Holdings, Inc., LifePoint Health, Inc. and Universal Health Services, Inc. (collectively, the “Direct Peers”). As a result, peer group selection had become significantly more challenging. In recognition that the historical healthcare-related peer group included many companies with very different business models (including insurance, pharmaceutical services and clinical laboratory companies), the Committee asked the Consultant to review its approach to peer group selection.

The Committee decided in late 2015 to utilize an approach to peer group selection for 2016 that would include both the limited number of direct competitors as well as a number of general industry companies that did not operate in the healthcare sector, but were comparable to us in terms of the complexity and labor intensiveness of their business operations. The Committee established the following selection criteria process to determine this newly constructed peer group:

 

Create initial list

comprising companies

that are related based on

direct peer connections

 

    

Expand to include general     industry companies of a    

similar size    

    

Screen out lower     complexity businesses or    

different labor models    

Begin with the four Direct Peers, and add companies that are designated peers of at least three of the Direct Peers

     Add S&P 500 companies with annual revenues and total enterprise value that approximate 50% to 200% of Tenet’s (approximately $10 billion to $40 billion, in each case)      Eliminate any non-Direct Peers with less than 55,000 total employees or from industries with high rates of low skilled labor or that are commodity-based companies

Using the criteria set forth above, the Committee established the following peer group for 2016 compensation decisions:

 

LOGO

 

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The following chart illustrates Tenet’s size compared to the 2016 peer group median of revenues, enterprise value and number of employees, using data provided to the Committee by the Consultant as of September 30, 2015.

 

LOGO

The Committee continues to evaluate both (i) its approach to peer group selection in light of the uncertainty in the healthcare regulatory environment and continued changes in our industry, and (ii) the specific criteria used to identify peer companies of broadly similar size and complexity that compete for talent, business and capital.

Market Survey Data

For 2016 compensation decisions, the Committee reviewed additional compensation data from the following third-party general-industry survey sources:

 

SURVEY

  

    TARGETED ANNUAL REVENUE    

OF COMPANIES COMPRISING
DATA USED BY CONSULTANT

2015 Aon Hewitt Total Compensation Measurement survey

   $10 billion to $25 billion

2015 Mercer Executive Benchmark survey

   greater than $10 billion

2015 Towers Watson U.S. Compensation Database survey

   $10 billion to $20 billion

2015 Towers Watson Top Management survey

   greater than $5 billion

2015 Frederic W. Cook Survey of Long-Term Incentives

   $17.5 billion

The Consultant compiles data from these survey sources relating to the compensation levels received for each position held by a NEO against the compensation levels received by executives holding similar positions at other companies. The Consultant compiles data from these sources and presents the data to the Committee in aggregated form. In benchmarking compensation levels against the survey data, the Committee considers only the aggregated survey data provided by the Consultant. The identity of the companies comprising the survey data is not disclosed to, or considered by, the Committee in its decision-making process. The Committee members do not consider the identity of the companies comprising the survey data to be material for this purpose.

Other Compensation, Benefits and Considerations

Perquisites

Tenet operates aircraft that we believe provide for a more efficient use of our executives’ time given the greater likelihood of direct flights and improved flight times than are available commercially. It also provides a more secure traveling environment where sensitive business issues may be discussed.

Under our aircraft usage policy, our Chief Executive Officer and certain other employees of the company approved by him from time to time are eligible to use the company’s aircraft for limited personal use. We believe this is a reasonable perquisite to offer to our senior executive officers so long as there is a business necessity of maintaining company aircraft. To the extent any travel on our aircraft results in imputed income to a NEO, the company does not provide gross-up payments to cover the officer’s personal income tax obligation due to such imputed income.

 

 

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Under our aircraft usage policy, Mr. Fetter must reimburse us for any personal use of the corporate aircraft above 75 hours per year. In 2016, Mr. Fetter’s personal use of the corporate aircraft totaled 55.3 hours. The unreimbursed incremental cost of his use is disclosed in the Summary Compensation Table.

We do not provide our NEOs with any other significant perquisites.

Executive Severance Plan

In 2006, we adopted the Tenet Executive Severance Plan (ESP), which is applicable to our NEOs and certain other senior managers and officers of the company, including hospital chief executive officers. The terms of the ESP were approved by the Human Resources Committee after consultation with the Consultant at the time it was adopted.

The ESP provides cash severance and other benefits that vary by position level, consistent with market practice. In May 2012, our Human Resources Committee eliminated from the ESP all gross-ups of excise taxes upon a change of control to current and future participants.

The ESP is intended to continue the company’s practice of strengthening retention and recruitment by offering competitive compensation packages consistent with industry standards. Each of the NEOs participates in the ESP. The severance periods for the company’s NEOs under the ESP were determined by the Committee based on (1) past company practice, (2) competitive data provided by the Consultant regarding the severance periods in place for executives of similar sized companies and other healthcare peers, and (3) the Committee’s analysis of the future financial impact of various severance compensation scenarios on each of these executives and on the company.

Provisions in the ESP and related severance agreements regarding non-competition, confidentiality, non-disparagement and non-solicitation as a condition of receipt of severance benefits under the ESP remain in effect for the period during which the severed executive is entitled to receive severance payments. There are no provisions regarding waiver of breach of any such agreements or provisions.

A more detailed description of the ESP is contained in “Potential Payments Upon Termination or Change of Control” beginning on page 55.

Supplemental Executive Retirement Plan

The Supplemental Executive Retirement Plan (SERP) provides certain current and former officers with retirement benefits in the form of lifetime annuity payments. The benefit amount is based on the officer’s years of service, age and earnings. Benefit amounts received under the SERP are reduced (offset) by any benefit received under the Tenet Executive Retirement Account described below.

Our SERP has been in place since 1984, but the Committee adopted a policy in 2014 discontinuing the admission of future new entrants. The SERP will be continued for existing participants, including Messrs. Fetter, Cancelmi and Pitts and Ms. Andrews, but the Committee does not intend to include any additional new participants in the SERP. As of December 31, 2016, 15 current employees of the company (including each of the NEOs other than Mr. Evans) participated in the SERP. Additional information regarding benefit calculations and other terms of the SERP is provided in the narrative discussion following the Pension Benefits Table on page 52.

Executive Retirement Account

In 2007, we established the Tenet Executive Retirement Account (the ERA) in order to attract and retain certain members of company management, particularly those not eligible to participate in the SERP. The company makes an annual contribution to the ERA each year on behalf of each participant in an amount equal to a specified percentage of the participant’s base salary. Such contributions accrue earnings credits. Upon a qualifying termination, participants are entitled to a retirement benefit equal to the vested balance of their ERA account. Upon becoming eligible to participate in the SERP, a participant’s ERA account balance is frozen and such participant is no longer eligible to receive contributions or earnings credits under the ERA. Such individual, however, may continue to accrue years of vesting service under the ERA.

Mr. Cancelmi and Ms. Andrews began participating in the ERA prior to becoming eligible to participate in our SERP. Upon a qualifying termination of employment, Mr. Cancelmi and Ms. Andrews will receive their vested balances under the ERA and will also be entitled to receive their applicable benefit under the SERP, but such SERP benefit will be reduced (offset) by any benefit received under the ERA. Mr. Evans continues to be an active participant in the ERA as he does not participate in the SERP.

Deferred Compensation Plan

Under our 2006 Deferred Compensation Plan (the 2006 DCP), our NEOs and other eligible management employees may defer a portion of their base salary and annual incentive compensation that would otherwise be paid during a given calendar year. We make employer matching contributions to the 2006 DCP for employee participants in an amount equal to 50% of participant supplemental deferrals not to exceed 6% of compensation. The purpose of our deferred compensation plans is to enable highly paid employees to defer the taxable receipt of a portion of

 

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their income until such time as the employee is more likely to be in a lower tax bracket, usually at retirement, and to provide these employees with the matching contribution they would have received under our 401(k) Plan if Internal Revenue Code limits did not apply.

Each of the NEOs is eligible to participate in the 2006 DCP. Additional details regarding our deferred compensation plans are set out under “Deferred Compensation Plans” beginning on page 54.

Employee Benefits

Our NEOs participate in the company’s broad-based programs generally available to all employees, including our 401(k) retirement plan, health and dental and various other insurance plans, including disability and life insurance. Also, in connection with the SERP we provide additional life insurance and accidental death and dismemberment insurance as described under “Potential Payments Upon Termination or Change of Control – Death, Disability and Retirement” beginning on page 55. These benefits are consistent with providing a total pay program that is sufficiently competitive with our peer companies so as to attract and retain highly qualified personnel.

Tax Matters

Section 162(m) of the Internal Revenue Code generally disallows a tax deduction to public companies for compensation in excess of $1,000,000 paid to any NEO (other than the chief financial officer employed at the end of the year) in any single year, but exempts qualifying performance-based compensation from the deduction limit if certain requirements are met. The Human Resources Committee generally seeks to structure performance-based compensation in a manner intended to satisfy these requirements.

The Board and the Committee reserve the authority to award nondeductible compensation as they deem appropriate. Further, because of ambiguities and uncertainties as to the application and interpretation of Section 162(m) and related regulations, no assurance can be given that compensation intended by the Committee to satisfy the requirements for deductibility under Section 162(m) does in fact do so.

Compensation Governance Practices

Stock Ownership and Stock Retention Requirements

Our Board of Directors has adopted stock ownership and stock retention requirements for our non-employee directors and all company officers with the title of Senior Vice President and above, to further align such individual’s economic interests with those of our shareholders. The ownership requirements must be met within five years from the date on which an individual becomes a director or senior officer. If, during or after such five-year period, a senior officer is promoted to a position that requires a higher stock ownership multiple than the position previously held, the senior officer will be granted an additional two-year period to meet the increased multiple.

Each senior officer is required to own shares of our stock with a value equal to the following multiples of his or her base salary:

 

EXECUTIVE LEVEL

  

MARKET VALUE OF COMMON STOCK

    OWNED AS A MULTIPLE OF BASE SALARY    

Chief Executive Officer

   6x

Vice Chairman, Chief Financial Officer and President of Hospital Operations

   2x

Senior Vice President

   1x

Shares counted toward the stock ownership requirements include: (i) shares of common stock held of record or in a brokerage account by the individual or his or her spouse; (ii) unvested restricted stock or RSUs; and (iii) stock units credited under deferred compensation plans. Outstanding stock options do not count toward satisfaction of the ownership requirements.

If a director or senior officer does not meet the applicable ownership requirements, he or she must retain 100% of any “net shares” received upon the exercise of stock options and the vesting of restricted stock or RSUs until such time as the requirements are met. For this purpose, “net shares” means the number of shares received upon exercise of stock options or upon vesting of restricted stock or RSUs less the number of shares sold or deducted to pay the exercise price (in the case of options), withholding taxes and any brokerage commissions.

As of March 13, 2017, all NEOs were in compliance with the requirements. All senior officers are required to certify that they are in compliance with these guidelines prior to executing a sale of the company’s common stock.

Prohibition on Hedging or Pledging Our Stock

Our insider trading policy prohibits any NEO or any other officer or employee subject to its terms (approximately 75 people) from entering into short sales or derivative transactions to hedge their economic exposure to our stock. In addition, these officers and employees are prohibited from pledging our stock, including through holding our stock in margin accounts.

 

 

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Table of Contents

 

EXECUTIVE COMPENSATION TABLES  

 

 

Summary Compensation Table

The following table summarizes the compensation in the years ended December 31, 2016, 2015 and 2014 for our Chief Executive Officer, our Chief Financial Officer and our three most highly compensated other executive officers during 2016 (collectively, the NEOs). Additional information concerning our NEOs’ compensation can be found in the Compensation Discussion and Analysis section of this Proxy Statement beginning on page 27.

2016 Summary Compensation Table

 

NAME AND
PRINCIPAL POSITION
  YEAR   SALARY
($)(1)
  BONUS
($)
  STOCK
AWARDS
($)(2)
  OPTION
AWARDS
($)
  NON-EQUITY
INCENTIVE
PLAN
COMPENSATION
($)(1)(3)
  CHANGE IN
PENSION VALUE
AND
NONQUALIFIED
DEFERRED
COMPENSATION
EARNINGS
($)(4)
  ALL OTHER
COMPENSATION
($)(5)
  TOTAL
($)

Trevor Fetter

    Chief Executive

    Officer

      2016       1,275,000       -0-       7,299,204       -0-       1,287,113       2,245,496       279,203       12,386,016
      2015       1,316,346       -0-       9,000,061       -0-       2,807,550       2,016,823       213,503       15,354,283
      2014       1,250,000       -0-       8,000,000       -0-       3,857,428       4,612,782       229,897       17,950,107

Daniel Cancelmi

    Chief Financial

    Officer

      2016       618,000       -0-       1,865,374       -0-       415,914       1,199,116       11,804       4,110,208
      2015       636,231       -0-       2,200,005       -0-       950,484       824,015       25,956       4,636,691
      2014       565,923       -0-       4,900,001       -0-       984,001       2,316,274       15,575       8,781,774

Keith Pitts

    Vice Chairman

      2016       925,000       -0-       3,163,004       -0-       622,525       664,903       16,742       5,392,173
      2015       828,577       -0-       3,500,004       -0-       1,422,650       696,404       541,645       6,989,280
      2014       699,992       -0-       5,999,987       -0-       1,170,400       515,666       179,962       8,566,007

Eric Evans

    President of

    Hospital Operations(6)

      2016       626,538       -0-       1,424,360       -0-       430,848       -0-       148,600       2,630,346

Audrey Andrews

    SVP and

    General Counsel

      2016       515,375       -0-       1,216,560       -0-       264,994       793,748       11,703       2,802,380
      2015       503,683       -0-       1,300,090       -0-       564,350       318,090       11,557       2,697,770
      2014       459,616       -0-       2,900,014       -0-       595,650       976,419       11,218       4,942,917

 

(1)  Includes amounts deferred by the Named Executive Officers under the 2006 DCP. For further information, see the table and related discussion under “Nonqualified Deferred Compensation” beginning on page 54. Amounts shown in the “Salary” column for 2015 are higher than the 2015 annualized base salary levels discussed on page 36 due to one additional pay cycle occurring in calendar year 2015.

 

(2)  Values in this column represent the grant date fair value of performance-based restricted stock unit awards and time-based restricted stock unit awards computed in accordance with FASB ASC Topic 718. Certain assumptions used in the calculation of these amounts are discussed in Note 8 to our consolidated financial statements for the year ended December 31, 2016 included in our Annual Report on Form 10-K. For the portion of performance-based restricted stock unit awards granted in 2016 that are subject to a Relative TSR performance metric, the value shown is based on the number of performance-based restricted stock units subject to such metric multiplied by a Monte Carlo simulation value of $28.31 per share, which represents 111.0% of the closing price of a share of the company’s common stock on the grant date. The values shown in the table above are based on achieving the target level of performance across all metrics. Amounts payable under all performance-based restricted stock unit awards can range from 0% to 200% of the target awards. Assuming the highest level of performance is achieved, the grant date fair values of the restricted stock units (including the performance-based awards) granted in 2016 would have been:

 

NAME      GRANT DATE      STOCK AWARD AT
GRANT DATE VALUE
($)
  

    GRANT DATE VALUE ASSUMING    
HIGHEST 

LEVEL OF PERFORMANCE
CONDITIONS
($)

Trevor Fetter

         3/10/16          7,299,204        10,998,394

Daniel Cancelmi

         3/10/16          1,865,374        2,810,734

Keith Pitts

         3/10/16          3,163,004        4,765,994

Eric Evans

         3/10/16          405,554        611,087
         3/31/16          1,018,805        1,537,585

Audrey Andrews

         3/10/16          1,216,560        1,833,105

 

(3)  This column reflects cash awards under our AIP.

 

TENET HEALTHCARE 2017 PROXY STATEMENT    

 

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Table of Contents

 

EXECUTIVE COMPENSATION TABLES

 
     

 

 

(4)  The 2016 amounts shown for each Named Executive Officer represent the change in the actuarial present value of accumulated benefits under our SERP as of December 31, 2016. A significant portion of these values is driven by a reduction in the applicable discount rate and such amounts do not reflect compensation actually paid to the Named Executive Officer. No Named Executive Officer received preferential or above-market earnings on deferred compensation.

 

(5)  Amounts shown in this column for 2016 include the following:

 

     FETTER      CANCELMI      PITTS      EVANS      ANDREWS  

Premiums for long-term disability and survivor benefit life insurance under our SERP

   $ 3,747      $ 3,704      $ 3,656      $ 0      $ 3,603  

Matching contributions under our 401(k) Retirement Savings Plan

     8,100        8,100        8,100        8,100        8,100  

Matching contributions under our 2006 DCP

     115,121        0        0        10,500        0  

Company contributions under our ERA

     0        0        0        130,000        0  

Personal use of company aircraft*

     152,236        0        4,986        0        0  

Total

   $ 279,203      $ 11,804      $ 16,742      $ 148,600      $ 11,703  

 

  * Amounts shown in this row represent the incremental costs in 2016 associated with the personal use of our aircraft. Incremental costs include fuel costs, landing and parking fees, customs and handling charges, per hour accruals for maintenance service plans, passenger catering and ground transportation, crew travel expenses and other trip-related variable costs (including fees for contract crew members and the use of our fractional jet interest). Because our aircraft are used primarily for business travel, incremental costs exclude fixed costs that do not change based on usage, such as pilots’ salaries, aircraft purchase or lease costs, fractional jet interest management fees, home-base hangar costs and certain maintenance fees.

 

(6)  As previously disclosed, Mr. Evans was appointed the company’s President of Hospital Operations on March 22, 2016.

 

 

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Table of Contents
  

 

EXECUTIVE COMPENSATION TABLES

      

 

Grants of Plan-Based Awards During 2016

The following table sets forth information concerning grants of equity awards made in 2016 under our stock incentive plans and grants of cash that potentially could have been earned in 2016 under our AIP.

 

NAME   AWARD
TYPE(1)
  GRANT
DATE
    ESTIMATED FUTURE PAYOUTS
UNDER NON-EQUITY INCENTIVE
PLAN AWARDS
    ESTIMATED FUTURE PAYOUTS
UNDER EQUITY INCENTIVE
PLAN AWARDS
    ALL OTHER
STOCK AWARDS:
NUMBER OF
SHARES OF
STOCK OR
UNITS
(#)
   

GRANT DATE
FAIR VALUE
OF STOCK
AND OPTION
AWARDS

($)(2)

 
              THRESHOLD
($)
    TARGET
($)
    MAXIMUM
($)
    THRESHOLD
(#)
    TARGET
(#)
    MAXIMUM
(#)
             

Trevor Fetter

  AIP       -0-       1,912,500       3,825,000            
  PRSU     3/10/16             -0-       141,177       282,354         3,699,190  
  RSU     3/10/16                   141,177       3,600,014  

Dan Cancelmi

  AIP       -0-       618,000       1,236,000            
  PRSU     3/10/16             -0-       36,079       72,158         945,360  
  RSU     3/10/16                   36,079       920,015  

Keith Pitts

  AIP       -0-       925,000       1,850,000            
  PRSU     3/10/16             -0-       61,177       122,354         1,602,990  
  RSU     3/10/16                   61,177       1,560,014  

Eric Evans

  AIP       -0-       619,583       1,239,167            
  PRSU     3/10/16             -0-       7,844       15,688         205,532  
  RSU     3/10/16                   7,844       200,022  
  PRSU     3/31/16             -0-       17,284       34,568         518,779  
  RSU     3/31/16                   17,284       500,026  

Audrey Andrews

  AIP       -0-       393,750       787,500            
  PRSU     3/10/16             -0-       23,530       47,060         616,545  
  RSU     3/10/16                   23,530       600,015  

 

(1)  AIP Awards. Awards designated “AIP” are awards that our Named Executive Officers might have earned during 2016 under our Annual Incentive Plan, dependent upon our 2016 performance. Awards actually earned are shown in the Non-Equity Incentive Plan Compensation column of the Summary Compensation Table.

 

   Restricted Stock Unit Awards. Awards designated “RSU” reflect time-vested restricted stock unit awards under our 2008 Stock Incentive Plan. The RSUs granted on March 10, 2016 and March 31, 2016 vest ratably on each of the first three anniversaries of the grant date.

 

   Performance-Based Restricted Stock Unit Awards. Awards designated “PRSU” reflect performance-based restricted stock unit awards under our 2008 Stock Incentive Plan. The following table summarizes the terms of the 2016 awards.

 

NAME    GRANT
DATE
    

NYSE CLOSING

PRICE ON
GRANT DATE

     POTENTIAL PAYOUT RANGE    VESTING PERIOD

Trevor Fetter

Dan Cancelmi

Keith Pitts

Eric Evans

Audrey Andrews

     3/10/16      $ 25.50      Actual shares to be received ranges from 0% to 200% of the target share level shown, depending on the degree to which specified performance goals are met.    Three years from date of grant.

Eric Evans

     3/31/16      $ 28.93      Actual shares to be received ranges from 0% to 200% of the target share level shown, depending on the degree to which specified performance goals are met.    Three years from date of grant.

 

(2)  We calculate the grant date fair value of restricted stock units based on the NYSE closing price per share of our common stock on the date of grant (March 10, 2016: $25.50 and March 31, 2016: $28.93), except for the portion of performance-based restricted stock unit awards granted that are subject to a Relative TSR performance metric. For the portion of performance-based restricted stock unit awards granted that are subject to a Relative TSR performance metric, the value shown is based on the number of performance-based restricted stock units subject to the Relative TSR performance metric multiplied by a Monte Carlo simulation value of $28.31 per share, which represents 111.0% of the closing price of a share of the company’s common stock on the grant date. Certain other assumptions used in the calculation of the amounts shown are discussed in Note 8 to the consolidated financial statements for the year ended December 31, 2016 included in our Annual Report on 10-K.

 

TENET HEALTHCARE 2017 PROXY STATEMENT    

 

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Table of Contents

 

EXECUTIVE COMPENSATION TABLES

 
     

 

Outstanding Equity Awards

The following table sets forth information as of December 31, 2016 with respect to outstanding equity awards granted to each of the Named Executive Officers. Where applicable, the numbers of securities and values in this table and throughout this Proxy Statement have been adjusted for the reverse stock split effective October 11, 2012.

Outstanding Equity Awards at 2016 Fiscal Year-End Table

 

          OPTION AWARDS(1)     STOCK AWARDS  

NAME

  GRANT
DATE
    NUMBER OF
SECURITIES
UNDERLYING
UNEXERCISED
OPTIONS (#)
EXERCISABLE
    NUMBER OF
SECURITIES
UNDERLYING
UNEXERCISED
OPTIONS (#)
UNEXERCISABLE
    OPTION
EXERCISE
PRICE
($)
    OPTION
EXPIRATION
DATE
    NUMBER OF
SHARES OR
UNITS OF
STOCK THAT
HAVE NOT
VESTED
(#)
    MARKET
VALUE OF
SHARES OR
UNITS OF
STOCK THAT
HAVE NOT
VESTED
($)(2)
    EQUITY
INCENTIVE
PLAN AWARDS:
NUMBER OF
UNEARNED
SHARES,
UNITS OR
OTHER RIGHTS
THAT HAVE
NOT VESTED
(#)(3)
   

EQUITY
INCENTIVE
PLAN AWARDS:
MARKET OR
PAYOUT VALUE

OF UNEARNED

SHARES, UNITS OR
OTHER RIGHTS
THAT HAVE
NOT VESTED
($)(2)

 

Trevor Fetter

    3/1/07       182,000         26.40       3/1/17          
    3/6/08       416,750         19.76       3/6/18          
    2/25/10       52,532         20.12       2/25/20          
    2/25/10       52,532         20.12       2/25/20          
    2/29/12       109,250         22.60       3/1/22          
    2/29/12       109,250         22.60       3/1/22          
    2/28/13       171,884         39.31       2/28/18          
    6/13/13               53,045 (4)      787,188      
    6/13/13                   53,045       787,188  
    2/26/14               30,071 (8)      446,254      
    2/26/14               60,142 (5)      892,507      
    2/25/15               65,747 (8)      975,685      
    2/25/15               108,286 (5)      1,606,964      
    3/10/16               141,177 (8)      2,095,067      
    3/10/16                                                       141,177 (9)      2,095,067  

Total values

              $ 6,803,665       $ 2,882,254  

Dan Cancelmi

    4/30/12               25,000 (6)      371,000      
    9/28/12       37,500         25.08       9/28/22          
    2/28/13       17,188         39.31       2/28/18          
    2/26/14               7,142 (8)      105,987      
    2/26/14               14,284 (5)      211,975      
    8/25/14               16,694 (6)      247,739      
    8/25/14               23,323 (7)      346,113       16,695       247,754  
    2/25/15               16,072 (8)      238,508      
    2/25/15               26,471 (5)      392,830      
    3/10/16               36,079 (8)      535,412      
    3/10/16                                                       36,079 (9)      535,412  

Total values

              $ 2,449,565       $ 783,166  

Keith Pitts

    2/26/14               11,277 (8)      167,351      
    2/26/14               22,554 (5)      334,701      
    8/25/14               16,694 (6)      247,739      
    8/25/14               23,323 (7)      346,113       16,695       247,754  
    2/25/15               25,568 (8)      379,429      
    2/25/15               42,110 (5)      624,912      
    3/10/16               61,177 (8)      907,867      
    3/10/16                                                       61,177 (9)      907,867  

Total Values

              $ 3,008,113       $ 1,155,620  

 

 

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Table of Contents
  

 

EXECUTIVE COMPENSATION TABLES

      

 

          OPTION AWARDS(1)     STOCK AWARDS  

NAME

  GRANT
DATE
    NUMBER OF
SECURITIES
UNDERLYING
UNEXERCISED
OPTIONS (#)
EXERCISABLE
    NUMBER OF
SECURITIES
UNDERLYING
UNEXERCISED
OPTIONS (#)
UNEXERCISABLE
    OPTION
EXERCISE
PRICE
($)
    OPTION
EXPIRATION
DATE
    NUMBER OF
SHARES OR
UNITS OF
STOCK THAT
HAVE NOT
VESTED
(#)
    MARKET
VALUE OF
SHARES OR
UNITS OF
STOCK THAT
HAVE NOT
VESTED
($)(2)
    EQUITY
INCENTIVE
PLAN AWARDS:
NUMBER OF
UNEARNED
SHARES,
UNITS OR
OTHER RIGHTS
THAT HAVE
NOT VESTED
(#)(3)
   

EQUITY
INCENTIVE
PLAN AWARDS:
MARKET OR
PAYOUT VALUE

OF UNEARNED

SHARES, UNITS OR
OTHER RIGHTS
THAT HAVE
NOT VESTED
($)(2)

 

Eric Evans

    4/30/12               18,750 (6)      278,250      
    2/26/14               1,000 (8)      14,840      
    8/25/14               1,333 (6)      19,782      
    8/25/14               1,863 (7)      27,647       1,334       19,797  
    2/25/15               2,334 (8)      34,637      
    4/30/15               1,742 (8)      25,851      
    4/30/15               2,869 (5)      42,576      
    3/10/16               7,844 (8)      116,405      
    3/10/16                   7,844 (9)      116,405  
    3/31/16               17,284 (8)      256,495      
    3/31/16                                                       17,284 (9)      256,495  

Total values

              $ 816,482       $ 392,696  

Audrey Andrews

    2/26/14               3,383 (8)      50,204      
    2/26/14               6,766 (5)      100,407      
    8/25/14               11,129 (6)      165,154      
    8/25/14               15,549 (7)      230,747       11,130       165,169  
    2/25/15               9,498 (8)      140,950      
    2/25/15               15,644 (5)      232,157      
    3/10/16               23,530 (8)      349,185      
    3/10/16                                                       23,530 (9)      349,185  

Total values

              $ 1,268,805       $ 514,354  

 

(1)  All options have a term of ten years except for the stock options granted to Mr. Fetter and Mr. Cancelmi on February 28, 2013, which have a term of five years.

 

(2)  Based on the NYSE closing price of $14.84 per share of our common stock on December 30, 2016.

 

(3)  The awards shown in this column are performance-based restricted stock units which, as of December 31, 2016, remained subject to performance-based vesting conditions. Pursuant to applicable regulations, the numbers shown are based on achievement at the goal levels shown below:

 

NAME

    

GRANT

DATE

    

    PERFORMANCE LEVEL ASSUMED    

Trevor Fetter

     6/13/13      Target
     3/10/16      Target

Daniel Cancelmi

     8/25/14      Target
     3/10/16      Target

Keith Pitts

     8/25/14      Target
     3/10/16      Target

Eric Evans

     8/25/14      Target
     3/10/16      Target
     3/31/16      Target

Audrey Andrews

     8/25/14      Target
     3/10/16      Target

 

(4)  These time-based restricted stock units vest on the sixth anniversary of the date of grant.

 

(5)  The award shown represents performance-based restricted stock units that are no longer subject to performance-based conditions because the conditions have been satisfied. These awards now vest ratably on each of the first three anniversaries of the grant date.

 

(6)  These time-based restricted stock units vest on the fifth anniversary of the date of grant.

 

TENET HEALTHCARE 2017 PROXY STATEMENT    

 

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(7)  The award shown represents the portion of the NEO’s August 25, 2014 grant of performance-based restricted stock units that are no longer subject to performance-based conditions because the conditions have been satisfied, with the award earned at 139.7% of target. This earned award remains subject to vesting conditions and will vest on the fifth anniversary of the date of grant.

 

(8)  These time-based restricted stock units vest in equal installments on each of the first three anniversaries of the date of grant.

 

(9)  If earned, these performance-based restricted stock units will vest in full on the third anniversary of the date of grant.

Option Exercises and Stock Vested

The following table sets forth certain information regarding options and restricted stock unit awards exercised and vested, respectively, during 2016 for the Named Executive Officers.

2016 Option Exercises and Stock Vested Table

 

    OPTION AWARDS     STOCK AWARDS  

NAME

  NUMBER OF SHARES
ACQUIRED ON EXERCISE
(#)
    VALUE REALIZED
ON EXERCISE
($)(1)(2)
    NUMBER OF SHARES
ACQUIRED ON VESTING
(#)
      VALUE REALIZED   
ON VESTING
($)(2)(3)
 

Trevor Fetter

    -0-       -0-       399,961       10,515,157  

Dan Cancelmi

    -0-       -0-       57,111       1,448,106  

Keith Pitts

    -0-       -0-       87,812       2,164,736  

Eric Evans

    -0-       -0-       5,303       149,008  

Audrey Andrews

    -0-       -0-       29,501       746,652  

 

(1)  Calculated by multiplying the number of shares exercised by the difference between the exercise price and the market price of common stock on the date of exercise.

 

(2)  These amounts represent amounts realized on prior-year equity compensation and are not considered 2016 compensation.

 

(3)  Calculated by multiplying the number of shares vested by the market price of common stock on the vesting date. The values shown do not represent proceeds actually received by the Named Executive Officers, as shares were withheld to cover applicable taxes.

Pension Benefits

The following table sets forth information as of December 31, 2016 with respect to our SERP, which provides for payments or other benefits in connection with the retirement of the Named Executive Officers. Mr. Evans does not participate in the SERP.

2016 Pension Benefits Table

 

NAME

   PLAN NAME      NUMBER OF YEARS
CREDITED SERVICE
(#)(1)
    

PRESENT VALUE
OF ACCUMULATED

BENEFIT
($)(2)(3)

      PAYMENTS DURING LAST   
FISCAL YEAR
($)
 

Trevor Fetter

     SERP        20        20,092,547       -0-  

Dan Cancelmi

     SERP        20        5,775,326 (4)      -0-  

Keith Pitts

     SERP        3        1,876,973       -0-  

Audrey Andrews

    
SERP
 
    
18
 
    
3,076,938
(4) 
   
-0-
 

 

(1)  None of the Named Executive Officers has been credited with years of service in excess of his or her actual years of service with the company. However, to incentivize Mr. Pitts to join the company following the October 2013 acquisition of Vanguard and to encourage retention, we agreed that, following his completion of five years of service with Tenet, Mr. Pitts would be credited with his service at Vanguard for the purpose of determining benefits under our SERP. Credited service under the SERP is limited to a maximum of 20 years, and thus, Mr. Fetter’s service is limited despite his actual 21 years of service with the company and Mr. Cancelmi’s service is limited despite his actual 22 years of service with the company.

 

(2)  Computed as of December 31, 2016, the same pension plan measurement date used for financial statement reporting purposes with respect to our consolidated financial statements for the year ended December 31, 2016, which are included in our Annual Report on Form 10-K filed with the SEC on February 27, 2017.

 

(3)  Determined using the benefit formula, age and service credits, and final average earnings as of December 31, 2016, using: (i) the assumption that retirement age is age 62, which is the earliest age at which a participant under the SERP may retire or terminate employment without a reduction in benefits; (ii) actuarial tables used in calculating life expectancies; and (iii) a discount rate of 4.25%.

 

(4)  The amount shown is the present value of the full accumulated benefit amount under the SERP; however, the amount received under the SERP upon retirement will be reduced (offset) by any benefit received under the ERA and other retirement benefits. For more information on amounts payable under the ERA, see the Nonqualified Deferred Compensation Table on page 54.

 

 

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Supplemental Executive Retirement Plan

Messrs. Fetter, Cancelmi and Pitts, and Ms. Andrews, are participants in our SERP, which provides certain executives with supplemental retirement benefits in the form of retirement payments for life, generally commencing on the first day of the month following the attainment of age 62, subject to the six-month delay applicable to key employees under Section 409A. At retirement, the annual benefit (paid on a monthly basis) to a participant will be a product of four factors:

 

highest average monthly earnings (base salary

and annual cash bonus under our AIP) for any

consecutive 60-month period during the

10 years preceding retirement

 

    x    

years of service
with the company

(max of 20 years)(1)

    x     vesting factor     x     percentage factor
(to offset certain other retirement benefits)

 

(1)  For first five years of participation in the SERP a participant is given partial credit for years of service performed prior to the participant’s enrollment in the SERP. Upon achieving five years of SERP participation, a participant receives full credit for service years performed prior to SERP participation.

The monthly SERP benefit is reduced in the event of a participant’s early retirement (age 55 with 10 years of service) or termination of employment prior to age 62, by 3.0% for each year that employment termination occurs before age 62 (max reduction of 21%). Monthly SERP benefits are further reduced by an additional 3% each year if benefits begin to be paid prior to age 62. Unreduced retirement benefits under the SERP are available for participants who terminate on or after age 62. Mr. Fetter is our only Named Executive Officer presently eligible for early retirement under the SERP.

In the event of a change of control, participants will be deemed fully vested in their SERP benefits without regard to their actual years of service, and their SERP benefits will be calculated based on all of their years of service with the company (i.e., the partial credit for service prior to enrollment in the SERP will not apply) and no early retirement or payment reduction will apply. SERP benefits payable in the event of a termination of employment within two years of a change of control event described in Section 409A will commence on the first day of the month following the participant’s termination of employment, subject to the six-month delay applicable to key employees under Section 409A. Otherwise any SERP benefits payable following a change of control will be paid at normal retirement or early retirement as described above.

None of our Named Executive Officers has received credited service under the SERP for years not worked, however:

 

    the ESP, which was adopted during 2006, would provide each Named Executive Officer with the accrual of age and service credit under the SERP during his or her “severance period.” The SERP and ESP have been amended to eliminate these accruals during the severance period for employees that became SERP participants after August 3, 2011, including Mr. Pitts.

 

    To incentivize Mr. Pitts to join the company following the October 2013 acquisition of Vanguard and to encourage retention, the Committee approved a limited exception to its policy to grant Mr. Pitts credit for his 14-year employment with Vanguard, which is now a wholly-owned subsidiary of the company, subject to his completion of five years of service with Tenet. If Mr. Pitts does not satisfy the five-year employment condition, he will forfeit his entitlement to all SERP benefits. In approving the conditional credit for Vanguard service, the Committee took into account:

 

    the fact that the other company for which we would count Mr. Pitts’ service time (Vanguard) now comprises a substantial portion of Tenet’s business;

 

    Mr. Pitts’ unique ability to help complete the integration of Vanguard into our operations, which we believe is critical for our long-term success; and

 

    Mr. Pitts’ extensive background and experience in the acquisition and development area.

During their employment, SERP participants are provided a life insurance and accidental death benefit for the designated beneficiary of each participant and a disability insurance policy for the benefit of each participant.

 

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Nonqualified Deferred Compensation

The following table sets forth information as of December 31, 2016 with respect to our deferred compensation plans.

2016 Nonqualified Deferred Compensation Table

 

NAME

 

PLAN

NAME(1)

   

EXECUTIVE

CONTRIBUTIONS

IN LAST

FISCAL YEAR

($)(2)

   

REGISTRANT

CONTRIBUTIONS

IN LAST

FISCAL YEAR

($)(3)

   

AGGREGATE

EARNINGS

IN LAST

FISCAL YEAR

($)(4)

   

AGGREGATE

WITHDRAWALS/

DISTRIBUTIONS

($)

   

  AGGREGATE  

BALANCE

AT LAST

FISCAL

YEAR END

($)(5)

 

Trevor Fetter

    2006 DCP       230,242       115,121       52,428       -0-       2,139,899  
    2001 DCP     -0-       -0-       1,771       -0-       138,120  

Dan Cancelmi

    2006 DCP       -0-       -0-       1,636       -0-       190,136  
    ERA       -0-       -0-       -0-       -0-       69,502  

Keith Pitts

      -0-       -0-       -0-       -0-       -0-  

Eric Evans

    2006 DCP       21,000       10,500       1,175       -0-       112,032  
    ERA       -0-       130,000       38,620       -0-       526,915  

Audrey Andrews

    ERA       -0-       -0-       -0-       -0-       55,858  

 

(1)  More information about our deferred compensation plans appears below.

 

(2)  Included in the amounts represented in the Summary Compensation Table as “Salary” and/or “Non-Equity Incentive Plan Compensation.”

 

(3)  Included in the amounts represented in the Summary Compensation Table as “All Other Compensation.”

 

(4)  These amounts are not included in the Summary Compensation Table because plan earnings were not preferential or above-market.

 

(5)  The fiscal year-end balance reported for the 2006 DCP includes the following amounts that were previously reported in the Summary Compensation Table as compensation for years 2006 through 2015: Mr. Fetter, $1,183,693; Mr. Cancelmi, $18,388; Mr. Pitts, $-0-; Mr. Evans, $-0-; and Ms. Andrews, $-0-. The fiscal year-end balance reported for the 2001 DCP includes $842 for Mr. Fetter that was previously reported in the Summary Compensation Table as compensation for years 2006 through 2015. The fiscal year-end balance reported for the ERA includes the following amounts that were previously reported in the Summary Compensation Table as compensation for years 2006 through 2015: Mr. Cancelmi, $-0-; Mr. Evans, $-0-; and Ms. Andrews, $-0-. The information in this footnote is provided to clarify the extent to which amounts payable as deferred compensation represent compensation reported in our prior proxy statements, rather than additional currently earned compensation.

Deferred Compensation Plans

We maintain: (i) the Fourth Amended and Restated Tenet 2006 Deferred Compensation Plan (2006 DCP), a Section 409A compliant plan for deferrals elected with respect to amounts otherwise payable in calendar years beginning on and after January 1, 2005; and (ii) the Ninth Amended and Restated Tenet 2001 Deferred Compensation Plan (2001 DCP), a grandfathered plan for deferrals elected with respect to amounts otherwise payable in calendar years beginning before January 1, 2005. No additional elective deferrals or employer contributions may be made to the 2001 DCP. All of our Named Executive Officers and non-employee directors are eligible to participate in the 2006 DCP; however, Mr. Pitts and Ms. Andrews do not currently participate in this plan.

Employee participants are permitted to elect up to six types of elective deferral contributions (Deferral Contributions) to the 2006 DCP:

(i) base compensation deferrals of up to 75% of eligible compensation (base salary and certain other cash compensation, but excluding bonuses under the AIP);

(ii) bonus deferrals of up to 100% of bonus under the AIP (94% if a bonus with match deferral is made as described below);

(iii) base compensation with match deferrals of up to 6% of eligible compensation when the employee reaches certain statutory limits on contributions under our 401(k) Plan;

(iv) bonus with match deferrals of 6% of bonus under the AIP;

(v) if authorized, discretionary compensation deferrals; and

(vi) if authorized, restricted stock unit deferrals, of up to 100% of the restricted stock units awarded under our stock incentive plans.

We make an employer matching contribution to the 2006 DCP equal to 50% of an employee’s base compensation with match deferrals and/or bonus with match deferrals. In addition, we may elect to make a discretionary contribution to the 2006 DCP with respect to any participant. We did not elect to make any discretionary contributions to the 2006 DCP during 2016. All elective deferrals and employer contributions made to the 2006 DCP are fully vested when made and are credited to a separate bookkeeping account on behalf of each participant.

 

 

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Amounts deferred under the 2006 DCP or 2001 DCP will generally be distributed, as directed by the participant, upon either termination of service or the occurrence of a specified date. Matching and discretionary contributions are distributed upon termination of service. Distributions may be made in cash or in shares of our common stock, and may be made in the form of a lump sum payment or annual installments over a one to 15 year period, as elected by the participant. Any amounts that are payable from the 2006 DCP upon a termination of employment are subject to the six-month delay applicable to key employees under Section 409A. Under certain circumstances, a participant may elect to receive an immediate lump sum distribution under the 2001 DCP subject to a 10% forfeiture, a 13-month delay or the occurrence of a change of control.

Participants may request, on a daily basis, that any of the following investment crediting rates be applied to amounts credited to their 2001 DCP and 2006 DCP accounts: (i) an annual rate of interest equal to 120% of the applicable federal long-term (10-year) interest rate (which generated an annual return for 2016 of 2.66%); (ii) a rate of return based on one or more benchmark mutual funds, which are the same funds as those offered under our 401(k) Plan; or (iii) a rate of return based on the performance of our common stock, designated as stock units that are payable in shares of our common stock. Amounts that are deemed to be invested in stock units may not be transferred out of stock units and will be paid in shares of our common stock.

Executive Retirement Account

We maintain the Executive Retirement Account in order to provide additional deferred compensation benefits to members of the company’s senior management, including Mr. Evans, who are not eligible to participate in the SERP. No Named Executive Officers are actively participating in both the SERP and the ERA. Mr. Cancelmi and Ms. Andrews began participating in the ERA prior to becoming eligible to participate in the SERP, but are no longer actively participating in the ERA. For active participants in the ERA, the company makes an annual contribution to the ERA on the participants’ behalf in an amount equal to a specified percentage of their respective base salaries. Such contributions accrue earnings credits for so long as the participant is actively participating in the ERA. Participants may request, on a monthly basis, that any of the following investment crediting rates be applied to amounts credited to their ERA accounts: (i) an annual rate of interest equal to 120% of the applicable federal long-term (10-year) interest rate (which generated an annual return for 2016 of 2.66%); (ii) a rate of return based on one or more benchmark mutual funds, which are the same funds as those offered under our 401(k) Plan; or (iii) a rate of return based on the performance of our common stock, designated as stock units that are payable in shares of our common stock. Participants are not vested in any portion of their account until reaching age 55, at which point vesting occurs according to a schedule. Participants become fully vested in their ERA account at age 60 with five years of service or at age 62 regardless of years of service or upon death, disability or a change of control. Upon a qualifying termination, participants in the ERA are entitled to a retirement benefit equal to the vested balance of their ERA account.

Upon becoming participants in the SERP, Mr. Cancelmi’s and Ms. Andrews’ participation in the ERA and their account balances were frozen and no additional contributions or earnings credits will be made, though the account balances continue to accrue years of vesting service. Upon a qualifying termination of employment, Mr. Cancelmi and Ms. Andrews will receive their vested balances under the ERA and will also be entitled to receive their applicable benefit under the SERP, but such SERP benefit will be reduced (offset) by the benefit received under the ERA.

Potential Payments Upon Termination or Change of Control

The information below describes and quantifies certain compensation that would be paid under existing plans and arrangements if a Named Executive Officer’s employment had terminated on December 31, 2016, given his or her compensation and service levels as of that date and, as applicable, based on the NYSE closing price of $14.84 per share of our common stock on December 30, 2016. These benefits are in addition to benefits available generally to our salaried employees, such as distributions under our 401(k) Plan, disability benefits and accrued vacation pay. A Named Executive Officer’s benefits under our deferred compensation plans will generally be distributed in connection with his or her termination of employment or the occurrence of a specified date. Benefits under the SERP are generally paid on early or normal retirement.

Due to the number of factors that affect the nature and amount of any benefits paid upon the occurrence of any of the events discussed below, any actual amounts paid may be different. Factors that could affect these amounts include the timing of the event, the company’s stock price and the executive’s age.

Death, Disability and Retirement

Upon the death of a Named Executive Officer, his or her survivors would receive payments from our insurance carriers under life insurance and accidental death and dismemberment policies provided in connection with the SERP. We provide coverage under each policy in an amount up to two times a Named Executive Officer’s salary, not to exceed $550,000 per policy (i.e., we pay up to $1,100,000), with excess coverage elected by the executive at his or her expense. As of December 31, 2016, the survivors of the Named Executive Officers would receive the

 

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following lump sum cash payments: Mr. Fetter, $1,600,000; Mr. Cancelmi, $3,455,000; Mr. Pitts, $2,525,000; Mr. Evans, $4,100,000; and Ms. Andrews, $3,701,000. In addition, under the SERP, the surviving spouse of a deceased Named Executive Officer would receive monthly payments equal to 50% of the retirement benefits that would have been payable to the executive.

Upon total and permanent disability, a Named Executive Officer would receive a cash payment from our insurance carrier, payable on a monthly basis until the executive reaches age 65, not to exceed $25,000 per month.

Upon retirement, a Named Executive Officer would receive a pro-rata bonus earned under the AIP for the year that includes the date of retirement.

Pursuant to the terms of the award agreements under the 2008 Stock Incentive Plan, if a Named Executive Officer dies, becomes totally and permanently disabled or, in the case of stock options only, retires, unvested options and restricted stock units will vest in full. If the options or restricted stock units are subject to performance criteria, however, then vesting is subject to the satisfaction of such performance criteria, and, if termination occurs prior to the end of the performance period, the awards will be subject to pro-rata vesting and settlement if and when the performance criteria are satisfied, based on the period of time employed during the performance period.

The table set forth below reflects the estimated aggregate amount of payments and other benefits each Named Executive Officer would receive upon termination of employment due to death, disability or retirement assuming that terminations occurred as of December 31, 2016. As of December 31, 2016, Mr. Fetter was our only Named Executive Officer considered retirement-eligible for purposes of the SERP or accelerated equity vesting.

 

NAME

     TERMINATION
SCENARIO
    

SERP/ERA BENEFIT

($)(1)

       ACCELERATED
EQUITY AWARDS
($)(2)
      

TOTAL

($)

 

Trevor Fetter

     Death        10,316,473          8,289,208          18,605,681  
     Disability        16,932,046          8,289,208          25,221,255  
     Retirement        19,402,518          -0-          19,402,518  

Dan Cancelmi

     Death        3,509,197          2,875,784          6,384,981  
     Disability        4,885,192          2,875,784          7,760,977  
     Retirement        -0-          -0-          -0-  

Keith Pitts

     Death        -0-          3,558,484          3,558,484  
     Disability        1,572,994          3,558,484          5,131,477  
     Retirement        -0-          -0-          -0-  

Eric Evans

     Death        526,915          960,564          1,487,479  
     Disability        526,915          960,564          1,487,479  
     Retirement        -0-          -0-          -0-  

Audrey Andrews

     Death        1,972,326          1,550,364          3,522,691  
     Disability        2,619,366          1,550,364          4,169,730  
     Retirement        -0-          -0-          -0-  

 

(1)  Represents the present value of the benefit payable under the SERP (with respect to the NEOs other than Mr. Evans) in each of the named scenarios based on each Named Executive Officer’s years of service to the company as of the date of death, disability or retirement and using the executive’s highest average monthly earnings (base salary and annual cash bonus under our AIP) over a 60-consecutive month period during the final 120 months of employment. Further, in the case of death and disability, the prior service credit percentage described under “Supplemental Executive Retirement Plan” on page 53 is 100%, the reduction for early commencement of death benefits is limited to 21% and disability benefits continue to accrue vesting credit until the executive attains normal retirement age. These amounts differ from the SERP benefit amounts shown in the Pension Benefits Table on page 52 because they reflect the SERP payment provisions under each scenario rather than the unreduced commencement of benefits at age 62. With respect to Mr. Evans, represents the present value of the benefit payable under the ERA.

 

(2)  Unvested performance-based restricted stock unit awards are reported as vesting at target levels. Amounts reflected are based on the NYSE closing price of $14.84 per share of our common stock on December 30, 2016 with respect to restricted stock units.

 

 

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Non-Cause Termination/No Change of Control

Subject to the terms of the ESP and applicable equity plans and award agreements, and with respect to the ESP, further subject to signing a severance agreement containing restrictive covenants as well as a release, each of the Named Executive Officers is entitled to the following severance payments and other benefits if his or her employment is terminated without cause, or by the executive for good reason (a “non-cause” termination), outside the context of a change of control of the company:

 

    Severance pay (base salary plus target bonus) during the “severance period” which is three years for Mr. Fetter, two and a half years for Mr. Cancelmi, Mr. Pitts and Mr. Evans, and one and a half years for Ms. Andrews;

 

    Lump sum pro-rata bonus earned under the AIP for the year that includes the date of termination;

 

    Continued coverage during the severance period under medical, dental, vision, life and long-term care benefit programs; provided that the executive continues to pay his or her portion of the cost of such coverages as in effect upon termination; reduced to the extent that the Named Executive Officer receives comparable benefits through other employment during the severance period;

 

    Outplacement services not to exceed $25,000;

 

    Pursuant to the terms of the ESP, the Named Executive Officers will forfeit any non-vested outstanding equity awards at termination to the extent the underlying equity award agreements do not otherwise provide for acceleration of vesting. Time-vested restricted stock unit awards and stock options vest upon a non-cause termination. Likewise, subject to satisfaction of the performance criteria, performance-based restricted stock unit awards and performance-based stock options vest upon a non-cause termination (with proration for any performance period not completed as of termination with respect to performance-based restricted stock unit awards);

 

    Performance cash awards are subject to the same treatment as performance-based restricted stock unit awards with respect to any performance period not completed as of termination (any previously “banked” amounts shall also be payable); and

 

    Age and service credit under the SERP during the severance period, for employees who became participants in the SERP prior to August 3, 2011.

The table set forth below reflects the estimated aggregate amount of payments and other benefits (not including reimbursable legal fees, if any, to obtain benefits under the ESP and certain reimbursable excise taxes, if any, incurred by the participant under Section 409A) each Named Executive Officer would receive upon a non-cause termination unrelated to any change of control assuming that terminations occurred as of December 31, 2016.

 

NAME

  CASH
SEVERANCE
($)(1)
    HEALTH
AND
WELFARE
BENEFITS
($)(2)
    OUTPLACEMENT
SERVICES
($)
    ADDITIONAL
SERP/ERA
BENEFIT
($)(3)
    ACCELERATED
EQUITY
AWARDS
($)(4)
    EXCISE TAX
REIMBURSE-
MENTS
($)
     TOTAL
($)
 

Trevor Fetter

    10,849,613       42,273       25,000       3,743,827       8,289,208       Not offered        22,949,921  

Dan Cancelmi

    3,505,914       35,227       25,000       2,094,582       2,875,784          8,536,507  

Keith Pitts

    5,247,525       35,227       25,000       -0-       3,558,484          8,866,236  

Eric Evans

    3,680,848       41,827       25,000       316,149       960,564          5,024,388  

Audrey Andrews

    1,643,119       21,136       25,000       340,377       1,550,364          3,579,997  

 

(1)  Severance is paid on a bi-weekly basis at termination, subject to certain amounts being delayed for a six-month period in compliance with Section 409A. Severance pay will be reduced for any SERP benefits that become payable during the severance period. For employees who became participants in the SERP prior to August 3, 2011, at the end of the severance period, the Named Executive Officer’s SERP benefits will be adjusted to reflect the additional age and service credit provided under the ESP during the severance period. The Named Executive Officer’s severance pay will not be considered in calculating his or her final average earnings under the SERP.

 

(2)  Represents the aggregate incremental cost of providing medical, dental, life insurance, and accidental death and dismemberment benefits to the executive at active employee rates. “Incremental cost” is comprised of our contributions to the premium cost for these benefits and our cost of paying benefits under our self-funded plans.

 

(3)  Represents the present value of the additional benefit payable under the SERP (for NEOs other than Mr. Evans) which is attributable to the additional age and service credits that the Named Executive Officers accrue during their applicable severance periods, for employees who became participants in the SERP prior to August 3, 2011; however, the additional SERP benefit attributable to such age and service credits does not begin to be paid until the end of the severance period. The additional SERP benefit amounts do not include an amount of SERP benefits equal to that which would be payable in the event of retirement as shown in the Death, Disability and Retirement table on page 56; however, those benefits would also be payable by reason of a non-cause termination unrelated to a change of control of the company. For Mr. Evans, this amount reflects his benefit under the ERA, which would become payable by reason of a non-cause termination unrelated to a change of control of the company.

 

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(4)  Unvested performance-based restricted stock unit awards are reported as vesting at target levels (as such levels are disclosed above in the Outstanding Equity Awards Table and footnote 3 thereto). Amounts reflected are based on the NYSE closing price of $14.84 per share of our common stock on December 30, 2016 with respect to restricted stock units.

Non-Cause Termination/Change of Control

Subject to the terms of the ESP and applicable equity plans and award agreements, each of the Named Executive Officers is entitled to the following severance payments and other benefits if his or her employment is terminated without cause, or by the executive for good reason (a “non-cause” termination), during the period beginning six months prior to a change of control and ending 24 months following the occurrence of a change in control (the “protection period”):

 

    The same benefits to which the executive would be entitled with respect to a non-cause termination outside the context of a change of control, provided that the “severance period” is three years for Messrs. Fetter, Cancelmi, Pitts and Evans and two years for Ms. Andrews. If the termination occurs within the six months prior to a change of control that results from the liquidation or dissolution of the company, however, then the severance period applicable to non-cause terminations outside the context of a change of control will apply; and

 

    Equity awards under our stock incentive plans that have not vested and are not assumed or exchanged for substitute equity by the successor to the company will accelerate and become vested upon a change of control irrespective of whether the Named Executive Officer terminates employment. Equity awards under our stock incentive plans that have not vested and are assumed or substituted by the successor to the company will accelerate and become vested upon a non-cause termination in connection with a change of control; performance-based restricted stock units and performance-based stock options will vest subject to the satisfaction of performance criteria (with proration for any performance period not completed as of termination).

In 2012 the company amended the ESP to eliminate all reimbursements and gross-ups with respect to golden parachute excise taxes. Pursuant to the ESP, if any payment or other benefit to which an executive is entitled under the ESP or otherwise will become subject to the excise tax imposed by Section 4999 of the Internal Revenue Code, then the executive’s payments and benefits shall be either (i) provided to the executive in full, or (ii) provided to the executive as to such lesser extent which would result in no portion of such payments and benefits being subject to the excise tax, whichever of the amounts results in the receipt by the executive, on an after-tax basis, of the greatest amount of benefits.

The table set forth below reflects the estimated aggregate amount of payments and other benefits (not including reimbursable legal fees, if any, to obtain benefits under the ESP and certain reimbursable excise taxes, if any, incurred by the participant under Section 409A) each Named Executive Officer would receive upon a non-cause termination related to any change of control assuming that terminations occurred as of December 31, 2016.

 

NAME

  CASH
SEVERANCE
($)(1)
    HEALTH
AND
WELFARE
BENEFITS
($)(2)
    OUTPLACEMENT
SERVICES
($)
    ADDITIONAL
SERP/ERA
BENEFIT
($)(3)
    ACCELERATED
EQUITY
AWARDS
($)(4)
    ESP
CUTBACK
FOR
EXCISE TAX
AVOIDANCE
($)(5)
    EXCISE TAX
REIMBURSE-
MENTS
($)
    TOTAL
($)
 

Trevor Fetter

    10,849,613       42,273       25,000       5,365,515       9,685,920       -0-       Not offered       25,968,320  

Dan Cancelmi

    4,123,914       42,273       25,000       4,206,926       3,232,731       -0-         11,630,844  

Keith Pitts

    6,172,525       42,273       25,000       2,265,731       4,163,733       (828,223       11,841,039  

Eric Evans

    4,330,848       50,193       25,000       608,166       1,209,178       -0-         6,223,385  

Audrey Andrews

    2,102,494       28,182       25,000       5,562,574       1,783,160       -0-         9,501,409  

 

(1)  In the case of a non-cause termination that occurs during the six months preceding either a change of control described in Section 409A or a change of control that is not described in Section 409A, severance pay will be paid in the same manner as a termination that is not related to a change in control. In the case of a non-cause termination that occurs within two years following a change of control described in Section 409A, payment of severance pay under the ESP will be made to the Named Executive Officer in a lump sum at termination, subject to any six-month delay required by Section 409A. In the case of a non-cause termination that occurs during the two years following a change of control that is not described in Section 409A, payment of severance pay under the ESP will be made to the Named Executive Officer in a lump sum at termination, to the extent permitted under Section 409A without penalty, and the remainder of such severance pay will be paid in the same manner as a termination that is not related to a change in control.

 

(2)  Represents the aggregate incremental cost of providing medical, dental, life insurance, and accidental death and dismemberment benefits to the executive at active employee rates. “Incremental cost” is comprised of our contributions to the premium cost for these benefits and our cost of paying benefits under our self-funded plans.

 

 

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(3)  Represents the present value of the SERP benefit payable in the event of a non-cause termination related to a change of control of the company in excess of the present value of the SERP benefit payable in the event of a non-cause termination unrelated to a change in control, which is presented in the “Additional SERP/ERA Benefit” column of the table on page 57. The additional SERP benefit amounts would include age and service credits for the Named Executive Officers that would accrue during their applicable severance periods, for employees who became participants in the SERP prior to August 3, 2011, and would be based on: (i) the deemed full vesting of the Named Executive Officers in their SERP benefits without regard to their actual years of service; (ii) all of their years of service to the company and using the executive’s highest average monthly earnings (base salary and annual cash bonus under our AIP) over a 60-month period of the final 120 months of employment; and (iii) the immediate commencement of SERP benefits without any reduction in benefits for early commencement. For Mr. Evans, this amount reflects his benefit under the ERA, which would become payable by reason of a non-cause termination related to a change of control of the company.

 

   In the event of a change of control of the company without termination of employment, the additional retirement benefits payable under the SERP to the Named Executive Officers would be as follows: Mr. Fetter, $8,284,488; Mr. Cancelmi, $3,745,755; Mr. Pitts; $64,159; and Ms. Andrews, $2,324,665. These amounts have been calculated as described above in this footnote, but without the accrual of additional age and service credits during the severance period. These amounts differ from the additional SERP benefits payable by reason of a termination following a change of control because in a non-termination scenario (i) the benefit cutback provisions of the ESP for the avoidance of golden parachute excise taxes are not applicable and (ii) benefits under the SERP do not commence until retirement. These amounts do not include those benefits shown in the Pension Benefits table on page 52 and those benefits would also be payable upon retirement. In the event of a change of control of the company without termination of employment, the ERA benefit to Mr. Evans would be $526,915.

 

   Present value calculations use the assumptions discussed in footnote 3 to the Pension Benefits Table.

 

(4)  Performance-based restricted stock unit awards are reported at target levels (as such levels are disclosed above in the Outstanding Equity Awards Table and footnote 3 thereto). Amounts reflected have been calculated using the NYSE closing price of $14.84 per share of our common stock on December 30, 2016 with respect to restricted stock units.

 

(5)  Represents a reduction in otherwise payable ESP benefits in an amount sufficient to avoid an application of the golden parachute excise tax.

 

TENET HEALTHCARE 2017 PROXY STATEMENT    

 

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EXECUTIVE COMPENSATION TABLES

 
     

 

Definitions:

“Cause” under our deferred compensation plans, ESP, SERP, AIP and stock incentive plans is defined as (a) when used in connection with a qualifying termination triggering benefits outside the context of a change of control, an executive’s: (i) dishonesty, (ii) fraud, (iii) willful misconduct, (iv) breach of fiduciary duty, (v) conflict of interest, (vi) commission of a felony, (vii) material failure or refusal to perform his job duties in accordance with company policies, (viii) a material violation of company policy that causes harm to the company or an affiliate, or (ix) other wrongful conduct of a similar nature and degree; (b) when used in connection with a qualifying termination triggering benefits in the context of a change of control: (i) any intentional act or misconduct materially injurious to the company or any affiliate, financial or otherwise, including, but not limited to, misappropriation or fraud, embezzlement or conversion by the executive of the company’s or any affiliate’s property in connection with the executive’s employment with the company or an affiliate, (ii) any willful act or omission constituting a material breach by the executive of a fiduciary duty, (iii) a final, non-appealable order in a proceeding before a court of competent jurisdiction or a final order in an administrative proceeding finding that the executive committed any willful misconduct or criminal activity (excluding minor traffic violations or other minor offenses), which commission is materially inimical to the interests of the company or any affiliate, whether for his personal benefit or in connection with his duties for the company or an affiliate, (iv) the conviction (or plea of no contest) of the executive for any felony, (v) material failure or refusal to perform his job duties in accordance with company policies (other than resulting from the executive’s disability as defined by company policies), or (vi) a material violation of company policy that causes material harm to the company or an affiliate.

A “change of control” under our deferred compensation plans, ESP, SERP, AIP and stock incentive plans will have occurred if: (i) any one person, or more than one person acting as a group, acquires, directly or indirectly, whether in a single transaction or a series of related transactions, more than 50% of the total fair market value or voting power of our stock (including stock held prior to such acquisition); (ii) any one person, or more than one person acting as a group, acquires, directly or indirectly, during a 12-month period ending on the date of the most recent acquisition by such person or persons, 35% or more of the total voting power of our stock (not considering stock owned by such person or group prior to such 12-month period); (iii) a majority of the members of the Board are replaced during any 12-month period by directors whose appointment or election is not endorsed by a majority of our Board prior to such election; (iv) a sale, exchange, lease, disposition or other transfer of all or substantially all of the assets of the company; or (v) there occurs a liquidation or dissolution of the company that is approved by a majority of the company’s shareholders. This definition of change of control complies with Section 409A except for item (v) (i.e., items (i), (ii), (iii) and (iv) are described in Section 409A).

“Good Reason” under our ESP, SERP, AIP and stock incentive plans is defined as: (a) in the case of a voluntary termination of employment by an executive preceding or more than two years following a change of control: (i) a material diminution in the executive’s job authority, responsibilities or duties; (ii) a material diminution of the executive’s base salary; (iii) an involuntary and material change in the geographic location of the workplace at which the executive must perform services; or (iv) any other action or inaction that constitutes a material breach by the employer or a successor of the agreement under which the executive provides services; (b) in the case of a voluntary termination of employment by an executive upon or within two years following a change of control: (i) a material downward change in job functions, duties, or responsibilities which reduces the rank or position of the executive; (ii) a reduction in the executive’s annual base salary; (iii) a reduction in the aggregate value of the executive’s annual base salary and AIP target bonus opportunity; (iv) a material reduction in the executive’s retirement or supplemental retirement benefits; (v) an involuntary and material change in the geographic location of the workplace at which the executive must perform services; or (vi) any other action or inaction that constitutes a material breach by the employer or a successor of the agreement under which the executive provides services.

 

 

 

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SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY  

COMPENSATION PLANS  

 

 

We currently grant stock options, as well as restricted stock units, under our 2008 Stock Incentive Plan. All options were granted with an exercise price equal to the NYSE closing price per share of our common stock on the date of grant. Most of our restricted stock unit or stock option grants vest over a three-year period (either ratable or cliff-vest), although certain special retention awards contain longer vesting periods. Options expire within a period of no more than 10 years from the date of grant.

The following table summarizes certain information with respect to our equity compensation plans pursuant to which rights remain outstanding as of December 31, 2016.

Equity Compensation Plan Information

 

PLAN CATEGORY

   NUMBER OF
SECURITIES TO BE
ISSUED UPON
EXERCISE OF
OUTSTANDING
OPTIONS,
WARRANTS
AND RIGHTS
(A)
     WEIGHTED-
AVERAGE
EXERCISE
PRICE OF
OUTSTANDING
OPTIONS,
WARRANTS
AND RIGHTS
(B)(1)
    

NUMBER OF
SECURITIES

REMAINING
AVAILABLE FOR

FUTURE ISSUANCE
UNDER EQUITY
COMPENSATION
PLANS (EXCLUDING
SECURITIES
REFLECTED IN
COLUMN (A))
(C)

 

Equity compensation plans approved by security holders

     1,435,921      $ 22.87        10,022,234 (2) 

Equity compensation plans not approved by security holders(3)

     112,584               -0-  

Total

     1,548,505           10,022,234  

 

(1)  The weighted average exercise price does not take into account the shares issuable upon the vesting of outstanding restricted stock units, which have no exercise price. In addition, no exercise price is applicable to the stock units under our deferred compensation plans.

 

(2)  Includes 3,853,179 shares remaining available for issuance pursuant to the Tenth Amended and Restated 1995 Employee Stock Purchase Plan and 6,169,055 shares remaining for issuance under the 2008 Stock Incentive Plan, assuming that all outstanding performance-based restricted stock units that had not already provisionally vested would settle at maximum levels.

 

   All shares available under the 2008 Stock Incentive Plan may be used for option-based and all other awards authorized under the 2008 Stock Incentive Plan. As approved by our shareholders, option-based awards and stock appreciation rights reduce the number of shares available for issuance on a one-to-one basis. However, grants of all other awards, such as restricted stock units, reduce the number of shares available by 1.65 shares for each share subject to such awards.

 

     On March 1, 2017, 469,029 restricted stock units and 987,781 performance stock options were granted from available shares under the 2008 Stock Incentive Plan as part of our annual equity compensation process. As of March 13, 2017, 5,035,706 shares remained available for grant assuming that all outstanding performance-based restricted stock units that have not provisionally vested will settle at maximum levels.