DEF 14A 1 d448827ddef14a.htm DEF 14A DEF 14A
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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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Table of Contents

 

LOGO

 

 

 

 

    
 

2018  

 

  

 

Tenet Healthcare Corporation

Notice of Annual Meeting

& Proxy Statement

 

    


Table of Contents
MESSAGE FROM OUR EXECUTIVE CHAIRMAN AND CHIEF EXECUTIVE OFFICER     

 

 

LOGO

 

 

 

 

 

 

Dear Fellow Shareholders:

2017 was a year of significant transition for Tenet. During the year, we continued to focus on providing high-quality care to patients, innovating to meet the demands of today’s healthcare market, and driving operational and financial performance to maximize shareholder value. At the same time, it became necessary to make a number of changes, including at the senior management level, to transform and move the Company forward. I was appointed Executive Chairman and Chief Executive Officer in the fall and, since that time, we have taken swift and decisive actions:

 

    Implemented enterprise-wide cost reduction initiatives expected to realize $125 million in cost savings in 2018 and $250 million of annualized run-rate cost savings by the end of 2018;

 

    Initiated a process to explore a sale of Conifer Health Solutions; and

 

    Announced plans to divest non-core hospital assets that are expected to yield over $1 billion of proceeds.

At the same time, we made significant changes from a Board and governance standpoint. We have a strong history of regularly engaging with our shareholders to solicit feedback and take action in response. Based on feedback received from shareholders over the past several months, the Board:

 

    Implemented a special meeting right for shareholders collectively owning 25% of our outstanding shares;

 

    Continued its ongoing process of Board refreshment, which included the appointment of three independent directors in 2017; and

 

    Terminated our short-term NOL rights plan ahead of its scheduled expiration at our 2018 annual meeting.

In closing, 2017 was a year of significant progress and change across many aspects of our company. As we look forward to 2018, we are confident we have the right strategy, Board and governance in place to grow our business and to position Tenet for the future.

Sincerely,

 

LOGO

Ronald A. Rittenmeyer

Executive Chairman and Chief Executive Officer


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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 3, 2018

March 30, 2018

To Our Shareholders:

Our Annual Meeting of Shareholders will be held on Thursday, May 3, 2018, at 8:00 a.m. Central Time at Tenet Corporate Headquarters, 1445 Ross Avenue, Suite 1400, Dallas, Texas 75202, for the following purposes:

 

1. To elect the eight 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. Your Board of Directors recommends a vote for each director nominee.

 

2. To vote, on an advisory basis, to approve the Company’s executive compensation. Your Board of Directors recommends a vote for this proposal.

 

3. To ratify the selection of Deloitte & Touche LLP as our independent registered public accountants for the year ending December 31, 2018. Your Board of Directors recommends a vote for this proposal.

 

4. To vote on a shareholder proposal regarding an independent board chairman, if properly presented at the meeting. Your Board of Directors recommends a vote against this proposal.

 

5. 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 29, 2018 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 the 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 accompanying 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 3, 2018

The accompanying Proxy Statement and the Company’s proxy card, as well as our Annual Report on

Form 10-K for the year ended December 31, 2017, 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

     13  

DIRECTOR COMPENSATION

     20  

SECURITIES OWNERSHIP

     22  

HUMAN RESOURCES COMMITTEE REPORT

     24  

COMPENSATION DISCUSSION AND ANALYSIS

     25  

EXECUTIVE COMPENSATION TABLES

     43  

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

     59  

PROPOSAL 2–ADVISORY VOTE TO APPROVE EXECUTIVE COMPENSATION

     60  

AUDIT COMMITTEE REPORT

     61  

PROPOSAL 3–RATIFICATION OF THE SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS

     63  

PROPOSAL 4–SHAREHOLDER PROPOSAL TO URGE THE BOARD TO ADOPT A POLICY THAT THE CHAIRMAN OF THE BOARD BE AN INDEPENDENT DIRECTOR

     64  

GENERAL INFORMATION REGARDING THE ANNUAL MEETING AND VOTING

     66  

OTHER INFORMATION

     69  

APPENDIX A–NON-GAAP FINANCIAL MEASURES

     A-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 A.

 


 


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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, 2017 before you vote.

2018 ANNUAL MEETING OF SHAREHOLDERS

 

Date and Time:

Thursday, May 3, 2018, at 8:00 a.m. Central Time

Place:

Tenet Corporate Headquarters

1445 Ross Avenue, Suite 1400

Dallas, Texas 75202

Record Date:

March 29, 2018

 

Information:

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

 

 

VOTING MATTERS AND BOARD RECOMMENDATIONS

 

PROPOSALS

 

  

 

BOARD’S

RECOMMENDATION

 

  

        PAGE             

 

 

Election of Eight Director Nominees (Proposal 1)

 

Our Board of Directors (the “Board”) believes that the eight director nominees bring a combination of diverse qualifications and skills that contributes to a well-rounded Board. Each director nominee has proven leadership ability, good judgment and valuable experience.

 

   FOR each of the director nominees    6

 

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

 

Our Board believes that Tenet Healthcare Corporation’s (“Tenet” or the “Company”) executive compensation program design effectively aligns the interests of our Named Executive Officers with those of our shareholders by tying a significant portion of our Named Executive Officers’ compensation to Tenet’s performance and rewarding our Named Executive Officers for the creation of long-term value for Tenet’s shareholders. In addition, Tenet remains committed to requiring that our Named Executive Officers maintain ownership of a material amount of our stock, includes clawback provisions within all performance-based compensation payable to our Named Executive Officers and does not provide excise tax gross-ups. Because your vote is advisory, it will not be binding on the Board. However, the Board and the Human Resources Committee value your opinion and will review and consider the voting results when making future executive compensation decisions.

 

   FOR   

60

 

Ratification of the Selection of Deloitte & Touche LLP as Independent Registered Public Accountants for 2018 (Proposal 3)

 

The Audit Committee approved the appointment of Deloitte & Touche LLP as Tenet’s independent registered public accounting firm for 2018. The Audit Committee and the Board believe that the continued retention of Deloitte & Touche LLP to serve as the Company’s independent registered public accounting firm is in the best interests of the Company and its shareholders.

 

   FOR   

63

 

Shareholder Proposal to Urge the Board to Adopt a Policy that the Chairman of the Board be an Independent Director (Proposal 4)

 

Our Board believes that Tenet has an independent leadership structure, including a strong independent Lead Director, and that it is in our shareholders’ interests for Tenet to maintain flexibility with respect to its leadership structure.

 

   AGAINST   

64

 


 

TENET HEALTHCARE 2018 PROXY STATEMENT    

 

1  

 


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PROXY STATEMENT SUMMARY

 
     

 

 

2017: A YEAR OF TRANSITION

2017 was a year of significant transition. The Board acted to implement several significant changes that would transform the Company and reposition it for the future, including a change in leadership. Ronald A. Rittenmeyer was named Tenet’s Executive Chairman in August 2017 and Chief Executive Officer in October 2017. Mr. Rittenmeyer has served on our Board since 2010, most recently as independent Lead Director. Mr. Rittenmeyer has extensive experience in turnaround situations, having previously led Millennium Health, LLC following its emergence from bankruptcy, as well as numerous other companies through their in- and out-of-court restructuring and transition processes.

Since Mr. Rittenmeyer assumed the role of Chief Executive Officer, Tenet has taken a number of additional decisive actions, including implementing management changes at its United Surgical Partners (“USPI”) and Conifer Health Solutions (“Conifer”) businesses, announcing an enterprise-wide $250 million cost reduction initiative and initiating a strategic review of its portfolio that has resulted in the exploration of a sale of Tenet’s Conifer business. At the same time, Tenet has worked to enhance the oversight capabilities of its Board, through additional Board refreshment, and its accountability to shareholders, through direct Board and management engagement with shareholders and improvements to Tenet’s governance structures. Certain of these actions are described in further detail below.

In light of these concurrent and transformational changes, 2017 was ultimately a transitional year for Tenet, and one that has positioned the Company to deliver value to its shareholders and other stakeholders in the future. Under Mr. Rittenmeyer’s leadership, our Board and management team have been highly focused on executing a speedy and successful turnaround of the business. Their efforts, and those of all of our employees, have already begun to show progress.

Momentum in Business

The Board and management team have taken a number of decisive steps during this time of significant transition for Tenet, as shown in the timeline below.

 

LOGO

BUSINESS INITIATIVES

Cost Reduction Initiative

In December 2017, Tenet announced a set of expanded enterprise-wide cost reduction initiatives. These initiatives are expected to realize $125 million in cost savings in 2018 and $250 million of annualized run-rate cost savings by the end of 2018. The cost reduction initiative is expected to eliminate approximately 2,000 positions, reduce corporate overhead by approximately 20% compared to 2016 and eliminate regional management of the hospital business.

 

 

2

 

    TENET HEALTHCARE 2018 PROXY STATEMENT


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PROXY STATEMENT SUMMARY

      

 

 

Conifer Sale Process

In December 2017, Tenet announced that it had initiated a process to explore a potential sale of Conifer as part of a broader and ongoing strategic review of the Company’s portfolio. At the same time, Tenet remains focused on driving growth at Conifer by continuing to market and expand Conifer’s revenue cycle management and value-based care services businesses, and by diversifying Conifer’s customer base.

Divestiture of Non-Core Hospital Assets

Tenet is actively managing its portfolio of hospital assets. By divesting non-core hospital assets, Tenet expects to yield over $1 billion of proceeds, comprised of over $700 million in cash proceeds and the elimination of approximately $300 million of capital lease debt. For example, recent divestitures of non-core hospital assets include, among others: the sale of two hospitals in Philadelphia, Pennsylvania that closed January 11, 2018; the sale of MacNeal Hospital in the Chicago area that closed March 1, 2018; the sale or restructuring of three minority interests in joint ventures with Baylor Scott & White Health; and the sale of Des Peres Hospital in St. Louis, Missouri that is expected to be completed in the second quarter of 2018.

BOARD REFRESHMENT

Since the fall, Tenet has added three independent directors to its Board, capping a three-year period of significant refreshment. Since 2015, Tenet has added eight new directors, four of whom are standing for reelection at the 2018 annual meeting. Four of the eight new directors were proposed by Tenet’s largest shareholder, Glenview Capital Management, LLC (“Glenview”), two of whom resigned in August 2017 and two of whom are not standing for reelection at the 2018 annual meeting. Of our longer-tenured directors, Karen M. Garrison and Richard R. Pettingill will also not be standing for reelection. The average tenure of our directors standing for reelection at the 2018 annual meeting is approximately seven years. At this time, the Board is comprised of highly talented and engaged directors with diverse backgrounds and skill sets that enable the Board to effectively oversee Tenet through its transformation. The Board expects to add additional independent directors with skillsets that are complementary to those of our current directors and that align with Tenet’s strategic priorities going forward.

Appointment of a New Independent Lead Director

The Company has a strong independent Lead Director role, as described in our Corporate Governance Principles. J. Robert “Bob” Kerrey was appointed to the position of Lead Director in October 2017. Senator Kerrey is a former governor and U.S. Senator from Nebraska with an extensive background in accounting, finance and public policy. The Lead Director is responsible for chairing executive sessions of the Board, serves as a liaison between the independent directors and the Executive Chairman of the Board, approves information distributed to the Board, and represents the Board in meetings with investors, legislators, regulators and other constituents, as described in additional detail under “Board Leadership Structure–Role of Lead Director of the Board” beginning on page 13.

Board Highlights

Following our Board refreshment efforts in recent years, we have achieved a balanced mix of diversity, age and tenure in the boardroom. The differentiated perspectives that result from the composition of our current Board contribute meaningfully to the effectiveness of the Board in its oversight role and to its role in helping the management team successfully navigate the challenging landscape in which Tenet is currently operating. Our current director nominees also demonstrate our continued commitment to a balanced Board.

Diversity, Age and Tenure of Board Nominees

 

LOGO   LOGO   LOGO

 

TENET HEALTHCARE 2018 PROXY STATEMENT    

 

3  

 


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PROXY STATEMENT SUMMARY

 
     

 

 

GOVERNANCE CHANGES

At Tenet, we are highly committed to sound corporate governance policies and practices that protect the long-term interests of shareholders and promote Board and management accountability. Over the past few years, as Tenet has managed the challenges of an evolving industry landscape, we have also redoubled our efforts to ensure that shareholders have a voice with our Board and management team. To this end, we initiated an expansive shareholder engagement program in 2015, including participation by our independent directors and senior management team, and have demonstrated a willingness to act on shareholder feedback relating to our Board composition, corporate governance and executive compensation practices. In early 2018, in response to feedback received from shareholders, including our ongoing dialogue with Glenview, and as part of the Company’s ongoing transformation, our Board implemented enhancements to our corporate governance policies and practices, which are detailed below. These enhancements are intended to ensure the continued alignment of our corporate governance policies and practices with the future interests of our business and its shareholders.

Bylaw Amendments to Provide Shareholders with the Right to Call a Special Meeting

Tenet’s governance practices support oversight and accountability. On January 21, 2018, Tenet amended its bylaws to allow shareholders that beneficially own a majority of our outstanding shares to call a special meeting. On March 5, 2018, after extensive communications with its shareholders, Tenet further amended its bylaws to allow shareholders that beneficially own 25% of our outstanding shares to call a special meeting. On March 23, 2018, pursuant to our support agreement (the “Support Agreement”) with Glenview and its affiliated entities, described in more detail below, Tenet further amended its special meeting bylaw to provide that the special meeting bylaw can only be amended by the vote of a majority of shareholders. These amendments allow shareholders to take action between annual meetings on significant corporate matters that require shareholder approval. The special meeting bylaw provides a clear and transparent process, including a set timeline and specified date, that ensures an open and appropriate debate in which all shareholders can exchange views prior to the taking of any corporate action that requires shareholder approval. In addition, on March 23, 2018, pursuant to the Support Agreement, Tenet amended its bylaws to require that the Company hold an annual meeting of shareholders no less than every 13 months.

Bylaw Amendment to Eliminate Standing Executive Committee

On March 5, 2018, Tenet amended its bylaws to eliminate the Executive Committee as a standing committee of the Board. The Executive Committee had been authorized to exercise certain powers of the full Board in the management of Tenet’s business and affairs when the Board was not in session. The Executive Committee rarely convened and seldom took action over the past decade. Tenet eliminated the Executive Committee as a standing committee of the Board to underscore its commitment to a full, deliberative Board process.

Termination of Short-Term NOL Shareholder Rights Plan

On March 5, 2018, Tenet terminated the short-term shareholder rights plan that it had implemented on August 31, 2017 to protect Tenet’s income tax net operating loss carryforwards (“NOLs”). The recent U.S. tax law changes and an increase in Tenet’s stock price since the NOL shareholder rights plan was adopted reduced the need for the rights plan, which, coupled with shareholder feedback, led the Board to terminate the NOL shareholder rights plan on March 5, 2018, prior to its originally scheduled expiration following the conclusion of the 2018 annual meeting. In addition, on March 23, 2018, pursuant to the Support Agreement, Tenet amended its bylaws to require the approval of 75% of our directors to adopt any future shareholder rights plan and to limit the term of future rights plans to one year plus a 90-day period to solicit shareholder approval of any longer duration, if applicable.

ACTIVE SHAREHOLDER ENGAGEMENT PROGRAM

Our Board 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. We value our shareholders’ perspectives on our business and interact with them through a variety of shareholder engagement activities. As we engage with shareholders and proxy advisory firms, feedback is regularly reviewed by our Board.

In early 2018, members of Tenet’s Board and management team met with shareholders that own over 80% of Tenet’s outstanding shares to provide an update on the many recent positive developments at Tenet and to solicit feedback on our corporate governance policies and practices, including the Company’s recently adopted special meeting right, and the continued alignment of our corporate governance policies and practices with our rapidly evolving business. In direct response to shareholder feedback, the Board acted to amend Tenet’s bylaws to allow shareholders that beneficially own 25% of our outstanding shares to call a special meeting, eliminate the Executive Committee as a standing committee of the Board and terminate the short-term NOL shareholder rights plan ahead of its originally scheduled expiration date.

 

 

4

 

    TENET HEALTHCARE 2018 PROXY STATEMENT


Table of Contents
  

 

PROXY STATEMENT SUMMARY

      

 

 

On March 23, 2018, pursuant to the Support Agreement, Glenview withdrew its notice to the Company, dated February 2, 2018, indicating its intention to present a shareholder proposal at the 2018 annual meeting, and Glenview agreed to vote its shares in favor of all of the Board’s nominees and to support all of the Board’s recommended proposals at the 2018 annual meeting. A copy of the Support Agreement was filed by the Company in a Current Report on Form 8-K on March 26, 2018.

HOW TO CAST YOUR VOTE

You may vote in one of the following ways:

By Internet. You may vote on the Internet. The website for Internet voting is www.proxyvote.com and is also noted on your proxy card or voting instruction form. Internet voting is available 24 hours a day and will be accessible until 11:59 p.m. Eastern time on May 2, 2018. As with telephone voting, you may confirm that your instructions have been properly recorded.

By Telephone. You may vote by calling the toll-free telephone number noted on your proxy card or voting instruction form. Telephone voting is available 24 hours a day and will be accessible until 11:59 p.m. Eastern time on May 2, 2018. Voice prompts allow you to vote your shares and confirm that your instructions have been properly recorded.

By Mail. If you received a paper copy of the proxy card or voting instruction form by mail and choose to vote by mail, please mark your proxy card, date and sign it, and promptly return it in the postage-paid envelope provided with this proxy statement.

In Person at the Annual Meeting. You may vote in person by attending the Annual Meeting. If you are a beneficial owner whose shares are held in street name (which means your shares are registered in the name of your broker, bank or other nominee), you must also obtain a legal proxy from your broker, bank or other nominee to vote in person and submit the proxy along with your ballot at the meeting.

Shares must be voted in person, on the Internet, by telephone, or by completing and returning a proxy card.

If your proxy is properly completed, the shares it represents will be voted at the meeting as you instructed. If you submit your proxy, but do not provide instructions, your proxy will be voted in accordance with the Board’s recommendations as set forth in this Proxy Statement.

If your shares of our common stock are held by a broker in street name, under the rules of the New York Stock Exchange (“NYSE”), your broker may vote your shares on certain matters if you do not provide your broker with voting instructions. The ratification of the selection of our independent registered public accountants is considered a routine matter upon which brokerage firms may vote on behalf of their clients if no voting instructions are provided. A “broker non-vote” occurs when a broker holding your shares in street name does not vote on a particular matter because you did not provide the broker voting instructions and the broker lacks discretionary voting authority to vote the shares because the matter is non-routine. The non-routine matters on the agenda for this year’s Annual Meeting include the election of directors, an advisory approval of the Company’s executive compensation and the shareholder proposal to urge the Board to adopt a policy that the chairman of the Board be an independent director.

 

TENET HEALTHCARE 2018 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 our shareholders. Our nominees for election include seven independent directors and our Executive Chairman and Chief Executive Officer. The Board has selected the nominees listed below to serve as directors until the 2019 annual meeting, or until their successors are elected or appointed. Each of the nominees listed below, other than Messrs. Bierman, Fisher and Mark, was last elected by the Company’s shareholders at the 2017 annual meeting of shareholders. The nominees for director will be elected if the votes cast for the nominee exceed the votes cast against the nominee, with abstentions and broker non-votes not counted either for or against a nominee (and therefore having no effect on the election).

John P. Byrnes, Karen M. Garrison, Richard R. Pettingill and Peter M. Wilver will not be standing for reelection. We thank them for all of their tremendous efforts on behalf of the Company. The Board will miss their commitment, insight and perspective.

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

 

LOGO    

Ronald A. Rittenmeyer, 70         Director Since: June 2010

Executive Chairman and Chief Executive Officer

     

 

Career Highlights

Mr. Rittenmeyer was named Executive Chairman of Tenet in August 2017 and Chief Executive Officer in October 2017. He has served on our Board since 2010, most recently as Lead Director. He previously served as Chairman of the Board and Chief Executive Officer of Millennium Health, LLC, a health solutions company. He 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: Has served as the chief executive officer of a number of public companies, including Millennium Health, Expert Global Solutions and EDS, and holds an advanced degree in business administration

  Information technology, business process outsourcing 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), Avaya Holdings Corp. and IQVIA Holdings Inc.

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

 


 

 

6

 

    TENET HEALTHCARE 2018 PROXY STATEMENT


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PROPOSAL 1–ELECTION OF DIRECTORS

      

 

 

 

 

LOGO

 

Committee
Membership:

Governance

(Chair)

QCE

 

J. Robert Kerrey, 74        Director Since: November 2012

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

Lead Director since October 2017

     

 

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 in New York City, and from 2001 to 2010, he served as President of The New School. 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 Five Years: Chart Acquisition Corp. and U.S. Rare Earths, Inc.

 

 

LOGO

 

Committee
Membership:

Governance

QCE

 

James L. Bierman, 65        Director Since: October 2017

     

 

Career Highlights

Mr. Bierman served as President and Chief Executive Officer of Owens & Minor, Inc., a Fortune 500 company and a leading distributor of medical and surgical supplies, from September 2014 to June 2015. Previously, he served in various other senior roles at Owens & Minor, including President and Chief Operating Officer from August 2013 to September 2014, Executive Vice President and Chief Operating Officer from March 2012 to August 2013, Executive Vice President and Chief Financial Officer from April 2011 to March 2012, and as Senior Vice President and Chief Financial Officer from June 2007 to April 2011. From 2001 to 2004, Mr. Bierman served as Executive Vice President and Chief Financial Officer at Quintiles Transnational Corp. Prior to joining Quintiles Transnational, Mr. Bierman was a partner at Arthur Andersen LLP. Mr. Bierman earned his B.A. from Dickinson College and his M.B.A. at Cornell University’s Johnson Graduate School of Management.

 

Skills and Qualifications

  Healthcare industry experience: Served as a healthcare industry executive for 8 years (Owens & Minor, Inc.) and possesses significant operational and financial experience in the healthcare sector

 

Other Public Company Directorships

Current: None

Others in Past Five Years: Owens & Minor, Inc. and Team Health Holdings, Inc.

 

TENET HEALTHCARE 2018 PROXY STATEMENT    

 

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PROPOSAL 1–ELECTION OF DIRECTORS

 
     

 

 

 

 

LOGO

 

Committee

Membership:

Audit

Human Resources

 

Richard W. Fisher, 69        Director Since: November 2017

     

 

Career Highlights

Mr. Fisher served as President and Chief Executive Officer of the Federal Reserve Bank of Dallas from 2005 until 2015. During his tenure, he served as a member of the Federal Open Market Policy Committee, as the chair of the Conference of Federal Reserve Bank Presidents, and as the chair of the Information Technology Oversight Committee for the 12 Federal Reserve banks. Previously, from 2001 to 2005, Mr. Fisher was Vice Chairman of Kissinger McLarty Associates, a strategic advisory firm. From 1997 to 2001, Mr. Fisher served as Deputy U.S. Trade Representative with the rank of Ambassador. Mr. Fisher currently serves as a Senior Advisor for Barclays PLC and as a Trustee of the University of Texas Southwestern Medical Foundation. Mr. Fisher received his B.A. in economics from Harvard University and earned his M.B.A. from Stanford University.

 

Skills and Qualifications

  Accounting and financial expertise: Served as President and Chief Executive Officer of the Dallas Federal Reserve, as a member of the Federal Open Market Policy Committee and as chair of the Conference of Federal Reserve Bank Presidents

 

Other Public Company Directorships

Current: AT&T Inc. and PepsiCo, Inc.

Others in Past Five Years: None

 

LOGO

 

Committee

Membership:

Audit (Chair)

Human Resources

 

Brenda J. Gaines, 68        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 M.P.A. 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 Five Years: AGL Resources Inc., Federal National Mortgage Association (Fannie Mae) and Office Depot, Inc.

 

LOGO

 

Committee

Membership:

Human Resources

(Chair)

QCE

 

Edward A. Kangas, 73        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 Five Years: Intuit Inc.

 

 

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LOGO

 

Committee
Membership:

QCE

Governance

 

Richard J. Mark, 62        Director Since: November 2017

     

 

Career Highlights

Mr. Mark serves as Chairman and President of Ameren Illinois Company, a $3 billion energy and utility company responsible for electric and natural gas distribution to more than 1.2 million electric and 806,000 natural gas customers in Illinois. Mr. Mark joined Ameren in 2002 as Vice President of Customer Service before moving up to various senior management roles. Before joining Ameren, he served for 11 years at Ancilla Systems Inc. While at Ancilla, the parent company to St. Mary’s Hospital in East St. Louis, Illinois, he served as Vice President for Governmental Affairs and Chief Operating Officer before becoming Chief Executive Officer of St. Mary’s Hospital in East St. Louis, Illinois from 1994 to 2002. Mr. Mark served as Director of Union Electric Company from 2005 until 2012 and has been Chairman of Ameren Illinois (subsidiaries of Ameren Corporation) since 2012. Mr. Mark earned his B.S. from Iowa State University and his M.S. at National Louis University.

 

Skills and Qualifications

  Healthcare industry experience: Served as a hospital operations executive and possesses a broad range of leadership experience in, and knowledge of, the healthcare industry, along with significant familiarity working in other highly regulated industries

 

Other Public Company Directorships

Current: None

Others in Past Five Years: None

 

LOGO

Committee
Membership:

Audit

Human Resources

 

Tammy Romo, 55        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 overall finance activities, including reporting, accounting, investor relations, treasury, tax, corporate planning, 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. Ms. Romo is currently a member of the Accounting Advisory Council at the McCombs School of Business at the University of Texas at Austin. 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 overall finance activities, including reporting, accounting, investor relations, treasury, tax corporate planning, and financial planning and analysis

 

Other Public Company Directorships

Current: None

Others in Past Five Years: None

 

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PROPOSAL 1–ELECTION OF DIRECTORS

 
     

 

 

Director Nomination Process

Our Board regularly reviews its composition and is engaged in an ongoing process to thoughtfully refresh the Board to support the continued evolution of the Company. This process is focused on identifying a diverse mix of viewpoints, skills, experience and backgrounds that align with the Company’s business and current strategic goals.

Under the charter of the Nominating and Corporate Governance Committee (the “Governance Committee”) and 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 may engage professional search firms and other consultants to assist in identifying, evaluating and conducting due diligence on potential candidates. The Governance Committee considers candidates based on the recommendation of, among others, our Board members and our shareholders.

In 2017, the Governance Committee focused its refreshment efforts on identifying candidates to further strengthen the Board’s ability to oversee the Company through this time of significant transition. To date, this process has resulted in the identification and appointment of three new independent directors who collectively bring deep healthcare, financial and operational expertise that complements the current skillsets and enhances the effectiveness of the overall Board.

Of the eight new directors that were added to our Board in the last three years, four were proposed by a shareholder. We intend to continue to actively engage with our shareholders, including considering their input on potential director 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 Tenet Healthcare Corporation, 1445 Ross Avenue, Suite 1400, Dallas, Texas 75202, or by email to boardofdirectors@tenethealth.com. You should consult our bylaws for more detailed information regarding the process by which shareholders may nominate directors. Our bylaws may be found in the “Corporate Governance” section under the “For Investors” tab on our website at www.tenethealth.com.

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 sector 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.

 

 

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Board Evaluations

The Governance Committee conducts 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.

Directors’ Qualifications and Experience

Based on its review, the Governance Committee concluded that our eight director nominees possess the 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

    BIERMAN     FISHER     GAINES     KANGAS     KERREY     MARK     RITTENMEYER     ROMO     

 

Executive Leadership

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Healthcare Industry

 

 

         

 

 

 

   

 

Accounting and Finance

 

 

 

 

 

 

 

 

 

 

   

 

 

 

 

 

Public Sector

   

 

 

 

   

 

       

 

Public Company Board Service

 

 

 

 

 

 

 

 

 

 

   

 

   

Information Technology

                 

Personal Qualities and Diversity. 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 provide candid and direct feedback, and to provide oversight of the Company’s operations on behalf of all shareholders. Additionally, our Board currently includes individuals of differing ages, backgrounds, ethnicities and genders. Two of our eight director nominees are women and half of the current Board has a tenure of three years or less.

Special Considerations Regarding Service on Other Boards. Nominees must seek the approval of the Governance Committee 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 in addition to our Board to three (two in the case of directors currently serving as chief executive officers or in equivalent positions of public companies). None of the Company’s independent directors serves on more than three other public company boards. Mr. Rittenmeyer, who served as Lead Director of the Board until August 2017, when he was appointed the Company’s Executive Chairman and Chief Executive Officer, serves on three public company boards other than the Company’s Board. Taking into account the unique circumstances resulting in Mr. Rittenmeyer’s appointment as the Company’s Chief Executive Officer, the Board granted a waiver of the two board limit applicable to chief executive officers. In approving the waiver, the Board noted that Mr. Rittenmeyer’s prior experience as a chief executive officer and his prior tenure on the Board, as well as his assessment of the time commitments required by his other public company boards, would not impede his ability to serve on the Company’s Board. Since becoming Chief Executive Officer, Mr. Rittenmeyer has consistently demonstrated his ability as a strong leader of the Company and his commitment to being a highly engaged member of the 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 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 (Kerrey, Bierman, Byrnes, Fisher, Gaines, Garrison, Kangas, Mark, Pettingill, Romo and Wilver) has no material relationship with the Company and is independent. All members of our Board during the past 12 years have been independent directors with the exception of the two individuals that have served as our Chief Executive Officer during this time period.

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.

 

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PROPOSAL 1–ELECTION OF DIRECTORS

 
     

 

 

The Audit Committee, Human Resources Committee and Governance Committee are comprised 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 Securities and Exchange Commission (“SEC”). In addition, the Human Resources Committee is composed exclusively of “non-employee directors” within the meaning of Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). 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 Policies and Practices

Tenet is committed to maintaining corporate governance policies and practices that protect the long-term interests of all our 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 their 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 and director resignation policy in uncontested elections

 

 

 

      Shareholder right to call special meetings at 25% threshold (New for 2018)

 

 

 

      Shareholderright to remove directors under Nevada law

 

Board Practices  

 

 

      Alldirectors are independent other than the Chief Executive Officer

 

 

 

      Highlydiverse and experienced Board

 

 

 

      IndependentLead Director with clearly defined and robust responsibilities

 

 

 

      Commitmentto Board refreshment practices, including committee Chair rotation

 

 

 

      Regularlyengage with shareholders, including considering their input on director candidates

 

 

 

      Self-evaluationand performance assessment of all directors

 

 

 

      Boardoversight of political contributions

 

 

 

      Regularexecutive sessions of independent directors

 

Our Board of Directors has also adopted a set of Corporate Governance Principles that provide the framework for our existing corporate governance policies and practices, which the Board reviews annually. These Corporate Governance Principles more fully address such matters as director independence, director qualifications and responsibilities, director compensation and director and officer stock ownership and retention guidelines. 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

Mr. Rittenmeyer served as the Board’s independent Lead Director from September 2016 until the time he became Executive Chairman on August 31, 2017. In October 2017, the Board appointed Senator Kerrey as independent Lead Director.

The Board’s leadership structure of an Executive Chairman coupled with an independent Lead Director has been in place since May 2015. The Board, with the assistance of its Governance Committee, regularly reviews its leadership structure to assess whether to separate or combine the roles of Chairman and Chief Executive Officer based on applicable facts and circumstances at the time. By retaining the flexibility to adjust the Company’s leadership structure, the Board is best able to provide for appropriate management and leadership of the Company and address any circumstances the Company may face, as no single leadership model is universally or permanently appropriate in all circumstances. The Board believes that this flexibility has served the Company and its shareholders well during recent leadership transitions. In particular, having Mr. Rittenmeyer lead both the Board and management team has been very effective during this period of significant change and transition for ensuring that the Company continues to move forward with strategic Board and governance actions that best position the Company to create value going forward.

Role of Lead Director of the Board

The role of our Lead Director is set forth in our Corporate Governance Principles. There have been no changes in the role of Lead Director in connection with the appointment of Senator Kerrey as Lead Director.

Senator Kerrey, as independent Lead Director of the Board, coordinates the activities of the Board and exercises a robust set of duties. In addition, Senator Kerrey serves as Chair of the Governance Committee, a role which, combined with his service as Lead Director, enables him to provide oversight of the Company’s corporate governance policies and practices, the director nomination and succession process and the Board self-evaluation process. In his capacity as Lead Director, Senator Kerrey, among other things:

 

    Presides at all meetings at which the Chairman is not present

 

    Chairs executive sessions of independent directors of the Board

 


 

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CORPORATE GOVERNANCE AND BOARD PRACTICES

 
     

 

 

 

    Serves as the liaison between the Chairman and independent directors

 

    Reviews and approves information sent to the Board

 

    Reviews and approves Board meeting agendas and schedules

 

    Calls meetings of independent directors if necessary

 

    Is available for consultation and direct communication with shareholders, 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

Most recently, Senator Kerrey participated in in-person engagement meetings with a number of our significant shareholders to discuss and seek feedback on various matters regarding the Company’s strategy and governance practices, establishing a direct line of communication between shareholders and independent members of our Board. Following those discussions, Senator Kerrey shared the feedback with the full Board and incorporated the feedback into the decision-making process for the Board’s recent actions.

Board and Committee Organization and Responsibilities

Board Meetings and Attendance

We are governed by our Board. 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. Directors are also encouraged to attend continuing education courses relevant to their service on the Company’s Board. Significant business decisions are generally considered by the Board as a whole. The Board met 19 times during 2017. The Board regularly meets in executive sessions. Mr. Rittenmeyer is considered an employee director and all other directors are considered non-employee directors.

Each incumbent director who served during 2017, other than Mr. Fisher, 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. Prior to Mr. Fisher’s appointment to the Board in November 2017, he informed the Board that he would not be able to participate in the Board’s regularly scheduled December board and committee meetings; he did, however attend the one special board meeting held in 2017 after his appointment. All Board members are encouraged to attend our annual meeting of shareholders. All 12 of the directors elected at last year’s annual meeting were in attendance at the 2017 Annual Meeting.

Committees

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

 

DIRECTOR

 

  

    AUDIT*     

 

  

 

HUMAN
RESOURCES

 

  

GOVERNANCE

 

  

    QCE    

 

 

James L. Bierman

 

        

 

 

  

 

 

 

John P. Byrnes(^)

 

  

 

 

     

 

 

  

 

Richard W. Fisher

 

  

 

 

  

 

 

     

 

Brenda J. Gaines

 

  

 

Chair

 

  

 

 

     

 

Karen M. Garrison(^)

 

  

 

 

     

 

 

  

 

Edward A. Kangas

 

     

 

Chair

 

     

 

 

 

J. Robert Kerrey

 

        

 

Chair

 

  

 

 

 

Richard J. Mark

 

        

 

 

  

 

 

 

Richard R. Pettingill(^)

 

     

 

 

     

 

Chair

 

 

Ronald A. Rittenmeyer

 

           

 

Tammy Romo

 

  

 

 

  

 

 

     

 

Peter M. Wilver(^)

 

  

 

 

  

 

 

     

 

* All members of the Audit Committee have been designated as an audit committee financial expert, as defined by SEC rules, and financially literate within the meaning of the NYSE listing standards.

 

(^)  John P. Byrnes, Karen M. Garrison, Richard R. Pettingill and Peter M. Wilver will not be standing for reelection.

 

 

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CORPORATE GOVERNANCE AND BOARD PRACTICES

      

 

 

Each of the Board’s committees 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.

On March 5, 2018, Tenet amended its bylaws to eliminate the Executive Committee as a standing committee of the Board. The Executive Committee had been authorized to exercise the powers of the full Board in the management of Tenet’s business and affairs when the Board was not in session. The Executive Committee was rarely convened and rarely took action over the past decade. Tenet eliminated the Executive Committee as a standing committee of the Board to underscore its commitment to a full, deliberative Board process.

 

 

   The Audit Committee

 

  

 

Meetings Held in 2017: 9

 

 

Membership: Gaines (Chair), Byrnes(^), Fisher, Garrison(^), Romo, Wilver(^) (All Independent)

 

 

Primary Responsibilities

 

  

Key Skills and Experience

 

    Assist the 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 2017: 8

 

 

Membership: Kangas (Chair), Fisher, Gaines, Pettingill(^), Romo, 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

 

  

  Extensive knowledge of 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 2017: 7

 

 

Membership: Kerrey (Chair), Bierman, Byrnes(^), Garrison(^), Mark (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 & Ethics Committee

 

  

 

Meetings Held in 2017: 4

 

 

Membership: Pettingill(^) (Chair), Bierman, Kangas, Kerrey, Mark (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 & 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 regarding 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

 

(^) John P. Byrnes, Karen M. Garrison, Richard R. Pettingill and Peter M. Wilver will not be standing for reelection.

Human Resources Committee Interlocks and Insider Participation

During 2017, directors Fisher (beginning November 28, 2017), Gaines, Pettingill, Rittenmeyer (until August 31, 2017), Romo (beginning November 8, 2017) and Wilver served on the Human Resources Committee. No member of the Human Resources Committee was at any time during 2017 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 19 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 2017.

 

 

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CORPORATE GOVERNANCE AND BOARD PRACTICES

      

 

 

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 primarily 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.

Role of Quality, Compliance & Ethics Committee in Risk Oversight

Our QCE 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.

 

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Table of Contents

 

CORPORATE GOVERNANCE AND BOARD PRACTICES

 
     

 

 

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 the 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 the Company. This finding is based upon the Human Resources 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 Human Resources Committee has also considered our equity grant administration policy, stock ownership guidelines, incentive pay policies on clawbacks and bonus modifiers, 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 all of our contractors having functional roles similar to our employees are also required to abide by our Standards of Conduct. Tenet’s policies form the foundation of a comprehensive compliance program that includes compliance with corporate policies and procedures, extensive training, robust auditing and monitoring, 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 “Our Commitment To Compliance” section under the “About Us” 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.

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

Quality, Compliance & Ethics Program Charter

We operate our ethics and compliance program through a Quality, Compliance & 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, via email or through our intranet website, to report any conduct that they believe in good faith to be an actual or apparent violation of Tenet’s policies.

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

 

 

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CORPORATE GOVERNANCE AND BOARD PRACTICES

      

 

 

Certain Relationships and Related Person Transactions

Our written Standards of Conduct require all employees, including our executive officers and members of our Board, 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 email to boardofdirectors@tenethealth.com or by writing to the Board in care of Paul A. Castanon, Corporate Secretary, Tenet Healthcare Corporation, 1445 Ross Avenue, Suite 1400, Dallas, Texas 75202. 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

 

 

 

The Human Resources Committee reviews our non-employee director compensation programs each year with the assistance of the Human Resources Committee’s independent compensation consultant. The full Board considers any changes recommended by the Human Resources Committee following its review. The Board has not made changes to the program since 2015.

Employee directors do not receive any compensation for their service as a director. All 2017 compensation for Messrs. Rittenmeyer and Fetter, who both served as employee directors during portions of 2017, is shown in the 2017 Summary Compensation Table on page 43, including all amounts paid to Mr. Rittenmeyer relating to the period he served as a non-employee director.

Our 2017 annual compensation program for non-employee directors was structured as follows:

 

 

    ANNUAL COMPENSATION ELEMENT

 

    

 

AMOUNT   

 

 

Annual Cash Retainer

 

    

 

$  95,000      

 

 

Annual Grant of Restricted Stock Units (RSUs)

 

    

 

$175,000      

 

 

Annual Committee Chair Cash Retainers:

 

    

 

   Audit Committee

 

    

 

$  25,000      

 

 

   Human Resources Committee

 

    

 

$  20,000      

 

 

   Nominating & Corporate Governance Committee

 

    

 

$  15,000      

 

 

   Quality, Compliance & Ethics Committee

 

    

 

$  15,000      

 

 

Annual Retainer for Lead Director or Non-Executive Chair:

 

    

 

   Cash Fee

 

    

 

$150,000      

 

 

   Additional Grant of RSUs

 

    

 

$  50,000      

 

Non-employee directors also receive $2,000 per committee meeting attended and for Board meetings receive:

 

    no fee for the first seven Board meetings each year; and

 

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

A newly appointed director receives an initial grant of RSUs valued at $65,000, as well as a prorated annual RSU grant. All annual cash fees are prorated for partial year service. All directors are reimbursed for any travel expenses and other out-of-pocket costs incurred while attending meetings.

2017 Director Compensation Table

 

NAME

 

  

 

FEES EARNED OR
PAID IN CASH

($)

 

    

STOCK AWARDS
($)(1)(2)

 

      

TOTAL
($)

 

 

 

James L. Bierman

 

 

  

 

 

 

 

25,038

 

 

 

 

  

 

 

 

 

155,145

 

 

(3) 

 

    

 

 

 

 

180,183

 

 

 

 

 

John P. Byrnes

 

  

 

 

 

 

156,000

 

 

 

 

  

 

 

 

 

175,006

 

 

 

 

    

 

 

 

 

331,006

 

 

 

 

 

Richard W. Fisher

 

  

 

 

 

 

13,682

 

 

 

 

  

 

 

 

 

148,910

 

 

(4) 

 

    

 

 

 

 

162,592

 

 

 

 

 

Brenda J. Gaines

 

  

 

 

 

 

178,000

 

 

 

 

  

 

 

 

 

175,006

 

 

 

 

    

 

 

 

 

 

 

353,006

 

 

 

 

 

 

Karen M. Garrison

 

  

 

 

 

 

146,000

 

 

 

 

  

 

 

 

 

175,006

 

 

 

 

    

 

 

 

 

321,006

 

 

 

 

 

Edward A. Kangas

 

  

 

 

 

 

162,755

 

 

 

 

  

 

 

 

 

175,006

 

 

 

 

    

 

 

 

 

337,761

 

 

 

 

 

J. Robert Kerrey

 

  

 

 

 

 

204,273

 

 

 

 

  

 

 

 

 

175,006

 

 

 

 

    

 

 

 

 

379,279

 

 

 

 

 

Freda Lewis-Hall(5)

 

  

 

 

 

 

42,624

 

 

 

 

  

 

 

 

 

-0-

 

 

 

 

    

 

 

 

 

42,624

 

 

 

 

 

Richard J. Mark

 

  

 

 

 

 

15,682

 

 

 

 

  

 

 

 

 

148,910

 

 

(4) 

 

    

 

 

 

 

164,592

 

 

 

 

 

Richard R. Pettingill

 

  

 

 

 

 

148,500

 

 

 

 

  

 

 

 

 

175,006

 

 

 

 

    

 

 

 

 

323,506

 

 

 

 

 

Matthew Ripperger(6)

 

  

 

 

 

 

69,891

 

 

 

 

  

 

 

 

 

175,006

 

 

 

 

    

 

 

 

 

244,897

 

 

 

 

 

Tammy Romo

 

  

 

 

 

 

149,500

 

 

 

 

  

 

 

 

 

175,006

 

 

 

 

    

 

 

 

 

324,506

 

 

 

 

 

Randy Simpson(6)

 

  

 

 

 

 

75,891

 

 

 

 

  

 

 

 

 

175,006

 

 

 

 

    

 

 

 

 

250,897

 

 

 

 

 

James Unruh(7)

 

  

 

 

 

 

56,374

 

 

 

 

  

 

 

 

 

-0-

 

 

 

 

    

 

 

 

 

56,374

 

 

 

 

 

Peter M. Wilver

 

  

 

 

 

 

154,500

 

 

 

 

  

 

 

 

 

175,006

 

 

 

 

    

 

 

 

 

329,506

 

 

 

 

 

(1)  Amounts shown in this column reflect the grant date fair value, computed in accordance with FASB ASC Topic 718, of RSU awards granted under our 2008 Stock Incentive Plan. 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, 2017 included in our Annual Report on Form 10-K.

 


 

 

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DIRECTOR COMPENSATION

      

 

 

 

(2)  For each director other than Dr. Lewis-Hall and Mr. Unruh, the amounts shown in this column reflect annual RSU grants applicable to the 2017-2018 board service year valued at $175,000 (prorated for partial year service in the cases of Messrs. Bierman, Fisher and Mark). We calculated the grant date fair value of these RSUs based on the NYSE closing price per share of our common stock on such date, adjusted for a discount for illiquidity of approximately 24% to reflect the mandatory post-vest holding period applicable to the 2017 annual awards. On May 5, 2017, based on the NYSE closing price of $17.83 per share of our common stock (adjusted as described in the preceding sentence), each non-employee director then serving was granted 12,864 RSUs under the program.

 

(3)  Upon joining the Board in October 2017, Mr. Bierman was granted an initial stock award of 4,552 RSUs and a prorated annual director grant of 8,295 RSUs applicable to the 2017-2018 board service year. These grants were based on the NYSE closing price of $14.28 per share of our common stock on October 31, 2017 and, in the case of the prorated annual grant, also reflected the discount for illiquidity to reflect the mandatory post-vest holding period applicable to the 2017 annual director awards. The initial stock grant is not subject to the mandatory post-vesting holding period.

 

(4)  Upon joining the Board in November 2017, Messrs. Fisher and Mark were each granted an initial stock award of 4,610 RSUs and a prorated annual director grant of 7,820 RSUs applicable to the 2017-2018 board service year. These grants were based on the NYSE closing price of $14.10 per share of our common stock on November 30, 2017 and, in the case of the prorated annual grant, also reflected the discount for illiquidity to reflect the mandatory post-vest holding period applicable to the 2017 annual awards. The initial stock grant is not subject to the mandatory post-vesting holding period.

 

(5)  Dr. Lewis-Hall’s service ended on May 4, 2017 and her cash fees were prorated as applicable. She did not receive an annual RSU grant in 2017.

 

(6)  Mr. Ripperger and Mr. Simpson’s service ended on August 17, 2017 and their cash fees were prorated as applicable.

 

(7)  Mr. Unruh’s service ended on May 4, 2017 and his cash fees were prorated as applicable. He did not receive an annual RSU grant in 2017.

Compensation Plans Applicable to Directors

Stock Incentive Plans

Each non-employee director receives an annual award under our 2008 Stock Incentive Plan of RSUs 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 RSU awards and such awards will be settled in shares of our common stock on the third anniversary of the date of grant (unless deferred under the Special RSU Deferral Plan, discussed below).

On the last trading day of any month in which a new non-employee director is elected to the Board, the director receives a grant of that number of RSUs 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 awards vest immediately on the grant date and are settled in shares of our common stock within 60 days of the termination of the director’s service on the Board.

Special RSU Deferral Plan

We adopted the Special RSU Deferral Plan to permit directors to elect to defer the settlement of their annual RSU 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 RSUs 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 the record date, Richard R. Pettingill was our only director that had elected to defer settlement of certain RSU grants pursuant to the terms of the Special RSU Deferral Plan.

2006 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 2017. A more complete description of the 2006 DCP can be found under “Nonqualified Deferred Compensation—Deferred Compensation Plans” beginning on page 51.

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 cash retainer within five years after the date on which the director joins the Board. 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 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. A detailed discussion of these requirements can be found under “Stock Ownership and Retention Requirements” beginning on page 42. As of the record date, all of our non-employee directors were in compliance with the requirements.

 

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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 current executive officers as a group, as of March 29, 2018. 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 28, 2018

 

  

 

PERCENT

OF CLASS
AS OF
    MARCH 29, 2018    

 

 

Audrey Andrews

 

      

 

 

 

 

68,639

 

 

 

      

 

 

 

 

-0-

 

 

 

  

 

*                    

 

 

James L. Bierman

 

      

 

 

 

 

12,847

 

 

(3)

 

      

 

 

 

 

-0-

 

 

 

  

 

*                    

 

 

John P. Byrnes(^)

 

      

 

 

 

 

23,889

 

 

(4)

 

      

 

 

 

 

-0-

 

 

 

  

 

*                    

 

 

Daniel J. Cancelmi

 

      

 

 

 

 

219,049

 

 

 

      

 

 

 

 

37,500

 

 

 

  

 

*                    

 

 

Eric Evans

 

      

 

 

 

 

39,315

 

 

 

      

 

 

 

 

-0-

 

 

 

  

 

*                    

 

 

Trevor Fetter(5)

 

      

 

 

 

 

1,110,712

 

 

 

      

 

 

 

 

912,198

 

 

 

  

 

2.0%                

 

 

Richard W. Fisher

 

      

 

 

 

 

12,430

 

 

(6)

 

      

 

 

 

 

-0-

 

 

 

  

 

*                    

 

 

Brenda J. Gaines

 

      

 

 

 

 

88,748

 

 

(7)

 

      

 

 

 

 

-0-

 

 

 

  

 

*                    

 

 

Karen M. Garrison(^)

 

      

 

 

 

 

92,724

 

 

(8)

 

      

 

 

 

 

-0-

 

 

 

  

 

*                    

 

 

Edward A. Kangas

 

      

 

 

 

 

83,956

 

 

(9)

 

      

 

 

 

 

-0-

 

 

 

  

 

*                    

 

 

J. Robert Kerrey

 

      

 

 

 

 

35,636

 

 

(10)

 

      

 

 

 

 

-0-

 

 

 

  

 

*                    

 

 

Richard J. Mark

 

      

 

 

 

 

12,430

 

 

(11)

 

      

 

 

 

 

-0-

 

 

 

  

 

*                    

 

 

Richard R. Pettingill(^)

 

      

 

 

 

 

118,465

 

 

(12)

 

      

 

 

 

 

-0-

 

 

 

  

 

*                    

 

 

Keith B. Pitts

 

      

 

 

 

 

232,524

 

 

 

      

 

 

 

 

-0-

 

 

 

  

 

*                    

 

 

Ronald A. Rittenmeyer

 

      

 

 

 

 

62,673

 

 

(13)

 

      

 

 

 

 

-0-

 

 

 

  

 

*                    

 

 

Tammy Romo

 

      

 

 

 

 

27,407

 

 

(14)

 

      

 

 

 

 

-0-

 

 

 

  

 

*                    

 

 

Peter M. Wilver(^)

 

      

 

 

 

 

28,889

 

 

(15)

 

      

 

 

 

 

-0-

 

 

 

  

 

*                    

 

 

Current executive officers and directors as a group (16 persons)

 

      

 

 

 

 

 

 

1,159,621

 

 

 

(16)

 

      

 

 

 

 

 

 

37,500

 

 

 

 

  

 

 

1.2%                

 

 

* 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.

 

(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 RSUs granted under the terms of our stock incentive plans. These RSUs 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 12,847 RSUs granted under our stock incentive plans.

 

(4)  Represents 23,889 RSUs granted under our stock incentive plans.

 

(5)  Holdings for Mr. Fetter are reported as of October 23, 2017, the date that he ceased to be an executive officer of the Company. The amount of common stock 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 this election under the terms of our deferred compensation plans.

 

(6)  Represents 12,430 RSUs granted under our stock incentive plans.

 

(7)  Includes 408 shares held in trust and 38,233 RSUs granted under our stock incentive plans.

 

(8)  Includes 38,233 RSUs granted under our stock incentive plans.

 

(9)  Includes 39,274 RSUs granted under our stock incentive plans.

 

(10)  Includes 25,570 RSUs granted under our stock incentive plans.

 

(11)  Represents 12,430 RSUs granted under our stock incentive plans.

 

(12)  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 2006 DCP and 41,469 RSUs granted under our stock incentive plans.

 

(13)  Includes 15,000 shares held by Mr. Rittenmeyer’s spouse and 32,763 RSUs granted under our stock incentive plans.

 

(14) 

Represents 27,407 RSUs granted under our stock incentive plans.

 


 

 

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SECURITIES OWNERSHIP

      

 

 

 

(15)  Includes 23,889 RSUs granted under our stock incentive plans.

 

(16)  Includes RSUs granted to non-employee directors under our stock incentive plans.

 

(^)  John P. Byrnes, Karen M. Garrison, Richard R. Pettingill and Peter M. Wilver will not be standing for reelection.

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 29, 2018

 

Glenview Capital Management, LLC

    767 Fifth Avenue, 44th Floor

    New York, NY 10153

 

    

 

 

 

 

17,942,624

 

 

(1)

 

 

17.6%

 

 

BlackRock, Inc.

    55 East 52nd Street

    New York, NY 10055

 

    

 

 

 

 

16,008,586

 

 

(2)

 

 

15.7%

 

 

The Vanguard Group, Inc.

    100 Vanguard Blvd.

    Malvern, PA 19355

 

    

 

 

 

 

8,466,666

 

 

(3)

 

 

  8.3%

 

 

Harris Associates L.P.

    111 S. Wacker Drive, Suite 4600

    Chicago IL 60606

 

    

 

 

 

 

7,471,011

 

 

(4)

 

 

  7.3%

 

 

Camber Capital Management LLC

    101 Huntington Avenue, Suite 2101

    Boston, MA 02199

 

 

    

 

 

 

 

5,750,000

 

 

(5)

 

 

  5.6%

 

 

(1)  Based on a Schedule 13D/A filed with the SEC on March 26, 2018 by Glenview Capital Management, LLC and its named subsidiaries and affiliates (collectively, “Glenview”), and Lawrence M. Robbins, as of March 26, 2018, 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 17,942,624 shares includes 47,310 shares issuable by the Company upon settlement of the RSUs that were granted to former members of the Company’s Board who were employees of Glenview.

 

(2)  Based on a Schedule 13G/A filed with the SEC on February 8, 2018 by BlackRock, Inc., on behalf of itself and its named subsidiaries and affiliates (collectively, “BlackRock”), as of December 31, 2017. BlackRock reported sole voting power with respect to 15,794,717 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 12, 2018 by The Vanguard Group, Inc., on behalf of itself and its named subsidiaries and affiliates (collectively, “Vanguard”), as of December 31, 2017. Vanguard reported sole voting power with respect to 161,236 of the shares indicated above, shared voting power with respect to 12,697 of the shares indicated above, sole investment power with respect to 8,301,600 of the shares indicated above and shared investment power with respect to 165,066 of the shares indicated above.

 

(4)  Based on a Schedule 13G/A filed with the SEC on February 14, 2018 by Harris Associates L.P. (“Harris”), along with its general partner Harris Associates, Inc. (“HAI”), as of December 29, 2017. Harris and HAI reported sole voting power with respect to 5,213,678 shares and sole investment power with respect to 7,471,011 of the shares indicated above.

 

(5)  Based on a Schedule 13G filed with the SEC on August 21, 2017 by Camber Capital Management LLC (“Camber”) as of August 9, 2017. Camber reported shared voting and investment power with respect to all 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, 2017 and included in this Proxy Statement.

 

Members of the Human Resources Committee

 

Edward A. Kangas, Chair

Richard W. Fisher

Brenda J. Gaines

Richard R. Pettingill

Tammy Romo

Peter M. Wilver

 


 

 

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COMPENSATION DISCUSSION AND ANALYSIS    

 

 

 

This Compensation Discussion and Analysis (“CD&A”) describes our compensation programs for 2017 as applicable to each of the following Named Executive Officers (“NEOs”) for 2017:

 

 

  NAMED EXECUTIVE OFFICER

 

  

 

TITLE

 

Ron Rittenmeyer

 

  

 

Executive Chairman and 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

 

 

Trevor Fetter

 

  

 

Former Chief Executive Officer (resigned on October 23, 2017)

 

EXECUTIVE SUMMARY

2017: A Year of Transition

2017 was a year of significant transition for Tenet. The Board acted to implement several significant changes that would transform the Company and reposition it for the future, including a change in leadership. In August 2017, Tenet announced a leadership transition whereby Ron Rittenmeyer became Tenet’s Executive Chairman and principal executive officer. Trevor Fetter, who had previously served as the Company’s Chief Executive Officer for 14 years, agreed to remain as an officer and director for a period of time in order to ensure a smooth transition. During the transition period, Mr. Fetter reported to Mr. Rittenmeyer. In October 2017, Mr. Rittenmeyer was named Chief Executive Officer and Mr. Fetter resigned from the Company.

Aligned with the leadership transition at the executive level, the Board also redoubled its commitment to additional and ongoing Board refreshment. During the fourth quarter of 2017, three new independent directors were added to the Board and Senator Kerrey was named the new independent Lead Director. The aim of these additional changes was to compose a refreshed Board with enhanced oversight capabilities that align with the new and unique challenges faced by the Company in the current environment and with the expected future needs of the business.

Business Initiatives and Performance

Under the new leadership of Mr. Rittenmeyer, our Board and management team have been highly focused on executing a speedy and successful turnaround of the business. To that end, Tenet has taken a number of significant and decisive actions, including implementing management changes at its USPI and Conifer businesses, announcing a $250 million cost reduction initiative, and initiating a strategic review of its portfolio that has resulted in the exploration of a sale of the Conifer business. While 2017 remained a transitional year for Tenet, the actions taken in 2017 and early 2018 have already begun to deliver value for our shareholders and other stakeholders. The below summarizes Tenet’s key strategic initiatives and achievements against these initiatives since the leadership transition:

 

    Significant progress on cost reduction initiatives and implementation of aggressive plans to address quality and growth.

 

    On track to achieve over $1 billion of proceeds from divestitures of non-core hospital assets.

 

    Building a culture of accountability focused on delivering results through a new performance review process, upgrades to leadership and talent, and an ongoing process to assess leadership at all levels.

As a result of these strategic achievements, at the end of 2017, we saw significant improvements in the Company’s financial and operational performance across business segments. These improvements included:

 

    Adjusted EBITDA* exceeding the high end of the Outlook range and Adjusted Free Cash Flow toward the high end of the Outlook range in the fourth quarter.

 

    Growth of same-hospital adjusted admissions by 1.3% and growth of Ambulatory same-facility system-wide cases by 4.6%, each in the fourth quarter.

 

    Increase in costs per adjusted admission by only 2.0% in 2017; continued commitment to achieving $125 million of savings in 2018 and $250 million of annualized savings by the end of 2018.

 

    Raised midpoint of the 2018 Outlook for Adjusted EBITDA by $25 million to $2.550 billion.

 

*  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 A.

 


 

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We believe that these results reflect the significant efforts by our new leadership team, and by all our employees, to transform the culture of Tenet, to directly address key obstacles and challenges, and to build positive and sustainable momentum in the Company’s performance.

Recent Compensation Program Changes and 2017 Say-on-Pay Vote

In response to feedback from our investors and as part of the Human Resources Committee’s ongoing review and refinement of Tenet’s executive compensation program in recent years, the Committee made several significant changes to the executive compensation program for 2016 and 2017. A summary of key changes is included below:

2016 Program Changes

 

    Annual Incentive Plan (AIP): Revised performance metrics to more closely reflect the Company’s strategy and to serve as better measurements of performance driven by the management team.

 

    Long-Term Incentive (LTI) Compensation:

 

  ¡    Extended performance period and vesting schedule for performance-based restricted stock units (RSUs);

 

  ¡    Replaced single metric with four equally-weighted metrics closely aligned with the Company’s strategy; and

 

  ¡    Revised performance metrics to more closely reflect the Company’s strategy and to serve as better measurements of performance driven by the management team.

 

    Compensation Governance: Enhanced practice such that all performance-based incentive compensation awarded to NEOs is subject to clawback provisions.

2017 Program Changes

 

    Long-Term Incentive Compensation: Increased the percentage of overall LTI compensation toward performance-based elements (two-thirds in total) utilizing performance-based cash subject to three equally-weighted metrics, performance-based stock options and time-based RSUs, equally weighted as one-third of the total grant value each.

2017 Say-on-Pay Vote

At our 2017 annual meeting of shareholders, our shareholders approved our executive compensation program for 2016, with approximately 72.6% of votes cast in favor of our “say-on-pay” proposal. The Human Resources Committee fully acknowledged that the “say-on-pay” result required action to be taken in response. Broader shareholder feedback, including the results of this vote, were a factor in the Board and management team taking foundational steps towards transforming the Company, including implementing the following changes for 2017:

 

    Appointed a new Chief Executive Officer and three new independent directors;

 

    Set the new Chief Executive Officer’s compensation package below market median and below the preceding Chief Executive Officer’s level; and

 

    Instituted new initiatives, such as cost-cutting measures, asset divestitures, quality improvements and management changes.

As the Company progresses through the current transformation, the Human Resources Committee will continue to review and refine the Company’s executive compensation design and governance practices, incorporating shareholder feedback into its decision-making processes.

 

 

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COMPENSATION DISCUSSION AND ANALYSIS

      

 

 

Compensation Elements and Links to Performance

The following table outlines the primary components of our NEOs’ 2017 compensation packages (other than Mr. Rittenmeyer, as discussed below):

 

 

ELEMENT

 

 

 

DESCRIPTION

 

 

 

OBJECTIVES AND LINK TO BUSINESS STRATEGIES

 

Base Salary  

 

  Fixed cash compensation

 

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

 

 

 

  Helps attract and retain key executive talent

 

Annual

Incentive Plan

 

 

  Performance-based cash compensation tied to achievement of short-term performance goals

 

  NEOs are assigned a target incentive award expressed as a percentage of base salary

 

  Actual achievement ranges from 0% to 200% of target

 

 

 

  Performance is measured against a “Balanced Scorecard” that assesses: Cost, Growth, Quality, Service and People

  Metrics within each pillar are chosen to drive company performance, and include measures of annual earnings and cash flow, volume growth in our facilities, the quality of care we provide, and overall satisfaction of our patients and physicians

 

  Metric levels are set annually based on the Company’s business plans and prior year results

 

Long-Term   Incentives     Performance-Based Cash  

 

  1/3 of total LTI grant value is in long-term performance cash

 

  Awards cliff vest on third anniversary of grant date based on achievement over cumulative three-year performance period

 

  Payouts conserve equity usage and provide liquidity to insiders that are often precluded from selling stock

 

 

 

  Focuses management on creating long-term shareholder value

 

  Rigorous goals are set for Relative Total Shareholder Return, Adjusted EPS and Adjusted Free Cash Flow Less NCI to align with the Company’s long-term objectives

 

  Performance Stock Options  

 

  1/3 of total LTI grant value is in performance-based stock options

  The options only vest if stock price increases 25% from date of grant and remains at such levels for 20 consecutive trading days

 

  If performance condition is not met within three years following grant, 100% of the options are forfeited

 

 

 

  Requires sustained increase in the Company’s stock price for executives to realize any value

 

  Strongly aligns economic interests of executives and shareholders

 

  Time-Based RSUs  

 

  1/3 of total LTI grant value is in restricted stock units that vest ratably over three years

 

 

 

  Further aligns economic interests of executives and shareholders through equity ownership

  Encourages retention and subject to forfeiture in the event that an officer terminates employment

 

2017 Leadership Transition

Mr. Rittenmeyer’s Compensation Arrangements

In connection with Mr. Rittenmeyer’s appointment as Executive Chairman on August 31, 2017, the Human Resources Committee approved an annualized base salary of $500,000 and an award of performance-based stock options with a grant date fair value of $2.3 million. Such stock options will only become exercisable if the average closing price per share of the Company’s common stock is at least $20.53 for any 30 consecutive trading days, which average closing price represents a price at least 25% above the closing price of the stock as of the grant date ($16.43). Mr. Rittenmeyer was not a participant in the Company’s 2017 Annual Incentive Plan or Executive Severance Plan.

In connection with his appointment as Chief Executive Officer in early November 2017, the Human Resources Committee raised Mr. Rittenmeyer’s annual base salary to $2.9 million, retroactive to the date he became principal executive officer. In making this change, the Human Resources Committee evaluated Mr. Rittenmeyer’s performance through early November 2017, compensation levels of Mr. Fetter and

 

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peer group chief executive officers, and took into consideration that Mr. Rittenmeyer would not be eligible for an annual bonus, with the understanding that Mr. Rittenmeyer’s ongoing compensation package would be re-evaluated as part of the Human Resources Committee’s normal compensation-setting process in early 2018.

For additional information, see “2017 Compensation Decisions Related to Leadership Transition—Mr. Rittenmeyer’s Compensation Arrangements” on page 36.

Mr. Fetter’s Separation Arrangements

Concurrently with Mr. Fetter’s resignation, the Company entered into a Separation Agreement and Release with Mr. Fetter pursuant to which he receives benefits consistent with a termination without cause under the Executive Severance Plan and other employee benefit plans as described below under “Potential Payments Upon Termination or Change of Control—Mr. Fetter’s Separation Agreement and Release.” In addition, the Separation Agreement provides Mr. Fetter with the opportunity to continue to vest in all outstanding unvested LTI awards and to exercise vested or vesting stock options for three years following his termination, subject to both the Company’s actual performance against existing, pre-established performance criteria and his compliance with certain restrictive covenants, including non-competition and non-solicitation covenants. The Board approved these terms based on the recommendation of the Human Resources Committee’s independent compensation consultant regarding the value of the restrictive covenants and continued alignment of Mr. Fetter’s interests with the Company’s longer-term success, including a successful leadership transition.

For additional information, see “2017 Compensation Decisions Related to Leadership Transition—Mr. Fetter’s Separation Arrangements” on page 36.

2018 Compensation Decisions

For 2018, none of the current NEOs received any increase in base salary, target bonus adjustment or increase in annual LTI award value. With respect to the 2018 annual and long-term incentive programs, the Human Resources Committee took the following actions in 2018.

 

    Annual Incentive Plan: Made certain changes to simplify the AIP scorecard that will determine annual bonus payouts for most enterprise-level employees. For Hospital Operations employees, including Mr. Evans, the applicable AIP scorecard will include a group of metrics relating to a high-quality patient and employee experience. These metrics will serve as a “quality gatekeeper” in determining eligibility for participation in the incentive pool for the Company’s healthcare facility operators.

 

    Long-Term Incentives: Carried forward the general LTI compensation design and structure utilized in 2017, with two-thirds of each senior officer’s award value subject to rigorous performance metrics.

Mr. Rittenmeyer’s Employment Agreement

On March 24, 2018, Tenet entered into an employment agreement with Ronald A. Rittenmeyer as the Company’s Executive Chairman and Chief Executive Officer (the “Employment Agreement”). The Employment Agreement provides that Mr. Rittenmeyer will serve as the Company’s Executive Chairman and Chief Executive Officer for the two-year period beginning March 1, 2018 and concluding February 28, 2020 (the “Term”), subject to earlier termination in accordance with the terms of the Employment Agreement.

In determining the compensation to offer to Mr. Rittenmeyer for his service as our Executive Chairman and Chief Executive Officer during the two-year duration of the Employment Agreement, the Human Resources Committee determined to target Mr. Rittenmeyer’s annual direct compensation at approximately the 25th percentile of our peers, which is consistent with the recommendation of the Company’s independent compensation consultant.

The Employment Agreement provides that Mr. Rittenmeyer will receive an annualized base salary of $1,200,000 for his services as the Executive Chairman and Chief Executive Officer. In addition, Mr. Rittenmeyer will receive an award of restricted stock units with a grant date fair value equal to $7,000,000 and an award of restricted cash equal to $7,000,000, both of which will vest in equal quarterly installments over the two-year term. The Human Resources Committee determined that, based on the recommendation of the Company’s independent compensation consultant, these incentive awards should be subject to time-based vesting, recognizing that two years is too short to set meaningful long-term performance goals especially in light of the Company’s current period of transition. Mr. Rittenmeyer will also participate in the AIP, but will not be covered by Tenet’s Executive Severance Plan or receive additional LTI grants.

Upon certain terminations of Mr. Rittenmeyer’s employment with the Company, the Employment Agreement provides that Mr. Rittenmeyer will be entitled to receive, subject to his execution of a release of claims in favor of the Company, (1) accrued but unpaid base salary through the date of termination, (2) reimbursement for unreimbursed business expenses incurred through the termination date, (3) payment of any earned but unpaid AIP bonus for the year prior to the year in which the termination of employment occurs, (4) a lump sum payment equal to the amount of base salary that remains payable through the conclusion of the Term, (5) a pro-rata AIP bonus for the year in which the termination of employment occurs, (6) a lump sum payment equal to the AIP bonus Mr. Rittenmeyer would have had the opportunity to earn for the

 

 

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remainder of the Term, with such lump sum based on actual performance for the performance period in which Mr. Rittenmeyer’s employment occurs, and target performance for any remaining performance period thereafter during the Term, (7) accelerated vesting and settlement of all outstanding unvested restricted stock units and restricted cash, and (8) continued coverage under the Company’s health and welfare plans through the end of the Term. The severance and other post-termination benefits provided to Mr. Rittenmeyer recognize our commitment to a two-year employment term, and offer Mr. Rittenmeyer protection through a period of transition, without providing Mr. Rittenmeyer any additional or supplemental termination packages or change in control-related benefits.

Pursuant to the Employment Agreement, Mr. Rittenmeyer is bound by perpetual confidentiality and nondisparagement covenants. The Employment Agreement also contains non-competition and non-solicitation of employees covenants that apply for the duration of Mr. Rittenmeyer’s employment with the Company and for one year thereafter.

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

 

 

 

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

 

 

 

   Significant stock ownership and retention requirements for executives (6x base salary for the Chief Executive Officer) and directors (5x annual cash retainer)

 

 

 

   Anti-hedging and anti-pledging policies

 

 

 

   No excise tax gross-ups

 

 

 

   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 2017 Compensation Decisions

Base Salary

Base salary provides our NEOs with a fixed annual income and helps us attract and retain key executive talent. The Human Resources Committee approves the base salary of each NEO annually 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.

Mr. Evans and Ms. Andrews received increases in base salary from 2016 levels that were intended to better align their compensation with the median pay for comparable positions at our peer companies. In the case of Mr. Rittenmeyer, the Human Resources Committee assessed his base salary in terms of market precedents for directors appointed to Executive Chairman and/or Chief Executive Officer roles. The Human Resources Committee also noted that Mr. Rittenmeyer was not a participant in the Company’s 2017 AIP program and was therefore ineligible to earn incentive compensation through that program, which typically makes up a material portion of the target annual compensation for Chief Executive Officers at comparable companies. The following table summarizes the annualized base salaries approved by the Human Resources Committee for 2017:

 

 

NAMED EXECUTIVE OFFICER

 

  

 

2016
SALARY

 

    

 

2017
SALARY

 

    

 

INCREASE
    FROM 2016     

 

 

Ron Rittenmeyer

 

  

 

 

 

 

N/A

 

 

 

 

  

 

$

 

 

2,900,000

 

 

(1) 

 

  

 

N/A

 

 

Daniel Cancelmi

 

  

 

 

 

 

$   618,000

 

 

 

 

  

 

$

 

 

618,000

 

 

 

 

  

 

0.0%

 

 

Keith Pitts

 

  

 

 

 

 

$   925,000

 

 

 

 

  

 

$

 

 

925,000

 

 

 

 

  

 

0.0%

 

 

Eric Evans

 

  

 

 

 

 

$   650,000

 

 

 

 

  

 

$

 

 

700,000

 

 

 

 

  

 

7.7%

 

 

Audrey Andrews

 

  

 

 

 

 

$   525,000

 

 

 

 

  

 

$

 

 

550,000

 

 

 

 

  

 

4.8%

 

 

Trevor Fetter

 

  

 

 

 

 

$1,275,000

 

 

 

 

  

 

$

 

 

1,275,000

 

 

(2) 

 

  

 

0.0%

 

 

(1)  Reflects the annualized base salary approved by the Human Resources Committee in November 2017, with retroactive effect to August 31, 2017. Mr. Rittenmeyer received a total of $914,615 in actual salary payments for the portion of the year he served as an officer of the Company.

 

(2)  Reflects the annualized base salary approved by the Human Resources Committee in March 2017. Due to Mr. Fetter’s separation from the Company in October 2017, he received a total of $1,059,231 in actual base salary payments for the year.

Performance-Based Annual Incentive Plan

The Human Resources Committee annually determines the payment of cash bonuses for NEOs under our AIP, which is a broad-based management compensation program in which approximately 3,100 of our employees participate. Payment of a bonus is based on the Company’s achievement of performance goals established by the Human Resources Committee. If the threshold performance goals are not exceeded, no bonus is paid.

The Human Resources 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 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 cause substantial harm to the Company even in the absence of a restatement of financial statements.

 


 

 

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COMPENSATION DISCUSSION AND ANALYSIS

      

 

2017 Target Annual Incentive Award Levels for Named Executive Officers

In 2017, the Human Resources Committee approved the following target bonus award levels for each NEO:

 

 

NAMED EXECUTIVE OFFICER

 

  

 

    TARGET AWARD EXPRESSED    

AS A PERCENTAGE

OF BASE SALARY

 

 

Ron Rittenmeyer

 

  

 

  N/A

 

 

Daniel Cancelmi

 

  

 

100%

 

 

Keith Pitts

 

  

 

100%

 

 

Eric Evans

 

  

 

100%

 

 

Audrey Andrews

 

  

 

  75%

 

 

Trevor Fetter

 

  

 

150%

 

Mr. Rittenmeyer did not participate in the AIP during 2017 and received no cash bonus or other cash compensation beyond his base salary. For the other NEOs, these target award levels remain unchanged from the levels established for 2016 AIP bonuses.

2017 AIP Performance Metrics

For 2017, consistent with prior practice, the Human Resources 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

 

    

 

4%

 

       

 

  Same-Facility Inpatient Admissions (2%)

  Same-Facility Outpatient Visits (2%)

 

   

 

Quality

 

    

 

6%

 

       

 

  CMS Overall Star Rating (2%)

  AHRQ Culture of Safety Survey (2%)

  Tenet Quality Composite Index (2%)

 

 

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. Cancelmi, Pitts and Fetter, 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. Cost and Growth metrics were assigned the greatest weighting at 79% of the overall AIP scorecard (75% for Mr. Evans). Targets for these metrics were set at high levels that would challenge management to achieve the Company’s business plan, deliver its earnings outlook and beat consensus financial expectations going into 2017. For example, the Adjusted EBITDA Less Noncontrolling Interest (NCI) target was set more than 5% higher than the Company’s 2016 actual achievement and the Adjusted Free Cash Flow (FCF) Less Cash NCI target was set nearly three times higher than 2016 actual achievement.

Operational Pillars. The remaining metrics of the Balanced Scorecard measure our management’s achievement of healthcare and other operational performance goals. The Human Resources Committee selected these metrics to incentivize management to focus on improving the quality of the healthcare we provide our patients and reducing healthcare costs. The Human Resources 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.

 


 

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The Human Resources 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, 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 Human Resources Committee.

 

 

  OPERATIONAL METRIC

 

  

 

DESCRIPTION

 

  

 

GOAL LEVEL

 

Quality

CMS Overall Star Rating

  

 

  The Centers for Medicare and Medicaid Services (CMS) assigns hospitals an overall “star rating” in order to help consumers make informed decisions about hospitals based on quality of care. Up to 57 quality measures across seven areas of quality are summarized into a single overall star rating (between one and five stars) for each hospital.

 

  The star ratings are published on CMS’ Hospital Compare website so that patients can compare quality and outcomes across facilities.

  

 

  2017 target performance goal was set at a 3-star level (averaged across all Tenet hospitals), which approximates the national average for all U.S. hospitals.

 

  The average rating for Tenet hospitals entering 2017 was approximately 2.5-stars, so reaching the target goal would require significant improvement.

 

Quality

AHRQ Culture of Safety Survey

  

 

  The Agency for Healthcare Research and Quality (AHRQ) is a part of the U.S. Department of Health and Human Services and supports research to improve the quality of healthcare.

 

  AHRQ measures employees’ perception of the climate for patient safety through its Hospital Survey on Patient Safety Culture. AHRQ also publishes a central repository for survey data from hospitals that have administered the AHRQ patient safety culture survey.

  

 

  2017 target performance goal was set at a survey score of 76%, which approximates the national average.

 

  The average rating for Tenet hospitals entering 2017 was approximately 69%, so reaching the target goal would require significant improvement.

 

Quality

Tenet Quality Composite Index

  

 

  Measures the Company’s performance on a number of sub-measures across three primary focus areas for clinical improvement in 2017: Hospital Associated Infections, Readmissions and Mortality. These measures also correspond with evidence-based indicators used by CMS to rate hospitals based on the quality of patient care they deliver.

  

 

  2017 target performance goal was set at a level approximating the national median (based on CMS data for the various sub-measures), which would require year-over-year improvement to reach the target.

 

Service

Inpatient Satisfaction (HCAHPS Star Rating)

  

 

  HCAHPS (Hospital Consumer Assessment of Healthcare Providers and Systems) star ratings were developed by CMS to report patients’ perspectives on hospital care.

 

  The Company administers patient satisfaction surveys that correlate to the HCAHPS stars.

  

 

  2017 target performance goal was set at a level designed to correlate to a “3-star” score on the 5 star HCAHPS scoring scale, which would require year-over-year improvement to reach the target.

 

Service

Physician Satisfaction Net Promoter Score®

  

 

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

  

 

  2017 target performance goal was set at the 60th percentile of Tenet’s 2016 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.

 

  

 

  2017 target performance goal was set at a level approximating the national average as benchmarked using the ASHHRA/PwC Saratoga HR Metrics Tool.

   

 


 

 

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2017 Balanced Scorecard Performance

The following tables set forth the 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 2017.

 

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)

  

 

$2.044 billion

  

 

$2.168 billion

  

 

$2.291 billion

  

 

$2.049 billion    

  

 

 

 

60.0        

 

 

  

 

2.1

 

Adjusted FCF Less Cash NCI(2)

  

 

$304 million

  

 

$439 million

  

 

$573 million

  

 

$366 million    

  

 

 

 

15.0        

 

 

  

 

6.8

 

Same-Facility Inpatient admissions(3)

  

 

694,457

  

 

723,065

  

 

730,217

  

 

699,613    

  

 

 

 

2.0        

 

 

  

 

0.4

 

Same-Facility Outpatient visits(3)(4)

  

 

9,520,428

  

 

9,905,871

  

 

10,002,231

  

 

9,478,513    

  

 

 

 

2.0        

 

 

  

 

0.0

 

TOTAL

              

 

 

 

79.0        

 

 

  

 

9.3

 

(1)  Includes Adjusted EBITDA (see Appendix A for definition and reconciliation) and the operating results from divested operations and closed businesses (i.e., the Company’s health plan businesses), minus net income attributable to noncontrolling interests as reported on the Company’s consolidated statement of operations. Performance goals for this metric were adjusted to reflect the divestiture of the Company’s Houston-area hospitals, and results were adjusted to exclude approximately $30 million of expense, primarily due to the noncontrolling interest impact of the income tax benefit recorded by USPI as a result of the new tax law.

 

(2)  Adjusted Free Cash Flow (see Appendix A for definition and reconciliation) minus cash distributions paid to NCI reflected on the Company’s consolidated statements of cash flow. Performance goals for this metric were adjusted to reflect the divestiture of the Company’s Houston-area acute care hospitals and related operations in 2017.

 

(3)  Targets are set by the Human Resources Committee to exclude charity and self-pay admissions/visits.

 

(4) Outpatient visits include Ambulatory Segment cases and Hospital Segment outpatient visits.

 

NON-FINANCIAL METRIC

 

    

 

TARGET BALANCED
SCORECARD POINTS

 

  

 

ACTUAL BALANCED
SCORECARD POINTS EARNED     

 

 

Quality (CMS Star Rating)

      

 

 

 

2.0

 

  

 

0.0

 

Quality (AHRQ Survey)

      

 

 

 

2.0

 

  

 

0.0

 

Quality (Quality Composite Index)

      

 

 

 

2.0

 

  

 

1.6

 

Service (Inpatient Satisfaction)

      

 

 

 

5.0

 

  

 

2.4

 

Service (Physician Satisfaction)

      

 

 

 

5.0

 

  

 

3.6

 

People (Employee Turnover)

      

 

 

 

5.0

 

  

 

0.7

 

TOTAL

      

 

 

 

21.0

 

  

 

8.3

Calculation of Actual AIP Award Payments

Based on the AIP performance targets described above, the Company’s 2017 performance resulted in achievement under the Balanced Scorecard of 17.6 points, which corresponds with award payouts for most corporate participants at only 17.6% of target. Mr. Evans and other corporate Hospital Operations personnel received payouts based on a slightly different scorecard with additional emphasis on Quality and Service metrics, which resulted in a payout at approximately 18% of target.

In February 2018, the Human Resources Committee reviewed senior officer performance in light of the many organizational and leadership changes that occurred in late 2017 and early 2018, and considered the rigorous performance targets set for the 2017 performance year. The Human Resources Committee considered detailed feedback from Mr. Rittenmeyer regarding the performance of his direct reports and challenges the Company faced in retaining key employees during a time of uncertainty and challenge. The Human Resources Committee determined that the retention of key employees would be critical in sustaining the business momentum that had been building since Mr. Rittenmeyer had taken over as Chief Executive Officer. In light of these considerations and the Company’s strong financial and operating performance during the fourth quarter of 2017, the Human Resources Committee determined that it was appropriate to create a discretionary bonus pool to be paid as part of 2017 AIP payments. Approximately 25% of the total discretionary pool was awarded to certain senior officers of the Company, including Messrs. Cancelmi, Evans and Pitts, and Ms. Andrews, while approximately 75% of the discretionary pool was awarded to key AIP-eligible employees throughout other levels of the organization.

 


 

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COMPENSATION DISCUSSION AND ANALYSIS

 
     

 

The table below shows target and actual AIP awards for 2017. Despite the creation of the discretionary bonus pool, the 2017 actual AIP payouts remain materially below target payouts for each of the NEOs set forth below.

 

NAMED EXECUTIVE OFFICER

 

  

 

TARGET

AIP PAYOUT

 

  

 

CALCULATED
AIP PAYOUT

 

  

 

DISCRETIONARY
ADJUSTMENT

 

  

 

2017 ACTUAL

AIP PAYOUT

 

 

Ron Rittenmeyer

    

 

 

 

N/A

 

    

 

 

 

N/A

 

    

 

 

 

N/A

 

  

 

N/A           

 

Daniel Cancelmi

    

 

$

 

618,000

 

    

 

$

 

108,768

 

    

 

$

 

323,832

 

  

 

$432,600           

 

Keith Pitts

    

 

$

 

925,000

 

    

 

$

 

162,800

 

    

 

$

 

300,000

 

  

 

$462,800           

 

Eric Evans

    

 

$

 

700,000

 

    

 

$

 

123,625

 

    

 

$

 

357,368

 

  

 

$480,993           

 

Audrey Andrews

    

 

$

 

412,500

 

    

 

$

 

72,600

 

    

 

$

 

250,000

 

  

 

$322,600           

 

Trevor Fetter

    

 

$

 

1,912,500

 

    

 

$

 

280,500

 

    

 

$

 

-0-

 

  

 

$280,500(1)        

 

(1)  Mr. Fetter was paid a prorated AIP award based on having worked approximately 10 months during 2017.

Long-Term Incentive Compensation Program

A number of significant changes in the design and structure of our LTI compensation program have been implemented by the Human Resources Committee in recent years. Prior to 2016, performance-based equity awards were designed with a single performance metric (Adjusted EBITDA) measured over a one-year performance period. In response to specific shareholder feedback that the Human Resources Committee establish longer performance periods and reconsider performance metrics, the Human Resources Committee began making LTI awards in 2016 with cumulative three-year performance periods and subject to a variety of performance metrics connected to the Company’s long-term strategies.

The Human Resources Committee continues to review and refine our LTI award structure and performance metrics in order to best promote long-term company performance and further align the economic interests of our NEOs with those of our shareholders. The annual cycle LTI awards in 2017 were designed to tie a larger portion of the award value to stock-price recovery, using the following structure:

 

    Performance-Based Cash (1/3). One-third of the total target LTI award was granted in the form of performance-based cash. Actual payouts will range from 0% to 200% of the target level depending on the degree to which performance goals are met under three equally-weighted performance metrics: Adjusted EPS, Adjusted FCF Less Cash NCI, and Relative Total Shareholder Return (TSR), each measured over a three-year period. These performance awards are structured much like the 2016 performance-based RSU awards to NEOs, except they are denominated and paid in cash to better manage share utilization under our Stock Incentive Plan, and Adjusted Return on Invested Capital was removed as a performance measure for simplification. 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 (EPS)

 

 

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

 

  Many analysts and shareholders use the ratio of a company’s stock price to its earnings per share as a valuation tool and the Human Resources 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 Human Resources Committee believes that free cash flow generation is an important determinant in long-term shareholder value creation because it allows the Company to fund growth without raising additional debt and also to retire existing indebtedness.

 

 


 

 

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  LTI PERFORMANCE METRIC

 

 

 

DESCRIPTION

 

Relative Total Shareholder Return (TSR)

 

 

  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 Healthcare, LifePoint Health and Universal Health Services. The Human Resources Committee believes that the approach of comparing performance specifically to the Company’s direct peers is the best way to determine whether Tenet management is driving relative stock price performance.

 

  In order to achieve a target-level payout on the relative TSR metric, the Company’s relative TSR must exceed that of at least two of the four direct peers over the three-year performance period, and the maximum payout will be achieved only if Tenet outperforms all four of the other companies.

 

 

    Performance-Based Stock Options (1/3). One-third of the total target LTI award was granted in the form of performance-based stock options that are subject to the satisfaction of a stock price performance condition. These options will not vest until the Company’s stock price increases to $23.74 per share, which represents a 25% increase as compared to the price on the date of grant. The stock price must then close at or above $23.74 per share for 20 consecutive trading days for vesting to occur—showing a sustained increase and not just a temporary bump. If the stock price performance condition is not achieved in the three years following the date of grant, all of the options will be forfeited and no actual pay will be delivered.

 

    Time-Based RSUs (1/3). The remaining one-third of the total target LTI award was again granted in the form of time-based RSUs that vest ratably over three years. Such awards align executive and shareholder interests and encourage retention over the vesting period.

2017 LTI Grant Values for Named Executive Officers

With two-thirds of the total LTI award at risk and requiring achievement of rigorous performance goals over a three-year period, the Human Resources Committee believed it was appropriate in 2017 to provide executives with the opportunity to earn compensation at median competitive values. The following table summarizes the grant value of LTI awards granted to each of our NEOs in March 2017:

 

 

NAMED EXECUTIVE
OFFICER

  

 

PERFORMANCE
CASH(1)

  

 

PERFORMANCE STOCK
OPTIONS(2)

  

 

TIME-BASED
RSUS(3)

  

 

TOTAL 2017 LTI   
GRANT VALUE   

 

Daniel Cancelmi

    

 

$

 

766,667

 

    

 

$

 

766,596

 

    

 

$

 

766,683

 

  

 

$2,299,946      

 

Keith Pitts

    

 

$

 

1,300,000

 

    

 

$

 

1,299,879

 

    

 

$

 

1,300,017

 

  

 

$3,899,896      

 

Eric Evans

    

 

$

 

833,333

 

    

 

$

 

833,256

 

    

 

$

 

833,338

 

  

 

$2,499,927      

 

Audrey Andrews

    

 

$

 

500,000

 

    

 

$

 

499,954

 

    

 

$

 

500,007

 

  

 

$1,499,961      

 

Trevor Fetter

    

 

$

 

3,000,000

 

    

 

$

 

2,999,722

 

    

 

$

 

3,000,002

 

  

 

$8,999,724      

 

(1)  Assumes target level performance.
(2)  Fair value of these options was calculated using a Monte Carlo simulation; assumptions used in such calculation are discussed in Note 8 to our consolidated financial statements for the year ended December 31, 2017 included in our Annual Report on Form 10-K.
(3)  Value is based on the NYSE closing price per share of our common stock on the date of grant (March 1, 2017: $18.99).

Upon his appointment as Executive Chairman of the Company, Mr. Rittenmeyer received an award of performance stock options with a grant date value of $2.3 million. These stock options are similar to the performance stock options made to the Company’s other NEOs in March 2017 as they become exercisable only if the Company’s stock price achieves a threshold level for an extended period of time. Mr. Rittenmeyer’s stock options vest on the one-year anniversary of the grant date and expire five years from the date of grant. However, the options do not become exercisable unless and until the average closing price per share of the Company’s common stock is at least 25% above the closing price of the stock as of the grant date ($20.53) for any 30 consecutive trading days during the four years following the grant date. If the stock price performance condition is not achieved by the fourth anniversary of the grant date, the entire option award is forfeited.

Rigor of Performance Goals

In establishing target, threshold and maximum goal levels for performance-based LTI awards, the Human Resources Committee considers annual and longer-term growth rates that the Company discloses to shareholders, as well as the consensus of analyst estimates and business-planning projections. Consistent with the practices of many other public companies, the Company has concluded that pre-disclosure of specific long-term financial performance goals could cause competitive harm to the Company and may be interpreted as guidance by some shareholders. Consistent with Tenet’s past practice, specific goals will be disclosed after the respective performance period

 


 

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COMPENSATION DISCUSSION AND ANALYSIS

 
     

 

is completed and the information is no longer sensitive from a competitive perspective. For example, the Company will disclose achievement under the 2016 performance-based RSUs in 2019 upon completion of the 2016-2018 performance period and certification of results by the Human Resources Committee.

Evidence of the Human Resources Committee’s highly rigorous approach to goal-setting is apparent in the below-target earnouts under the AIP in both 2016 and 2017. The Company’s current estimates project achievement below target under both the 2016 performance-based RSUs and the 2017 performance cash awards.

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 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. Rittenmeyer was the only NEO to receive any such special award in 2017, as described above, when he became the Company’s Executive Chairman. 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 an NEO or other senior officer.

2017 Compensation Decisions Related to Leadership Transition

Mr. Rittenmeyer’s Compensation Arrangements

Shortly after the Board appointed Mr. Rittenmeyer as Executive Chairman in August 2017, the Human Resources Committee met to consider initial compensation arrangements for him and approved an annualized base salary of $500,000 and an award of performance-based stock options with a grant date fair value of $2.3 million. Given the transitionary nature of Mr. Rittenmeyer’s position as the “principal executive officer” and the fact that less than four months remained in the 2017 AIP performance period, the Human Resources Committee did not believe it was prudent to include Mr. Rittenmeyer as a participant in the Company’s 2017 AIP or Executive Severance Plan.

In early November 2017, following Mr. Rittenmeyer’s appointment as Chief Executive Officer, the Human Resources Committee met again and reassessed Mr. Rittenmeyer’s compensation package with the assistance of the Human Resources Committee’s independent compensation consultant. In addition to his change in title as the Chief Executive Officer, the Human Resources Committee noted that Mr. Rittenmeyer was moving quickly to drive cultural change, reduce costs, strengthen accountability and create a more nimble organization. It also noted that Mr. Rittenmeyer’s total compensation was much lower than Mr. Fetter’s historical compensation levels, as well as the compensation levels for peer group chief executive officers. Given that Mr. Rittenmeyer was not an AIP participant, his cash compensation for 2017 would be comprised only of the salary he received as Chief Executive Officer and director fees received during the portion of the year that he served as a non-employee director. The Human Resources Committee considered this level as insufficient to appropriately compensate Mr. Rittenmeyer for his work as Executive Chairman and Chief Executive Officer and raised his annualized base salary level to $2.9 million, with the change made retroactive to August 31, 2017, the date that Mr. Rittenmeyer originally assumed his Executive Chairman duties. In setting Mr. Rittenmeyer’s base salary at this level, the Human Resources Committee evaluated Mr. Rittenmeyer’s performance through early November 2017 and took into consideration that Mr. Rittenmeyer was not participating in the 2017 AIP, with the understanding that Mr. Rittenmeyer’s ongoing compensation package would be re-evaluated as part of the Human Resources Committee’s normal compensation-setting process in early 2018.

Mr. Fetter’s Separation Arrangements

Concurrently with Mr. Fetter’s resignation, the Company entered into a Separation Agreement and Release with Mr. Fetter (the “Separation Agreement”). The Separation Agreement provides that Mr. Fetter will receive benefits consistent with a termination without cause under the Executive Severance Plan and other employee benefit plans as described below under “Potential Payments Upon Termination or Change of Control—Mr. Fetter’s Separation Agreement and Release.” In addition, the Separation Agreement provides Mr. Fetter with the opportunity to continue to vest in all outstanding unvested LTI awards and to exercise vested or vesting stock options for three years following his termination, subject to his compliance with certain restrictive covenants, including (i) three-year post-termination non-competition and non-solicitation covenants, (ii) a three-year post-termination Company non-disparagement covenant, and (iii) a three-year confidentiality covenant.

 


 

 

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All unvested performance-based LTI awards have no guaranteed payout and will only be earned to the extent of the Company’s actual performance against the existing performance criteria previously established by the Human Resources Committee.

The Human Resources Committee met jointly with the other independent directors to consider the terms of Mr. Fetter’s separation. In approving the enhanced terms, the Board took into account the recommendation of the Human Resources Committee’s independent compensation consultant regarding the value of (i) the enhanced enforceability of the non-competition and non-solicitation covenants for the three-year period following Mr. Fetter’s termination of employment and (ii) the continued alignment of Mr. Fetter with the Company’s long-term success through the extension of the vesting period associated with Mr. Fetter’s LTI awards. In addition, the Human Resources Committee’s independent compensation consultant advised the Board that the terms of the enhanced severance arrangements were consistent with the terms offered to our senior executives who were retirement-eligible.

In addition, in connection with the transition of Mr. Fetter’s prior management role and responsibilities, he provided consulting services as requested by Mr. Rittenmeyer in exchange for a fee of $50,000 per month from the time of Mr. Fetter’s termination through the end of 2017.

The Compensation Process

Role of the Human Resources Committee

The Human Resources Committee, which is comprised entirely of independent directors, makes all compensation decisions regarding our NEOs. The Human Resources 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 Human Resources Committee also considers input and recommendations from the Chief Executive Officer. For 2017, Mr. Fetter provided his recommendations to the Human Resources Committee regarding base salary, target AIP amounts and target LTI award values approved in early 2017 for all other NEOs (other than Mr. Rittenmeyer, who was then serving as a non-employee board member). The Human Resources Committee’s decisions regarding compensation of our NEOs are made outside the presence of these officers. The Human Resources 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.

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 Human Resources Committee on executive compensation decisions generally, as well as the design and structure of our executive compensation plans and policies. In 2017, the Consultant participated in or provided input with respect to all meetings of the Human Resources Committee.

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

 

    review management’s proposed compensation recommendations to the Human Resources 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 Human Resources Committee.

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

To safeguard the independence of the Consultant:

 

    the Human Resources 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 Human Resources Committee and has direct access to the Human Resources 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 Human Resources Committee Chair.

 


 

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The Human Resources 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 Human Resources Committee, including the Chief Executive Officer’s self-evaluation and the feedback provided by selected members of management. The Human Resources 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 typically 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 Human Resources 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 these data sources in more detail below.

The Human Resources Committee seeks to compensate our NEOs at competitive compensation levels relative to our peer group when target-levels of performance goals are met and considers the “market median” to be a helpful benchmark in setting compensation levels for our NEOs. In 2017, grant date target values of LTI awards were determined so that NEOs would have the opportunity to earn at least market median compensation. In addition, the Human Resources Committee increased the amount of the total LTI award at-risk, requiring achievement of rigorous performance goals, and further incentives for stock price improvement through the introduction of performance-based stock options.

2017 Peer Group

The changing healthcare landscape, including 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 Healthcare, Inc., LifePoint Health, Inc. and Universal Health Services, Inc. (collectively, the “Direct Peers”). In order to address the reduced number of direct peers, for 2016 the Human Resources Committee opted for an approach to peer group selection whereby companies from a wide variety of industries could be included in the peer group as long as they were similar to Tenet in size, complexity and the labor intensiveness of their business operations. This resulted in a large peer group which included a number of manufacturing and technology companies of similar size to Tenet, but that did not directly compete for talent.

For 2017 compensation decisions, the Human Resources Committee determined that the 2016 approach that resulted in a peer set with whom Tenet did not directly compete for talent was ultimately not aligned with the Committee’s needs in benchmarking compensation for executives. It opted to return to its historical approach of choosing peers from only healthcare-related industry classification groups, including the Company’s Health Care Facilities classification, but also health services, equipment and managed care categories. In consultation with the Consultant, the Human Resources Committee established the following objective selection process to determine this newly constructed peer group:

 

    Step 1: Start with the Direct Peers (Four companies)

 

    Step 2: Add companies in the following GICS sub-industry segments identified as peers by at least two of the four direct peers:

 

  ¡    Healthcare Facilities

 

  ¡    Healthcare Services

 

  ¡    Managed Healthcare

 

  ¡    Healthcare Equipment

 

  ¡    Healthcare Distributors

(210 additional companies added)

 

 


 

 

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    Step 3: Remove companies with:

 

  ¡    Revenues less than ~$5 billion or greater than ~$60 billion

 

  ¡    Enterprise value greater than $60 billion

 

  ¡    Fewer than 25,000 employees

(197 companies removed)

Using the criteria set forth above, the Human Resources Committee established the following peer group for 2017 compensation decisions:

 

 

  DIRECT PEERS

 

  

 

OTHER PEERS

 

 

Community Health Systems

 

  

 

Aetna

 

  

 

Genesis Healthcare

 

 

HCA Healthcare

 

  

 

Baxter International

 

  

 

Humana

 

 

LifePoint Health

 

  

 

Becton, Dickinson and Company

 

  

 

Kindred Healthcare

 

 

Universal Health Services

 

  

 

Boston Scientific

 

  

 

LabCorp

 

  

 

Cigna

 

  

 

Quest Diagnostics

 

  

 

DaVita

 

  

 

Stryker

 

    

 

Envision Healthcare

 

    

 

The following chart illustrates Tenet’s size compared to the 2017 peer group median of revenues, enterprise value and number of employees, using data provided to the Human Resources Committee by the Consultant in August 2016.

LOGO

Market Survey Data

For 2017 compensation decisions, the Human Resources 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

 

 

2016 Aon Hewitt Total Compensation Measurement survey

 

  

 

$10 billion to $25 billion

 

 

2016 Mercer Executive Benchmark survey

 

  

 

greater than $10 billion

 

 

2016 Willis Towers Watson U.S. Compensation Database survey

 

  

 

$10 billion to $20 billion

 

 

2016 Willis Towers Watson Top Management survey

 

  

 

greater than $5 billion

 

 

2016 Frederic W. Cook Long-Term Incentives survey

 

 

  

 

$17.5 billion

 

 

 


 

TENET HEALTHCARE 2018 PROXY STATEMENT    

 

39

 


Table of Contents

 

COMPENSATION DISCUSSION AND ANALYSIS

 
     

 

The Consultant compiles data from these surveys relating to the compensation levels received for each position held by an NEO against the compensation levels received by executives holding similar positions at other companies. The Consultant then presents the data to the Human Resources Committee in aggregated form. In benchmarking compensation levels against the survey data, the Human Resources 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 Human Resources Committee in its decision-making process. The Human Resources 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 provided by our aircraft as compared to what is commercially available. This 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.

Under our aircraft usage policy, Mr. Fetter was required to reimburse us for any personal use of the corporate aircraft above 75 hours per year. In 2017, Mr. Fetter’s personal use of the corporate aircraft totaled approximately 58 hours. The unreimbursed incremental cost of his use is disclosed in the 2017 Summary Compensation Table on page 43. Mr. Rittenmeyer did not receive any non-reimbursable personal aircraft usage in 2017.

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

Executive Severance Plan

The Tenet Executive Severance Plan (ESP) is applicable to our NEOs and certain other senior managers and officers of the Company, including hospital chief executive officers. 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 all gross-ups of excise taxes upon a change of control to current and future participants.

Each of the NEOs, other than Mr. Rittenmeyer, participates in the ESP. The severance periods for the Company’s NEOs under the ESP were determined by the Human Resources 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 Human Resources Committee’s analysis of the financial impact of various severance compensation scenarios on each of these executives and 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 52.

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 Human Resources Committee adopted a policy in 2014 discontinuing the admission of future entrants. The SERP will be continued for existing participants, including Messrs. Fetter, Cancelmi and Pitts, and Ms. Andrews, but the Human Resources Committee does not intend to include any additional new participants in the SERP. As of December 31, 2017, only 13 employees of the Company participated in the SERP. Additional information regarding benefit calculations and other terms of the SERP is provided in the narrative discussion following the 2017 Pension Benefits Table on page 49. Messrs. Rittenmeyer and Evans do not participate in the SERP.

 


 

 

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    TENET HEALTHCARE 2018 PROXY STATEMENT


Table of Contents
  

 

COMPENSATION DISCUSSION AND ANALYSIS

      

 

Executive Retirement Account

We established the Tenet Executive Retirement Account (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. Messrs. Pitts and Fetter do not participate in the ERA.

Deferred Compensation Plan

Under our Fourth Amended and Restated Tenet 2006 Deferred Compensation Plan (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 their income, 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 “Nonqualified Deferred Compensation—Deferred Compensation Plans” beginning on page 51.

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 53. 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 (Section 162(m)) generally disallows a tax deduction to public companies for compensation in excess of $1,000,000 paid to certain “covered employees” in any single year. The Human Resources Committee generally sought to structure our performance-based compensation elements in a manner intended to qualify as “performance-based” for purposes of satisfying the conditions of an exemption to this limit on deductibility previously available under Section 162(m). The Board and the Human Resources Committee, however, reserved the authority to award nondeductible compensation as they deemed appropriate. For taxable years beginning after December 31, 2017, the exemption from Section 162(m)’s deduction limit for certain “performance-based” compensation has been repealed for all but certain grandfathered compensation arrangements that were in effect as of November 2, 2017. Because of ambiguities and uncertainties as to the application and interpretation of Section 162(m) and related regulations including the scope of relief for grandfathered arrangements, no assurance can be given that compensation awarded or paid in prior years and intended by the Human Resources Committee to satisfy the requirements for deductibility under Section 162(m) will in fact be fully tax deductible. Notwithstanding the repeal of the “performance-based” compensation deduction pursuant to Section 162(m), the Company remains committed to granting a significant portion of the compensation payable to our Named Executive Officers subject to the achievement of one or more performance metrics specified by the Human Resources Committee.

 


 

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41

 


Table of Contents

 

COMPENSATION DISCUSSION AND ANALYSIS

 
     

 

Compensation Governance Practices

Stock Ownership and Retention Requirements

The Board 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.

Mr. Rittenmeyer is within the initial compliance period, and all other NEOs that are current employees of the Company are in compliance with these 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 80 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.

Clawback Policies

Awards under our AIP for NEOs are subject to a clawback provision under which the Board 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 cause substantial harm to the Company even in the absence of a restatement of financial statements. In addition, performance-based LTI awards 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.

 


 

 

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    TENET HEALTHCARE 2018 PROXY STATEMENT


Table of Contents

 

EXECUTIVE COMPENSATION TABLES  

 

 

 

Summary Compensation

The following table summarizes the compensation in the years ended December 31, 2017, 2016 and 2015 for our NEOs for 2017. Mr. Rittenmeyer was not an NEO prior to 2017 and Mr. Evans was not an NEO prior to 2016.

2017 Summary Compensation Table

 

 

NAME AND
PRINCIPAL POSITION

 

 

 

YEAR

 

 

 

SALARY
($)(1)

 

 

 

BONUS
($)(2)

 

 

 

STOCK
AWARDS
($)(3)

 

 

 

OPTION
AWARDS
($)(4)

 

 

 

NON-EQUITY
INCENTIVE
PLAN
COMPENSATION
($)(1)(5)

 

 

 

CHANGE IN
PENSION VALUE
AND
NONQUALIFIED
DEFERRED
COMPENSATION
EARNINGS
($)(6)

 

 

 

ALL OTHER
COMPENSATION
($)(7)

 

 

 

TOTAL
($)

 

 

Ron A. Rittenmeyer

    Executive

    Chairman and

    Chief Executive Officer

 

   

 

 

 

2017

 

   

 

 

 

914,615

 

   

 

 

 

-0-

 

   

 

 

 

225,001

 

   

 

 

 

2,300,001

 

   

 

 

 

-0-

 

   

 

 

 

-0-

 

   

 

 

 

212,163

 

 

 

3,651,780  

Daniel Cancelmi

    Chief Financial Officer

 

   

 

 

 

2017

 

   

 

 

 

618,000

 

   

 

 

 

323,832

 

   

 

 

 

766,683

 

   

 

 

 

766,596

 

   

 

 

 

108,768

 

   

 

 

 

807,670

 

   

 

 

 

11,885

 

 

 

3,403,434  

      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  

 

Keith Pitts

    Vice Chairman

 

   

 

 

 

2017

 

   

 

 

 

925,000

 

   

 

 

 

300,000

 

   

 

 

 

1,300,017

 

   

 

 

 

1,299,879

 

   

 

 

 

162,800

 

   

 

 

 

596,745

 

   

 

 

 

33,632

 

 

 

4,618,073  

      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  

 

Eric Evans

    President of

    Hospital Operations

 

   

 

 

 

2017

 

   

 

 

 

686,539

 

   

 

 

 

357,368

 

   

 

 

 

833,338

 

   

 

 

 

833,256

 

   

 

 

 

123,625

 

   

 

 

 

-0-

 

   

 

 

 

176,314

 

 

 

3,010,440  

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

Audrey Andrews

    SVP and

    General Counsel

 

   

 

 

 

2017

 

   

 

 

 

543,269

 

   

 

 

 

250,000

 

   

 

 

 

500,007

 

   

 

 

 

499,954

 

   

 

 

 

72,600

 

   

 

 

 

800,171

 

   

 

 

 

11,763

 

 

 

2,677,764  

      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  

 

Trevor Fetter

    Former Chief

    Executive Officer

    and President

 

   

 

 

 

2017

 

   

 

 

 

1,059,231

 

   

 

 

 

-0-

 

   

 

 

 

6,036,967

 

(8)

   

 

 

 

5,332,839

 

(8)

   

 

 

 

280,500

 

   

 

 

 

6,005,796

 

   

 

 

 

634,804

 

 

 

19,350,137  

      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  

 

 

(1)  Includes amounts deferred by the NEOs under the 2006 DCP. For further information, see the table and related discussion under “Nonqualified Deferred Compensation” beginning on page 51.

 

(2)  2017 amounts reflect the discretionary cash bonuses paid to certain NEOs as described on pages 33 and 34.

 

(3)  Values in this column represent the grant date fair value of time-based restricted stock unit awards and, for 2015 and 2016 performance-based restricted stock unit awards, computed in accordance with FASB ASC Topic 718. For Mr. Rittenmeyer, this value represents the grant date fair value of his annual Board and Lead Director restricted stock unit awards granted prior to his appointment as Executive Chairman. 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, 2017 included in our Annual Report on Form 10-K. For additional information on the valuation of restricted stock unit awards granted in 2015 and 2016, see the 2016 Summary Compensation Table included in our 2017 Proxy Statement filed with the Securities and Exchange Commission on March 24, 2017.

 

(4)  Values in this column represent the grant date fair value of stock option 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, 2017 included in our Annual Report on Form 10-K.

 

(5)  This column reflects cash awards paid under our AIP for performance in the relevant year.

 

(6)  2017 amounts represent the change in the actuarial present value of accumulated benefits under our SERP as of December 31, 2017. A 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 NEO. No NEO received preferential or above-market earnings on deferred compensation.

 


 

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Table of Contents

 

EXECUTIVE COMPENSATION TABLES

 
     

 

 

(7)  Amounts shown in this column for 2017 include the following:

 

     

 

RITTENMEYER

 

    

 

CANCELMI

 

    

 

PITTS

 

    

 

EVANS

 

    

 

ANDREWS

 

    

 

FETTER

 

 

 

 

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

 

  

 

 

 

 

-0-

 

 

 

 

  

 

 

 

 

3,785

 

 

 

 

  

 

 

 

 

4,122

 

 

 

 

  

 

 

 

 

-0-

 

 

 

 

  

 

 

 

 

3,663

 

 

 

 

  

 

 

 

 

5,806

 

 

 

 

 

Matching contributions under our 401(k) Retirement Savings Plan

 

  

 

 

 

 

-0-

 

 

 

 

  

 

 

 

 

8,100

 

 

 

 

  

 

 

 

 

8,100

 

 

 

 

  

 

 

 

 

8,100

 

 

 

 

  

 

 

 

 

8,100

 

 

 

 

  

 

 

 

 

8,100

 

 

 

 

 

Matching contributions under our 2006 DCP

 

  

 

 

 

 

-0-

 

 

 

 

  

 

 

 

 

-0-

 

 

 

 

  

 

 

 

 

-0-

 

 

 

 

  

 

 

 

 

28,214

 

 

 

 

  

 

 

 

 

-0-

 

 

 

 

  

 

 

 

 

64,506

 

 

 

 

 

Company contributions under our ERA

 

  

 

 

 

 

-0-

 

 

 

 

  

 

 

 

 

-0-

 

 

 

 

  

 

 

 

 

-0-

 

 

 

 

  

 

 

 

 

140,000

 

 

 

 

  

 

 

 

 

-0-

 

 

 

 

  

 

 

 

 

-0-

 

 

 

 

 

Personal use of company aircraft*

 

  

 

 

 

 

-0-

 

 

 

 

  

 

 

 

 

-0-

 

 

 

 

  

 

 

 

 

21,410

 

 

 

 

  

 

 

 

 

-0-

 

 

 

 

  

 

 

 

 

-0-

 

 

 

 

  

 

 

 

 

168,738

 

 

 

 

 

Cash fees paid to Mr. Rittenmeyer while serving as a non-employee director

 

  

 

 

 

 

212,163

 

 

 

 

  

 

 

 

 

-0-

 

 

 

 

  

 

 

 

 

-0-

 

 

 

 

  

 

 

 

 

-0-

 

 

 

 

  

 

 

 

 

-0-

 

 

 

 

  

 

 

 

 

-0-

 

 

 

 

 

Payments to Mr. Fetter in connection with separation as CEO**

 

  

 

 

 

 

-0-

 

 

 

 

  

 

 

 

 

-0-

 

 

 

 

  

 

 

 

 

-0-

 

 

 

 

  

 

 

 

 

-0-

 

 

 

 

  

 

 

 

 

-0-

 

 

 

 

  

 

 

 

 

387,654

 

 

 

 

 

Total

 

  

 

 

 

 

$212,163

 

 

 

 

  

 

 

 

 

$11,885

 

 

 

 

  

 

 

 

 

$33,632

 

 

 

 

  

 

 

 

 

$176,314

 

 

 

 

  

 

 

 

 

$11,763

 

 

 

 

  

 

 

 

 

$634,804

 

 

 

 

 

  * Amounts shown in this row represent the incremental costs in 2017 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.

 

  ** Amounts in this row reflect consulting fees and severance amounts actually paid to Mr. Fetter in 2017 following his resignation.

 

(8)  In connection with Mr. Fetter’s Separation Agreement and Release, and in accordance with FASB ASC Topic 718, it was necessary to modify certain outstanding stock and option awards held by Mr. Fetter as of his October 23, 2017 separation date. The original grant date fair value of Mr. Fetter’s March 1, 2017 time-based restricted stock unit award was $3,000,002, and his March 1, 2017 performance-based option award was $2,999,722. The amounts reported here reflect the additional incremental fair value of all outstanding stock awards and option awards modified as part of Mr. Fetter’s Separation Agreement and Release of $3,036,965 and $2,333,117, respectively.

 


 

 

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Table of Contents
  

 

EXECUTIVE COMPENSATION TABLES

      

 

Grants of Plan-Based Awards During 2017

The following table sets forth information concerning grants of equity and performance cash awards made in 2017 under our stock incentive plan and grants of cash that potentially could have been earned in 2017 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
(#)

 

   

EXERCISE
OR BASE
PRICE OF
OPTION
AWARDS

($/SH)

 

   

GRANT
DATE
FAIR
VALUE
OF
STOCK
AND
OPTION
    AWARDS    

($)(2)

 

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

 

Ron Rittenmeyer

 

 

 

RSU

 

 

 

 

 

 

5/5/17

 

 

 

 

             

 

 

 

 

16,539

 

 

 

 

   

 

225,001   

 

  PSO

 

   

 

9/29/17

 

 

 

           

 

408,526

 

 

 

       

 

16.43

 

 

 

 

2,300,001   

 

 

Dan Cancelmi

 

 

AIP

   

 

 

 

-0-

 

 

 

 

 

 

618,000

 

 

 

 

 

 

1,236,000

 

 

           
  PCASH       255,556       766,667       1,533,334              
  RSU     3/1/17                   40,373       766,683   
  PSO

 

   

 

3/1/17

 

 

 

           

 

89,976

 

 

 

       

 

18.99

 

 

 

 

766,596   

 

 

Keith Pitts

 

 

AIP

   

 

 

 

-0-

 

 

 

 

 

 

925,000

 

 

 

 

 

 

1,850,000

 

 

           
  PCASH       433,333       1,300,000       2,600,000              
  RSU     3/1/17                   68,458       1,300,017   
  PSO

 

   

 

3/1/17

 

 

 

           

 

152,568

 

 

 

       

 

18.99

 

 

 

 

1,299,879   

 

Eric Evans

  AIP       -0-       700,000       1,400,000              
  PCASH       277,778       833,333       1,666,666              
  RSU     3/1/17                   43,883       833,338   
  PSO

 

   

 

3/1/17

 

 

 

           

 

97,800

 

 

 

       

 

18.99

 

 

 

 

833,256   

 

 

Audrey Andrews

 

 

AIP

   

 

 

 

-0-

 

 

 

 

 

 

412,500

 

 

 

 

 

 

825,000

 

 

           
  PCASH       166,667       500,000       1,000,000              
  RSU     3/1/17                   26,330       500,007   
  PSO

 

   

 

3/1/17

 

 

 

           

 

58,680

 

 

 

       

 

18.99

 

 

 

 

499,954   

 

 

Trevor Fetter

 

 

AIP

   

 

 

 

-0-

 

 

 

 

 

 

1,912,500

 

 

 

 

 

 

3,825,000

 

 

           
  PCASH       1,000,000       3,000,000       6,000,000              
  RSU     3/1/17                   157,978       6,036,967   
  PSO

 

   

 

3/1/17

 

 

 

           

 

352,080

 

 

 

       

 

18.99

 

 

 

 

5,332,839   

 

 

(1)  AIP Awards. Awards designated “AIP” are awards that our NEOs might have earned during 2017 under our Annual Incentive Plan, dependent upon our 2017 performance. Awards actually earned are shown in the Non-Equity Incentive Plan Compensation column of the 2017 Summary Compensation Table on page 43.

 

   Performance-Based Cash. Awards designated “PCASH” reflect performance-based cash awards granted in 2017 under our 2008 Stock Incentive Plan. Actual payouts will range from 0% to 200% of the target level depending on the degree to which performance goals are met under three equally-weighted performance metrics: Adjusted Earnings Per Share, Adjusted Free Cash Flow Less Cash NCI, and Relative Total Shareholder Return, each measured over a three-year period. Actual payout earned, if any, will be reported in our Summary Compensation Table for the year in which they are paid.

 

   Restricted Stock Unit Awards. Awards designated “RSU” reflect time-based restricted stock unit awards under our 2008 Stock Incentive Plan. The RSUs granted on March 1, 2017 vest ratably on each of the first three anniversaries of the grant date and the RSUs granted on May 5, 2017 vested immediately on the grant date and will be settled in shares of common stock on the third anniversary of the date of grant.

 

   Performance-Based Stock Options. Awards designated “PSO” reflect performance-based stock option awards under our 2008 Stock Incentive Plan. The PSOs granted on March 1, 2017 are subject to the satisfaction of a stock price performance condition further discussed on page 35 and the PSOs granted to Mr. Rittenmeyer on September 29, 2017 are subject to the satisfaction of a stock price performance condition further discussed on page 35.

 

(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 ($18.99). 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, 2017 included in our Annual Report on Form 10-K. For the RSU and PSO awards to Mr. Fetter, this amount includes both the original grant date fair value and the additional incremental cost under FASB ASC Topic 718 as a result of modification of this award pursuant to the terms of his Separation Agreement and Release.

 


 

TENET HEALTHCARE 2018 PROXY STATEMENT    

 

45

 


Table of Contents

 

EXECUTIVE COMPENSATION TABLES

 
     

 

Outstanding Equity Awards

The following table sets forth information as of December 31, 2017 with respect to outstanding equity awards granted to each of the NEOs. 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 2017 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

 

   

 

EQUITY
INCENTIVE
PLAN
AWARDS:
NUMBER OF
SECURITIES
UNDERLYING
UNEXERCISED
UNEARNED
OPTIONS

 

   

 

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)

 

 

Ron Rittenmeyer

 

  

 

 

 

 

9/29/17

 

 

 

 

                 

 

 

 

 

408,526

 

 

 

 

 

 

 

 

 

16.43

 

 

 

 

 

 

 

 

 

9/29/22

 

 

 

 

                               

 

Total values

 

                    

 

Dan Cancelmi

 

  

 

 

 

 

 

9/28/12

 

 

 

 

 

 

 

 

 

37,500

 

 

 

     

 

 

 

 

 

25.08

 

 

 

 

 

 

 

 

 

9/28/22

 

 

 

       
     2/28/13       17,188           39.31       2/28/18          
     8/25/14                 16,694 (4)      253,081      
     8/25/14                 23,323 (5)      353,577       16,695 (6)      253,096  
     2/25/15                 8,036 (7)      121,826      
     2/25/15                 13,235 (8)      200,643      
     3/10/16                 24,053 (7)      364,643      
     3/10/16                     36,079 (9)      546,958  
     3/1/17           89,976       18.99       3/1/27          
    

 

3/1/17

 

 

 

                                           

 

40,373

 

(7)  

 

   

 

612,055

 

 

 

               

 

Total values

                

 

 

 

1,905,824

 

 

   

 

 

 

800,054

 

 

Keith Pitts

     8/25/14                 16,694 (4)      253,081      
     8/25/14                 23,323 (5)      353,577       16,695 (6)      253,096  
     2/25/15                 12,784 (7)      193,805      
     2/25/15                 21,054 (8)      319,179      
     3/10/16                 40,785 (7)      618,301      
     3/10/16                     61,177 (9)      927,443  
     3/1/17           152,568       18.99       3/1/27          
    

 

3/1/17

 

 

 

                                           

 

68,458

 

(7)  

 

   

 

1,037,823

 

 

 

               

 

Total values

 

                

 

 

 

 

2,775,766

 

 

 

 

   

 

 

 

 

1,180,539

 

 

 

 

 


 

 

46

 

    TENET HEALTHCARE 2018 PROXY STATEMENT


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

 

   

 

EQUITY
INCENTIVE
PLAN
AWARDS:
NUMBER OF
SECURITIES
UNDERLYING
UNEXERCISED
UNEARNED
OPTIONS

 

   

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

  

 

 

 

8/25/14

 

 

           

 

 

 

1,333

 

(4) 

 

 

 

 

20,208

 

 

   
     8/25/14                 1,863 (5)      28,243       1,334 (6)      20,223  
     2/25/15                 1,167 (7)      17,692      
     4/30/15                 871 (7)      13,204      
     4/30/15                 1,434 (8)      21,739      
     3/10/16                 5,230 (7)      79,287      
     3/10/16                     7,844 (9)      118,915  
     3/31/16                 11,523 (7)      174,689      
     3/31/16                     17,284 (9)      262,025  
     3/1/17           97,800       18.99       3/1/27          
    

 

3/1/17

 

 

 

                                           

 

43,883

 

(7)  

 

   

 

665,266

 

 

 

               

 

Total values

                

 

 

 

1,020,329

 

 

   

 

 

 

401,163

 

 

Audrey Andrews

     8/25/14