DEF 14A 1 d798156ddef14a.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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  Preliminary Proxy Statement
  Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
  Definitive Proxy Statement
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Tenet Healthcare Corporation

(Name of Registrant as Specified in Its Charter)

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LOGO


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Dear Fellow Shareholders,

 

 

   “Our teams are doing exactly
   what they have been called
   upon and trained to do, with
   honor and a selfless courage
   that has defined us as an
   organization and has made us
   an integral part of our communities.”

 

               LOGO

 

              Ronald A. Rittenmeyer

              Executive Chairman and CEO

   
          

I began writing this letter to review our 2019 performance and to discuss the promise of 2020 at the end of February. At that time, the performance trajectory that we had ended in 2019 had continued through the first two months of 2020. At that moment, I was very optimistic that 2020 would be a very positive year, perhaps the best our company has ever enjoyed. We have been transforming Tenet into a much different company than we had two years ago when we started this turnaround effort, and were taking our performance to the next level before the unfortunate events of the COVID-19 pandemic unfolded several weeks ago.

Today America is faced with one of the most challenging periods in our history. As a country, our world was turned upside down on December 7, 1941 when Pearl Harbor was attacked, and on September 11, 2001, and each time we came back stronger than ever. Our history as a country is to pick ourselves up and deal with adversity head on and with a resolve to win the conflict. This virus has been likened to a war with an invisible enemy and the warriors on the front lines committed to win are nurses, doctors, other skilled professionals, support personnel and hospital administrators. We remain intently focused on bringing us successfully through this crisis, maximizing the strength of the company and ensuring we do so with the ability to snap back and regain our trajectory once this is resolved.

When we established the company’s vision of a Community Built on Care, we did not realize how accurate and meaningful this statement would become so quickly to our teams across the country. Our teams are doing exactly what they have been called upon and trained to do, with honor and a selfless courage that has defined us as an organization and has made us an integral part of our communities.

While this has clearly generated a time of uncertainty, our people and company continue to be resilient and responsive. The strides we made as an organization in the last two years have anchored the company on a set of clear operating principles. These principles embrace agility, efficiency, speed and accountability, effecting a cultural shift that emphasizes the importance of compassion, execution and community both internally and externally. The mission, vision and values we introduced in 2019 created a single sense of purpose for our business. Together, these elements have given a new shape to our organization and created the effective response we have executed across the entire enterprise in this crisis.

 


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While we continue to deliver compassionate care for the most critically ill, the impact on elective care has been particularly acute due to government orders severely limiting those procedures in our hospitals and surgery centers. Additionally, shelter in place orders coupled with access limitations at hospitals and clinics have resulted in decreased ER traffic in our hospitals. In response, while caring for patients with COVID-19 as well as other patients needing our care, we have taken decisive steps to mitigate the associated impact of reductions in volumes by enhancing our operational and financial flexibility to allow us to redirect resources to critical operations. Our focus remains on making necessary investments in COVID-19-related supplies, care, and other functions to support our hospitals and protect our team members while immediately taking measures to reduce spending in areas that can either be delayed or eliminated with no disruption to the current mission.

Fortunately, we benefit from an expansive network that has depth of clinical expertise, access to information-sharing and additional supplies we can transfer among our facilities. We have a command center staffed by experienced disaster response personnel, and our clinical leadership is directing efforts across the enterprise with clear and consistent actions. In addition, several initiatives we deployed last year are enabling a swift response in real-time data and analytics that recognize patterns and trends and inform immediate actions. We also continue to operate from a leaner base, having delivered on our initiative to achieve $300 million in cost savings by the end of last year with an ability to flex up and flex down in a fluid environment.

Core to these efforts is our bench of leaders across the company with the skills and experience to manage through adversity and seek out opportunity. These individuals, many of whom are new to Tenet in the last two years, ask the right questions allowing them to make the tough decisions. They were selected to lead because they understand that nothing we face is a one-person job and requires everyone moving with purpose to execute.

Our board has provided us with clear strategic direction and is setting the leadership tone. Last year, we appointed Chris Lynch and Dr. Nadja West as part of a methodical Board refreshment process that began in late 2017. Our newest directors complement the expertise of our existing board and bring experience in healthcare, financial services, crisis management and servant leadership – all critical attributes especially during this time.

On behalf of the Board and our executive leadership, I want to thank our teams, and all healthcare providers around the country, who have responded to this public health emergency with strength and courage. They have adapted to the uncertain environment to deliver the best possible outcomes for our communities. We recognize the sacrifices they are making to protect others and see this through.

In honor of all Tenet employees, I am donating 50 percent of my salary from April through June to our Tenet Care Fund, a 501(c)(3) that was established years ago to provide assistance to employees facing hardship due to events beyond their control. My executive leadership team has joined me in this effort, donating 20 percent of their salaries during this time, along with our senior leaders across the enterprise who will donate 10 percent. Senator Bob Kerrey, our Lead Director, and the other members of our Board are also donating a portion of their board fees to the fund. And, I want to recognize the compassion and generosity of those organizations and individuals that have approached us regularly, offering to donate supplies – everything from hand sanitizer to masks and gloves. We are deeply grateful for these acts of kindness.

In closing, the team that delivered our performance in 2018 and 2019, as well as in January, February and early March of 2020, is the same team that will steer Tenet through this crisis. Importantly, the fundamentals that have been put in place over the last two years in performance management, analytical rigor and a focus on excellence in quality, patient care and delivering against tough performance expectations, have not changed. As we gear back up and patients return for much needed care, we remain ready to execute our mission with the same focus as before. We are a Community Built on Care and this crisis has brought us together with an even stronger resolve to continue to drive for excellence. On behalf of our Board of Directors and our 113,000 associates, thank you for placing your trust in us and for your continued support.

In good health,

LOGO

Ronald A. Rittenmeyer

Executive Chairman and CEO

 


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LOGO

TENET HEALTHCARE CORPORATION

14201 Dallas Parkway

Dallas, Texas 75254

(469) 893-2200

Notice of Annual Meeting of Shareholders

to be held on Thursday, May 28, 2020

April 17, 2020

To our Shareholders:

Our 2020 Annual Meeting of Shareholders (the “Annual Meeting”) will be held on Thursday, May 28, 2020, at 8:00 a.m. Central Time. You will be able to attend and participate in the Annual Meeting by visiting www.virtualshareholdermeeting.com/THC2020, where you will be able to listen to the meeting live, submit questions, and vote, for the following purposes:

 

1.

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

 

2.

To vote, on an advisory basis, to approve the Company’s executive compensation.

 

3.

To ratify the selection of Deloitte & Touche LLP as our independent registered public accountants for the year ending December 31, 2020.

 

4.

To vote on a shareholder proposal regarding an independent board chairman, if properly presented at the meeting.

 

5.

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

Only shareholders of record of our common stock at the close of business on March 31, 2020, are entitled to notice of and 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.

 

LOGO

Audrey T. Andrews
Executive Vice President, General Counsel and Corporate Secretary

 

Important Notice Regarding the Availability of Proxy Materials

for the Annual Meeting of Shareholders To Be Held on May 28, 2020

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, 2019, are available at www.proxyvote.com.

 

As provided above, due to the public health impact of the COVID-19 pandemic, we have adopted a virtual meeting format for our Annual Meeting, conducted via a live audio webcast. You will be able to attend the Annual Meeting online, listen to the meeting live, submit questions and vote your shares electronically during the meeting by visiting www.virtualshareholdermeeting.com/THC2020. We have designed the format of the Annual Meeting to provide shareholders substantially the same rights and opportunities to participate as they would at an in-person meeting. As always, we encourage you to vote your shares prior to the Annual Meeting.


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2020 Proxy Statement

 

    

 

    

 

 

Table of Contents

 

Proxy Statement Summary     1  
Proposal 1-Election of Directors     5  
Corporate Governance and Board Practices     14  

Commitment to Sound Corporate Governance Policies and Practices

    14  

Board Leadership Structure

    14  

Board and Committee Organization and Responsibilities

    15  

Role of Board and its Committees in Risk Oversight

    19  

Policies on Ethics and Conduct

    20  

Certain Relationships and Related Person Transactions

    21  

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

    21  
Director Compensation     22  

2019 Director Compensation Table

    23  

Compensation Plans Applicable to Directors

    23  

Director Stock Ownership and Retention Requirements

    24  
Executive Officers     25  
Securities Ownership     27  

Securities Ownership of Management

    27  

Securities Ownership of Certain Shareholders

    28  
Compensation Discussion and Analysis     29  

Overview

    30  

Detailed Description and Analysis

    36  
Human Resources Committee Report     47  
Executive Compensation Tables     48  

Summary Compensation

    48  

Grants of Plan-Based Awards During 2019

    50  

Outstanding Equity Awards

    51  

Option Exercises and Stock Vested

    53  

Pension Benefits

    53  

Nonqualified Deferred Compensation

    55  

Potential Payments Upon Termination or Change of Control

    56  

Pay Ratio Disclosure

    61  
Securities Authorized for Issuance Under Equity Compensation Plans     62  

Equity Compensation Plan Information

    62  
Proposal 2-Advisory Vote to Approve Executive Compensation     63  
Audit Committee Report     64  
Proposal 3-Ratification of the Selection of Independent Registered Public Accountants     66  
Proposal 4-Shareholder Proposal Regarding an Independent Board Chairman     67  
General Information Regarding the Annual Meeting and Voting     69  
Other Information     73  
Appendix A: Non-GAAP Financial Measures     A-1  

This Proxy Statement includes certain financial measures not in accordance with generally accepted accounting principles in the United States (GAAP), such as Adjusted EBITDA, Adjusted Free Cash Flow and Adjusted EPS. Definitions of these measures are contained in Appendix A to this Proxy Statement.


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Proxy Statement Summary

Below are highlights of certain information in this Proxy Statement. Please refer to the complete Proxy Statement and our Annual Report on Form 10-K for the year ended December 31, 2019, before you vote.

2020 ANNUAL MEETING OF SHAREHOLDERS

 

 

LOGO

 

Date and Time:

Thursday, May 28, 2020, at 8:00 a.m. Central Time

 

   

 

LOGO

 

Place:

Online at www.virtualshareholdermeeting.com/
THC2020

 

   

 

LOGO

 

Record Date:

March 31, 2020

 

Information:

The Notice of Internet Availability, this Proxy Statement and related proxy materials are being mailed or made available to shareholders on or about April 17, 2020. Copies of 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    

 

    1    

 

 

Election of Ten Director Nominees

 

 

Vote FOR each nominee

 

 

5    

 

    2    

 

 

Advisory Approval of the Company’s Executive Compensation

 

 

Vote FOR

 

 

63    

 

    3    

 

 

Ratification of the Selection of Deloitte & Touche LLP as Independent Registered Public Accountants for the Year Ending December 31, 2020

 

 

Vote FOR

 

 

66    

 

    4    

 

 

Shareholder Proposal Regarding an Independent Board Chairman

 

 

Vote AGAINST

 

 

67    

 

  2020 PROXY STATEMENT      1  


Table of Contents

Proxy Statement Summary

 

 

Business Overview

Tenet is a national diversified healthcare services company focused on our mission to provide quality, compassionate care in the communities we serve. Tenet has over 113,000 employees delivering and supporting care through our three business units – Hospitals, Ambulatory Care and Conifer. We operate an expansive network across the country, with 65 acute care hospitals and over 500 other healthcare facilities, including ambulatory surgery centers, urgent care centers, imaging centers, surgical hospitals, off-campus emergency departments and micro-hospitals. Through our subsidiary United Surgical Partners International (USPI), Tenet operates the nation’s largest ambulatory platform in the country that includes partnerships with more than 50 prominent health systems. In addition, our subsidiary Conifer Health Solutions is a leading provider of revenue cycle management and value-based care services to hospitals, health systems, physician practices, employers and other customers.

 

 

LOGO

 

2   LOGO   


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Proxy Statement Summary

 

    

 

    

 

 

Governance Highlights

 

Significant Board
refreshment
with seven
new directors since 2017

 

Active shareholder
outreach and
engagement

  Annual election
of directors by
majority standard
   
Shareholder right to
call special meeting
with 25% vote threshold
  Strong independent
Lead Director
with
robust responsibilities
  Proxy access
right adopted in
2019 on market
standard terms

Board Refreshment

In response to specific shareholder feedback, the Board accelerated its refreshment process in 2017, and as a result seven of our 10 directors have joined since October 2017. In June 2019, the Board appointed Mr. Lynch, who offers expertise in corporate governance, financial and regulatory matters, and government relations. Effective October 2019, the Board appointed Dr. West, who served as the 44th Surgeon General of the U.S. Army and has broad healthcare leadership and operational experience. The new directors have brought a diversity of viewpoints, approaches and experiences to the Board as it addresses the risks and pursues the long-term strategies in front of the Company.

Sound Governance Practices

Our Board is committed to sound corporate governance policies that protect the long-term interests of shareholders, promote accountability, and give shareholders a voice. The Board has long maintained many best practices, including annual election of directors by majority standard, a robust annual self-evaluation process, and frequent shareholder engagement. In recent years, the Board has further enhanced the Company’s governance practices, with a right for shareholders that beneficially own 25% of our outstanding shares to call a special meeting added in 2018 and a right for shareholders to nominate directors via proxy access on market standard terms added in 2019. These enhancements, driven in large part by shareholder feedback, are intended to ensure the continued alignment of our corporate governance policies and practices with the long-term interests of our business and our shareholders.

Active Shareholder Engagement Program

Our Board regularly solicits input from investors and governance groups to better inform decision-making and gain insight into shareholder perspectives on a broad range of topics, including our corporate governance practices. We value our shareholders’ perspectives on our business and interact with them through a variety of shareholder engagement activities. As we engage with shareholders, feedback is regularly reviewed by our Board.

 

  2020 PROXY STATEMENT      3  


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Proxy Statement Summary

 

 

Board Characteristics

 

The recent Board refreshment has led to a balanced mix of diversity, age and tenure in the boardroom. The Board believes that a range of backgrounds, beliefs, ethnicities and ages, in addition to gender diversity, contributes to strong governance and successful oversight of the Company.

 

Diversity, Age and Tenure of Board Nominees

 

LOGO

 

 

4   LOGO   


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Director Nominees

 

    

 

    

 

 

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 nine independent directors and our Executive Chairman and Chief Executive Officer. The Board has selected the nominees listed below to serve as directors until the 2021 annual meeting, or until their successors are elected or appointed. Each of the nominees listed below, other than Mr. Lynch and Dr. West, were last elected by the Company’s shareholders at the 2019 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.

 

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

      

 

RONALD A. RITTENMEYER

Executive Chairman and Chief Executive Officer

 

          
  LOGO   

Age: 72

 

Director Since: 2010

 

Other Public
Company
Directorships:

Current: IQVIA Holdings Inc.

 

Others in Past Five Years: American International Group, Inc., Avaya Holdings Corp. and IMS Health Holdings, Inc.

 
 

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, including serving as Lead Director before he became Executive Chairman. 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, including Chairman and Chief Executive Officer, President, Chief Operating Officer and Executive Vice President, Global Service Delivery. 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. He formerly served as Chairman of the Federation of American Hospitals’ board of directors. 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:

Our Board values Mr. Rittenmeyer’s deep experience in transformational leadership. As Chief Executive Officer of Safety Kleen, he led the company out of bankruptcy with pivotal strategic changes. He also led a turnaround at EDS in the same role and previously served as the Chief Executive Officer of other public companies, including Millennium Health and Expert Global Solutions. Mr. Rittenmeyer also brings to the Board his knowledge of the healthcare industry, information technology, business process outsourcing, public company board governance, and crisis management.

 

 
 

 

  2020 PROXY STATEMENT      5  


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Director Nominees

 

 

      

 

J. ROBERT KERREY

Lead Director since October 2017

 

      
  LOGO   

Age: 76

 

Director Since: 2012*

 

Other Public
Company Directorships:

Current: None

 

Others in Past Five Years: Chart Acquisition Corp. and U.S. Rare Earths, Inc.

 

Committee Membership: Human Resources (Chair)

QCE

 
 

Career Highlights:

Senator 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 2014. He has also served as Executive Chairman of The Minerva Institute for Research and Scholarship, a non-profit that offers exceptional educational experiences to students and advances faculty research, since 2013. From 2011 to 2013, he was President Emeritus of The New School University in New York City, where he served as President from 2001 to 2010. From 2011 to 2012, he served as the Chairman of M & F Worldwide Education Holdings. From 1989 to 2000, he served as a U.S. Senator for the State of Nebraska. Previously, Senator Kerrey was Governor of the State of Nebraska from 1982 to 1987. Prior to public service, he founded and operated a chain of restaurants and health clubs. A former member of the elite Navy SEAL Team, Senator Kerrey is a highly decorated Vietnam veteran who was awarded the Congressional Medal of Honor – America’s highest military honor. He holds a degree in pharmacy from the University of Nebraska.

 

Skills and Qualifications:

Senator Kerrey’s 18 years of experience in the public sector as a former U.S. Senator and Governor of Nebraska provide a key perspective to the Board in the highly regulated healthcare industry. Further, he has extensive experience in finance and public policy from his service at the investment banking firm Allen & Company and as a leader of a major university. The Board also values Senator Kerrey’s service on public company boards and crisis management.

 

*   Senator Kerrey served as a director from March 2001 to March 2012 prior to his appointment in November 2012

 

 

 
      

 

LLOYD J. AUSTIN III

 

      
  LOGO   

Age: 66

 

Director Since: 2018

 

Other Public
Company Directorships:

Current: United Technologies Corporation and Nucor Corporation

 

Others in Past Five Years: None

 

Committee Membership: Audit

Human Resources

 
 

Career Highlights:

General Austin is a retired four-star general who served for 41 years in the U.S. Army. From March 2013 through March 2016, he served as the Commander of U.S. Central Command responsible for military strategy and joint operations throughout the 20-country Central Region that includes Iraq, Syria, Iran, Afghanistan, Pakistan, Yemen, Egypt and Saudi Arabia. Prior to that, he served as the 33rd Vice Chief of Staff of the U.S. Army from January 2012 to March 2013 and as the Combined Forces Commander in Iraq from September 2010 through 2011. He is the recipient of numerous U.S. military awards, including the Silver Star, five Defense Distinguished Service Medals and the Legion of Merit. General Austin currently serves as a director of United Technologies Corporation and Nucor Corporation. He is a graduate of the U.S. Military Academy and holds master’s degrees from Auburn University (Education) and Webster University (Business Management).

 

Skills and Qualifications:

The Board values General Austin’s leadership experience as a former four-star general in the U.S. Army. He brings insight gained from across the world in a variety of positions that includes a focus on crisis and risk management.

 

 
 

 

6   LOGO   


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Director Nominees

 

    

 

    

 

 

      

 

JAMES L. BIERMAN

 

      

 

  LOGO   

Age: 67

 

Director Since: 2017

 

Other Public
Company Directorships:

Current: None

 

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

 

Committee Membership:

Governance

QCE (Chair)

 

 
 

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:

Mr. Bierman brings to the Board the skillsets he developed serving in multiple leadership positions at Owens & Minor, Inc., including as Chief Executive Officer. The Board values his significant operational and financial experience in the healthcare industry.

 

 
      

 

RICHARD W. FISHER

 

      
  LOGO   

Age: 71

 

Director Since: 2017

 

Other Public
Company Directorships:

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

 

Others in Past Five Years: None

 

Committee Membership:

Audit

Human Resources

 
 

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, a leading investment bank, 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:

Mr. Fisher offers valuable financial and policy perspectives from his experience as President and Chief Executive Officer of the Dallas Federal Reserve. The Board values his insight in public finance, trade, technology and risk management.

 

 
 

 

  2020 PROXY STATEMENT      7  


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Director Nominees

 

 

      

 

MEGHAN M. FITZGERALD, DrPH

 

      
  LOGO   

Age: 49

 

Director Since: 2018

 

Other Public
Company Directorships:

Current: Arix Bioscience plc

 

Others in Past Five Years: Concert Pharmaceuticals, Inc.

 

Committee Membership:

Governance (Chair)

QCE

 
 

Career Highlights:

Ms. FitzGerald is a Managing Partner at L1 Health LLC, an investment fund specializing in healthcare. She also serves as an Adjunct Associate Professor of Health Policy at Columbia University. From May 2015 to October 2016, Ms. FitzGerald served as Executive Vice President of Strategy and Policy at Cardinal Health, a healthcare services and product company. From 2010 to 2015, she served as President of Cardinal’s Specialty Solutions division. Ms. FitzGerald also serves as a director of Arix Bioscience plc. She holds a DrPH in Healthcare Policy from New York Medical College, a BSN in Nursing from Fairfield University, and a Master of Public Health from Columbia University.

 

Skills and Qualifications:

Ms. FitzGerald brings to the Board a broad range of experience in the healthcare industry, including senior strategic leadership, public policy, care delivery from her service as a nurse, and transactions and investments in a variety of healthcare fields from technology to life sciences.

 

 
      

 

CHRISTOPHER S. LYNCH

 

      
 

LOGO

  

Age: 62

 

Director Since: 2019

 

Other Public
Company Directorships:

Current: American International Group, Inc.

 

Others in Past Five Years: Federal Home Loan Mortgage Company (Freddie Mac)

 

Committee Membership:

Audit

Human Resources

 
 

Career Highlights:

Mr. Lynch served as National Partner in Charge of the Financial Services division at KPMG, LLC from 2004 until his retirement in 2007. Prior to that, Mr. Lynch held a variety of positions at KPMG during his 29-year tenure, including chair of KPMG’s Americas Financial Services Leadership team and a member of the Global Financial Services Leadership and the U.S. Industries Leadership teams. He currently serves as an independent director of American International Group, Inc. (AIG), a position he has held since 2009. From 2008 to 2019, he also served as an independent director of Federal Home Loan Mortgage Corporation (Freddie Mac) and was the Non-Executive Chairman of the Board from 2011 to 2018. Mr. Lynch has chaired audit committees of both AIG and Freddie Mac and has relevant committee experience on Risk, Compensation and Nomination and Corporate Governance. Mr. Lynch is a former member of the Advisory Board of the Stanford Institute for Economic Policy Research and a member of the Audit Committee Chair Advisory Council of the National Association of Corporate Directors. He received a Bachelor of Science in Accounting from the University of Kansas.

 

Skills and Qualifications:

The Board values Mr. Lynch’s deep accounting, financial and corporate governance experience, including serving in leadership positions at KPMG and chairing audit committees at two highly regulated public companies.

 

 
 

 

8   LOGO   


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Director Nominees

 

    

 

    

 

 

      

 

RICHARD J. MARK

 

      
  LOGO   

Age: 64

 

Director Since: 2017

 

Other Public
Company Directorships:

Current: None

 

Others in Past Five Years: None

 

Committee Membership:

Audit

Governance

 
 

Career Highlights:

Mr. Mark serves as Chairman and President of Ameren Illinois Company, a multi-billion dollar 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:

Mr. Mark offers the Board extensive experience as Chairman and President of Ameren Illinois Company in a highly regulated industry in addition to multiple leadership positions at an acute care hospital, including service as Chief Executive Officer.

 

 
      

 

TAMMY ROMO

 

      
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Age: 57

 

Director Since: 2015

 

Other Public
Company Directorships:

Current: None

 

Others in Past Five Years: None

 

Committee Membership:

Audit (Chair)

Human Resources

 
 

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 McCombs School of Business Advisory Council 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:

Ms. Romo brings to the Board her experience as Executive Vice President and Chief Financial Officer of Southwest Airlines, where she oversees a broad range of financial activities. The Board values her deep knowledge of accounting and financial matters in addition to her understanding of risk management.

 

 
 

 

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Director Nominees

 

 

      

 

NADJA Y. WEST, M.D.

 

      
 

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Age: 59

 

Director Since: 2019

 

Other Public
Company Directorships:

Current: Nucor Corporation

 

Others in Past Five Years: None

 

Committee Membership:

Governance

QCE

 
 

Career Highlights:

Dr. West is a retired Lieutenant General in the U.S. Army, the 44th Surgeon General of the U.S. Army and the former Commanding General of the U.S. Army Medical Command. Previously, she served as Joint Staff Surgeon at the Pentagon, where she acted as chief medical advisor to the Chairman of the Joint Chiefs of Staff and coordinated all related health services issues, including operational medicine, force health protection, and readiness within the military. Dr. West has served in combat deployment as well as in leadership positions in multiple hospitals both in the United States and abroad. She is the recipient of numerous U.S. military awards, including the Distinguished Service Medal, the Defense Superior Service Medal, and the Legion of Merit with three Oak Leaf Clusters. She has served as an independent director on the board of Nucor Corporation since 2019. Dr. West has served as a trustee on the board of the National Recreation Foundation, a non-profit organization dedicated to enhancing the role of recreation as a positive force in improving the quality of life of youth, since 2019. Dr. West is a graduate of the U.S. Military Academy and earned her medical degree from The George Washington University School of Medicine in Washington, D.C. She has completed residencies in both family medicine and dermatology.

 

Skills and Qualifications:

The Board values Dr. West’s comprehensive experience in healthcare, including her service as the 44th Surgeon General of the U.S. Army. Her experience in a variety of healthcare leadership positions and clinical background offer the Board valuable perspectives on healthcare delivery, policy, and crisis and risk management.

 

 
 

 

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Proposal 1: Election of Directors

 

    

 

    

 

 

Director Nomination and Qualifications

Our Board regularly reviews its composition and is committed to recommending a group of directors who represent a diverse mix of viewpoints, skills, experience and backgrounds that align with the Company’s business and strategic goals. The Nominating and Corporate Governance Committee (Governance Committee) is responsible for nominating, and the entire Board is responsible for selecting, individuals who hold these characteristics to stand for shareholder election at each annual meeting as well as to fill any vacancies on the Board as they arise.

Since late 2017, the Governance Committee has focused its refreshment efforts on identifying candidates to further strengthen the Board’s effectiveness. To date, this process has resulted in the identification and appointment of seven new independent directors who collectively bring deep healthcare, financial, public sector, operational expertise and crisis management skills that complements the current skillsets and enhances the effectiveness of the overall Board. In addition, each of our directors has the dedication and leadership qualities that enable them to exercise robust oversight of the Company, especially as the Company navigates a transformation amidst the challenges and opportunities in the healthcare industry.

Nomination Process

The Governance Committee considers candidates based on the recommendation of, among others, our Board members and our shareholders. In 2019, Board members recommended Mr. Lynch and Dr. West to the Governance Committee. The Governance Committee may also engage professional search firms and other consultants to assist in identifying, evaluating and conducting due diligence on potential candidates. We intend to continue to actively engage with our shareholders regarding Board composition and director qualifications, including considering their input on potential director candidates. Once potential candidates have been identified, they typically meet with each member of the Board and pass a thorough screening process before the Governance Committee makes a final recommendation to the Board. This process involves a rigorous evaluation that assesses attributes beyond specific business skills, including character, diversity and personal and professional integrity.

Shareholders may propose nominees for election in accordance with the terms of our bylaws or recommend candidates for consideration by the Board by writing to the Governance Committee in care of the Corporate Secretary at Tenet Healthcare Corporation, 14201 Dallas Parkway, Dallas, Texas 75254, or by email to boardofdirectors@tenethealth.com. For more detailed information regarding the process by which shareholders may nominate directors, including under our proxy access provisions, please refer to “Other Information—Shareholder Proposals” below and our bylaws. Our bylaws may be found under the “Governance” heading in the “For Investors” section 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, diversity, qualifications, skillsets and other qualities represented on the Board to ensure the right balance to effectively oversee management. 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. 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 the Company’s mission

   

Diversity of ethnicity, gender, background, experience and viewpoints

   

Service as the chief executive officer or in other senior leadership positions in a company or major governmental, professional or non-profit organization

    

       

Experience in the healthcare industry or other relevant industry experience

   

Expertise in financial and accounting matters and familiarity with the regulatory and corporate governance requirements applicable to public companies

   

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 nominees

   

Familiarity with the communities in which we do business

 

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Proposal 1: Election of Directors

 

 

Board Evaluations

The Governance Committee oversees the Board’s annual performance evaluation to determine whether the Board, its committees and individual directors are functioning well in view of their responsibilities and the Company’s business. To ensure that the self-evaluation process is conducted with transparency and rigor, the Board has for many years retained a third party advisor to interview each director, review their feedback, and facilitate a discussion based on the results at a special executive session of the Board. This comprehensive and disciplined approach to evaluation has proven to be an important element to maintain a high-performing and collaborative Board that can properly address risk management and execution of Company strategy.

The Board completed its most recent self-evaluation in February 2020, focusing its discussions on, among other things, the composition and effectiveness of the Board in light of several changes in membership, the effectiveness of Mr. Rittenmeyer and Senator Kerrey in their respective leadership roles, and the performance of each committee and committee chair. Based on the Board’s annual evaluation, and in accordance with the requirements of the Company’s Corporate Governance Principles, the Board concluded that no changes were necessary in the Board’s leadership or committee structure, including chair assignments. In addition, the Board concluded that its processes and committees were functioning properly, noting healthy levels of debate, collaboration and respect among directors.

Director Nominees’ Qualifications and Experience

Based on the review process described above, the Governance Committee concluded that our ten 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 several core skills and experiences of our current nominees, in addition to those described in the director biographies outlined beginning on page 5.

 

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Personal Qualities and Diversity. The Governance Committee determined that each nominee has demonstrated a commitment to professionalism and integrity. In particular, the Governance Committee noted that each nominee has the ability to provide candid and direct feedback as well as oversight of the Company’s operations on behalf of all shareholders. Additionally, our Board currently includes individuals of differing ages, backgrounds, ethnicities and genders. Three of our ten director nominees are women, and in 2019 the Board appointed women to chair our Audit and Governance committees.

Special Considerations Regarding Service on Other Boards. Our directors 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 director may serve in addition to our Board to three, or two in the case of directors currently serving as chief executive officers or in equivalent positions of public companies. All of the Company’s directors are in compliance with these requirements, and Mr. Rittenmeyer serves on only one other public company board of directors.

 

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Proposal 1: Election of Directors

 

    

 

    

 

 

Director Independence

Our independence requirements for our Board are set forth in our Corporate Governance Principles, available under the “Governance” heading in the “For Investors” section on our website at www.tenethealth.com. Under our Corporate Governance Principles, at least two thirds of the Board must consist of “independent” directors. The Board will not consider a director to be independent unless the Board affirmatively determines that the director has no material relationship with Tenet and the director otherwise qualifies as independent under the corporate governance standards of the New York Stock Exchange (NYSE). The Board reviews each director’s independence at least annually and has made the affirmative determination that each of our current non-employee directors (Messrs. Kerrey, Austin, Bierman, Fisher, Lynch and Mark and Mses. FitzGerald, Romo and West) has no material relationship with the Company and is independent. In addition, the Board determined that each of Ms. Brenda J. Gaines and Mr. Edward A. Kangas was independent during the time each of them served on our Board during 2019 when the Board last assessed their independence. In general, all members of our Board during the past 14 years have been independent directors with the exception of the two individuals who 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 focuses on the organizations with which each director has an affiliation. If a director or member of the director’s immediate family has a material relationship with the Company, the Board reviews the interest to determine if it would preclude an independence determination.

The Audit Committee, the Human Resources Committee (HR Committee) and the Governance Committee are comprised exclusively of independent directors as required by the NYSE. In addition, 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), and all directors serving on the HR 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 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 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

  Proxy access

  One-year limit on “poison pills” unless approved by shareholders

     

Board Practices

  All directors are independent other than the Chief Executive Officer

  Highly diverse and experienced Board

  Independent Lead Director with clearly defined and robust responsibilities

  Commitment to Board refreshment practices, including committee chair rotation

  

  Self-evaluation of all directors

  Board oversight of political contributions

  Regular executive sessions of independent directors

  Regular engagement with shareholders

  

Our Board has also adopted Corporate Governance Principles that provide the framework for our existing corporate governance policies and practices, which the Board reviews annually. These Corporate Governance Principles address in detail matters such as director independence, director qualifications and responsibilities, director compensation, and director and officer stock ownership and retention guidelines. For more information, please see our Corporate Governance Principles under the “Governance” heading in the “For Investors” section on our website at www.tenethealth.com.

Board Leadership Structure

Senator Kerrey has served as independent Lead Director since October 2017, shortly after Mr. Rittenmeyer became Executive Chairman on August 31, 2017. The Company’s governing documents give the Board the flexibility to determine the appropriate leadership structure for the Company based on our particular circumstances at the time. The Governance Committee regularly reviews the Board’s 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 oversight of the Company as well as 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 turnaround efforts and that Mr. Rittenmeyer’s current leadership of both the Board and the management team is effective.

 

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Corporate Governance and Board Practices

 

    

 

    

 

 

Role of Independent Lead Director of the Board

The role of our Lead Director is set forth in our Corporate Governance Principles. Senator Kerrey, as independent Lead Director of the Board, coordinates the activities of the Board and exercises a robust set of duties described below. Specifically, in his role as the independent Lead Director, Senator Kerrey:

 

Presides at all meetings at which the Chairman is not present

 

Chairs executive sessions of independent directors of the Board

 

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

 

Participates in consultation and direct communication with shareholders

 

Advocates on behalf of the Board in meetings with investors, legislators, regulators and other government officials

 

Serves an oversight role, in conjunction with the Governance Committee, in the Board performance evaluation process

In addition to his formal duties, Senator Kerrey has 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. Senator Kerrey shares the feedback with the full Board so it may be incorporated into the Board’s decision-making processes.

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 9 times during 2019. The Board frequently meets in executive sessions, including at least once during each regularly scheduled Board meeting.

Each incumbent director who served during 2019 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. Board members are encouraged to attend our annual meeting of shareholders. Nine of the 10 directors elected at last year’s annual meeting were in attendance at the 2019 Annual Meeting. Mr. Mark was not able to attend due to a preexisting commitment.

 

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Corporate Governance and Board Practices

 

 

Committees

Tenet has four standing committees: Audit Committee, HR 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

Lloyd J. Austin, III

    

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LOGO

             

James L. Bierman

                  

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Chair

Richard W. Fisher

    

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LOGO

             

Meghan M. FitzGerald

                  

Chair

    

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J. Robert Kerrey

           

Chair

           

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Christopher S. Lynch

    

LOGO

    

LOGO

             

Richard J. Mark

    

LOGO

           

LOGO

      

Ronald A. Rittenmeyer

                           

Tammy Romo

    

Chair

    

LOGO

             

Nadja Y. West

                  

LOGO

    

LOGO

 

 

*

All members of the Audit Committee have been designated as financially literate within the meaning of the NYSE listing standards. Mr. Fisher, Mr. Lynch and Ms. Romo have been designated as audit committee financial experts, as defined by SEC rules.

 

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 under the “Governance” heading in the “For Investors” section on our website at www.tenethealth.com. The Board and each committee may retain independent advisors and consultants, at the Company’s cost, to assist the directors in carrying out their responsibilities.

 

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Corporate Governance and Board Practices

 

    

 

    

 

 

The Audit Committee

 

Membership: Romo (Chair), Austin, Fisher, Lynch, Mark (All Independent)

 

     

Meetings held in 2019:

  8  

Primary Responsibilities:

  Assist the Board in oversight of:

  Accounting, reporting and financial practices

  The integrity of financial statements

  Compliance with legal and regulatory requirements with respect to applicable accounting and auditing matters

  Independent registered public accountants’ qualifications, independence and performance

  Internal audit function

  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

  Oversee the performance of the Company’s chief internal auditor, who reports directly to the Audit Committee

     

Key Skills and Experience:

  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

 

Membership: Kerrey (Chair), Austin, Fisher, Lynch, Romo (All Independent)

 

     

Meetings held in 2019:

  6  

Primary Responsibilities:

  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

  Review, approve and make recommendations regarding compensation of non-employee directors, the Company’s executive officers and other members of the senior management team

  Review the performance of the Chief Executive Officer and, either as a committee or together with other independent directors, determine and approve the CEO’s compensation level based on this evaluation

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

  Oversee the Company’s policies and procedures regarding harassment in the workplace and sexual misconduct matters, including reporting systems and treatment of received complaints, and monitor compliance with such policies and applicable law

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

     

Key Skills and Experience:

  Extensive knowledge of executive compensation best practices

  Human capital management

  Expertise in evaluating executive performance and determining appropriate compensation programs

  Leading cultural change

 
         

 

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Corporate Governance and Board Practices

 

 

The Nominating and Corporate Governance Committee

 

Membership: FitzGerald (Chair), Bierman, Mark, West (All Independent)

 

     

Meetings held in 2019:

  5  

Primary Responsibilities:

  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 and approve proposed related-person transactions

     

Key Skills and Experience:

  Corporate governance expertise

  Board succession planning

  Public company board service and experience overseeing large organizations

 
         

 

 

The Quality, Compliance & Ethics Committee

 

Membership: Bierman (Chair), FitzGerald, Kerrey, West (All Independent)

 

     

Meetings held in 2019:

  4  

Primary Responsibilities:

  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, and 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 compliance matters

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

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

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

 

     

Key Skills and Experience:

  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

 
         

 

 

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Corporate Governance and Board Practices

 

    

 

    

 

 

HR Committee Interlocks and Insider Participation

No member of the HR Committee was at any time during 2019 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 person transaction under “Certain Relationships and Related Person Transactions” on page 21 of this Proxy Statement. None of our executive officers has served on a board of directors or compensation committee of any other entity that has or has had one or more executive officers who served as a member of our Board or HR Committee during 2019.

Role of Board and its Committees in Risk Oversight

Management is primarily responsible for the identification, assessment and management of the various risks that we face. The Board oversees this process 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 businesses 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 of its priorities and receives regular reports from the Company’s management on the security of the Company’s information technology systems.

The Board’s committees oversee risks related to their respective areas, as further described below. 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 in executive session, as well as at other times when appropriate. As risk-related issues sometimes overlap, certain issues are addressed 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.

 

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.

 

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. 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 quarterly 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.

 

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Corporate Governance and Board Practices

 

 

Role of Human Resources Committee in Risk Oversight

Our HR 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 HR Committee meets at least annually with our management and the HR Committee’s independent compensation consultant to review and discuss potential risks relating to our employee compensation plans and programs. The HR Committee reports to the Board any risks associated with our compensation plans and programs, including recommended actions to mitigate such risks.

The HR 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 HR 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 HR Committee has reviewed our pay philosophy, balance of cash and equity compensation, balance of long-term and short-term performance periods in our plans and programs, and our use of performance metrics that encourage management to act in the long-term interest of our shareholders. The HR 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” heading 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 to our Board and certain physicians and contractors.

Quality, Compliance & Ethics Program Charter

We operate our ethics and compliance program pursuant to 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, 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” heading 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 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 the Corporate Secretary, Tenet Healthcare Corporation, 14201 Dallas Parkway, Dallas, Texas 75254. 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 under the “Governance” heading in the “For Investors” section on our website at www.tenethealth.com.

 

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Director Compensation

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

Employee directors do not receive any compensation for their service as a director. All 2019 compensation for our Executive Chairman and Chief Executive Officer is shown in the 2019 Summary Compensation Table on page 48.

Our 2019 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 and 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 and a prorated annual RSU grant. All annual cash fees are prorated for partial year service. Directors are reimbursed for any travel expenses and other out-of-pocket costs incurred while attending meetings.

 

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Director Compensation

 

    

 

    

 

 

2019 Director Compensation Table

 

Name

Fees Earned or
Paid in Cash

($)

Stock Awards

($)(1)(2)

Total

($)

 

Lloyd J. Austin, III

 

 

 

127,500

 

 

 

 

175,002

 

 

 

 

302,502

 

 

James L. Bierman

 

 

 

132,500

 

 

 

 

175,002

 

 

 

 

307,502

 

 

Richard W. Fisher

 

 

 

125,500

 

 

 

 

175,002

 

 

 

 

300,502

 

 

Meghan M. FitzGerald

 

 

 

117,500

 

 

 

 

175,002

 

 

 

 

292,502

 

 

Brenda J. Gaines(3)

 

 

 

133,392

 

 

 

 

175,002

 

 

 

 

308,394

 

 

Edward A. Kangas(3)

 

 

 

118,126

 

 

 

 

175,002

 

 

 

 

293,128

 

 

J. Robert Kerrey

 

 

 

283,289

 

 

 

 

225,009

 

 

 

 

508,298

 

 

Christopher S. Lynch

 

 

 

49,691

 

  193,521 (4) 

 

 

 

243,212

 

 

Richard J. Mark

 

 

 

124,000

 

 

 

 

175,002

 

 

 

 

299,002

 

 

Tammy Romo

 

 

 

131,237

 

 

 

 

175,002

 

 

 

 

306,239

 

 

Nadja Y. West

 

 

 

25,943

 

  164,280 (5) 

 

 

 

190,223

 

 

(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 stock incentive plan. Assumptions used in the calculation of these amounts are discussed in the footnotes below and/or in Note 10 to our consolidated financial statements for the year ended December 31, 2019 included in our Annual Report on Form 10-K.

 

(2)

The amounts shown in this column reflect annual RSU grants applicable to the 2019-2020 board service year valued at approximately $175,000 (prorated for partial-year service in the cases of Mr. Lynch and Dr. West). 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 2019 annual awards. On May 3, 2019, based on the NYSE closing price of $21.40 per share of our common stock (adjusted as described in the preceding sentence), each non-employee director then serving was granted 10,817 RSUs under the program, and Senator Kerrey was granted an additional 3,091 RSUs in respect of his service as Lead Director.

 

(3)

Ms. Gaines and Mr. Kangas ended their terms of service as directors on November 7, 2019, and their cash fees were prorated as applicable.

 

(4)

Upon joining the Board in August 2019, Mr. Lynch was granted an initial stock award of 3,003 RSUs and a prorated annual director grant of 7,978 RSUs applicable to the 2019-2020 board service year. These grants were based on the NYSE closing price of $21.65 per share of our common stock on August 30, 2019 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 2019 annual director awards. The initial stock grant is not subject to the mandatory post-vesting holding period.

 

(5)

Upon joining the Board in October 2019, Dr. West was granted an initial stock award of 2,566 RSUs and a prorated annual director grant of 5,279 RSUs applicable to the 2019-2020 board service year. These grants were based on the NYSE closing price of $25.34 per share of our common stock on October 31, 2019 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 2019 annual director awards. The initial stock grant is not subject to the mandatory post-vesting holding period.

 

Compensation Plans Applicable to Directors

Stock Incentive Plans

Each non-employee director receives an annual award under our 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. A mandatory post-vest holding period of three years is applied to these annual RSU awards, which are 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 defer the settlement of their annual RSU grants under our 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, none of our current directors have elected to defer settlement of RSU grants pursuant to the terms of the Special RSU Deferral Plan.

 

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Director Compensation

 

 

2006 Deferred Compensation Plan

Under our 2006 Deferred Compensation Plan (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. Senator Kerrey was the only non-employee director who participated in the DCP in 2019. A more complete description of the DCP can be found under “Nonqualified Deferred Compensation—Deferred Compensation Plan” beginning on page 55.

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 45. As of the record date, all of our non-employee directors were in compliance with the requirements or within the applicable period to come into compliance.

 

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Executive Officers

Biographical information for the executive officers of the Company is set forth below. Biographical information for Ronald A. Rittenmeyer can be found under “Nominees for Election to the Board of Directors” on page 5.

Audrey T. Andrews, Executive Vice President, General Counsel and Corporate Secretary

Ms. Andrews, 53, was appointed Tenet’s General Counsel in January 2013 and Executive Vice President in March 2019. In this capacity, she oversees the law department and government relations for Tenet, USPI and Conifer. Ms. Andrews was also appointed Corporate Secretary in March 2020. Ms. Andrews previously held the title of Senior Vice President from January 2013 to February 2019. From July 2008 through December 2012, she served as Senior Vice President and Chief Compliance Officer and, prior to that, served as Vice President and Chief Compliance Officer from November 2006. She joined Tenet in 1998 as hospital operations counsel. Ms. Andrews earned her law degree and her bachelor’s degree in government, both from the University of Texas at Austin. She is a member of the American and Texas Bar Associations and the American Health Lawyers Association.

Paola M. Arbour, Executive Vice President and Chief Information Officer

Ms. Arbour, 56, was appointed Tenet’s Chief Information Officer in May 2018 and Executive Vice President in March 2019. In this capacity, Ms. Arbour oversees the leadership and strategic direction for Tenet’s information technology (IT) systems and identifies opportunities to support the company’s expansive care network through the application of digital technology, data and automation and customer experience. Ms. Arbour previously held the title of Senior Vice President from May 2018 to February 2019. Prior to Tenet, Ms. Arbour served as President at ProV International from November 2017 to April 2018, Vice President Services Global Delivery at ServiceNow from July 2016 to September 2017, and as Vice President of Service Delivery at Dell Services from December 2010 to April 2016. From 1985 to 2009, Ms. Arbour held several leadership roles within IT operations at Electronic Data Systems – both at the company’s headquarters and also in London and Frankfurt. Ms. Arbour earned her bachelor’s degree in telecommunications arts and sciences from Michigan State University.

Daniel J. Cancelmi, Executive Vice President and Chief Financial Officer

Mr. Cancelmi, 57, was appointed Tenet’s Chief Financial Officer in September 2012 and Executive Vice President in March 2019. He previously served as Senior Vice President from April 2009, Principal Accounting Officer from April 2007 and Controller from September 2004. Mr. Cancelmi was a Vice President and Assistant Controller at Tenet from September 1999 until his promotion to Controller. He joined the Company as Chief Financial Officer of Hahnemann University Hospital. Prior to that, he held various positions at PricewaterhouseCoopers, including in the firm’s National Accounting and SEC office in New York City. Mr. Cancelmi is a certified public accountant licensed in the states of Florida and Texas who received his bachelor’s degree in accounting from Duquesne University in Pittsburgh. He is also a member of the American and Florida Institutes of Certified Public Accountants and the Texas Society of Certified Public Accountants.

Howard B. Hacker, Executive Vice President and Chief Compliance Officer

Mr. Hacker, 48, was appointed Tenet’s Chief Compliance Officer in May 2016 and Executive Vice President in March 2019. In this capacity, he is responsible for overseeing the ethics and compliance programs for the Tenet enterprise, reporting directly to the Quality, Compliance and Ethics Committee of Tenet’s board of directors. Mr. Hacker previously held the title of Senior Vice President from May 2016 to February 2019. Mr. Hacker joined Tenet after more than a decade at Pfizer Inc., where he had served in various legal and compliance leadership positions since May 2004. Prior to Pfizer, Mr. Hacker worked for the law firms of Jones Day and Akin Gump Strauss Hauer & Feld, where he specialized in securities law and mergers and acquisitions. Mr. Hacker earned his law degree from the University of Texas at Austin and his bachelor’s degree in Russian and history from Washington University in St. Louis.

Sandra R.A. Karrmann, Executive Vice President and Chief Human Resources Officer

Ms. Karrmann, 54, was appointed Senior Vice President and Chief Human Resources Officer for the Tenet enterprise in November 2017 and Executive Vice President in March 2019. In this capacity, she is responsible for providing leadership and oversight for labor relations, talent development, culture and performance systems, compensation, employee benefits and related matters. She previously held the title of Senior Vice President at Tenet from November 2017 to March 2019. Ms. Karrmann joined the Company as Senior Vice President and Chief Human Resources Officer for USPI in January 2013. Before joining USPI in 2013, Ms. Karrmann served in several leadership roles at various companies, including Chief People Officer for Yum! Restaurants

 

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Executive Officers

 

 

International and Pizza Hut US from August 2007 to June 2012. She also served as the Executive Vice President and CHRO for Meritage Homes Corporation from December 2005 to August 2007. Prior to that, she served in a number of positions with increasing responsibility over nearly 13 years with PepsiCo, including her last role as vice president of HR for the sales division of Frito-Lay North America. Ms. Karrmann completed her bachelor’s degree in psychology and communications from the University of Michigan and her MBA in finance from the University of Southern California.

Marie Quintana, Executive Vice President of Communications and Chief Marketing Officer

Ms. Quintana, 63, was appointed Tenet’s Chief Marketing Officer in May 2018 and Executive Vice President of Communications in March 2019. Ms. Quintana previously held the title Senior Vice President from May 2018 to February 2019. Under her leadership, Tenet activated its first integrated national marketing campaign, driving strong results in brand recognition and awareness. She also serves as chair of the Tenet Healthcare Foundation and is a director on the Governing Board of the Detroit Medical Center, which is operated by Tenet. Prior to joining Tenet, Ms. Quintana spent 14 years at PepsiCo where she held the positions of Senior Vice President of Sales and Marketing from March 2005 to April 2012, Vice President of Global IT Strategy from July 2003 to March 2005, and Vice President of Technology from October 1998 to July 2003. Ms. Quintana earned her bachelor’s degree from Louisiana State University and her master’s degree from Tulane University. She co-founded the PepsiCo Women of Color Alliance, which was awarded the Catalyst Award in 2007. She is a past founding board member of the Network of Executive Women. She has also been named one of the Top 50 Hispanic Women in Business by Hispanic Business Magazine and one of the Top 50 Women in Grocery by Progressive Grocer. She currently serves on the board of directors for Catholic Charities of Dallas.

Saumya (Saum) Sutaria M.D., President and Chief Operating Officer

Dr. Sutaria, 47, was appointed Tenet’s Chief Operating Officer in January 2019 and President in November 2019. In this capacity, he oversees all of Tenet’s acute care hospitals, hospital-affiliated outpatient facilities and physician practices and has direct responsibility for USPI and Conifer. Prior to joining the Company, Dr. Sutaria worked for McKinsey & Company for 18 years, most recently as a Senior Partner providing advisory support for hospitals, healthcare systems, physicians groups, ambulatory care models, integrated delivery, and government-led delivery, while also working with institutional investors in healthcare. He previously held an associate clinical faculty appointment at the University of California at San Francisco, where he also engaged in postgraduate training with a focus in internal medicine and cardiology. Dr. Sutaria received his bachelor’s degree in molecular and cellular biology and his bachelor’s degree in economics, both from the University of California, Berkeley, as well as his medical degree from the University of California, San Diego.

 

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Securities Ownership

Securities Ownership of Management

The table below discloses the shares, options and other securities beneficially owned by our directors and director nominees, each of our NEOs, and our current directors and executive officers as a group, as of March 31, 2020 (unless indicated below otherwise). No director or current executive officer has pledged any shares of our common stock.

 

Name

Shares Beneficially Owned(1)

Shares of

Common Stock(2)

Options
Exercisable Within
60 Days of

March 31, 2020

Percent

of Class
as of
March 31, 2020

 

Audrey Andrews

 

 

 

73,736

 

 

 

 

58,680

 

 

 

 

*

 

 

Paola Arbour

 

 

 

6,726

 

  2,509 (3) 

 

 

 

*

 

 

Lloyd J. Austin, III

  18,729 (4) 

 

 

 

-0-

 

 

 

 

*

 

 

James L. Bierman

 

 

 

31,103

 

(5)

 

 

 

 

-0-

 

 

 

 

*

 

 

Daniel J. Cancelmi

 

 

 

339,937

 

 

 

 

127,476

 

 

 

 

*

 

 

Richard W. Fisher

  30,686 (6) 

 

 

 

-0-

 

 

 

 

*

 

 

Meghan M. FitzGerald

  24,882 (7) 

 

 

 

-0-

 

 

 

 

*

 

 

J. Robert Kerrey

  59,108 (8) 

 

 

 

-0-

 

 

 

 

*

 

 

Christopher S. Lynch

  10,981 (9) 

 

 

 

-0-

 

 

 

 

*

 

 

Richard J. Mark

  30,686 (6) 

 

 

 

-0-

 

 

 

 

*

 

 

Keith B. Pitts

  336,877 (10) 

 

 

 

-0-

 

 

 

 

*

 

 

Ronald A. Rittenmeyer

  448,996 (11) 

 

 

 

408,526

 

 

 

 

*

 

 

Tammy Romo

  45,663 (12) 

 

 

 

-0-

 

 

 

 

*

 

 

Saumya Sutaria

 

 

 

49,413

 

 

 

 

-0-

 

 

 

 

*

 

 

Nadja Y. West

  8,845 (13) 

 

 

 

-0-

 

 

 

 

*

 

 

Current executive officers and directors as a group (17 persons)

  1,205,292 (14) 

 

 

 

610,966

 

 

 

 

1.7

 

%

 

*

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 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.

 

(3)

Represents 2,509 RSUs granted under our stock incentive plans. These RSUs are scheduled to vest and settle in shares of our common stock on May 31, 2020.

 

(4)

Represents 18,729 RSUs granted under our stock incentive plans.

 

(5)

Represents 31,103 RSUs granted under our stock incentive plans.

 

(6)

Represents 30,686 RSUs granted under our stock incentive plans.

 

(7)

Includes 18,729 RSUs granted under our stock incentive plans.

 

(8)

Includes 36,336 RSUs granted under our stock incentive plans.

 

(9)

Represents 10,981 RSUs granted under our stock incentive plans.

 

(10)

Holdings for Mr. Pitts are reported as of August 31, 2019, the date that he ceased to be an executive officer of the Company.

 

(11)

Includes 15,000 shares held by Mr. Rittenmeyer’s spouse and 16,539 RSUs granted under our stock incentive plans during the period of time Mr. Rittenmeyer served as a non-employee director.

 

(12)

Includes 32,431 RSUs granted under our stock incentive plans.

 

(13)

Includes 7,845 RSUs granted under our stock incentive plans.

 

(14)

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

 

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Securities Ownership

 

 

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 as of the dates indicated below. 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 31, 2020

 

Glenview Capital Management, LLC

    767 Fifth Avenue, 44th Floor

    New York, NY 10153

  19,383,829 (1)    18.54 %

 

The Vanguard Group, Inc.

    100 Vanguard Blvd.

    Malvern, PA 19355

  12,430,566 (2)    11.89 %

 

BlackRock, Inc.

    55 East 52nd Street

    New York, NY 10055

  12,632,145 (3)    12.08 %

 

Harris Associates L.P.

    111 S. Wacker Drive, Suite 4600

    Chicago IL 60606

  6,184,292 (4)    5.92 %

 

(1)

Based on a Schedule 13D/A filed with the SEC on August 15, 2019 by Glenview Capital Management, LLC and its named subsidiaries and affiliates (collectively, Glenview), and Lawrence M. Robbins, as of August 14, 2019, 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 19,383,829 shares includes 25,728 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 12, 2020 by The Vanguard Group, Inc., on behalf of itself and its named subsidiaries and affiliates (collectively, Vanguard), as of December 31, 2019. Vanguard reported sole voting power with respect to 207,579 of the shares indicated above, shared voting power with respect to 13,156 of the shares indicated above, sole dispositive power with respect to 12,221,163 of the shares indicated above and shared dispositive power with respect to 209,403 of the shares indicated above.

 

(3)

Based on a Schedule 13G/A filed with the SEC on February 4, 2020 by BlackRock, Inc., on behalf of itself and its named subsidiaries and affiliates (collectively, BlackRock), as of December 31, 2019. BlackRock reported sole voting power with respect to 12,407,784 of the shares indicated above and sole dispositive power with respect to all of the shares indicated above.

 

(4)

Based on a Schedule 13G/A filed with the SEC on February 14, 2020 by Harris Associates L.P. (Harris), along with its general partner Harris Associates, Inc. (HAI), as of December 31, 2019. Harris and HAI reported sole voting power with respect to 3,989,481 shares and sole dispositive power with respect to all of the shares indicated above.

 

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Compensation Discussion & Analysis

 

    

 

    

 

 

This CD&A describes our compensation programs and reviews compensation decisions for the following Named Executive Officers (NEOs) for 2019:

 

Named Executive Officer

  Title

Ron Rittenmeyer

  Executive Chairman and Chief Executive Officer (CEO)

Saum Sutaria

  President and Chief Operating Officer

Dan Cancelmi

  Executive Vice President and Chief Financial Officer

Audrey Andrews

  Executive Vice President and General Counsel

Paola Arbour

  Executive Vice President and Chief Information Officer

Keith Pitts

  Former Vice Chairman(1)

 

(1)

Mr. Pitts served as Vice Chairman of the Company until his retirement on August 31, 2019.

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

CD&A Table of Contents

 

Overview

    30  

2019: Building on a Strong Foundation

    30  

Response to Shareholder Feedback

    31  

2019 Leadership Developments

    31  

Compensation Elements Link Pay with Performance

    34  

Best Practices Support Strong Compensation Governance

    35  

Detailed Description and Analysis

    36  

2019 Compensation Decisions

    36  

Base Salary

    36  

Annual Incentive Plan

    36  

Long-Term Incentive Compensation

    39  

The Compensation Process

    41  

Role of the Human Resources Committee

    41  

Independent Compensation Consultant

    42  

Benchmarking Against Peer Companies

    42  

Other Compensation, Benefits and Considerations

    43  

Compensation Governance Practices

    45  

 

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Compensation Discussion & Analysis

 

 

Overview

2019: Building on a Strong Foundation

In 2019, Tenet delivered strong financial and total shareholder return (TSR) results built on sustainable operational improvements, clear strategic direction and a cultural reset that has taken root throughout the enterprise. This growth is the result of an intense turnaround effort that began in late 2017 under the leadership of our Board and Executive Chairman and Chief Executive Officer (CEO), Ron Rittenmeyer. The changes over the past two-and-a-half years have built powerful momentum for long-term growth propelled by our mission: to provide quality, compassionate care in the communities we serve.

 

 

Operational Excellence

In 2019 we executed on all fronts, with measurable improvements in quality, safety and patient experience. All three of our business units met or exceeded financial growth targets. The clearest sign of success came from the patients: we delivered positive volume growth all four quarters in 2019, including the highest rate of improvement in over four years.

 

Strategic Repositioning

We continued to optimize our portfolio of assets. Last year we announced plans to divest two hospitals and further our commitment to build a leading specialty care platform with additional scale in the ambulatory surgery market. We also completed our strategic review of our Conifer business unit with the announcement that we are pursuing a spin-off of Conifer.

 

Cultural Reset

Management devoted significant energy and attention to building a “Culture of Accountability” across the organization, achieving its goal of embedding ownership and analytical rigor at every level. To further this development, in early 2020 we moved all three business units to a single corporate headquarters for the first time to reduce time to action and increase collaboration.

     
 

Refreshed Board

The changes underway at Tenet begin with the Board. Since our turnaround began in late 2017, 70% of our Board is new, and last year we added two energetic, highly skilled directors. The skillsets and viewpoint diversity in our boardroom help address the Company’s most significant risks and reach the Company’s strategic priorities.

 

Reduced Costs

Over the last three years, we have repeatedly set bold cost-cutting targets that we continue to meet. In 2019, we achieved $300 million in cumulative savings, and we are on track to reach our goal of $450 million through smarter decision-making processes across the enterprise that increase efficiency without sacrificing quality.

 

Upgraded Talent

We have upgraded senior management with new talent across the enterprise, headlined by the addition of Dr. Saum Sutaria as Chief Operating Officer in early 2019 and his elevation to President later in the year. At the same time, we have strengthened our approach to human capital management to ensure the Company develops future leaders.

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Response to Shareholder Feedback

Shareholder feedback has shaped our pay-for-performance philosophy and continues to guide the HR Committee’s decisions. In 2017, the HR Committee broadly solicited shareholder input after a disappointing say-on-pay vote that informed revisions to our pay program. Our Board has continued this dialogue regarding our pay and governance practices in subsequent years to ensure that our target compensation levels, program design and pay delivery align with shareholder priorities. As a result, the Company has received greater than 90% approval from shareholders on its say-on-pay votes every year since 2017, including approximately 92% in 2019.

2019 Leadership Developments

Chief Executive Officer Compensation Background

Mr. Rittenmeyer’s compensation has been structured in progressive steps to reward his success in developing and executing Tenet’s turnaround strategy, while retaining him to ensure that the turnaround’s success is sustainable. Under his leadership, the Company has exceeded difficult near-term milestones, addressed significant legacy challenges, achieved meaningful progress toward a long-term strategy recast to better align with shareholder interests, and put in place a plan for future leadership succession. As Mr. Rittenmeyer has repeatedly demonstrated his strong performance, the Board has determined accordingly that it is in the best interest of Tenet’s shareholders to further extend his service as CEO, as summarized below.

Initial Interim Role (August 2017-February 2018)

Mr. Rittenmeyer began his leadership of Tenet as Executive Chairman in August 2017. He entered this role as a Tenet director with seven years’ experience serving on our Board, and at the same time the Board initiated a broader search for a permanent CEO. As a result, Mr. Rittenmeyer’s initial compensation for service in 2017 reflected the short-term transitionary nature of the position consisting of a $2.9 million annual salary, no cash bonus opportunity, and a $2.3 million performance-based (out-of-the-money) stock option.

2018 Employment Agreement (March 2018-February 2020)

After six months of strong initial performance, the Board engaged Mr. Rittenmeyer to serve as the Company’s CEO for the two-year period from March 2018 through February 2020 under an employment agreement (the Employment Agreement). The HR Committee set the target for Mr. Rittenmeyer’s annual total direct compensation at approximately the 25th percentile of our peers based on the belief that initial compensation for an incoming CEO should provide room for growth and with the expectation that, should the Employment Agreement be amended or extended, future compensation would be determined based on demonstrated results.

The Employment Agreement provided for a base salary of $1.2 million per year, an annual target bonus of 150% of salary, and $14 million in time-based long-term incentives, with $7 million granted in restricted stock units (RSUs) and $7 million in restricted cash because share availability under the stock plan was constrained. The long-term incentives vested in equal quarterly installments over the two-year term of the Employment Agreement, which reflected Mr. Rittenmeyer’s employment commitment. The long-term incentive grant was not performance-based because the employment commitment was limited, the turnaround strategy was still being formulated, and stock price recovery reflected in Mr. Rittenmeyer’s RSUs and earlier performance option grant was the primary performance focus. Due to a delay in granting Mr. Rittenmeyer’s RSUs, he initially received 51,146 fewer units than the HR Committee intended. As a result, the HR Committee subsequently granted Mr. Rittenmeyer these units in 2018 with a grant-date value of approximately $1.7 million. Under the Employment Agreement, Mr. Rittenmeyer is not covered by Tenet’s Executive Severance Plan.

2019 Employment Agreement Extension (March 2019-June 2021)

In February 2019, recognizing the considerable improvements Mr. Rittenmeyer had already implemented and the additional progress required to complete the Company’s turnaround, the Board approved an amendment to Mr. Rittenmeyer’s Employment Agreement (the 2019 Extension) that extended his term of service as CEO through June 2021.

Under the 2019 Extension, Mr. Rittenmeyer’s base salary and annual target bonus opportunity remained unchanged at $1.2 million and 150% of base salary, respectively. An award of RSUs valued at $16 million that vests in equal quarterly installments through the term of the 2019 Extension was granted to further align Mr. Rittenmeyer’s interests with those of shareholders and to reward continued turnaround performance reflected by Tenet’s stock price growth rather than setting goals

 

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for a short, incremental performance period. The 2019 Extension also extended the duration of the non-competition and non-solicitation covenants to which Mr. Rittenmeyer is subject from 12 months following his termination of employment to two years.

Market-Competitive Pay with Market-Leading Performance in 2019

The HR Committee set Mr. Rittenmeyer’s 2019 target total direct compensation at approximately the median among the Company’s peers over his expected tenure leading the Company through June 2021. Meanwhile, in 2019 the Company outperformed its peers and the broader market as represented by the S&P 500, with Tenet’s annual total shareholder return in the 99th percentile of both groups.

The graphic below annualizes Mr. Rittenmeyer’s target total direct compensation for his term leading the Company through the end of the 2019 Extension on June 30, 2021. The HR Committee believes that annualizing the target amounts over the expected term provides a more holistic view of Mr. Rittenmeyer’s intended compensation package as compared to the SEC-required disclosure levels shown in the Summary Compensation Table on page 48, where long-term equity awards are reported entirely in the year of grant. The HR Committee granted Mr. Rittenmeyer’s long-term incentives up front to strongly link his potential pay delivery to Tenet’s turnaround results and continued success during this period.

 

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2020 Employment Agreement Extension (February 2020-December 2022)

After the completion of the 2019 fiscal year, the Board evaluated the additional progress required to secure the Company’s transformation as well as the Company’s leadership succession plan. Considering Mr. Rittenmeyer’s extraordinary accomplishments in turning Tenet around and his continued importance in implementing the Company’s long-term strategic goals, the Board asked Mr. Rittenmeyer to extend his tenure leading the Company.

In February 2020, the Board approved an amendment to Mr. Rittenmeyer’s Employment Agreement (the 2020 Extension) to extend his term of service from June 2021 to December 2022. Under the 2020 Extension, Mr. Rittenmeyer’s base salary increased to $1.5 million per year and his annual target bonus opportunity as a percentage of base salary remained unchanged. Mr. Rittenmeyer also received an award of RSUs valued at $10 million to recognize his extended service period, which had not been contemplated in previous equity awards. The RSUs vest in equal quarterly installments through the term of the 2020 Extension.

The Board approved Mr. Rittenmeyer’s 2020 Extension at a regularly scheduled meeting before COVID-19 brought unprecedented challenges to the American healthcare industry and broader economy, while the HR Committee simultaneously approved other 2020 compensation decisions, as discussed under “2020 LTI Program Changes” on page 35 below. The Board and HR Committee continue to believe that these decisions reflect their commitment to aligning real earned compensation to

 

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total shareholder return performance, recognizing that this is most relevant to our shareholders. In Mr. Rittenmeyer’s case, the $10 million of RSU grant value referenced above has declined by approximately 48% since grant and is currently valued at approximately $5.2 million of potential compensation value if it were earned at the closing price on our record date of March 31, 2020.

Planning for the Future

To facilitate a smooth transition and to promote stability in leadership, Mr. Rittenmeyer has agreed to serve in an advisory role to his successor over an additional two-year period following the end of his employment. Under this advisory arrangement, which will take effect when his term of service ends, Mr. Rittenmeyer will receive an annual retainer of $750,000, will remain eligible to participate in the Company’s health and welfare benefits programs, and will remain subject to restrictive covenants no less favorable to the Company than those set forth in the Employment Agreement.

Creation of Enterprise-Wide COO Role

The Board maintains and regularly evaluates a strong leadership succession plan. Over the past year, several steps have been taken to ensure that the Company has the appropriate leadership structure and a clear succession process with internal candidates being developed for future key promotions.

As discussed in last year’s Proxy Statement, in January 2019, Mr. Rittenmeyer and the Board appointed Saumya (Saum) Sutaria, M.D., as the Company’s Chief Operating Officer (COO). The appointment created a new position and restructured the Company’s senior leadership team so that Dr. Sutaria had direct responsibility for the Hospital business unit as well as the authority to design and implement enterprise-wide initiatives, particularly with respect to increased integration. This shift in leadership structure aligned with the Company’s broader transformation strategy and leveraged Dr. Sutaria’s clinical, operational and advisory experience accumulated over nearly 20 years working in complicated and diverse healthcare systems and related businesses as a Senior Partner at McKinsey & Company. Previously, Dr. Sutaria practiced medicine with a focus in internal medicine and cardiology.

Chief Operating Officer Employment Agreement

In connection with his appointment as COO, the Company entered into an employment agreement with Dr. Sutaria for an initial three-year term ending January 2022. In determining his compensation, the HR Committee considered his impressive record of achievements, exceptional knowledge of the healthcare industry and the cash compensation he was eligible to receive under the private partnership model at his then-current employer. Consistent with the HR Committee’s goals of paying executives at reasonable compensation levels that incentivize generating sustainable, long-term growth for shareholders, over the three-year period of his employment agreement Dr. Sutaria will receive target total direct compensation in the median annual range for comparable positions, consisting of:

 

 

Base Salary: $1,000,000 per year

 

Annual Incentive Plan: 100% of salary (at target) per year

 

Annual Long-Term Incentives: $4,000,000 in RSUs per year (vesting ratably over three years)

The HR Committee also approved a one-time buyout to Dr. Sutaria valued at $12,000,000, which was a make-whole award intended to replace the value forfeited and forgone earnings from his previous employer. This make-whole award was split between $7 million in RSUs and $5 million in restricted cash to provide for employment retention, as it vests in full upon the expiration of Dr. Sutaria’s initial three-year employment term. LTI awards to Dr. Sutaria are not subject to financial performance goals as part of this initial employment arrangement, which is designed to transition him to a public company compensation program from a private partnership model at his prior employer. Through the grant of RSUs, the Company’s stock price performance over the period will be reflected in ultimate pay delivery. Dr. Sutaria is subject to certain non-competition covenants for one year, and non-solicitation covenants for two years, following termination of his employment. Dr. Sutaria is not covered by Tenet’s Executive Severance Plan, and he received no other hiring inducements.

Promotion to President

On November 12, 2019, the Company announced that Dr. Sutaria had been promoted to President and COO in recognition of his proven leadership, strategic vision and ability to drive operational and financial improvements. In this newly created role, Dr. Sutaria continues to be responsible for the Company’s Hospital business unit and assumed more direct responsibility for our USPI and Conifer business units. There were no changes to Dr. Sutaria’s compensation arrangements as a result of his promotion and these expanded responsibilities.

 

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2020 Performance-Based LTI Award

On February 26, 2020, the HR Committee awarded Dr. Sutaria performance based RSUs valued at $1,000,000 in acknowledgement of his contributions to the Company’s success and to further align his long-term incentives with those of the Company’s shareholders. The award was granted on the same terms and three-year vesting schedule as the awards discussed under “2020 LTI Program Changes” on page 35 below.

Compensation Elements Link Pay with Performance

The following table outlines the primary components of our NEOs’ 2019 compensation packages (other than Mr. Rittenmeyer and Dr. Sutaria, as discussed above):

 

Element   Description   Purpose

 

Base Salary

 

  Fixed cash compensation set annually

 

  Based on market data, individual performance, internal pay equity and the scope and complexity of the role

 

  Attracts and retains talented executives with competitive fixed pay

 

 

Annual

Incentive Plan

 

  Compensation tied to achievement of annual performance goals

 

  Award amount increases with executive’s level of influence on business outcomes and reflects individual performance

 

  Motivates and rewards executives for meeting annual goals that drive long-term growth

 

  Challenging, objective performance metrics set annually based on Company’s business plans

Long-Term Incentive Compensation   LOGO

 

Performance -

Stock Options

 

LOGO

 

 

  Vest only if stock price increases 25% from grant date and remains at or above that level 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 incentivizes executives to deliver meaningful growth directly to shareholders

 

Performance -

Based Cash

 

LOGO

 

 

  Awards cliff vest in three years based on performance against pre-determined goals measured over cumulative three-year performance period

 

  Cash payments conserve equity usage and provide liquidity to insiders who are often precluded from selling stock

  Focuses executives on creating long-term shareholder value Rigorous goals are set for Adjusted EPS*, Adjusted Free Cash Flow Less Cash NCI and Relative Total Shareholder Return (TSR) to align with the Company’s long-term success

 

Time-Based RSUs

 

LOGO

 

 

  RSUs vest ratably over three years

 

  Aligns economic interests of executives and shareholders through equity ownership

 

  Encourages retention and subject to forfeiture in the event executive terminates employment

 

*

See Appendix A for definition of Adjusted EPS.

 

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2020 LTI Program Changes

The HR Committee undertook a holistic review of our executive compensation program design in 2020 and determined that changes to the LTI design were appropriate to further encourage sustained value creation for shareholders and simplify our equity compensation structure. Beginning in 2020, LTI compensation for executive officers other than Mr. Rittenmeyer and Dr. Sutaria will be entirely in RSUs, comprised of 50% time-based awards vesting ratably over three years and 50% performance-based awards earned over a three-year period. The HR Committee believes that a simplified equity-only program provides stronger alignment of management’s incentives with shareholder interest. In its review, the HR Committee considered peer group and other market data, emerging best practices, the availability of shares under Company plans and the retention value of LTI compensation.

Best Practices Support Strong Compensation Governance

We maintain the following best practices to ensure our governance of executive compensation reflects our pay-for-performance philosophy and aligns the interests of our executives and shareholders.

 

What We Do

 

LOGO  Active engagement with investors

 

 

 

LOGO  Independent compensation consultant

 

LOGO  Emphasis on pay-for-performance

 

 

 

LOGO  Clawback provisions for all performance-based compensation

 

 

LOGO  Significant stock ownership and retention requirements

 

 

 

LOGO  Double-trigger change-in-control benefits

 

What We Don’t Do

 

Ø No excise tax gross-ups on change-in-control
severance benefits

 

 

 

Ø Directors and executive officers cannot hedge or
pledge Company securities

 

 

Ø No excessive perquisites

 

 

 

Ø No repricing of underwater stock options

 

 

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Detailed Description and Analysis

2019 Compensation Decisions

Base Salary

Base salary provides our NEOs with a fixed base annual income and helps us attract and retain high-performing executives. The HR Committee sets NEO salaries each year considering individual performance reviews, internal pay equity considerations, the scope and complexity of the executive’s role and an assessment of peer group and market survey data provided by our independent compensation consultant. None of our NEOs received base salary increases in 2019.

 

Named Executive Officer

  2019
Annual Base Salary 

 

Ron Rittenmeyer

 

 

 

$1,200,000

 

 

Saum Sutaria

 

 

 

$1,000,000

 

 

Dan Cancelmi

 

 

 

$   618,000

 

 

Audrey Andrews

 

 

 

$   550,000

 

 

Paola Arbour

 

 

 

$   500,000

 

 

Keith Pitts(1)

 

 

 

$   925,000

 

 

  (1)

Mr. Pitts served as Vice Chairman of the Company until his retirement on August 31, 2019.

Annual Incentive Plan

Our AIP provides annual cash incentives to our executives that drive financial, operational and individual performance. The program is designed to motivate executives to meet objectives that matter to our investors and align with the Company’s long-term strategy. To that end, the HR Committee selects financial and operational metrics that our executives directly influence with challenging targets so that, in order to pay out, the Company must meet the goals communicated to shareholders. Beginning in 2018, the HR Committee added an individual performance component to focus directly on the contributions of each NEO and to reflect performance on qualitative factors like leadership and promotion of Company values.

 

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2019 Target Annual Incentive Award Levels for Named Executive Officers

In 2019, the HR Committee approved the following target bonus award levels for each NEO, none of which were increased relative to the prior year.

 

Named Executive Officer

  Target Award Relative
to Base Salary
 

 

Ron Rittenmeyer

 

 

 

 

 

 

150

 

 

 

 

Saum Sutaria

 

 

 

 

 

 

100

 

 

 

 

Dan Cancelmi

 

 

 

 

 

 

100

 

 

 

 

Audrey Andrews

 

 

 

 

 

 

75

 

 

 

 

Paola Arbour

 

 

 

 

 

 

75

 

 

 

 

Keith Pitts

 

 

 

 

 

 

100

 

 

 

2019 AIP Performance Metrics and Results

Funding for the 2019 AIP pool was based on the Company’s total annual Adjusted EBITDA (weighted 70%) and Adjusted Free Cash Flow Less Cash Payments to Noncontrolling Interests (Adjusted Free Cash Flow Less NCI) (weighted 30%). Payout of these metrics can range from 0% to 200% depending on performance.

The HR Committee selected Adjusted EBITDA as the most significant metric because it is the primary measure used by financial analysts and investors to judge the Company’s financial performance. The HR Committee selected Adjusted Free Cash Flow less NCI as a metric because it captures the Company’s ability to sustainably generate cash that can be used for the Company’s long-term strategic goals, including acquisitions, investing in joint ventures, or repurchasing outstanding equity or debt securities, as well as other general corporate purposes. Furthermore, free cash flow generation allows the Company to fund growth without raising additional debt and can also be used to retire existing indebtedness, both of which enhance long-term shareholder value. Given the importance of Adjusted Free Cash Flow less NCI to both short-term and long-term value creation for shareholders, the HR Committee decided to use it in both the 2019 AIP and LTI programs.

 

Metric

  Threshold
Level
    Target
Level
    Maximum
Level
    Actual
Performance
    Percentage
of Target
    Calculated
Payout

 

Adjusted EBITDA(1)

 

 

 

$

 

 

2.575 billion

 

 

 

 

 

 

$

 

 

2.700 billion

 

 

 

 

 

 

$

 

 

2.825 billion

 

 

 

 

 

 

$

 

 

2.706 billion

 

 

 

 

 

 

 

 

 

104.7

 

 

 

 

 

73.3

 

 

Adjusted FCF less NCI(2)

 

 

 

$

 

 

312 million

 

 

 

 

 

 

$

 

 

372 million

 

 

 

 

 

 

$

 

 

522 million

 

 

 

 

 

 

$

 

 

452 million

 

 

 

 

 

 

 

 

 

153.7

 

 

 

 

 

46.1

 

 

Funding Pool

 

 

 

 

119.4% of Target

 

 

(1)

See Appendix A for definition of Adjusted EBITDA.

 

(2)

Adjusted Free Cash Flow (see Appendix A for definition) minus cash distributions paid to NCI reflected on the Company’s consolidated statements of cash flow.

Individual Performance Modifiers

After completion of the fiscal year, the HR Committee undertakes a robust individual performance review for our executive officers. These reviews allow the HR Committee to incorporate into the AIP program certain quantitative and qualitative elements tailored specifically to each executive’s role and circumstances. The result is an individual performance multiplier applied to the calculated AIP amount that can range from 0% to 150%. The ratings are calibrated across the entire Company to ensure the AIP funding pool remains fixed.

For the CEO, the HR Committee gathers feedback from select members of management as well as a CEO self-evaluation and discusses the performance of the CEO with the other independent members of the Board in executive session. For reviews of other executive officers, the CEO provides the HR Committee a detailed evaluation and recommendation based in part on a self-assessment completed by each executive officer.

 

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The HR Committee applied the following performance modifiers for our NEOs based on the material factors provided below:

 

Named Executive Officer

 

Individual

Performance

Multiplier

 

Performance Review Summary

 

Mr. Rittenmeyer

 

 

150%

 

  Under Mr. Rittenmeyer’s leadership in 2019, Tenet delivered strong financial results and took critical steps toward sustainable operational, strategic and financial improvements.

 

  Mr. Rittenmeyer was relentlessly focused on enhancing Tenet’s workforce. In 2019, he brought in exceptional talent to senior management across the enterprise and built out a “Culture of Accountability” with increased ownership and analytical rigor.

 

  Mr. Rittenmeyer also built trust with stakeholders across the organization, particularly with investors after delivering market-leading stock price growth in 2019.

 

Dr. Sutaria

 

 

145%

 

  Dr. Sutaria quickly immersed himself in the Company and led a significant turnaround in hospital operations performance, with improvement in admissions, operational controls, quality and talent.

 

  Dr. Sutaria has inspired confidence among the Board and throughout the organization by clearly articulating a strategic vision and demonstrating a passion for change that is instrumental in driving effective shifts in leadership, decision-making and focus across the Company.

 

Mr. Cancelmi

 

 

125%

 

  Mr. Cancelmi’s leadership was pivotal to Tenet’s strong financial performance in 2019, particularly in driving exceptional results in the fourth quarter, as well as continued cost control.

 

  Mr. Cancelmi proactively addressed the Company’s capital structure in 2019, refinancing all significant debt with near-term maturities to improve the Company’s financial health, reduce interest expense and increase liquidity.

 

Ms. Andrews

 

 

115%

 

  Ms. Andrews made key strategic contributions while further streamlining internal and external legal support in 2019 to improve efficiency and execution.

 

  Ms. Andrews’ leadership was central to the successful resolution of several significant legal matters in 2019, including litigation matters and government investigations.

 

Ms. Arbour

 

 

125%

 

  Ms. Arbour drove key enhancements in 2019 to the Company’s information management systems that have improved productivity, interoperability, security, and user experience.

 

  Ms. Arbour delivered improved risk management with stronger cybersecurity protocols, disaster recovery response and business continuity measures.

 

  Ms. Arbour restructured two long-term, strategic partnerships in 2019 to improve care delivery, streamline costs and leverage Tenet’s infrastructure for better data analytics.

 

Mr. Pitts

 

 

100%

(no change)

 

  Mr. Pitts made important contributions to the Company in 2019, including his leadership of the Company’s exploration of strategic alternatives for the Conifer business unit.

 

  Mr. Pitts’ performance was evaluated based on his performance until his retirement in August 2019.

 

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The table below shows target and actual AIP awards earned by each NEO for 2019.

 

Named Executive Officer

Target

AIP Payout

Calculated
AIP Payout

Individual

Performance

Multiplier

2019 Actual

AIP Payout

 

Ron Rittenmeyer

 

 

$

 

 

1,800,000

 

 

 

 

$

 

 

2,149,200

 

 

 

 

 

 

 

150

 

 

%

 

 

$

 

 

3,223,800

 

 

 

 

Saum Sutaria

 

 

$

 

 

1,000,000

 

 

 

 

$

 

 

1,194,000

 

 

 

 

 

 

 

145

 

 

%

 

 

$

 

 

1,731,300

 

 

 

 

Dan Cancelmi

 

 

$

 

 

618,000

 

 

 

 

$

 

 

737,892

 

 

 

 

 

 

 

125

 

 

%

 

 

$

 

 

922,365

 

 

 

 

Audrey Andrews

 

 

$

 

 

412,500

 

 

 

 

$

 

 

492,525

 

 

 

 

 

 

 

115

 

 

%

 

 

$

 

 

566,404

 

 

 

 

Paola Arbour

 

 

$

 

 

375,000

 

 

 

 

$

 

 

447,750

 

 

 

 

 

 

 

125

 

 

%

 

 

$

 

 

559.688

 

 

 

 

Keith Pitts(1)

 

 

$

 

 

736,300

 

 

 

 

$

 

 

736,300

 

 

 

 

 

 

 

100

 

 

%

 

 

$

 

 

736,300

 

 

 

 

(1)

The AIP payout for Mr. Pitts was prorated in accordance with Company policy as a result of his retirement effective August 31, 2019.

Long-Term Incentive Compensation

The HR Committee structured our LTI compensation to promote retention and sustained value creation at Tenet. In 2019, for all our NEOs other than Mr. Rittenmeyer and Dr. Sutaria, whose LTI compensation is described above under “2019 Leadership Developments”, we carried forward a program we implemented over the course of 2016 and 2017 that reflected significant shareholder feedback. Our 2019 program design encourages meaningful share price improvement, motivates our executives to meet challenging business goals aligned with the Company’s long-term strategy, limits Company share dilution, and has our executives share directly with shareholders in the financial performance of the Company. Two thirds of the total target LTI award is at-risk and requires achievement of rigorous performance goals over a three-year period before value is received. As discussed above in “2020 LTI Program Changes”, the HR Committee has changed the design of our 2020 LTI program to further encourage sustained value creation for shareholders and simplify our equity compensation design.

 

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Long-Term Incentive Compensation

 

 

LOGO

     

LOGO

     

LOGO

                 
     
Performance-based stock options vest three years from the date of grant only if the Company’s stock price increases at least 25% from the grant-date price for 20 consecutive trading days during the period. These options incentivize senior management to deliver sustained stock price improvement directly to shareholders.      

Performance-based cash awards vest based on the Company’s achievement of the three equally-weighted performance goals below measured over three years, with payouts ranging from 0% - 200% of target level based on Company results. Settling these awards in cash helps manage share utilization under our Stock Incentive Plan.

      Time-based RSUs vest ratably over three years. Granting stock-settled units to senior management directly aligns executive and shareholder interests while the time-based vesting encourages retention.
         
                 
 

 

   

 

   

 

     

 

    LTI Performance Metrics    

 

   

 

     

 

   

 

 
                                             
     
                 

 

Adjusted Earnings Per Share

             

Adjusted Free Cash Flow

Less NCI

           

Relative Total

Shareholder Return

                 

  Key metric for our shareholders because our Adjusted Earnings drives share price performance.

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

 

     

  Sustained cash flow generation allows the Company to fund objectives important to the Company’s long-term strategy without raising additional debt.

  Measures the Company’s ability to generate cash flows from operations that can be used for acquisitions, capital expenditures or repaying debt.

     

  Comparing the Company’s share price performance to its direct competitors targets management’s ability to drive distinctive business and financial performance in the marketplace.

  Measures the Company’s shareholder return (i.e., share price appreciation plus dividends) against its three direct publicly traded competitors: Community Health Systems, HCA Healthcare and Universal Health Services.

         
             

Rigor of Performance Goals

In establishing target, threshold and maximum performance levels for our performance-based cash awards, the HR 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. The HR Committee sets the target amounts at demanding levels that require NEOs to achieve significant improvement each year of the performance period. For Relative TSR, the threshold, target and maximum payout levels are met by the Company placing third, second and first, respectively, among the direct peer group. Evidence of the HR Committee’s highly rigorous approach to goal setting is apparent in the below-target payout under the 2017 annual LTI awards discussed below.

 

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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. As has been Tenet’s practice, specific goals will be disclosed after the respective performance period is completed and the information is no longer sensitive from a competitive perspective.

2019 LTI Grant Values for Named Executive Officers

The following table summarizes the total target grant value of LTI awards granted in February 2019 to each of our NEOs participating in our 2019 LTI program. Considering his anticipated retirement, Mr. Pitts did not participate in 2019 LTI awards. LTI Compensation for Mr. Rittenmeyer and Dr. Sutaria is described above under “2019 Leadership Developments.”

 

Named Executive Officer

  Performance
Cash(1)
    Performance Stock
Options(2)
   

Time-Based

RSUS(3)

    Total 2019 LTI
Grant Value
 

 

Dan Cancelmi

 

 

 

$

 

 

766,667

 

 

 

 

 

 

$

 

 

766,674

 

 

 

 

 

 

$

 

 

766,694

 

 

 

 

 

 

$

 

 

2,300,034

 

 

 

 

 

Audrey Andrews

 

 

 

$

 

 

500,000

 

 

 

 

 

 

$

 

 

500,012

 

 

 

 

 

 

$

 

 

500,004

 

 

 

 

 

 

$

 

 

1,500,016

 

 

 

 

 

Paola Arbour

 

 

 

$

 

 

266,667

 

 

 

 

 

 

$

 

 

266,674

 

 

 

 

 

 

$

 

 

266,690

 

 

 

 

 

 

$

 

 

800,031

 

 

 

 

 

(1)

Assumes target level performance.

 

(2)

Fair value of these options was calculated using a Monte Carlo simulation; material assumptions used in such calculation are discussed in Note 10 to our consolidated financial statements for the year ended December 31, 2019 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 (February 27, 2019: $28.26).

Results of 2017 LTI Awards

The performance cash LTI awards granted in March 2017 had a performance period of three years with performance measured across three equally weighted performance metrics as set forth in the table below (achievement at target on any metric would result in 33.3% of the total payout). Three of our 2019 NEOs—Ms. Andrews, Mr. Cancelmi and Mr. Pitts—received these grants, which vested in February 2020 following the HR Committee’s certification of the Company’s achievement under the performance metrics.

The following table shows the Company’s results under each of the applicable performance metrics measured over the three-year period ended December 31, 2019.

 

2017 LTI Performance Metric

  Threshold     Target     Maximum    

Actual

Performance

   

Calculated

Payout

 

 

Adjusted Earnings per Share

 

 

 

$

 

 

 6.04

 

 

 

 

 

 

$

 

 

 7.04

 

 

 

 

 

 

$

 

 

 8.04

 

 

 

 

 

 

$

 

 

 5.35

 

 

 

 

 

 

 

 

 

0.00

 

 

 

 

Adjusted Free Cash Flow less NCI

 

 

 

$

 

 

1.864 billion

 

 

 

 

 

 

$

 

 

2.164 billion

 

 

 

 

 

 

$

 

 

2.464 million

 

 

 

 

 

 

$

 

 

1.130 million

 

 

 

 

 

 

 

 

 

0.00

 

 

 

 

Relative total shareholder return

 

 

 

 

 

 

4

 

 

th 

 

 

 

 

 

 

3

 

 

rd 

 

 

 

 

 

 

1

 

 

st 

 

 

 

 

 

 

1

 

 

st 

 

 

 

 

 

 

66.67

 

 

 

 

Total Pay Delivery

 

 

 

 

 

 

 

66.67% of Target

 

 

 

 

The Compensation Process

Role of the Human Resources Committee

The HR Committee is comprised entirely of independent directors and makes all compensation decisions regarding our NEOs. The HR 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 CEO, the HR Committee also considers input and recommendations from the CEO. The HR Committee’s decisions regarding compensation of our NEOs are made outside the presence of these officers. The HR Committee is also responsible for approving our executive compensation program and general compensation policies, all new or materially amended broad-based compensation plans and the performance measures used in our executive compensation programs.

 

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Compensation Discussion & Analysis

 

 

Independent Compensation Consultant

The HR Committee has retained Frederic W. Cook & Co. (the “Consultant”) as its independent consultant to assist the Committee with its duties. In 2019, the Consultant participated in or provided input with respect to all meetings of the HR Committee and regularly communicated with the Committee Chair and the Lead Director. This year, the Consultant’s services included:

 

 

Providing market data, industry trends and competitive analysis relative to our peers.

 

Advising on the key elements of our executive compensation plans and policies.

 

Reviewing our compensation peer group and suggesting changes, if warranted.

 

Advising on the terms of the 2019 Stock Incentive Plan.

 

Providing recommendations on the structure and competitiveness of compensation for our CEO and COO.

Subject to the approval of the HR Committee, the Consultant meets with members of management to review management’s proposed compensation recommendations to the Committee, discuss compensation trends and best practices, and review Company compensation data. Any material information provided to management by the Consultant is disclosed to the HR Committee.

To safeguard the independence of the Consultant:

 

 

The HR 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 HR Committee and has direct access to the Committee Chair during and between meetings.

 

The Consultant provides no services to the Company or management, except as related to executing the provisions of the HR Committee Charter, and with the knowledge and approval of the HR Committee Chair.

The HR 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 Committee.

Benchmarking Against Peer Companies

Each year the HR Committee reviews market compensation practices to evaluate the competitiveness of the Company’s pay levels and program design. Given the small number of publicly held healthcare providers and competition with not-for-profit companies, the HR Committee relies on a blend of peer group and market survey data to survey market practices. The HR Committee uses the peer group to assess whether executive officer pay levels are aligned with Company performance on a relative basis and considers the “market median” to be a helpful benchmark in setting compensation levels for our executive officers.

2019 Peer Group

The Company currently has only three direct competitors that are publicly traded: Community Health Systems, Inc., HCA Healthcare, Inc. and Universal Health Services, Inc. As a result, in 2018 the HR Committee established an objective selection process that looked to related industry segments with companies approximating Tenet in revenues, enterprise value and number of employees to create a sufficiently large peer group. The selection process yielded 17 companies with similar business complexity.

 

Direct Peers

  Community Health Systems

  HCA Healthcare

  Universal Health Services

  

Additional Peers

  Aetna

  Baxter International

  Becton, Dickinson and Company

  Boston Scientific

  Cigna

  DaVita

  Envision Healthcare

  

 

  Genesis Healthcare

  Humana

  Kindred Healthcare

  LabCorp

  Quest Diagnostics

  Stryker

 

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The following chart illustrates Tenet’s size compared to the 2019 peer group median of revenues, enterprise value and number of employees, using data provided to the HR Committee by the Consultant in August 2018.

 

LOGO

 

Market Survey Data

For 2019 compensation decisions, the HR 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

2018 Aon Hewitt Total Compensation Measurement survey

   $10 billion to $25 billion

2018 Willis Towers Watson U.S. Compensation Database survey

   $10 billion to $20 billion

2018 FW Cook Long-Term Incentives survey

   $19.2 billion

The Consultant compiles data from these surveys relating to compensation levels for Tenet executive officers against the compensation levels received by executives holding similar positions at other companies. The Consultant then presents the data to the HR Committee in aggregated form, and the identity of the companies comprising the survey data is not disclosed to, or considered by, the HR Committee in its decision-making process.

Other Compensation, Benefits and Considerations

Perquisites

Perquisites for our NEOs are limited and generally represent an immaterial element of our executive compensation program. They largely consist of life insurance premiums, Company contributions to retirement programs available to other senior officers, and personal use of Company aircraft.

Upon the recommendation of an independent, third-party security study, the Company also provides Mr. Rittenmeyer a car and personal security driver that he primarily uses for commuting and local business travel. The HR Committee does not consider these security costs as personal benefits because they serve a business purpose arising from his employment as CEO. However, the Company is required to disclose the unreimbursed incremental costs associated with the personal use of the Company-provided car, including commuting expenses, as well as the personal security driver. The amounts of these services are disclosed in the Summary Compensation Table on page 48. The security study also recommended Mr. Rittenmeyer use Company aircraft for both business and personal use to ensure his safety. Our aircraft usage policy requires Mr. Rittenmeyer to reimburse us for any personal use of the corporate aircraft above 75 hours per year and allows Mr. Rittenmeyer to approve limited personal use of Company aircraft by certain other Company executives. In 2019, Mr. Rittenmeyer’s personal use of the corporate aircraft totaled approximately 17 hours. The unreimbursed incremental cost of his and other NEO’s use is disclosed in the Summary Compensation Table on page 48.

 

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The Company does not provide tax gross-ups to NEOs except to Mr. Rittenmeyer exclusively to cover personal income tax obligations due to imputed income for use of a Company-provided car for security purposes. We do not provide our NEOs with any other significant perquisites.

Executive Severance Plan

The Tenet Executive Severance Plan (ESP) applies to certain of our NEOs in addition to other senior managers and officers of the Company. The ESP provides cash severance and other benefits that vary by position level, consistent with market practice. ESP participants do not receive gross ups of excise taxes that may be incurred upon a change of control.

Each of the NEOs, other than Mr. Rittenmeyer and Dr. Sutaria, participates in the ESP. The severance periods for the Company’s NEOs under the ESP were determined by the HR 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 HR 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 at least the period during which the severed executive is entitled to receive severance payments.

A more detailed description of the ESP is contained in “Potential Payments Upon Termination or Change of Control” beginning on page 56.

Executive Retirement Programs

Certain of our NEOs participate in our frozen Supplemental Executive Retirement Plan (SERP), our Executive Retirement Account (ERA) and our Sixth Amended and Restated Tenet 2006 Deferred Compensation Plan (Deferred Compensation Plan, or DCP). These programs are designed to provide retirement benefits to participating management-level employees, whose retirement benefits under our tax-qualified programs are otherwise limited under provisions of the Internal Revenue Code. Additional information regarding these programs is provided in the narrative discussion following the 2019 Pension Benefits Table on page 53 and under “Nonqualified Deferred Compensation” beginning on page 55.

Employee Benefits

Our NEOs participate in the Company’s broad-based programs generally available to all employees, including our 401(k) Retirement Savings 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 57. These benefits are consistent with providing a total pay program that is sufficiently competitive with our peer companies 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. Prior to 2018, the HR Committee generally sought to structure our performance-based compensation elements in a manner intended, but not guaranteed, to qualify as “performance-based” for purposes of satisfying the conditions of an exemption to this limit on deductibility. For taxable years beginning after December 31, 2017, the Tax Cut and Jobs Act repealed this exemption from Section 162(m)’s deduction limit 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 HR 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 intends to continue subjecting a significant portion of the incentive compensation payable to our NEOs to the achievement of one or more performance metrics specified by the HR Committee.

 

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Compensation Discussion & 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, with two-year extensions in the event of a promotion.

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

 

Executive Level

  

Market Value of Stock as a
Multiple of Base Salary

Chief Executive Officer

  

6x

President or Chief Operating Officer

  

4x

Executive Vice Presidents

  

2x

Senior Vice Presidents

  

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.

All NEOs who are current employees of the Company comply 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.

Equity Grant Timing and Stock Option Exercise Prices

Historically, we have made annual equity awards to 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 HR 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, or for special recognition, retention or other purposes outside of the annual grant process. For equity grants awarded outside of the annual grant cycle, the grant date generally is the last trading day of the month of hire or approval. 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 not a trading day. HR Committee approval is required in all cases where the recipient of the equity grant is a NEO or other senior officer.

Prohibition on Hedging or Pledging Our Stock

Our insider trading policy prohibits any director, NEO or any other officer or employee subject to its terms (approximately 75 people) from entering into short sales, derivative transactions or any other similar transactions designed to hedge or offset, any decrease in the market value of our stock, whether directly or indirectly. In addition, these directors, officers and employees are prohibited from pledging our stock, including through holding our stock in margin accounts. Our Standards of Conduct prohibit all employees from engaging in any market transaction that could put their personal gain in conflict with the Company or its shareholders, including trading in options, warrants, puts, calls or similar derivative interests in Company securities.

Clawback Policies

All awards under our AIP, including for NEOs, are subject to clawback and forfeiture provisions under which the Board may require forfeiture or reimbursement to the Company of a cash bonus in the event of a material restatement of our financial results

 

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Compensation Discussion & Analysis

 

 

caused by the recipient’s fraud or in other circumstances involving material violations of Company policy, 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 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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Human Resources Committee Report

Our Human Resources Committee (HR Committee) has reviewed and discussed with management the Compensation Discussion and Analysis above. Based on this review and these discussions, the HR 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, 2019, and included in this Proxy Statement.

Members of the Human Resources Committee

J. Robert Kerrey, Chair

Lloyd J. Austin, III

Richard W. Fisher

Christopher S. Lynch

Tammy Romo

 

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Executive Compensation Tables

 

 

Summary Compensation

The following table summarizes the compensation for the years ended December 31, 2019, 2018 and 2017 for our NEOs for 2019. Dr. Sutaria and Ms. Arbour became NEOs for the first time in 2019.

2019 Summary Compensation Table

 

Name and

Principal

Position

  Year   Salary
($)
  Bonus
($)(1)
  Stock
Awards
($)(2)
  Option
Awards
($)(3)
  Non-Equity
Incentive Plan
Compensation
($)(4)
 

Change in
Pension Value
and Nonqualified
Deferred
Compensation
Earnings

($)(5)

  All Other
Compensation
($)(6)
  Total
($)

Ron Rittenmeyer

Executive Chairman and

Chief Executive Officer

      2019       1,200,000       3,500,000       16,000,021 (7)        -0-       3,223,800       -0-       364,839       24,288,660
      2018       1,513,846       2,625,000       8,716,976       -0-       1,799,460       -0-       328,739       14,984,021
      2017       914,615       -0-       225,001       2,300,001       -0-       -0-       212,163       3,651,781

Saum Sutaria

President and Chief

Operating Officer

      2019       961,539       -0-       11,000,016 (8)        -0-       1,731,300       -0-       258,569       13,951,423

Dan Cancelmi

EVP and Chief Financial

Officer

      2019       618,000       -0-       766,694       766,674       1,433,502       1,546,506         12,292       5,143,667
      2018       618,000       -0-       766,670       766,674       570,290       292,830       12,080       3,026,544
      2017       618,000       323,832       766,683       766,596       108,768       807,670       11,885       3,403,434

Audrey Andrews

EVP and General Counsel

      2019       550,000       -0-       500,004       500,012       899,754       1,175,079         12,113       3,636,962
      2018       550,000       -0-       500,003       500,008       396,516       342,367       11,935       2,300,829
      2017       543,269       250,000       500,007       499,954       72,600       800,171       11,763       2,677,764

Paola Arbour

EVP and Chief Information

Officer

      2019       500,000       -0-       266,690       266,674       559,688       -0-       108,400       1,701,452

Keith Pitts

Former Vice Chairman

      2019       640,385       -0-       -0-       -0-       1,506,709       2,489,740         11,232       4,648,066
      2018       925,000       -0-       1,300,004       1,300,006       711,325       9,435,392       12,660       13,684,387
      2017       925,000       300,000       1,300,017       1,299,879       162,800       596,745       33,632       4,618,073

 

(1)

For Mr. Rittenmeyer, the 2019 value reflects the vesting of four equal quarterly installments of his restricted cash awards granted pursuant to his Employment Agreement as described on page 31.

 

(2)

Values in this column for 2019 represent the grant date fair value of time-based restricted stock unit awards and are computed in accordance with FASB ASC Topic 718. Certain assumptions used in the calculation of these amounts are discussed in Note 10 to our consolidated financial statements for the year ended December 31, 2019 included in our Annual Report on Form 10-K.

 

(3)

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 10 to our consolidated financial statements for the year ended December 31, 2019 included in our Annual Report on Form 10-K.

 

(4)

This column reflects cash awards earned under our AIP for performance in the relevant year. In addition, for 2019, this amount reflects the following payouts of our 2017 performance cash LTI awards for Ms. Andrews: $333,350, Mr. Cancelmi: $511,137 and Mr. Pitts: $770,409, which were paid in early 2020 based on performance from January 1, 2017 through December 31, 2019 as discussed further on page 41.

 

(5)

The 2019 amounts represent the change in the actuarial present value of accumulated benefits under our SERP as of December 31, 2019. These 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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(6)

Amounts shown in this column for 2019 include the following:

 

 

Rittenmeyer

Sutaria

Cancelmi

Andrews

Arbour

Pitts

Premiums for long-term disability and survivor benefit life insurance

 

-0-

 

-0-

 

3,892

 

3,713

 

-0-

 

2,832

Matching contributions under our 401(k) Retirement Savings Plan

 

-0-

 

8,400

 

8,400

 

8,400

 

8,400

 

8,400

Company contributions under our ERA

 

300,000

 

250,000

 

-0-

 

-0-

 

100,000

 

-0-

Personal use of company aircraft*

 

49,777

 

169

 

-0-

 

-0-

 

-0-

 

-0-

Personal use of Company car and driver provided for security reasons**

 

15,062

 

-0-

 

-0-

 

-0-

 

-0-

 

-0-

Total

 

364,839

 

258,569

 

12,292

 

12,113

 

108,400

 

11,232

 

  *

Amounts shown in this row represent the incremental costs 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.

 

  **

For business-related security reasons, a Company car and personal security driver were provided to Mr. Rittenmeyer primarily for commuting and local business travel. The car is valued based on the annualized cost of the car plus maintenance and fuel. For security personnel employed by the Company, the cost is the actual incremental cost of expenses incurred by the security personnel. Total salary and benefits are not allocated because the Company already incurs these costs for business purposes. The amount also includes $5,927 for a related tax gross-up benefit.

 

(7)

Reflects grant of time-based RSUs awarded to Mr. Rittenmeyer in connection with the extension of his employment agreement that vests in nine quarterly installments and is intended to further align his interests with those of shareholders over the remainder of his term of service as CEO and to reward continued stock price growth.

 

(8)

Reflects annual grant of RSUs that vests ratably over three years as well as Dr. Sutaria’s make-whole grant of RSUs awarded to replace the value of foregone and forfeited compensation from his previous employer and that vests in full upon expiration of his initial three-year employment term.

 

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Executive Compensation Tables

 

 

Grants of Plan-Based Awards During 2019

The following table sets forth information concerning grants of equity and performance cash awards made in 2019 under our stock incentive plan and grants of cash that potentially could have been earned in 2019 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

 

AIP

   

 

0

 

 

 

1,800,000

 

 

 

3,600,000

 

             
 

RSU

 

2/27/19

                                                         

 

566,172

 

         

 

16,000,021

 

Saum Sutaria

 

AIP

   

 

0

 

 

 

1,000,000

 

 

 

2,000,000

 

             
 

RSU

 

1/31/19

               

 

318,327

 

   

 

7,000,011

 

 

RSU

 

2/27/19

                                                         

 

141,543

 

         

 

4,000,005

 

Dan Cancelmi

 

AIP

   

 

0

 

 

 

618,000

 

 

 

1,236,000

 

             
 

PCASH

 

2/27/19

 

 

255,555

 

 

 

766,667

 

 

 

1,533,334

 

             

 

766,667

 

 

RSU

 

2/27/19

               

 

27,130

 

   

 

766,694

 

 

PSO

 

2/27/19

                                 

 

0      

 

 

 

61,383

 

 

 

61,383   

 

         

 

28.26

 

 

 

766,674

 

Keith Pitts

 

AIP

     

 

0

 

 

 

616,667

(3) 

 

 

1,233,334

 

                                                       

Audrey Andrews

 

AIP

   

 

0

 

 

 

412,500

 

 

 

825,000

 

             
 

PCASH

 

2/27/19

 

 

166,667

 

 

 

500,000

 

 

 

1,000,000

 

             

 

500,000

 

 

RSU

 

2/27/19

               

 

17,693

 

   

 

500,004

 

 

PSO

 

2/27/19

                                 

 

0      

 

 

 

40,033

 

 

 

40,033   

 

         

 

28.26

 

 

 

500,012

 

Paola Arbour

 

AIP

   

 

0

 

 

 

375,000

 

 

 

750,000

 

             
 

PCASH

 

2/27/19

 

 

88,889

 

 

 

266,667

 

 

 

533,334

 

             

 

266,667

 

 

RSU

 

2/27/19

               

 

9,437

 

   

 

266,690

 

 

PSO

 

2/27/19

                                 

 

0      

 

 

 

21,351

 

 

 

21,351   

 

         

 

28.26

 

 

 

266,674

 

 

(1)

AIP Awards. Awards designated “AIP” are awards that our NEOs might have earned during 2019 under our Annual Incentive Plan, dependent upon our 2019 performance. Awards actually earned are shown in the Non-Equity Incentive Plan Compensation column of the 2019 Summary Compensation Table on page 48.

 

  

Performance-Based Cash. Awards designated “PCASH” reflect performance-based cash awards granted in 2019 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 NCI, and Relative Total Shareholder Return, each measured over a three-year period from the date of grant. Actual payout earned, if any, will be reported in our Summary Compensation Table for the year in which the awards 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 to Mr. Rittenmeyer on February 27, 2019 vest quarterly in nine equal installments. The RSUs granted to Mr. Sutaria on January 31, 2019 vest on January 6, 2022. The remaining RSUs granted on February 27, 2019 vest ratably over each of the first three anniversaries of the grant date.

 

  

Performance-Based Stock Options. Awards designated “PSO” reflect performance-based stock option awards under our 2008 Stock Incentive Plan. The PSOs granted on February 27, 2019 were subject to the satisfaction of a stock price performance condition further discussed on page 40.

 

(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, which was $21.99 on January 31, 2019 and $28.26 on February 27, 2019. Certain other assumptions used in the calculation of the amounts shown are discussed in Note 10 to the consolidated financial statements for the year ended December 31, 2019 included in our Annual Report on Form 10-K.

 

(3)

The target AIP award for Mr. Pitts was prorated in accordance with Company policy as a result of his retirement effective August 31, 2019.

 

50   LOGO   


Table of Contents

Executive Compensation Tables

 

    

 

    

 

 

Outstanding Equity Awards

The following table sets forth information as of December 31, 2019 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 2019 Fiscal Year-End Table

 

          Option Awards(1)     Stock Awards  

Name

  Grant
Date
   

Number of

Securities

Underlying

Unexercised

Options (#)

Exercisable(1)

    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
(#)
   

Equity
Incentive
Plan
Awards:
Market
or
Payout
Value

of
Unearned

Shares,
Units or
Other
Rights
that have
not
Vested
($)

 

Ron Rittenmeyer

 

 

9/29/17

 

 

 

408,526

 

                 

 

16.43

 

 

 

9/29/22

 

                               
   

 

3/29/18

 

                                         

 

36,083

(3) 

 

 

1,372,236

 

               
   

 

6/29/18

 

                                         

 

7,307

(3) 

 

 

277,885

 

               
   

 

2/27/19

 

                                         

 

377,448

(4) 

 

 

14,354,347

 

               

Total values

                                                         

$

16,767,237

 

               

Saum Sutaria

 

 

1/31/19

 

                                         

 

318,327

(5) 

 

 

12,105,976

 

               
   

 

2/27/19

 

                                         

 

141,543

(6) 

 

 

5,382,880

 

               

Total values

                                                         

$

17,488,856

 

               

Dan Cancelmi

 

 

9/28/12

 

 

 

37,500

 

                 

 

25.08

 

 

 

9/28/22

 

                               
   

 

3/1/17

 

                 

 

89,976

 

 

 

18.99

 

 

 

3/1/27

 

                               
   

 

3/1/17

 

                                         

 

13,458

(6) 

 

 

511,808

 

               
   

 

2/28/18

 

                 

 

86,826

 

 

 

20.60

 

 

 

2/28/28

 

                               
   

 

2/28/18

 

                                         

 

24,812

(6) 

 

 

943,600

 

               
   

 

2/27/19

 

                 

 

61,383

 

 

 

28.26

 

 

 

2/27/29

 

                               
   

 

2/27/19

 

                                         

 

27,130

(6) 

 

 

1,031,754

 

               

Total values

                                                         

$

2,487,162

 

               

Audrey Andrews

 

 

3/1/17

 

                 

 

58,680

 

 

 

18.99

 

 

 

3/1/27

 

                               
   

 

3/1/17

 

                                         

 

8,777

(6) 

 

 

333,789

 

               
   

 

2/28/18

 

                 

 

56,626

 

 

 

20.60

 

 

 

2/28/28

 

                               
   

 

2/28/18

 

                                         

 

16,182

(6) 

 

 

615,401

 

               
   

 

2/27/19

 

                 

 

40,033

 

 

 

28.26

 

 

 

2/27/29

 

                               
   

 

2/27/19

 

                                         

 

17,693

(6) 

 

 

672,865

 

               

Total values

                                                         

$

1,622,056

 

               

 

  2020 PROXY STATEMENT      51  


Table of Contents

Executive Compensation Tables

 

 

          Option Awards(1)     Stock Awards  

Name

  Grant
Date
   

Number of

Securities

Underlying

Unexercised

Options (#)

Exercisable(1)

    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
(#)
   

Equity
Incentive
Plan
Awards:
Market
or
Payout
Value

of
Unearned

Shares,
Units or
Other
Rights
that have
not
Vested
($)

 

Paola Arbour

 

 

5/31/18

 

                 

 

17,205

 

 

 

35.43

 

 

 

5/31/28

 

                               
   

 

5/31/18

 

                                         

 

5,018

(6) 

 

 

190,835

 

               
   

 

2/27/19

 

                 

 

21,351

 

 

 

28.26

 

 

 

2/27/29

 

                               
   

 

2/27/19

 

                                         

 

9,437

(6) 

 

 

358,889

 

               

Total values

                                                         

$

549,724

 

               

Keith Pitts

 

 

3/1/17

 

                 

 

135,616

 

 

 

18.99

 

 

 

3/1/27

 

                               
   

 

2/28/18

 

                 

 

81,793

 

 

 

20.60

 

 

 

2/28/28

 

                               

Total values

                                                         

$

0

 

               

 

(1)