DEF 14A 1 d330184ddef14a.htm DEFINITIVE PROXY STATEMENT Definitive Proxy Statement
Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a)

of the Securities Exchange Act of 1934

Filed by the registrant x

Filed by a party other than the registrant ¨

Check the appropriate box:

¨

  

Preliminary Proxy Statement

  ¨   

Confidential, for Use of the Commission

Only (as permitted by Rule 14a-6(e)(2))

x   

Definitive Proxy Statement

    
¨   

Definitive Additional Materials

    
¨   

Soliciting Material pursuant to § 240.14a-12

    

DaVita Inc.

 

(Name of Registrant as Specified in its Charter)

 

  

 

(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)

Payment of filing fee (Check the appropriate box):

 

x

No fee required

 

¨

Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11

 

  (1)

Title of each class of securities to which transaction applies:

 

  

 

  (2)

Aggregate number of securities to which transaction applies:

 

  

 

  (3)

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

 

  

 

  (4)

Proposed maximum aggregate value of transaction:

 

  

 

  (5)

Total fee paid:

 

  

 

¨

Fee paid previously with preliminary materials:

 

¨

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

 

  (1)

Amount previously paid:

 

  

 

  (2)

Form, schedule, or registration statement no.:

 

  

 

  (3)

Filing party:

 

  

 

  (4)

Date filed:

 

  

 


Table of Contents

 

LOGO

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

June 11, 2012

TO OUR STOCKHOLDERS:

We will hold our 2012 annual meeting of the stockholders of DaVita Inc., a Delaware corporation, on Monday, June 11, 2012 at 9:30 a.m., Mountain Time, at DaVita Inc., 1627 Cole Boulevard, Lakewood, Colorado 80401, for the following purposes, which are further described in the accompanying Proxy Statement:

 

  (1)

To vote upon the election of the nine directors identified in the attached Proxy Statement to the Board of Directors to serve for a term of one year or until their successors are duly elected and qualified;

 

  (2)

To ratify the appointment of KPMG LLP as our independent registered public accounting firm for fiscal year 2012;

 

  (3)

To hold an advisory vote on executive compensation;

 

  (4)

To adopt and approve an amendment to our 2011 Incentive Award Plan to increase the aggregate number of shares authorized for issuance under the plan by 4,500,000 shares;

 

  (5)

To consider a stockholder proposal, if properly presented at the annual meeting; and

 

  (6)

To transact such other business as may properly come before the annual meeting or any adjournment thereof.

The Board of Directors has fixed the close of business on April 13, 2012 as the record date for the determination of stockholders entitled to vote at the annual meeting or any meetings held upon adjournment of the annual meeting. Only holders of record of our common stock at the close of business on that day will be entitled to vote.

In accordance with rules and regulations adopted by the Securities and Exchange Commission, we are providing access to our proxy materials over the Internet. Accordingly, we will mail, on or about May 2, 2012, a Notice of Internet Availability of Proxy Materials to our stockholders of record and beneficial owners at the close of business on April 13, 2012. On the date of mailing of the Notice of Internet Availability of Proxy Materials, all stockholders of record and beneficial owners will have the ability to access the proxy materials on a website referred to in the Notice of Internet Availability of Proxy Materials. These proxy materials will be available free of charge.

The Notice of Internet Availability of Proxy Materials will also identify the date, time and location of the annual meeting; the matters to be acted upon at the annual meeting and the Board of Directors’ recommendation with regard to each matter; a toll-free telephone number, an e-mail address, and a website where stockholders can request a paper or e-mail copy of the Proxy Statement, our Annual Report to Stockholders and a form of proxy relating to the annual meeting; information on how to access the form of proxy over the Internet and how to vote over the Internet; and information on how to obtain directions to attend the annual meeting and vote in person.

We invite you to attend the annual meeting and vote in person. If you cannot attend, to ensure that you are represented at the annual meeting, please vote, at your earliest convenience, by telephone or Internet, or request a proxy card to complete, sign and date and return by mail. If you attend the annual meeting, you may vote in person, even if you previously used the telephone or Internet voting systems, or mailed your completed proxy card.

Please note that all votes cast via telephone or the Internet must be cast prior to 11:59 p.m., Eastern Time, on Sunday, June 10, 2012.

 

By order of the Board of Directors,
LOGO
Kim M. Rivera
Chief Legal Officer and
Corporate Secretary

May 2, 2012


Table of Contents

TABLE OF CONTENTS

 

GENERAL INFORMATION

     1   

Voting Information

     2   

Votes Required for Proposals

     2   

Proxy Solicitation Costs

     2   

Delivery of Proxy Statement and Annual Report

     3   

Admission to Annual Meeting

     3   

Electronic Availability of Proxy Materials for 2012 Annual Meeting

     4   

PROPOSAL NO. 1 ELECTION OF DIRECTORS

     5   

Information Concerning Members of the Board of Directors Standing for Reelection

     5   

CORPORATE GOVERNANCE

     8   

Director Independence

     8   

Leadership Structure and Meetings of Independent Directors

     9   

Communications with the Board of Directors

     9   

Annual Meeting of Stockholders

     9   

Information Regarding the Board of Directors and its Committees

     9   

Committees of the Board of Directors

     10   

Risk Oversight

     14   

Risk Considerations in Our Compensation Program

     14   

Board of Directors Share Ownership Policy

     15   

Management Share Ownership Policy

     15   

Code of Ethics and Code of Conduct

     15   

Clawback Policy

     15   

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

     16   

Independent Registered Public Accounting Firm

     16   

Pre-approval Policies and Procedures

     16   

PROPOSAL NO. 3 ADVISORY VOTE ON EXECUTIVE COMPENSATION

     17   

PROPOSAL NO. 4

     19   

APPROVAL OF THE AMENDMENT TO OUR 2011 INCENTIVE AWARD PLAN

     19   

Purpose

     19   

Proposed Amendment and Size of Share Pool

     19   

Stockholder Approval Requirement

     20   

Compensation and Governance Best Practices

     21   

Equity Grants as of April 13, 2012

     31   

PROPOSAL NO. 5 STOCKHOLDER PROPOSAL REGARDING EXECUTIVES TO RETAIN SIGNIFICANT STOCK

     32   

Stockholder’s Statement Supporting Proposal No. 5

     32   

The Company’s Statement in Opposition to Proposal No. 5

     33   

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     35   

Information Concerning Our Executive Officers

     36   

Section 16(a) Beneficial Ownership Reporting Compliance

     38   

EQUITY COMPENSATION PLAN INFORMATION

     39   

EXECUTIVE COMPENSATION

     40   

Compensation Discussion and Analysis

     40   

EXECUTIVE SUMMARY

     40   

Pay-For-Performance

     40   

Stockholder Interest Alignment

     42   

Market Competitiveness

     42   

Good Governance and Best Practices

     44   

Stock Ownership Guidelines

     45   

ELEMENTS OF COMPENSATION

     45   

Base Salary

     47   

Annual Performance-Based Cash Compensation

     48   

Relocation Bonuses

     50   

Long-Term Equity Incentives

     50   

Personal Benefits and Perquisites

     52   

Deferred Compensation Programs

     53   

Severance and Change of Control Arrangements

     53   

EXECUTIVE COMPENSATION PROCESS & GOVERNANCE

     54   

Management Share Ownership Policy

     54   

Role of Independent Compensation Committee

     54   

Role of Independent Compensation Consultant

     54   

Policy Regarding Clawback of Bonuses and Incentive Compensation

     54   

TAX AND ACCOUNTING CONSIDERATIONS

     55   

COMPENSATION COMMITTEE REPORT

     55   

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

     56   
 

 

i


Table of Contents
 

 

 

 

ii


Table of Contents

LOGO

 

 

PROXY STATEMENT

 

 

GENERAL INFORMATION

We are delivering this Proxy Statement in connection with the solicitation of proxies by the Board of Directors, for use at our 2012 annual meeting of stockholders, which we will hold on Monday, June 11, 2012 at 9:30 a.m., Mountain Time, at DaVita Inc., 1627 Cole Boulevard, Lakewood, Colorado 80401. The proxies will remain valid for use at any meetings held upon adjournment of that meeting. The record date for the annual meeting is the close of business on April 13, 2012. All holders of record of our common stock on the record date are entitled to notice of the annual meeting and to vote at the annual meeting and any meetings held upon adjournment of that meeting. Our principal executive offices are located at 1551 Wewatta Street, 6th Floor, Denver, Colorado, 80202, and our telephone number is (303) 405-2100. This Proxy Statement is being initially distributed to stockholders on or about May 2, 2012. To obtain directions to our annual meeting, visit our website, located at http://www.davita.com.

In accordance with rules and regulations adopted by the Securities and Exchange Commission (the “SEC”), instead of mailing a printed copy of our proxy materials to each stockholder of record or beneficial owner, we are furnishing the proxy materials to our stockholders over the Internet, which include this Proxy Statement and the accompanying Notice of Meeting, Proxy Card, and Annual Report to Stockholders. Because you received a Notice of Internet Availability of Proxy Materials by mail, you will not receive a printed copy of the proxy materials, unless you have previously made a permanent election to receive these materials in paper copy. Instead, the Notice of Internet Availability of Proxy Materials instructs you as to how you may access and review all of the important information contained in the proxy materials, and how you may submit your vote by proxy on the Internet. If you received a Notice of Internet Availability of Proxy Materials by mail and would like to receive a printed copy of our proxy materials, you should follow the instructions for requesting such materials included in the Notice of Internet Availability of Proxy Materials.

The Notice of Internet Availability of Proxy Materials was first mailed on or about May 2, 2012 to all stockholders of record as of April 13, 2012.

Whether or not you plan to attend the annual meeting in person, please vote by telephone, Internet, or request a Proxy Card to complete, sign, date and return by mail to ensure that your shares will be voted at the annual meeting. You may revoke your proxy at any time prior to its use by filing with our secretary an instrument revoking it or a duly executed proxy bearing a later date or by attending the annual meeting and voting in person.

If you plan to attend the annual meeting in person, please so indicate when you submit your proxy by mail, by telephone or via the Internet and bring with you the items that are required pursuant to DaVita’s admission process for the 2012 Annual Meeting. A description of the admission process can be found below in this Proxy Statement under the heading “General Information—Admission to Annual Meeting.”

Unless you instruct otherwise in the proxy, any proxy that is given and not revoked will be voted at the annual meeting:

 

   

For each nominee to the Board of Directors identified in this Proxy Statement;

 

   

For the ratification of the appointment of KPMG LLP as our independent registered public accounting firm for fiscal year 2012;

 

1


Table of Contents
   

For the approval, on an advisory basis, of the compensation of our named executive officers;

 

   

For the approval of the amendment to our 2011 Incentive Award Plan;

 

   

Against the stockholder proposal; and

 

   

As determined by the proxyholders named in the Proxy Card in their discretion, with regard to all other matters as may properly come before the annual meeting or any adjournment thereof.

Voting Information

Our only voting securities are the outstanding shares of our common stock. At the record date, we had approximately 94,004,187 shares of common stock outstanding. Each stockholder is entitled to one vote per share on each matter that we will consider at this meeting. Stockholders are not entitled to cumulate votes. Brokers holding shares of record for their customers generally are not entitled to vote on some matters unless their customers give them specific voting instructions. If the broker does not receive specific instructions, the broker will note this on the proxy form or otherwise advise us that it lacks voting authority. Recent regulatory changes were made to take away the ability of your bank, broker, or other nominee to vote your uninstructed shares in the election of directors on a discretionary basis. Thus, if you hold your shares in “street name,” meaning that your shares are registered in the name of your broker, bank or other nominee, and you do not instruct your bank, broker, or other nominee how to vote in the election of directors, the proposal regarding the advisory vote on executive compensation, the amendment to our 2011 Incentive Award Plan or the stockholder proposal, no votes will be cast on your behalf. The votes that the brokers would have cast if their customers had given them specific instructions are commonly called “broker non-votes.” If the stockholders of record present in person or represented by their proxies at the annual meeting hold at least a majority of our shares of common stock outstanding as of the record date, a quorum will exist for the transaction of business at the annual meeting. Stockholders attending the annual meeting in person or represented by proxy at the annual meeting who abstain from voting and broker non-votes are counted as present for quorum purposes.

Votes Required for Proposals

Directors are elected by a majority of votes cast, which means that the number of shares voted “for” each of the nine nominees for election to the Board of Directors must exceed 50% of the number of votes cast with respect to each nominee’s election. Abstentions and broker non-votes will not be counted as votes cast and therefore, will have no effect on the election of directors. In the event that the number of nominees exceeds the number of directors to be elected, which is a situation that we do not anticipate, directors will be elected by a plurality of the shares represented in person or by proxy at any such meeting and entitled to vote on the election of directors.

The ratification of the appointment of KPMG LLP as our independent registered public accounting firm for fiscal year 2012, the approval of the proposal regarding the advisory vote on executive compensation, the approval of the amendment to our 2011 Incentive Award Plan and the approval of the stockholder proposal each requires the affirmative vote of a majority of the shares of common stock present at the annual meeting, in person or by proxy and entitled to vote thereon. Because your vote on executive compensation and the stockholder proposal is advisory, it will not be binding on the company or the Board of Directors. However, the Board of Directors and the Compensation Committee will consider the voting results as appropriate when making future decisions regarding executive compensation. Abstentions are considered present and entitled to vote with respect to these proposals and will, therefore, be treated as votes against these proposals. Broker non-votes with respect to these proposals will not be considered as present and entitled to vote on these proposals, which will therefore reduce the number of affirmative votes needed to approve these proposals.

Proxy Solicitation Costs

We will pay for the cost of preparing, assembling, printing and mailing of the Notice of Internet Availability of Proxy Materials, this Proxy Statement and the accompanying Notice of Meeting, Proxy Card, and

 

2


Table of Contents

Annual Report to Stockholders, to our stockholders, as well as the cost of soliciting proxies relating to the annual meeting. We may request banks and brokers to solicit their customers who beneficially own our common stock listed of record in names of nominees. We will reimburse these banks and brokers for their reasonable out-of-pocket expenses regarding these solicitations. We have also retained Georgeson Inc. (“Georgeson”) to assist in the distribution and solicitation of proxies and to verify records related to the solicitation at a fee of $8,500 plus reimbursement for all reasonable out-of-pocket expenses incurred during the solicitation. Georgeson and our officers, directors and employees may supplement the original solicitation by mail of proxies, by telephone, facsimile, e-mail and personal solicitation. We will pay no additional compensation to our officers, directors and employees for these activities. We agreed to indemnify Georgeson against liabilities and expenses arising in connection with the proxy solicitation unless caused by Georgeson’s negligence or intentional misconduct.

Delivery of Proxy Statement and Annual Report

Beneficial owners, but not record holders, of our common stock who share a single address may receive only one copy of the Notice of Internet Availability of Proxy Materials and, as applicable, an Annual Report to Stockholders and Proxy Statement, unless their broker has received contrary instructions from any beneficial owner at that address. This practice, known as “householding,” is designed to reduce printing and mailing costs. If any beneficial owner at such an address wishes to discontinue householding and receive a separate copy of the Notice of Internet Availability of Proxy Materials and, if applicable, an Annual Report to Stockholders and Proxy Statement, they should notify their broker. Beneficial owners sharing an address to which a single copy of the Notice of Internet Availability of Proxy Materials and, if applicable, an Annual Report to Stockholders and Proxy Statement was delivered can also request prompt delivery of a separate copy of the Notice of Internet Availability of Proxy Materials and, if applicable, an Annual Report to Stockholders and Proxy Statement by contacting Investor Relations at the following address: Attn: Investor Relations, DaVita Inc., 1551 Wewatta Street, Denver, Colorado 80202, (888) 484-7505.

Admission to Annual Meeting

Admission to the annual meeting will be limited to stockholders of DaVita, family members accompanying stockholders of DaVita, persons holding executed proxies from stockholders who held DaVita stock as of the close of business on April 13, 2012 and such other persons as the chair of the annual meeting shall determine.

If you are a stockholder of DaVita, you must bring certain documents with you in order to be admitted to the annual meeting and in order to bring family members with you. The purpose of this requirement is to help us verify that you are actually a stockholder of DaVita. Please read the following procedures carefully, because they specify the documents that you must bring with you to the annual meeting in order to be admitted. The items that you must bring with you differ depending upon whether or not you were a record holder of DaVita stock as of the close of business on April 13, 2012. A “record holder” of stock is someone whose shares of stock are registered in his or her name in the records of DaVita’s transfer agent. Many stockholders are not record holders because their shares of stock are held in “street name,” meaning that the shares are registered in the name of their broker, bank or other nominee, and the broker, bank or other nominee is the record holder instead. If you are unsure as to whether you were a record holder of DaVita common stock as of the close of business on April 13, 2012, please call DaVita’s transfer agent, BNY Mellon Shareowner Services at (877) 889-2012.

If you were a record holder of DaVita common stock as of the close of business on April 13, 2012, then you must bring:

 

   

valid personal photo identification (such as a driver’s license or passport).

At the annual meeting, we will check your name for verification purposes against our list of record holders as of the close of business on April 13, 2012.

 

3


Table of Contents

If a broker, bank or other nominee was the record holder of your shares of DaVita common stock as of the close of business on April 13, 2012, then you must bring:

 

   

valid personal photo identification (such as a driver’s license or passport); and

 

   

proof that you owned shares of DaVita common stock as of the close of business on April 13, 2012.

Examples of proof of ownership include the following: (i) an original or a copy of the voting instruction from your bank or broker with your name on it, (ii) a letter from your bank or broker stating that you owned DaVita common stock as of the close of business on April 13, 2012, or (iii) a brokerage account statement indicating that you owned DaVita common stock as of the close of business on April 13, 2012.

If you acquired your shares of DaVita common stock at any time after the close of business on April 13, 2012, you do not have the right to vote at the Annual Meeting, but you may attend it if you bring:

 

   

valid personal photo identification (such as a driver’s license or passport); and

 

   

proof that you own shares of DaVita common stock.

Examples of proof of ownership include the following:

 

   

if a broker, bank or other nominee is the record holder of your shares of DaVita common stock: (i) a letter from your bank or broker stating that you acquired DaVita common stock after April 13, 2012, or (ii) a brokerage account statement as of a date after April 13, 2012 indicating that you own DaVita common stock; or

 

   

if you are the record holder of your shares of DaVita common stock, a copy of your stock certificate or a confirmation acceptable to DaVita that you bought the stock after April 13, 2012.

If you are a proxy holder for a stockholder of DaVita who owned shares of DaVita common stock as of the close of business on April 13, 2012, then you must bring:

 

   

the executed proxy naming you as the proxy holder, signed by a stockholder of DaVita who owned shares of DaVita common stock as of the close of business on April 13, 2012;

 

   

valid personal photo identification (such as a driver’s license or passport); and

 

   

if the stockholder whose proxy you hold was not a record holder of DaVita common stock as of the close of business on April 13, 2012, proof of the stockholder’s ownership of shares of DaVita common stock as of the close of business on April 13, 2012, in the form of (i) an original or a copy of the voting instruction form from the stockholder’s bank or broker with the stockholder’s name on it, or (ii) a letter or statement from a bank, broker or other nominee indicating that the stockholder owned DaVita common stock as of the close of business on April 13, 2012.

No cameras, recording equipment, electronic devices, large bags, briefcases or packages will be permitted at the annual meeting. Shares may be voted in person at the annual meeting only by (a) the record holder as of the close of business on April 13, 2012 or (b) a person holding a valid proxy executed by such record holder.

Electronic Availability of Proxy Materials for 2012 Annual Meeting

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting to Be Held on June 11, 2012. This Proxy Statement and the Annual Report to Stockholders and Form 10-K for fiscal year 2011 are available electronically at www.proxyvote.com.

 

4


Table of Contents

PROPOSAL NO. 1

ELECTION OF DIRECTORS

At the annual meeting, you will elect nine directors to serve until the 2013 annual meeting of stockholders or until their respective successors are elected and qualified. Our bylaws require that each director be elected by the majority of votes cast with respect to such director in uncontested elections. In a contested election, where the number of nominees for director exceeds the number of directors to be elected, directors are elected by a plurality of shares represented in person or by proxy at any such meeting and entitled to vote on the election of directors. If a nominee for director who was in office prior to the election is not elected by a majority of votes cast, the director must promptly tender his or her resignation from the Board of Directors, and the Nominating and Governance Committee of the Board of Directors will make a recommendation to the Board of Directors about whether to accept or reject the resignation, or whether to take other action. The Board of Directors, excluding the director in question, will act on the recommendation of the Nominating and Governance Committee and publicly disclose its decision and its rationale within 90 days from the date the election results are certified. If a nominee for director who was not already serving as a director does not receive a majority of votes cast at the annual meeting, the nominee is not elected to the Board of Directors. All 2012 nominees are currently serving on the Board of Directors.

Eight of the nine nominees for director have been determined to be independent under the listing standards of the New York Stock Exchange (“NYSE”). Please see the section titled “Corporate Governance—Director Independence” below for more information. The Nominating and Governance Committee has recommended, and the Board of Directors has nominated, Pamela M. Arway, Charles G. Berg, Carol Anthony (“John”) Davidson, Paul J. Diaz, Peter T. Grauer, John M. Nehra, William L. Roper, Kent J. Thiry and Roger J. Valine for election as directors. Each nominee has consented to being named in this Proxy Statement as a nominee and has agreed to serve as a director if elected. Willard W. Brittain, who is currently a member of the Board of Directors, is not standing for re-election and as a consequence, the size of the board will be reduced from ten to nine.

Unless the proxy indicates otherwise, the persons named as proxies in the accompanying proxy have advised us that at the meeting they intend to vote the shares covered by the proxies for the election of the nominees named above. If one or more of the nominees are unable or not willing to serve, the persons named as proxies may vote for the election of the substitute nominees that the Board of Directors may propose. The accompanying proxy contains a discretionary grant of authority with respect to this matter. The persons named as proxies may not vote for a greater number of persons than the number of nominees named above.

No arrangement or understanding exists between any nominee and any other person or persons pursuant to which any nominee was or is to be selected as a director or nominee. None of the nominees has any family relationship with any other nominee or with any of our executive officers.

The Board of Directors recommends a vote FOR the election of each of the named nominees as directors.

Information Concerning Members of the Board of Directors Standing for Reelection

 

Name

   Age     

Position

Pamela M. Arway

     58       Director

Charles G. Berg

     54       Director

Carol Anthony (“John”) Davidson

     56       Director

Paul J. Diaz

     50       Director

Peter T. Grauer

     66       Lead Independent Director

John M. Nehra

     63       Director

William L. Roper

     63       Director

Kent J. Thiry

     56       Chairman of the Board and Chief Executive Officer

Roger J. Valine

     63       Director

 

5


Table of Contents

Pamela M. Arway has been one of our directors since May 2009. From 2005 to 2007, Ms. Arway served as the president of American Express International, Japan, Asia-Pacific, Australia region, a global payment services and travel company. Ms. Arway has also been the Chair of the Governance Committee and a member of the Audit Committee on the board of directors of the Hershey Company, a chocolate and confectionery company, since May of 2010. Ms. Arway joined the American Express Company in 1987 after which she served in various capacities, including as chief executive officer of American Express Australia Limited from 2004 to 2005 and as executive vice president of Corporate Travel, North America from 2000 to 2004. Prior to her retirement in October 2008, she also served as advisor to the American Express Company’s chairman and chief executive officer. Ms. Arway is an experienced business leader, with extensive management experience.

Charles G. Berg has been one of our directors since March 2007. Mr. Berg served as executive chairman and as a member of the board of directors of WellCare Health Plans, Inc. (“WellCare”), a provider of managed care services for government-sponsored healthcare programs from January 2008 to December 2010. Mr. Berg became non-executive chairman of the board of directors of WellCare in January 2011. From January 2007 to April 2009, Mr. Berg was a senior advisor to Welsh, Carson, Anderson & Stowe, a private equity firm. From April 1998 to July 2004, Mr. Berg held various executive positions with Oxford Health Plans, Inc. (“Oxford”) which included chief executive officer from November 2002 to July 2004 when Oxford was acquired by UnitedHealth Group, president and chief operating officer from March 2001 to November 2002 and executive vice president, medical delivery from April 1998 to March 2001. From July 2004 to September 2006, Mr. Berg served as an executive of UnitedHealth Group and was primarily responsible for integrating the Oxford business. Mr. Berg is an experienced business leader with significant experience in the healthcare industry and brings an understanding of the operational, financial and regulatory aspects of our industry and business.

Carol Anthony (“John”) Davidson has been one of our directors since December 2010. Mr. Davidson has been senior vice president, controller and chief accounting officer of Tyco International Ltd. (“Tyco”), a provider of diversified industrial products and services, since January 2004. Prior to joining Tyco in January 2004, he spent six years at Dell Inc., a computer and technology services company, where he held various leadership roles, including vice president, audit, risk and compliance, and vice president, corporate controller. In addition, he previously spent 16 years at Eastman Kodak Company, a provider of imaging technology products and services, in a variety of accounting and financial leadership roles. Mr. Davidson is a CPA with more than 30 years of leadership experience across multiple industries. Mr. Davidson is a member of the Board of Trustees of the Financial Accounting Foundation which oversees financial accounting and reporting standards setting processes for the United States, including oversight of the Financial Accounting Standards Board (FASB). Mr. Davidson brings a strong track record of building and leading global teams and implementing governance and controls processes.

Paul J. Diaz has been one of our directors since July 2007. Mr. Diaz has been the president and chief executive officer of Kindred Healthcare, Inc. (“Kindred”), a provider of long-term healthcare services in the United States, since January 2004. Mr. Diaz joined Kindred in January 2002 as president and chief operating officer. Prior to joining Kindred, Mr. Diaz was the managing member of Falcon Capital Partners, LLC, a private investment and consulting firm, and from 1996 to July 1998, Mr. Diaz served in various executive capacities with Mariner Health Group, Inc., including as executive vice president and chief operating officer. Mr. Diaz serves on the board of Kindred and the board of visitors of Georgetown University Law Center and previously served on the board of PharMerica Corporation. Mr. Diaz is an experienced business leader with significant experience in the healthcare industry and brings an understanding of the operational, financial and regulatory aspects of our industry and business.

Peter T. Grauer has been one of our directors since August 1994 and our lead independent director since 2003. Mr. Grauer has been chairman of the board of Bloomberg, Inc. since April 2001, treasurer since March 2002 and was its chief executive officer from March 2002 until July 2011. From November 2000 until March 2002, Mr. Grauer was a managing director of Credit Suisse First Boston. From September 1992 until November 2000, upon the merger of Donaldson, Lufkin & Jenrette (“DLJ”) into Credit Suisse First Boston,

 

6


Table of Contents

Mr. Grauer was a managing director and founding partner of DLJ Merchant Banking Partners. Mr. Grauer has significant experience as a business leader and brings a deep understanding of our business and industry through his over 15 years of service as a member of the Board of Directors.

John M. Nehra has been one of our directors since November 2000. Mr. Nehra has been affiliated with New Enterprise Associates (“NEA”), a venture capital firm, since 1989, including, since 1993, as general partner of several of its affiliated venture capital limited partnerships. Mr. Nehra has also been managing general partner of Catalyst Ventures, a venture capital firm, since 1989. Mr. Nehra serves on the boards of a number of NEA’s portfolio companies. Mr. Nehra is an experienced business leader with approximately 35 years experience in investment banking, research and capital markets and he brings a deep understanding of our business and industry through his almost 10 years of service as a member of the Board of Directors as well as significant experience in the healthcare industry through his involvement with NEA’s healthcare-related portfolio companies.

William L. Roper has been one of our directors since May 2001. Dr. Roper has been chief executive officer of the University of North Carolina (“UNC”) Health Care System, dean of the UNC School of Medicine and vice chancellor for medical affairs of UNC since March 2004. Dr. Roper also continues to serve as a professor of health policy and administration in the UNC School of Public Health and a professor of pediatrics and of social medicine in the UNC School of Medicine. From 1997 until March 2004, he was dean of the UNC School of Public Health. Before joining UNC in 1997, Dr. Roper served as senior vice president of Prudential Health Care. He also served as director of the Centers for Disease Control and Prevention from 1990 to 1993, on the senior White House staff in 1989 and 1990 and as the administrator of Centers for Medicare & Medicaid Services from 1986 to 1989. Dr. Roper is also chairman of the board of the National Quality Forum. Dr. Roper serves on the board of Medco Health Solutions, Inc., a pharmacy benefits management company. Dr. Roper brings substantial expertise in the medical field, an in-depth understanding of the regulatory aspects of our business as well as clinical, financial and operational experience.

Kent J. Thiry became our chairman of the Board of Directors and chief executive officer in October 1999. From June 1997 until he joined us, Mr. Thiry was chairman of the board and chief executive officer of Vivra Holdings, Inc., which was formed to operate the non-dialysis business of Vivra Incorporated (“Vivra”) after Gambro AB acquired the dialysis services business of Vivra in June 1997. From September 1992 to June 1997, Mr. Thiry was the president and chief executive officer of Vivra, a provider of renal dialysis and other healthcare services. From April 1992 to August 1992, Mr. Thiry was president and co-chief executive officer of Vivra, and from September 1991 to March 1992, he was president and chief operating officer of Vivra. From 1983 to 1991, Mr. Thiry was associated with Bain & Company, first as a consultant, and then as vice president. Mr. Thiry previously served on the board of Varian Medical Systems, Inc. from August 2005 to February 2009 and served as the non-executive chairman of Oxford Health Plans, Inc. until it was sold to UnitedHealth Group in July 2004. As a member of management, Mr. Thiry provides significant industry-specific experience and unique expertise regarding the company’s business and operations as well as executive leadership and management experience.

Roger J. Valine has been one of our directors since June 2006. From 1993 to his retirement in July 2006, Mr. Valine served as the chief executive officer of Vision Service Plan (“VSP”), the nation’s largest provider of eyecare wellness benefits. From January 1993 to February 2006, Mr. Valine served as both the president and chief executive officer of VSP. Upon his retirement, Mr. Valine had worked for VSP for 33 years and provided consulting services to VSP through January 2008. Mr. Valine serves on the board of SureWest Communications and previously served on the board of American Specialty Health Incorporated. Mr. Valine is an experienced business leader with significant experience in the healthcare industry and brings an understanding of the operational, financial and regulatory aspects of our business as well as extensive management experience.

 

7


Table of Contents

CORPORATE GOVERNANCE

Director Independence

Under the listing standards of the NYSE, a majority of the members of the Board of Directors must satisfy the NYSE criteria for “independence.” No director qualifies as independent under the NYSE listing standards unless the Board of Directors affirmatively determines that the director has no material relationship with us (either directly or as a partner, stockholder or officer of an organization that has a relationship with us). In addition, the Board of Directors has adopted a formal set of standards used to determine director independence. The full text of our director independence standards is available under the Corporate Governance section of our website, located at http://www.davita.com/about/corporate-governance.

The Board of Directors evaluates the independence of our directors annually and will review the independence of individual directors on an interim basis to consider changes in employment, relationships and other factors. The Board of Directors has determined that all of the individuals currently serving, or who served at any time during 2011, as members of the Board of Directors, other than Mr. Thiry, are independent under the NYSE listing standards.

In making determinations of independence, the Board of Directors considered the following relationships and the non-affected directors determined that none of such relationships was a material relationship that would impair the independence of any such individual:

(1) Mr. Thiry holds an ownership interest in certain funds of NEA, a venture capital firm of which Mr. Nehra is a special partner and Richard K. Whitney, our former chief financial officer and current consultant, is a venture partner. In 2011, the company co-invested with NEA13, an affiliate of NEA, in NephroLife Care Pvt. Ltd., a joint venture that is 51% owned by the company. Also, in 2011 the company divested certain assets to a portfolio company of Frazier Healthcare VI, L.P. (“Frazier”) and NEA13. Mr. Thiry, has a personal investment in a limited partnership that has a capital commitment to NEA13 and, therefore, indirectly invested through NEA13 in NephroLife and the assets divested by the company to Frazier and NEA13. Mr. Thiry’s capital commitment to the limited partnership that has a capital commitment to NEA13 is less than 2% of its aggregate capital commitments. Mr. Nehra is a limited partner in NEA-related entities and has less than a 10% interest in the capital commitments and carried interest of NEA13. Mr. Thiry and Mr. Nehra do not have, individually or collectively, a 10% interest in NEA13 (or in any intermediate NEA entity), and therefore the Board of Directors concluded that their respective interests are not material. Neither Mr. Thiry nor Mr. Nehra participated directly or indirectly in negotiations or approvals of the above-described transactions.

(2) Mr. Berg is a director, the non-executive chairman and a stockholder of WellCare, which has made payments to us for services rendered in the ordinary course of business in the last three years which did not exceed the greater of $1 million or 2% of WellCare’s consolidated gross revenue in any such year. For additional information, see “Certain Relationships and Related Transactions.”

(3) Mr. Diaz is a director, the president and chief executive officer and a stockholder of Kindred, which has made payments to us for services rendered in the ordinary course of business in the last three years which did not exceed the greater of $1 million or 2% of Kindred’s consolidated gross revenue in any such year.

The Board of Directors also maintains a policy whereby the Board of Directors will evaluate the appropriateness of the director’s continued service on the Board of Directors in the event that the director retires from their principal job, changes their principal job responsibility or experiences a significant event that could negatively affect their service to the Board of Directors. In such event, the affected director shall promptly submit his or her resignation to the chairman of the Board of Directors and the lead independent director. The members of the Board of Directors, excluding the affected director, will determine whether the affected

 

8


Table of Contents

director’s continued service on the Board of Directors is in the best interests of our stockholders and will decide whether or not to accept the resignation of the director. In addition, prior to accepting an invitation to serve on the board of directors of another public company, a director must advise the chairman of the Board of Directors and the lead independent director so that the remaining members of the Board of Directors may evaluate any potential conflicts of interest.

Leadership Structure and Meetings of Independent Directors

Mr. Thiry is our chief executive officer and chairman of the Board of Directors. Mr. Thiry brings over 12 years of experience with our company and deep institutional knowledge and experience to the combined role. Our lead independent director, Mr. Grauer, plays a significant role in Board leadership and meetings of the independent directors. Mr. Grauer chairs our Nominating and Governance Committee, which is a committee composed of all directors other than Mr. Thiry. As lead independent director, Mr. Grauer reviews and provides input to the chairman on meeting agendas and information to be sent to the Board of Directors, consults with the chairman on meeting schedules to assure that there is sufficient time for discussion of agenda items, serves as the principal liaison between the chairman and the non-executive (all of whom are also independent) directors and presides over executive sessions of the Board of Directors, providing consolidated feedback, as appropriate, from those meetings to Mr. Thiry. Additionally, Mr. Grauer facilitates discussions outside of scheduled board meetings among the independent directors on key issues as required. We believe that Mr. Thiry’s experience and knowledge, and the significant role of the lead independent director, make combination of the chairman and chief executive officer roles appropriate.

Independent directors meet regularly in executive sessions without management. Executive sessions are held in conjunction with each regularly scheduled meeting of the Board of Directors.

Communications with the Board of Directors

Any interested party who desires to contact the lead independent director, Mr. Grauer, may do so by sending an email to leaddirector@davita.com. In addition, any interested party who desires to contact the Board of Directors or any member of the Board of Directors may do so by writing to: Board of Directors, c/o Corporate Secretary, DaVita Inc., 1551 Wewatta Street, Denver, Colorado 80202. Copies of any such written communications received by the Secretary will be provided to the full Board of Directors or the appropriate member depending on the facts and circumstances described in the communication unless they are considered, in the reasonable judgment of the Secretary, to be improper for submission to the intended recipient(s).

Annual Meeting of Stockholders

We do not have a policy requiring that directors attend the annual meeting of stockholders. Stockholders may contact our lead independent director and the Board of Directors as described above. At the last annual meeting of stockholders, our chairman, Mr. Thiry, attended the meeting.

Information Regarding the Board of Directors and its Committees

The Board of Directors met thirteen times during 2011. Each of our directors attended at least 75% of the total number of meetings of the Board of Directors and of the committees of the Board of Directors on which he or she served during 2011. The Board of Directors has established the following committees: the Audit Committee, the Compensation Committee, the Nominating and Governance Committee, the Compliance Committee, the Public Policy Committee and the Clinical Performance Committee.

 

9


Table of Contents

Committees of the Board of Directors

 

Name of Committee and Members

  

Principal Functions of the Committee

   Meetings
in 2011
 

Audit

 

Roger J. Valine, Chair

Pamela M. Arway

Charles G. Berg

Carol Anthony (“John”) Davidson

  

•    Assists the Board of Directors with oversight of the integrity of our financial statements including the financial reporting and disclosure processes and the integrity and effectiveness of our system of internal controls over financial reporting.

 

•    Assists the Board of Directors with oversight of the independence, qualifications and performance of our independent registered public accounting firm, including a review of the scope and results of their audit, as well as our internal audit function.

 

•    Together with the Compliance Committee, assists the Board of Directors with oversight of compliance with legal and regulatory requirements, including those that may have a material impact on the company’s financial statements.

 

•    Appoints and engages our independent registered public accounting firm.

 

     12   

Compensation

 

John M. Nehra, Chair

Peter T. Grauer

Roger J. Valine

  

•    Reviews the performance of our chief executive officer and other executives and makes decisions regarding their compensation.

 

•    Establishes policies relating to the compensation of our executive officers and other key employees that further the goal of ensuring that our compensation system for our chief executive officer and our other executives, as well as our philosophy for compensation for all employees and the Board of Directors, is aligned with the long-term interests of our stockholders.

 

•    Determines the compensation of our chief executive officer.

 

•    Conducts an evaluation of our chief executive officer’s performance and the company’s performance and considers a self-assessment prepared by our chief executive officer. Periodically, the Compensation Committee engages an outside consultant to conduct an in-depth analysis of our chief executive officer’s performance as a manager during the year.

 

•    Approves the compensation package for our chief executive officer subject to ratification by the independent members of the Board of Directors.

 

•    Works closely with and considers the recommendations of our chief executive officer to determine the compensation of our other executive officers.

     5   

 

10


Table of Contents

Name of Committee and Members

  

Principal Functions of the Committee

   Meetings
in 2011
 
  

 

•    When determining the compensation of the other executive officers, considers the recommendations of the chief executive officer who conducts a performance and compensation review of each other executive officer and reviews his detailed assessments of the performance of each of the other executive officers with the Compensation Committee.

  

Nominating and Governance

 

Peter T. Grauer, Chair

Pamela M. Arway

Charles G. Berg

Willard W. Brittain, Jr.

Carol Anthony (“John”) Davidson

Paul J. Diaz

John M. Nehra

William L. Roper

Roger J. Valine

  

•    Reviews and makes recommendations to the Board of Directors about our governance processes.

 

•    Assists in identifying and recruiting candidates for the Board of Directors.

 

•    Annually reviews the performance of the individual members of the Board of Directors.

 

•    Proposes a slate of nominees for election at the annual meeting of stockholders.

 

•    Makes recommendations to the Board of Directors regarding the membership and chairs of the committees of the Board of Directors.

 

     2   

Compliance Committee

 

William L. Roper, Chair

Pamela M. Arway

Charles G. Berg

Peter T. Grauer

  

•    Oversees and monitors the effectiveness of our health care regulatory compliance program, reviews significant health care regulatory compliance risk areas, and reviews the steps management is taking to monitor, control and report these risk exposures.

 

•    Together with the Audit Committee, assists the Board of Directors with oversight of compliance with legal and regulatory requirements.

 

•    Has primary responsibility for oversight of health care regulatory requirements and for directing the company’s response to certain pending governmental investigations.

 

•    Meets regularly with our chief compliance officer.

 

     5   

Public Policy

 

Paul J. Diaz, Chair

Willard W. Brittain, Jr.

William L. Roper

 

  

•    Advises the Board of Directors on public policy and makes recommendations to the Board of Directors as to policies and procedures relating to issues of public policy and government relations.

     3   

Clinical Performance

 

William L. Roper, Chair

Pamela M. Arway

Willard W. Brittain, Jr.

John M. Nehra

  

•    Advises the Board of Directors on clinical performance issues facing the company.

 

•    Makes recommendations to management and to the Board of Directors as to policies and procedures relating to issues of clinical performance.

     2   

 

11


Table of Contents

Audit Committee

The current members of our Audit Committee are Ms. Arway, Mr. Berg, Mr. Davidson and Mr. Valine, with Mr. Valine serving as the chair. The Board of Directors has determined that Mr. Berg, Mr. Davidson and Mr. Valine each qualifies as an “audit committee financial expert” within the meaning of the rules of the SEC and that each of the members of our Audit Committee is “independent” and “financially literate” under the listing standards of the NYSE and the company’s independence standards.

The Audit Committee’s primary responsibilities are to assist the Board of Directors with oversight of: (1) the integrity of our financial statements including the financial reporting and disclosure processes and (2) the independence, qualifications and performance of our independent registered public accounting firm. The chart set forth in “Committees of the Board of Directors” describes the principal functions of the Audit Committee under its charter. The charter of the Audit Committee is available under the Corporate Governance section of our website, located at http://www.davita.com/about/corporate-governance.

The Audit Committee is required to pre-approve the independent registered public accounting firm’s annual audit services (including related fees), audit-related services, and all other services in accordance with our pre-approval policy. Our pre-approval policy is available under the Corporate Governance section of our website, located at http://www.davita.com/about/corporate-governance. The Audit Committee met twelve times during 2011, including meetings held with the independent registered public accounting firm and management each quarter prior to the release of the company’s financial results. The Audit Committee met with the independent registered public accounting firm without management present on four occasions in 2011.

Compensation Committee

The current members of our Compensation Committee are Mr. Grauer, Mr. Nehra and Mr. Valine, with Mr. Nehra serving as the chair. Each of the members of our Compensation Committee is independent in accordance with the listing standards of the NYSE and the company’s independence standards. Each of the members of this committee is also a “nonemployee director” as that term is defined under Rule 16b-3 of the Securities Exchange Act of 1934 (the “Exchange Act”) and an “outside director” as that term is defined in Internal Revenue Service regulations.

Our Compensation Committee reviews the performance of our chief executive officer and other executives and makes decisions regarding their compensation, with the goal of ensuring that our compensation system for our chief executive officer and our other executives, as well as our philosophy for compensation for all employees and the Board of Directors, is aligned with the long-term interests of our stockholders. The Compensation Committee establishes policies relating to the compensation of our executive officers and other key employees that further this goal. The chart set forth in “Committees of the Board of Directors” describes the principal functions of the Compensation Committee under its charter. The charter of the Compensation Committee is available under the Corporate Governance section of our website, located at http://www.davita.com/about/corporate-governance.

In 2012, Compensia, an independent compensation consulting firm engaged by the Compensation Committee, provided the Compensation Committee with an analysis of comparative market data on the cash and stock-based compensation for senior executives at a group of comparable companies. The Compensation Committee considered Compensia’s analysis of the compensation of executives serving in similar positions at comparable companies to obtain a general understanding of current compensation practices and to provide context for compensation decisions. Compensation decisions are not directly related to or otherwise based upon the comparative data. The Compensation Committee uses this comparative data as one of many factors considered to set the compensation for our executive officers. The Compensation Committee has the sole authority to retain or replace Compensia in its discretion. Compensia does not provide consulting services to the company and may not provide such services without the approval of the chair of the Compensation Committee.

 

12


Table of Contents

Our Non-Management Director Compensation Philosophy and Plan sets forth the terms of our director compensation. There is no discretionary decision-making involved in director compensation. The Compensation Committee and the Board of Directors periodically review director compensation. In 2011, Compensia provided the Compensation Committee with an analysis of comparative market data on the cash and stock-based compensation for directors at a group of comparable companies. The Compensation Committee considered Compensia’s analysis of the compensation of directors at comparable companies to obtain a general understanding of current compensation practices. Based upon the analysis provided by Compensia to the Compensation Committee, on April 13, 2011, the Compensation Committee amended and restated the director compensation plan, to among other things, reduce the initial equity grant awarded to new members of the Board of Directors and eliminate equity grants awarded to chairs of the committees of the Board of Directors. Please see “Compensation of Directors” beginning on page 70 of this Proxy Statement for more information regarding our director compensation program pursuant to the Non-Management Director Compensation Philosophy and Plan.

Nominating and Governance Committee

The current members of our Nominating and Governance Committee are Ms. Arway, Mr. Berg, Mr. Brittain, Mr. Davidson, Mr. Diaz, Mr. Grauer, Mr. Nehra, Dr. Roper and Mr. Valine, representing all of our independent directors. Mr. Brittain will not stand for re-election at the annual meeting of stockholders. Our lead independent director, Mr. Grauer, is the chair of the Nominating and Governance Committee. The principal functions of the Nominating and Corporate Governance Committee include making recommendations to the Board of Directors about our governance processes, recruiting and identifying candidates for the Board of Directors and Board Committees, reviewing the performance of the members of the Board of Directors and proposing a slate of nominees for election at the annual meeting of stockholders. The Board of Directors has adopted a set of corporate governance guidelines established to assist the Board of Directors and its committees in performing their duties and serving the best interests of the company and our stockholders. The chart set forth in “Committees of the Board of Directors” describes the principal functions of the Nominating and Governance Committee under its charter. The charter of the Nominating and Governance Committee and our corporate governance guidelines are available under the Corporate Governance section of our website, located at http://www.davita.com/about/corporate-governance.

The Nominating and Governance Committee does not have a specific set of minimum criteria for membership on the Board of Directors. In making its recommendations, however, it considers the mix of characteristics, experience, diverse perspectives and skills that is most beneficial to our company. The committee also considers continuing director tenure and takes steps as may be appropriate to ensure that the Board of Directors maintains an openness to new ideas and a willingness to re-examine the status quo. The company does not have a specific diversity policy. However, as noted in our corporate governance guidelines, when selecting nominees the committee considers diversity of skills, experience, perspective and background. The Nominating and Governance Committee will consider nominees for director recommended by stockholders upon submission in writing to our Secretary of the names and qualifications of such nominees at the following address: Corporate Secretary, DaVita Inc., 1551 Wewatta Street, Denver, Colorado 80202. The committee does not intend to alter the manner in which it evaluates candidates based on whether the candidate was recommended by a stockholder.

In March 2012, the Nominating and Governance Committee recommended the candidates standing for election at the 2012 annual meeting of stockholders.

Compliance Committee

The current members of our Compliance Committee are Ms. Arway, Mr. Berg, Mr. Grauer and Dr. Roper, with Dr. Roper serving as the chair. Each of the members of our Compliance Committee is independent in accordance with the listing standards of the NYSE and the company’s independence standards. The chart set forth in “Committees of the Board of Directors” describes the principal functions of the Compliance Committee under its charter. The charter of the Compliance Committee is available under the Corporate Governance section of our website, located at http://www.davita.com/about/corporate-governance.

 

13


Table of Contents

Public Policy Committee

The current members of our Public Policy Committee are Mr. Brittain, Mr. Diaz and Dr. Roper, with Mr. Diaz serving as the chair. Mr. Brittain will not stand for re-election at the annual meeting of stockholders. Each of the members of our Public Policy Committee is independent in accordance with the listing standards of the NYSE and the company’s independence standards. The chart set forth in “Committees of the Board of Directors” describes the principal functions of the Public Policy Committee under its charter. The charter of the Public Policy Committee is available under the Corporate Governance section of our website, located at http://www.davita.com/about/corporate-governance.

Clinical Performance Committee

The current members of our Clinical Performance Committee are Ms. Arway, Mr. Brittain, Mr. Nehra and Dr. Roper, with Dr. Roper serving as the chair. Mr. Brittain will not stand for re-election at the annual meeting of stockholders. Each of the members of our Clinical Performance Committee is independent in accordance with the listing standards of the NYSE and the company’s independence standards. The chart set forth in “Committees of the Board of Directors” describes the principal functions of the Clinical Performance Committee under its charter. The charter of the Clinical Performance Committee is available under the Corporate Governance section of our website, located at http://www.davita.com/about/corporate-governance.

Risk Oversight

The Board of Directors’ involvement in risk oversight involves the Audit Committee, the Compliance Committee and the full Board of Directors. The Audit Committee is responsible for legal and regulatory risk oversight and the Compliance Committee has primary responsibility for oversight of healthcare regulatory compliance requirements. The Audit Committee and the Compliance Committee meet regularly with our chief compliance officer. The Compliance Committee reviews significant healthcare regulatory compliance risk areas and the steps management has taken to monitor, control and report such compliance risk exposures. The Compliance Committee meets on a regular basis and reports directly to the Board of Directors on its findings. The Audit Committee receives materials on enterprise risk management on an annual basis. These materials include identification of top enterprise risks for the company, the alignment of management’s accountability and reporting for these risks, and mapping of Board of Directors’ and Audit Committee’s oversight responsibilities for key risks. In addition, the Audit Committee and the full Board of Directors periodically receive materials to address the identification and status of major risks to the company. The Audit Committee discusses significant risk areas and the actions management has taken to monitor, control, and report such exposures. The Audit Committee also reviews with the company’s chief legal officer any legal matters that may have a material impact on the company’s financial statements, the company’s compliance with applicable laws and regulations, and material reports or inquiries received from governmental agencies, including such matters identified by the Compliance Committee or the chief compliance officer. At each meeting of the full Board of Directors, the chairman of the Audit Committee reports on the activities of the Audit Committee, including risks identified and risk oversight.

Risk Considerations in Our Compensation Program

The Compensation Committee, with the assistance of Compensia, conducted a review of the company’s material compensation policies and practices applicable to its employees, including its executive officers. Based on this review, the Compensation Committee concluded that these policies and practices do not create risks that are reasonably likely to have a material adverse effect on the company. The key features of the executive compensation program that support this conclusion include:

 

   

a balance between cash and equity compensation;

 

   

a balance between short-term and long-term performance focus;

 

14


Table of Contents
   

short-term incentive opportunities are capped and are not linked to any one specific goal;

 

   

equity awards have meaningful vesting requirements and relatively short terms;

 

   

a clawback policy that permits the Board of Directors to recover bonuses, incentive and equity-based compensation from executive officers and members of the Board of Directors; and

 

   

significant independent Compensation Committee oversight.

Board of Directors Share Ownership Policy

We have a share ownership policy that applies to all non-management members of the Board of Directors. The purpose of the policy is to encourage the Board of Directors to have an ownership stake in the company by retaining a specified financial interest in our common stock.

Both shares owned directly and shares underlying vested but unexercised stock options, stock appreciation rights (“SARs”), including stock-settled stock appreciation rights (“SSARs”), and restricted stock units (“RSUs”) are included in the determination of whether the share ownership guidelines have been met. The total net realizable share value retained must have a current market value of not less than the lower of:

 

   

25% of the total equity award value realized by the Board of Directors member to date in excess of $100,000; or

 

   

five times the annual Board of Directors retainer of $24,000, or $120,000.

Management Share Ownership Policy

In addition, we have a share ownership policy which applies to all members of our management team at the vice president level and above. See “Executive Compensation Process & Governance—Management Share Ownership Policy” beginning on page 54 of this Proxy Statement for more information regarding our management share ownership policy.

Code of Ethics and Code of Conduct

We have a code of ethics that applies to our chief executive officer, chief financial officer, controller and chief accounting officer, chief legal officer, all vice presidents and all professionals involved in the accounting and financial reporting functions. We also have a code of conduct that applies to all of our teammates. The code of ethics and the code of conduct are available under the Corporate Governance section of our website, located at http://www.davita.com/about/corporate-governance.

Clawback Policy

We have a clawback policy that permits the Board of Directors to recover bonuses, incentive and equity-based compensation from executive officers and members of the Board of Directors whose fraud or intentional misconduct was a significant contributing factor to the company having to restate all or a portion of its financial statements. See “Compensation Discussion and Analysis” beginning on page 40 of this Proxy Statement for more information regarding our clawback policy.

 

15


Table of Contents

PROPOSAL NO. 2

RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Independent Registered Public Accounting Firm

The Audit Committee has appointed KPMG LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2012. Representatives of KPMG LLP are expected to attend the annual meeting in person or telephonically, and will be available to respond to appropriate questions and to make a statement if they so desire. If KPMG LLP should decline to act or otherwise become incapable of acting, or if KPMG LLP’s engagement is discontinued for any reason, the Audit Committee will appoint another independent registered public accounting firm to serve as our independent registered public accounting firm for 2012. Although we are not required to seek stockholder ratification of this appointment, the Board of Directors believes that doing so is consistent with corporate governance best practices. If the appointment is not ratified, the Audit Committee will explore the reasons for stockholder rejection and will reconsider the appointment.

The following table sets forth the aggregate professional fees billed to us for the years ended December 31, 2011 and 2010 by KPMG LLP, our independent registered public accounting firm:

 

     2011      2010  

Audit fees(1)

   $ 2,500,183       $ 1,748,129   

Audit-related fees(2)

     460,463         427,742   

Tax fees(3)

     44,000         55,000   

All other fees

     —           —     
  

 

 

    

 

 

 
   $ 3,004,646       $ 2,230,871   
  

 

 

    

 

 

 

 

(1) 

Includes aggregate fees for the audit of our consolidated financial statements and the effectiveness of our internal control over financial reporting and the three quarterly reviews of our reports on Form 10-Q and other SEC filings.

(2) 

Includes fees for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements and are not reported as “Audit Fees,” including fees of $55,038 in 2010, for KPMG LLP’s services as an independent review organization for our subsidiary Gambro Healthcare, Inc., now known as DVA Renal Healthcare, Inc. The audit-related fees in 2011 and 2010 also include fees for audits of our employee benefit plans, an audit of one of our majority-owned joint ventures and fees of $334,761 and $218,354, respectively, for due diligence services relating to potential acquisitions. In addition, the 2010 audit related fees include audits of certain wholly owned subsidiaries.

(3) 

Includes fees for professional services rendered for tax advice and tax planning. None of these fees were for tax compliance or tax preparation services.

Pre-approval Policies and Procedures

The Audit Committee of the Board of Directors is required to pre-approve the audit, audit-related, tax and all other services provided by our independent registered public accounting firm in order to assure that the provision of such services does not impair the auditor’s independence. The Audit Committee’s pre-approval policy provides for pre-approval of all audit, audit-related, tax and all other services provided by the independent registered public accounting firm, KPMG LLP, and is available under the Corporate Governance section of our website, located at http://www.davita.com/about/corporate-governance. The Audit Committee pre-approved all such services in 2011 and concluded that such services performed by KPMG LLP were compatible with the maintenance of that firm’s independence in the conduct of its auditing functions.

The affirmative vote of a majority of the shares of common stock present at the annual meeting, in person or by proxy and entitled to vote thereon, is required for the ratification of the appointment of KPMG LLP as our independent registered public accounting firm for fiscal year 2012.

The Board of Directors recommends a vote FOR the ratification of the appointment of KPMG LLP as our independent registered public accounting firm for fiscal year 2012.

 

16


Table of Contents

PROPOSAL NO. 3

ADVISORY VOTE ON EXECUTIVE COMPENSATION

Pursuant to Section 14A of the Exchange Act, we are providing stockholders with a vote to approve, on an advisory basis, the compensation of our named executive officers as disclosed in this Proxy Statement in accordance with SEC rules. The advisory vote on executive compensation described in this proposal is commonly referred to as a “say-on-pay vote.”

The company intends to include in its proxy statement on an annual basis an advisory vote regarding named executive officer compensation. The company implemented this policy following the 2011 annual meeting of stockholders, at which a majority of stockholders voting on a resolution on the topic voted in favor of holding an advisory vote on executive compensation on an annual basis. The next advisory vote on the compensation paid to our named executive officers will occur at the 2013 Annual Meeting.

As disclosed in the Compensation Discussion and Analysis, the company believes that its executive compensation program is reasonable, competitive and strongly focused on pay-for-performance principles. We design our compensation programs for executive officers to attract and retain outstanding leaders who possess the skills and talent necessary to achieve our business goals and objectives. Ultimately, our objective is to continue to create long-term stockholder value by generating strong overall revenue growth, market share increases, improvements in cost per treatment, operating income growth, operating margin growth, increases in earnings per share and improvement in our debt to equity ratio. In order to achieve this objective, we have established our compensation programs so they:

 

   

reward strong company performance;

 

   

align our executives’ interests with our stockholders’ interests; and

 

   

are competitive within the health care services, diagnostics and solutions market so that we can attract and retain outstanding executives.

The compensation of our named executive officers during fiscal 2011 is consistent with the following achievements and financial performance. Our major financial operating indicators for 2011 were as follows:

 

   

we experienced a one-year total stockholder return (“TSR”) of 9.1%, compared to the median one-year TSR of 0.8% in our Global Industry Classification Standard group and the median one-year TSR of -2.2% in our comparator peer group;

 

   

we returned approximately $323 million to our stockholders through our stock buy-back program;

 

   

we experienced strong operating cash flow of $1,180 million;

 

   

our consolidated revenue growth was approximately 8.5%;

 

   

normalized non-acquired treatment growth was 4.6%;

 

   

we experienced an increase of approximately 9.1% in the overall number of treatments that we provided; and

 

   

our consolidated operating income growth was approximately 13.4%, which includes the impact of a noncash goodwill impairment charge of 2.4%.

The Compensation Committee has developed and approved an executive compensation philosophy to provide a framework for the company’s executive compensation program featuring the following policies and practices:

 

   

strong pay-for-performance alignment, with equity awards ranging from 48% to 74% of our named executive officers’ compensation in 2011;

 

17


Table of Contents
   

equity incentive plans that prohibit repricing or replacing underwater stock options or stock appreciation rights without prior stockholder approval;

 

   

a stock ownership policy that requires our named executive officers to accumulate a meaningful ownership stake in the company over time to strengthen the alignment of our named executive officers’ and stockholders’ interests; and

 

   

a clawback policy that permits the Board of Directors to recover bonuses, incentive and equity-based compensation from executive officers and members of the Board of Directors whose fraud or intentional misconduct was a significant contributing factor to the company having to restate all or a portion of its financial statements.

This proposal gives our stockholders the opportunity to express their views on the overall compensation of our named executive officers and the philosophy, policies and practices described in this Proxy Statement. For the reasons discussed above, we are asking our stockholders to indicate their support for our named executive officer compensation by voting FOR the following resolution at the Annual Meeting:

“RESOLVED, that the company’s stockholders approve, on an advisory basis, the compensation of the named executive officers, as disclosed in this Proxy Statement pursuant to the compensation disclosure rules of the Securities and Exchange Commission (which disclosure includes the Compensation Discussion and Analysis, the Summary Compensation Table and the other related tables and disclosure).”

The say-on-pay vote is an advisory vote only, and therefore it will not bind the company or the Board of Directors. However, the Board of Directors and the Compensation Committee will consider the voting results as appropriate when making future decisions regarding executive compensation.

The Board of Directors recommends a vote FOR the approval of the advisory resolution relating to the compensation of our named executive officers as disclosed in this Proxy Statement.

 

18


Table of Contents

PROPOSAL NO. 4

APPROVAL OF THE AMENDMENT TO OUR 2011 INCENTIVE AWARD PLAN

The DaVita Inc. 2011 Incentive Award Plan (the “2011 Plan”) was approved by the Board of Directors on April 13, 2011, subject to stockholder approval, as an amendment and restatement of the DaVita Inc. 2002 Equity Compensation Plan, as amended (the “2002 Plan”), and was approved by our stockholders and became effective on June 6, 2011.

On April 24, 2012, the Board of Directors of the company approved an amendment to the 2011 Plan (the “Amendment”), subject to stockholder approval at the Annual Meeting, to increase the number of shares authorized under the 2011 Plan by 4,500,000 and, for full value awards granted after the approval of the Amendment by our stockholders, to change the amount by which share reserves under the 2011 Plan are reduced by full value share awards to 3.5 times from 3.0 times the number of shares subject to the award.

The amendment to the 2011 Plan increasing the number of authorized shares available for issuance under the 2011 Plan and increasing the amount by which share reserves under the 2011 Plan are reduced by full value share awards will become effective upon approval of the amendment by our stockholders at the Annual Meeting. If the stockholders do not approve the amendment to the 2011 Plan, the 2011 Plan will continue in full force and effect with no increase in the existing number of authorized shares or in the amount by which share reserves under the 2011 Plan are reduced by full value share awards.

INTRODUCTION

Equity-based compensation has been a major component of our compensation programs. The Board of Directors believes that our capacity to grant equity-based compensation has been a significant factor in our ability to achieve our growth objectives and enhance stockholder value. The principal features of the 2011 Plan are summarized below, but the summary is qualified in its entirety by reference to the 2011 Plan itself. The 2011 Plan, as amended and restated to incorporate the Amendment is attached to this Proxy Statement as Appendix A.

Purpose

The purpose of the 2011 Plan is to promote our success and enhance our value by linking the individual interests of the members of the Board of Directors and our employees to those of our stockholders and by providing such individuals with an incentive for outstanding performance to generate superior returns to our stockholders. The 2011 Plan is further intended to provide us flexibility in our ability to motivate, attract, and retain the services of members of the Board of Directors, our employees and our consultants upon whose judgment, interest, and special effort the successful conduct of our operation is largely dependent. The 2011 Plan is designed to enable us to grant performance-based equity and cash awards that qualify as “performance-based compensation” under Section 162(m) of the Internal Revenue Code (the “Code”).

Proposed Amendment and Size of Share Pool

At the Annual Meeting, our stockholders will be asked to approve the Amendment, increasing the number of shares authorized under the 2011 Plan by 4,500,000. We believe, on the basis of current assumptions, that the approval of the Amendment will ensure that enough shares will be available for issuance under the 2011 Plan through approximately the end of 2015.

In addition, if the Amendment is approved, for full value awards granted after the approval of the Amendment by our stockholders, the amount by which share reserves under the 2011 Plan are reduced by full value share awards will be changed from 3.0 times to 3.5 times the number of shares subject to the award to better reflect the expected ratio of exchange value between full value share awards and options or SARs priced at fair market value on the date of the grant.

 

19


Table of Contents

At the time the 2011 Plan became effective on June 6, 2011, there was no increase in the number of shares that had previously been authorized under the 2002 Plan. Since its inception in 2002, a cumulative aggregate of 34,178,338 (38,678,338 if the Amendment is approved by our stockholders) shares have been reserved under the 2002 Plan, including shares directly authorized under the plan, shares inherited from predecessor plans, and shares reserved under the plan from repurchases under a prior replenishment provision that was terminated in 2007. As of December 31, 2011, there were 10,205,564 stock-settled stock appreciation rights, 10,000 cash-settled stock appreciation rights and 513,108 stock units outstanding and 8,405,431 shares available for future grants, under the 2011 Plan. For more information regarding the shares available for issuance under the 2011 Plan, see “Limitations on Awards and Shares Available” below.

The Board of Directors committed and continues to commit to our stockholders that over the three-year period that commenced on April 1, 2010, it will not grant a number of shares subject to stock awards under the 2002 Plan or 2011 Plan, including stock options, SARs, restricted stock units or other stock awards, at an average annual rate greater than 4.02% of the number of shares of our common stock that we believe will be outstanding over such three-year period. This 4.02% rate is the average of the 2009 and 2010 three-year average median grant rate plus one standard deviation for the Russell 3000 companies in the company’s industry segment. Awards that are settled in cash, awards that are granted pursuant to stockholder approved exchange programs, awards sold under our Employee Stock Purchase Plan and awards assumed or substituted in business combination transactions will be excluded from our grant rate calculation. For purposes of calculating the number of shares granted, any Full Value Awards (i.e., restricted stock, restricted stock unit, performance share or any other award that does not have an exercise price per share at least equal to the per share fair market value of our common stock on the grant date) will count as equivalent to 3.0 shares. The company will publicly report its compliance with this three-year average annual grant rate commitment, and the data necessary to independently confirm it, in a public filing shortly after March 31, 2013.

The status of the company’s compliance with this commitment through the first two years of the commitment period is as follows:

 

     Gross award shares
granted*
     Basic weighted
average shares
outstanding **
     Gross grant rate per
period
 

Annual period April 1, 2010 through March 31, 2011

     2,272,882         99,743,903         2.28

Annual period April 1, 2011 through March 31, 2012

     2,361,892         94,046,041         2.51

Average annual grant rate April 1, 2010 through March 31, 2012

           2.40

 

* 

Total option-equivalent award shares granted in each period, treating full value awards as equivalent to 3.0 plan shares.

** 

The average of weighted average shares outstanding for basic earnings per share calculations reported for each of the four quarters ended the respective annual periods.

Under the terms of the 2011 Plan, the pool of shares may be used for all types of awards under a fungible pool formula. Pursuant to this fungible pool formula, the authorized share limit will be reduced by one share of our common stock for every one share subject to an option or stock appreciation right and three shares of our common stock for every one share subject to a Full Value Award.

Stockholder Approval Requirement

In general, stockholder approval of the Amendment is necessary in order for us to (1) continue to meet the stockholder approval requirements of the principal securities market on which shares of our common stock are traded and (2) continue to take tax deductions for certain compensation resulting from awards granted thereunder qualifying as performance-based compensation under Section 162(m) of the Code.

 

20


Table of Contents

Compensation and Governance Best Practices

The 2011 Plan authorizes the Compensation and Management Development Committee (or Compensation Committee) of the Board of Directors (or, if the Board of Directors determines, another committee of the Board of Directors) to provide equity-based compensation in the form of stock options, stock appreciation rights, restricted stock units, restricted stock, performance-based awards, dividend equivalents, stock payments, deferred stock unit awards and deferred stock awards structured by the Compensation Committee within parameters set forth in the 2011 Plan, for the purpose of providing the members of the Board of Directors, our employees and our consultants and equity compensation, incentives and rewards for performance. The 2011 Plan reflects a broad range of compensation and governance best practices, with some of the key features of the 2011 Plan as follows:

 

   

Limitations on Grants. The maximum aggregate number of shares with respect to one or more awards that may be granted to any one person during any consecutive 12 month period is 2,250,000. However, this number may be adjusted to take into account equity restructurings and certain other corporate transactions as described below, the issuance of rights and certain other events described in the 2011 Plan, in addition to the share limitations described above under “Proposed Amendment and Size of the Share Pool.”

 

   

No Repricing or Replacement of Options or Stock Appreciation Rights. The 2011 Plan prohibits, without stockholder approval: (i) the amendment of options or stock appreciation rights to reduce the exercise price, and (ii) the replacement of an option or stock appreciation right with cash or any other award when the price per share of the option or stock appreciation right exceeds the fair market value of the underlying shares, except with respect to any Substitute Award (as defined in “Limitations on Awards and Shares Available” below).

 

   

No In-the-Money Option or Stock Appreciation Right Grants. The 2011 Plan prohibits the grant of options or stock appreciation rights with an exercise or base price less than the fair market value, generally the closing price, of our common stock on the date of grant.

 

   

Section 162(m) Qualification. The 2011 Plan is designed to allow awards made under the 2011 Plan, including equity awards and incentive cash bonuses, to qualify as performance-based compensation under Section 162(m) of the Code.

 

   

Independent Administration. The Compensation Committee of the Board of Directors, which consists of only non-employee directors, generally administers the 2011 Plan, and only the Compensation Committee may make grants of awards to persons who are subject to Section 16 of the Exchange Act and persons who are “covered employees” within the meaning of Section 162(m) of the Code. The Compensation Committee may delegate certain of its duties and authorities to a subcommittee for awards to certain non-executive employees.

ADMINISTRATION

The 2011 Plan is administered by the Compensation Committee. Unless otherwise determined by the Board of Directors, the Compensation Committee shall consist solely of two or more directors appointed by the Board of Directors, each of whom is an “outside director” within the meaning of Section 162(m) of the Code, a “non-employee director” within the meaning of the rules under Section 16 of the Securities Exchange Act of 1934, as amended, and an “independent director” under the rules of the principal securities market on which shares of our common stock are traded. The Compensation Committee may delegate to a committee of one or more members of the Board of Directors or one or more of our officers the authority to grant or amend awards to participants other than our senior executives who are subject to Section 16 of the Exchange Act, employees who are “covered employees” within the meaning of Section 162(m) of the Code, and the regulations thereunder, or a member of the Board of Directors or an officer to whom authority has been delegated under the 2011 Plan to grant or amend awards.

 

21


Table of Contents

The Board of Directors, acting by a majority of its members in office, has authority to administer the 2011 Plan with respect to awards granted to non-employee members of the Board of Directors, and the Compensation Committee has authority to administer the 2011 Plan to all other eligible individuals. References to Administrator in this Proposal No. 4 shall mean, as applicable, the full Board of Directors or the Compensation Committee as the entity to which the administration of the 2011 Plan has been delegated within the limits described in the 2011 Plan. Unless otherwise limited by the Board of Directors, the Administrator has the authority to administer the 2011 Plan with respect to grants of equity awards, including the power to determine eligibility, the types and sizes of awards, the price and timing of awards and the acceleration or waiver of any vesting restriction, as well as the authority to delegate such administrative responsibilities.

ELIGIBILITY

Persons currently eligible to participate in the 2011 Plan are nine non-employee directors, approximately 41,000 employees and a non-significant number of consultants (e.g., less than 10) of DaVita and its subsidiaries and affiliates, as determined by the Administrator.

LIMITATION ON AWARDS AND SHARES AVAILABLE

As of December 31, 2011, there were 10,205,564 stock-settled stock appreciation rights, 10,000 cash-settled stock appreciation rights and 513,108 stock units outstanding, and 8,405,431 shares available for future grants, under the 2011 Plan. Since its inception in 2002, a cumulative aggregate of 34,178,338 (38,678,338 if the Amendment is approved by our stockholders) shares have been reserved under the 2002 Plan, as amended and restated by the 2011 Plan, including shares directly authorized under the plan, shares inherited from predecessor plans, and shares reserved under the plan from repurchases under a prior replenishment provision that was terminated in 2007. The shares of our common stock covered by the 2011 Plan may be shares in treasury, authorized but unissued shares, or shares purchased in the open market.

If any shares subject to an award under the 2011 Plan that is not a Full Value Award are forfeited or expire or such award is settled for cash, then any shares subject to such award may, to the extent of such forfeiture, expiration or cash settlement, be used again for new grants under the 2011 Plan. To the extent that a Full Value Award is forfeited or expires or such award is settled for cash, the shares available under the 2011 Plan will be increased by 3.0 (3.5 for full value awards granted after the approval of the Amendment by our stockholders) shares subject to such Full Value Award. However, any shares tendered or withheld to satisfy the grant or exercise price or tax withholding obligation pursuant to any award and any shares subject to a stock appreciation right that are not issued in connection with the stock settlement of the stock appreciation right on its exercise may not be used again for new grants.

The payment of dividend equivalents in cash in conjunction with any outstanding awards will not be counted against the shares available for issuance under the 2011 Plan.

Awards granted under the 2011 Plan upon the assumption of, or in substitution for, outstanding equity awards previously granted by an entity in connection with a corporate transaction, such as a merger, combination, consolidation or acquisition of property or stock (but not awards made in connection with the cancellation and repricing of an option or stock appreciation right) will not reduce the shares authorized for grant under the 2011 Plan. Additionally, in the event that a company acquired by us or any of our subsidiaries or affiliates or with which we or any of our subsidiaries or affiliates combines has shares available under a pre-existing plan approved by stockholders and not adopted in contemplation of such acquisition or combination, the shares available for grant pursuant to the terms of such pre-existing plan may be used for awards under the 2011 Plan and will not reduce the shares authorized for grant under the 2011 Plan, absent the acquisition or combination, and will only be made to individuals who were not employed by or providing services to us or any of our subsidiaries or affiliates immediately prior to such acquisition or combination.

 

22


Table of Contents

The maximum number of shares of our common stock that may be subject to one or more awards granted to any one participant pursuant to the 2011 Plan during any 12 month period is 2,250,000 and the maximum amount that may be paid in cash to any one participant during any calendar year is $10,000,000.

LIMITATION ON FULL VALUE AWARD VESTING

Except as may be determined by the Administrator in the event of a consummation of a change of control, or the holder’s death, disability, or retirement, a Full Value Award will not become fully vested earlier than three years from the grant date (two years in the case of an employee who is not an executive of the company or in the case of performance-based Full Value Awards, over a period of not less than one year); provided, however, that notwithstanding the foregoing, Full Value Awards (a) that do not exceed in the aggregate of 5% of the total number of shares available under the 2011 Plan will not be subject to the minimum vesting provisions and (b) the company may grant a Full Value Award to employees newly hired by the company or any of its subsidiaries without respect to such minimum vesting provisions.

AWARDS

The 2011 Plan provides for the grant of ISOs, nonqualified stock options, stock appreciation rights, restricted stock units, restricted stock, performance-based awards, dividend equivalents, stock payments, deferred stock unit awards and deferred stock awards.

Stock options, including ISOs, as defined under Section 422 of the Code, and nonqualified stock options may be granted pursuant to the 2011 Plan. The option exercise price of all stock options granted pursuant to the 2011 Plan will not be less than 100% of the fair market value of our common stock on the date of grant. In general, the fair market value shall be the closing sales price for a share of our common stock as quoted on the principal securities market on which shares of our common stock are traded on the date of grant, which as of April 13, 2012 was $85.77. Stock options may vest and become exercisable as determined by the Administrator, but in no event may a stock option have a term extending beyond the fifth anniversary of the date of grant. ISOs granted to any person who owns, as of the date of grant, stock possessing more than ten percent of the total combined voting power of all classes of our stock, however, shall have an exercise price that is not less than 110% of the fair market value of our common stock on the date of grant and may not have a term extending beyond the fifth anniversary of the date of grant. The aggregate fair market value of the shares with respect to which options intended to be ISOs are exercisable for the first time by an employee in any calendar year may not exceed $100,000, or such other amount as Section 422 of the Code provides.

Stock appreciation rights may be granted pursuant to the 2011 Plan. A stock appreciation right entitles its holder, upon exercise of all or a portion of the stock appreciation right (the number of shares of which are the “base shares”), to receive from us an amount determined by multiplying the difference obtained by subtracting the exercise or base price per share of the stock appreciation right from the fair market value at the time of exercise of the stock appreciation right by the number of shares with respect to which the stock appreciation right has been exercised (in the event the stock appreciation right is settled in shares, the shares obtained are the “gain shares”), subject to any limitations imposed by the Administrator. The exercise or base price per share subject to a stock appreciation right will be set by the Administrator, but may not be less than 100% of the fair market value on the date the stock appreciation right is granted. The Administrator determines the period during which the right to exercise the stock appreciation right vests in the holder, but in no event may a stock appreciation right have a term extending beyond the fifth anniversary of the date of grant. No portion of a stock appreciation right which is unexercisable at the time the holder’s employment with us terminates will thereafter become exercisable, except as may be otherwise provided by the Administrator. Payment pursuant to the stock appreciation right awards may be in cash, shares, or a combination of both, as determined by the Administrator.

 

23


Table of Contents

Restricted stock units may be granted pursuant to the 2011 Plan. A restricted stock unit award provides for the issuance of our common stock at a future date upon the satisfaction of specific conditions set forth in the applicable award agreement. The Administrator will specify the dates on which the restricted stock units will become fully vested and nonforfeitable, and may specify such conditions to vesting as it deems appropriate, including conditions based on achieving one or more of the performance criteria listed below, or other specific criteria, including service to us or any of our subsidiaries or affiliates. Restricted stock units may not be sold, or otherwise hypothecated or transferred, and a holder of restricted stock units will not have voting rights or dividend rights prior to the time when the vesting conditions are satisfied and the shares of common stock are issued. Restricted stock units generally will be forfeited and the underlying shares of our common stock will not be issued, if the applicable vesting conditions are not met. The Administrator will specify, or permit the restricted stock unit holder to elect, the conditions and dates upon which the shares underlying the vested restricted stock units will be issued (subject to compliance with the deferred compensation requirements of Section 409A of the Code). Restricted stock units may be paid in cash, shares, or both, as determined by the Administrator. On the distribution dates, we will transfer to the participant one unrestricted, fully transferable share of our common stock (or the fair market value of one such share in cash) for each restricted stock unit scheduled to be paid out on such date and not previously forfeited. Restricted stock units may constitute, or provide for a deferral of compensation, subject to Section 409A of the Code and there may be certain tax consequences if the requirements of Section 409A of the Code are not met.

Restricted stock may be granted pursuant to the 2011 Plan. A restricted stock award is the grant of shares of our common stock at a price determined by the Administrator, if any, to be paid by the holder to us with respect to any restricted stock award, with cash, services or any other consideration that the Administrator deems acceptable, subject to the requirements of law, and which is nontransferable and may be subject to substantial risk of forfeiture until specific conditions are met. Conditions may be based on continuing service to us or any of our subsidiaries or affiliates or achieving one or more of the performance criteria listed below, or other specific criteria. During the period of restriction, participants holding shares of restricted stock have full voting and dividend rights with respect to such shares unless otherwise provided by the Administrator. In addition, with respect to a share of restricted stock with performance-based vesting, dividends which are paid prior to vesting shall only be paid out to the holder to the extent that the performance-based vesting conditions are subsequently satisfied and the share of restricted stock vests. Restricted stock generally may be repurchased by us at the original purchase price, if any, or forfeited, if the vesting conditions and other restrictions are not met. The restrictions will lapse in accordance with a schedule or other conditions determined by the Administrator.

Dividend equivalents may be granted pursuant to the 2011 Plan, except that no dividend equivalents may be payable with respect to options or stock appreciation rights pursuant to the 2011 Plan. A dividend equivalent is the right to receive the equivalent value of dividends paid on shares. Dividend equivalents that are granted by the Administrator are credited as of dividend payments dates during the period between the date an award is granted and the date such award vests, is exercised, is distributed or expires, as determined by the Administrator. Such dividend equivalents will be converted to cash or additional shares of our common stock by such formula, at such time and subject to such limitations as may be determined by the Administrator. In addition, dividend equivalents with respect to an award with performance-based vesting that are based on dividends paid prior to vesting shall only be paid out to the holder to the extent that the performance-based vesting conditions are subsequently satisfied and the award vests.

Stock payments may be granted pursuant to the 2011 Plan. A stock payment is a payment in the form of shares of our common stock or an option or other right to purchase shares, as part of a bonus, deferred compensation or other arrangement. The number or value of shares of any stock payment will be determined by the Administrator and may be based on continuing service with us or any of our subsidiaries or affiliates or achieving one or more of the performance criteria listed below, or other specific criteria determined by the Administrator. Except as otherwise determined by the Administrator, shares underlying a stock payment which is subject to a vesting schedule or other conditions set by the Administrator will not be issued until those conditions have been satisfied. Stock payments may, but are not required to, be made in lieu of base salary, bonus, fees or other cash compensation otherwise payable to any individual who is eligible to receive awards.

 

24


Table of Contents

Deferred stock units may be granted pursuant to the 2011 Plan. The number of deferred stock units will be determined by the Administrator and may be based on continuing service with us or any of our subsidiaries or affiliates or achieving one or more of the performance criteria listed below, or other specific criteria determined by the Administrator, in each case on a specified date or dates or over any period or periods determined by the Administrator. Each deferred stock unit entitles its holder to receive one share of common stock on the date the deferred stock unit becomes vested or upon a specified settlement date thereafter. Except as otherwise determined by the Administrator, shares underlying a deferred stock unit award which is subject to a vesting schedule or other conditions set by the Administrator will not be issued until those conditions have been satisfied. Unless otherwise provided by the Administrator, a holder of deferred stock units shall have no rights as a stockholder with respect to such deferred stock units until the award of deferred stock units has vested and any other applicable conditions and/or criteria have been satisfied and the shares of common stock underlying the award have been issued to the holder.

Deferred stock may be granted pursuant to the 2011 Plan. Deferred stock provides for the deferred issuance to the holder of shares of our common stock. The number of shares of deferred stock will be determined by the Administrator and may be based on continuing service with us or any of our subsidiaries or affiliates or achieving one or more of the performance criteria listed below, or other specific criteria determined by the Administrator, in each case on a specified date or dates or over any period or periods determined by the Administrator. Except as otherwise determined by the Administrator, shares underlying a deferred stock award which is subject to a vesting schedule or other conditions set by the Administrator will not be issued until those conditions have been satisfied. Deferred stock may constitute, or provide for a deferral of compensation, subject to Section 409A of the Code and there may be certain tax consequences if the requirements of Section 409 A of the Code are not met.

Performance awards may also be granted pursuant to the 2011 Plan. Performance awards may be granted in the form of cash bonus awards, stock bonus awards, performance awards or incentive awards that are paid in cash, shares, equity awards or a combination of cash, shares or equity awards. The value of performance awards may be linked to any one or more of the performance criteria listed below, or other specific criteria determined by the Administrator, in each case on a specified date or dates or over any period or periods determined by the Administrator. Performance awards may be payable upon the attainment of pre-established performance goals based on one or more of the performance criteria listed below, or other specific criteria determined by the Administrator. The goals are established and evaluated by the Administrator and may relate to performance over any periods as determined by the Administrator. The Administrator will also determine whether performance awards are intended to be performance-based compensation within the meaning of Section 1 62(m) of the Code. Following is a brief discussion of the requirements for awards to be treated as performance-based compensation within the meaning of Section 162(m) of the Code.

Performance-based compensation under Section 162(m). The Compensation Committee may grant awards to employees who are or may be “covered employees,” as defined in Section 162(m) of the Code, that are intended to be performance-based compensation within the meaning of Section 162(m) of the Code in order to preserve the deductibility of these awards for, federal income tax purposes. Under the 2011 Plan, these performance-based awards may be stock, equity, or cash awards or a combination. Participants are only entitled to receive payment for a Section 162(m) performance-based award for any given performance period to the extent that pre-established performance goals set by our Compensation Committee for the period are satisfied. These pre-established performance goals must be based on one or more of the following performance criteria:

 

   

net earnings (either before or after interest, taxes, depreciation and amortization);

 

   

gross or net sales or revenue;

 

   

net income (either before or after taxes);

 

   

adjusted net income;

 

   

operating earnings or profit;

 

25


Table of Contents
   

cash flow (including, but not limited to, operating cash flow and free cash flow);

 

   

return on assets;

 

   

return on capital;

 

   

return on stockholders’ equity;

 

   

total stockholder return;

 

   

return on sales;

 

   

gross or net profit or operating margin;

 

   

costs;

 

   

funds from operations;

 

   

expenses;

 

   

working capital;

 

   

earnings per share;

 

   

adjusted earnings per share;

 

   

price per share of our common stock;

 

   

regulatory body approval for commercialization of a product;

 

   

implementation or completion of critical projects;

 

   

market share; and

 

   

economic value,

any of which may be measured with respect to us, or any subsidiary, affiliate or other internal unit of ours, either in absolute terms, terms of growth or as compared to any incremental increase, or as compared to results of a peer group. The Compensation Committee will define in an objective fashion the manner of calculating the performance criteria it selects to use for such awards. With regard to a particular performance period, the Compensation Committee has the discretion to select the length of the performance period, the type of performance-based awards to be granted, and the performance goals that will be used to measure the performance for the period. In determining the actual size of an individual performance-based award for a performance period, the Compensation Committee may reduce or eliminate (but not increase) the initial award. Generally, a participant will have to be employed by or providing services to us on the date the performance-based award is paid to be eligible for a performance-based award for any period.

Except as provided by the Compensation Committee, the achievement of each performance goal will be determined in accordance with U.S. generally accepted accounting principles, international financial reporting standards, or such other accounting principles or standards as may apply to our financial statements under the U.S. federal securities laws from time to time, to the extent applicable. At the time of grant, the Compensation Committee may provide that objectively determinable adjustments will be made for purposes of determining the achievement of one or more of the performance goals established for an award. Any such adjustments will be based on one or more of the following:

 

   

items related to a change in accounting principle;

 

   

items relating to financing activities;

 

   

expenses for restructuring or productivity initiatives;

 

   

other non-operating items;

 

   

items related to acquisitions;

 

26


Table of Contents
   

items attributable to the business operations of any entity acquired by us during the performance period;

 

   

items related to the disposal of a business or segment of a business;

 

   

items related to discontinued operations that do not qualify as a segment of a business under applicable accounting standards;

 

   

items attributable to any stock dividend, stock split, combination or exchange of shares occurring during the performance period;

 

   

any other items of significant income or expense which are determined to be appropriate adjustments;

 

   

items relating to unusual or extraordinary corporate transactions, events or developments;

 

   

items related to amortization of acquired intangible assets;

 

   

items that are outside the scope of our core, on-going business activities;

 

   

items related to acquired in-process research and development;

 

   

items relating to changes in tax laws;

 

   

items relating to major licensing or partnership arrangements;

 

   

items relating to asset impairment charges;

 

   

items relating to gains or losses for litigation, arbitration and contractual settlements; or

 

   

items relating to any other unusual or nonrecurring events or changes in applicable laws, accounting principles or business conditions.

Payment Methods. The Administrator will determine the methods by which payments by any award holder with respect to any awards granted under the 2011 Plan may be paid, the form of payment, including, without limitation: (1) cash or check; (2) shares of our common stock issuable pursuant to the award or held for such period of time as may be required by the Administrator in order to avoid adverse accounting consequences and having a fair market value at the time of delivery equal to the aggregate payments required; (3) other property acceptable to the Administrator (including through the delivery of a notice that the award holder has placed a market sell order with a broker with respect to shares of our common stock then issuable upon exercise or vesting of an award, and that the broker has been directed to pay a sufficient portion of the net proceeds of the sale to us in satisfaction of the aggregate payments required; provided that payment of such proceeds is then made to us upon settlement of such sale); or (4) other form of legal consideration acceptable to the Administrator. However, no participant who is a member of the Board of Directors or an “executive officer” of DaVita within the meaning of Section 13(k) of the Exchange Act will be permitted to make payment with respect to any awards granted under the 2011 Plan, or continue any extension of credit with respect to such payment in any method which would violate the prohibitions on loans made or arranged by us as set forth in Section 13(k) of the Exchange Act. Only whole shares of common stock may be purchased or issued pursuant to an award. No fractional shares shall be issued and the Administrator shall determine, in its sole discretion, whether cash shall be given in lieu of fractional shares or whether such fractional shares shall be eliminated by rounding down.

Vesting and Exercise of an Award. The applicable award agreement governing an award will contain the period during which the right to exercise the award in whole or in part vests, including the events or conditions upon which the vesting of an award will occur or may accelerate. No portion of an award which is not vested at the holder’s termination of service with us will subsequently become vested, except as may be otherwise provided by the Administrator in the agreement relating to the award or by action following the grant of the award.

 

27


Table of Contents

Generally, an option or stock appreciation right may only be exercised while such person remains an employee or non-employee director of us or one of our subsidiaries or affiliates or for a specified period of time (up to the remainder of the award term) following the holder’s termination of service with us or one of our subsidiaries or affiliates. An award may be exercised for any vested portion of the shares subject to such award until the award expires. Upon the grant of an award or following the grant of an award, the Administrator may provide that the period during which the award will vest or become exercisable will accelerate, in whole or in part, upon the occurrence of one or more specified events, including, a change in control or a holder’s termination of employment or service with us or otherwise.

Transferability. No award under the 2011 Plan may be transferred other than by will or the then applicable laws of descent and distribution or, subject to the consent of the Administrator, pursuant to a domestic relations order, unless and until such award has been exercised or the shares underlying such award have been issued and all restrictions applicable to such shares have lapsed. No award shall be liable for the debts or contracts of the holder or his successors in interest or shall be subject to disposition by any legal or equitable proceedings. During the lifetime of the holder of an award granted under the 2011 Plan, only such holder may exercise such award unless it has been disposed of pursuant to a domestic relations order. After the holder’s death, any exercisable portion of an award may be exercised by his personal representative or any person empowered to do so under such holder’s will or the then applicable laws of descent and distribution until such portion becomes unexercisable under the 2011 Plan or the applicable award agreement. Notwithstanding the foregoing, the Administrator may permit an award holder to transfer an award other than an ISO to any “family member” of the holder, as defined under the instructions to use of the Form S-8 Registration Statement under the Securities Act of 1933, subject to certain terms and conditions. Further, an award holder may, in a manner determined by the Administrator, designate a beneficiary to exercise the holder’s right and to receive any distribution with respect to any award upon the holder’s death, subject to certain terms and conditions.

Forfeiture, Recoupment and Clawback Provisions. Pursuant to its general authority to determine the terms and conditions applicable to awards under the 2011 Plan, the Administrator shall have the right to provide, in an award agreement or otherwise, or to require a holder to agree by separate written instrument, that (a) (i) any economic benefit received by the holder upon any receipt or exercise of the award, or upon the receipt or resale of any shares of common stock underlying the award, must be paid to the company, and (ii) the award shall terminate and any unexercised portion of the award shall be forfeited, if (x) a termination of service occurs within a specific time period following receipt or exercise, (y) the holder at any time, or during a specified time period, engages in any activity in competition with the company, or which is contrary to the interests of the company, or (z) the holder incurs a termination of service for “cause” (as determined in the Administrator’s discretion or as set forth in a written agreement between the company and the holder); and (b) all awards (including any economic benefit received by the holder upon any receipt or exercise of any award or upon the receipt or resale of any shares of common stock underlying the award) shall be subject to the provisions of any recoupment or clawback policies implemented by the company, including, without limitation, any recoupment or clawback policies adopted to comply with the requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act and any rules or regulations promulgated thereunder, to the extent set forth in such recoupment or clawback policies and/or in the applicable award agreement.

ADJUSTMENT PROVISIONS

Certain transactions with our stockholders not involving our receipt of consideration, such as stock splits, spin-offs, stock dividends or certain recapitalizations may affect the shares or the share price of our common stock (which transactions are referred to collectively as equity restructurings). In the event that an equity restructuring occurs, the Administrator will equitably adjust the class of shares issuable and the maximum number and kind of shares of our common stock subject to the 2011 Plan, and will equitably adjust outstanding awards as to the class, number of shares and price per share of our common stock. The Administrator will also adjust the number and kind of shares for which automatic grants are subsequently to be made to new and

 

28


Table of Contents

continuing non-employee directors pursuant to the 2011 Plan. Other types of transactions may also affect our common stock, such as a dividend or other distribution, reorganization, merger or other changes in corporate structure. In the event that there is such a transaction, which is not an equity restructuring, and the Administrator determines that an adjustment to the 2011 Plan and any outstanding awards would be appropriate to prevent any dilution or enlargement of benefits under the 2011 Plan, the Administrator will equitably adjust the 2011 Plan as to the class of shares issuable and the maximum number of shares of our common stock subject to the 2011 Plan, as well as the maximum number of shares that may be issued to an employee during any calendar year, and will adjust any outstanding awards as to the class, number of shares, and price per share of our common stock in such manner as it may deem equitable.

AMENDMENT AND TERMINATION

The Board of Directors may terminate, amend or modify the 2011 Plan at any time; however, except to the extent permitted by the 2011 Plan in connection with certain changes in capital structure, stockholder approval must be obtained for any amendment to (i) increase the number of shares available under the 2011 Plan, (ii) reduce the per share exercise price of the shares subject to any option or stock appreciation right below the per share exercise price as of the date the option or stock appreciation right was granted, and (iii) cancel any option or stock appreciation right in exchange for cash or another award when the option or stock appreciation right price per share exceeds the fair market value of the underlying shares, except with respect to any Substitute Award.

FEDERAL INCOME TAX CONSEQUENCES

The following is a brief summary of certain United States federal income tax consequences generally arising with respect to awards under the 2011 Plan. This discussion does not address all aspects of the United States federal income tax consequences of participating in the 2011 Plan that may be relevant to participants in light of their personal investment or tax circumstances and does not discuss any state, local or non-United States tax consequences of participating in the 2011 Plan. Each participant is advised to consult his or her particular tax advisor concerning the application of the United States federal income tax laws to such participant’s particular situation, as well as the applicability and effect of any state, local or non-United States tax laws before taking any actions with respect to any awards.

If an optionee is granted a non-qualified stock option under the 2011 Plan, the optionee should not have taxable income on the grant of the option. Generally, the optionee should recognize ordinary income at the time of exercise in an amount equal to the fair market value of the shares of our common stock purchased at such time, less the exercise price paid. The optionee’s basis in the common stock for purposes of determining gain or loss on a subsequent sale or disposition of such shares generally will be the fair market value of our common stock at the time the optionee exercises such option. Any subsequent gain or loss will be taxable as a capital gain or loss. We or our subsidiaries or affiliates generally should be entitled to a federal income tax deduction at the time and for the same amount as the optionee recognizes ordinary income.

A participant receiving ISOs will not recognize taxable income upon grant. Additionally, if applicable holding period requirements are met, the participant will not recognize taxable income at the time of exercise. However, the excess of the fair market value of the shares of our common stock purchased over the exercise price constitutes alternative minimum taxable income potentially subject to the alternative minimum tax. If stock acquired upon exercise of an ISO is held for a minimum of two years from the date of grant and one year from the date of exercise, the gain or loss (in an amount equal to the difference between the fair market value at the time of sale and the exercise price) upon disposition of the stock will be treated as a long-term capital gain or loss, and we will not be entitled to any deduction. If, however, stock acquired upon exercise of an ISO is disposed of within the above-described period, then in the year of that disposition the participant will recognize

 

29


Table of Contents

compensation taxable as ordinary income equal to the excess of the lesser of (i) the amount realized upon that disposition and (ii) the fair market value of the stock on the date of exercise over the exercise price, and we or our subsidiaries or affiliates generally should be entitled to a federal income tax deduction at the time and for the same amount as the optionee recognizes ordinary income.

The current federal income tax consequences of other awards authorized under the 2011 Plan generally follow certain basic patterns: stock appreciation rights are taxed and deductible in substantially the same manner as nonqualified stock options; nontransferable restricted stock subject to a substantial risk of forfeiture results in income recognition equal to the excess of the fair market value of the stock over the price paid, if any, only at the time the restrictions lapse (unless the recipient elects to accelerate recognition as of the date of grant); restricted stock units, stock-based performance awards, dividend equivalents and other types of awards are generally subject to tax at the time of settlement based on the amount of cash paid and the fair market value of the stock transferred at such time. Compensation otherwise effectively deferred is taxed when paid. In each of the foregoing cases, we or our subsidiaries or affiliates will generally have a corresponding deduction at the time the participant recognizes income, subject to Section 162(m) of the Code with respect to covered employees.

Section 162(m) of the Code denies a deduction to any publicly held corporation for compensation paid to certain “covered employees” in a taxable year to the extent that compensation to such covered employee exceeds $1,000,000. It is possible that compensation attributable to awards under the 2011 Plan, when combined with all other types of compensation received by a covered employee from us, may cause this limitation to be exceeded in any particular year.

Qualified “performance-based compensation” is disregarded for purposes of the deduction limitation. In accordance with Treasury Regulations issued under Section 162(m), compensation attributable to stock awards will generally qualify as performance-based compensation if (1) the award is granted by a compensation committee composed solely of two or more “outside directors,” (2) the plan contains a per-employee limitation on the number of awards which may be granted during a specified period, (3) the plan is approved by the stockholders, and (4) under the terms of the award, the amount of compensation an employee could receive is based solely on an increase in the value of the stock after the date of the grant (which requires that the exercise or base price of the option or stock appreciation right is not less than the fair market value of the stock on the date of grant), and for awards other than options and stock appreciation rights, established performance criteria must be met before the award actually will vest or be paid.

The 2011 Plan is designed to meet the requirements of Section 162(m); however, awards other than options and stock appreciation rights granted under the 2011 Plan will only be treated as qualified performance-based compensation under Section 162(m) if the awards and the procedures associated with them comply with all other requirements of Section 162(m). There can be no assurance that compensation attributable to awards granted under the 2011 Plan will be treated as qualified performance-based compensation under Section 162(m) and thus be deductible to us.

 

30


Table of Contents

Equity Grants as of April 13, 2012

The following table sets forth summary information concerning the number of shares of our common stock subject to equity grants made under the 2002 Plan and 2011 Plan to our named executive officers, directors, director nominees and employees as of April 13, 2012. Any other future awards to be received by any individual or group under the 2011 Plan are not fully determinable at this time and will depend on individual and corporate performance and other determinations to be made by the Administrator.

 

Individual or Group

   Number of Shares
Underlying SSAR/Option

Grants
     Number of Shares
Underlying Stock Unit

Awards
 

Kent J. Thiry, Chairman of the Board of Directors and Chief Executive Officer

     5,050,000         112,500   

Dennis L. Kogod, Chief Operating Officer

     1,180,000         42,500   

Javier J. Rodriguez, President

     1,009,000         30,000   

Luis A. Borgen, Former Chief Financial Officer

     80,000         15,000   

Kim M. Rivera, Chief Legal Officer and Corporate Secretary

     120,000         5,000   

All current executive officers as a group

     8,807,500         240,750   

All current non-employee directors as a group

     801,578         78,839   

Pamela M. Arway

     39,000         3,104   

Charles G. Berg

     65,786         5,348   

Willard W. Brittain, Jr.

     65,153         3,854   

Carol Anthony (“John”) Davidson

     15,000         1,356   

Paul J. Diaz

     51,000         3,853   

Peter T. Grauer

     171,000         20,851   

John M. Nehra

     144,000         14,865   

William L. Roper

     171,000         19,551   

Roger J. Valine

     79,639         6,057   

Each associate of any such directors, executive officers or nominees

     —           —     

Each other person who received or is to receive 5% of such options, warrants or rights

     —           —     

All employees, including current officers who are not executive officers, as a group

     17,518,384         933,984   

The Board of Directors recommends a vote FOR the approval of the Amendment to our 2011 Incentive Award Plan.

 

31


Table of Contents

PROPOSAL NO. 5

STOCKHOLDER PROPOSAL REGARDING EXECUTIVES TO RETAIN SIGNIFICANT STOCK

We expect the following proposal to be presented by a stockholder at the annual meeting. The Board of Directors has recommended a vote AGAINST this proposal for the reasons set forth following the proposal. The name, address and share holdings of the stockholder proponent and co-filer will be supplied promptly to a stockholder upon the company’s receipt of an oral or written request. The Board of Directors disclaims any responsibility for the content of the proposal and the statement in support of the proposal, which are presented in the form received by the stockholder.

EXECUTIVES TO RETAIN SIGNIFICANT STOCK

RESOLVED, Shareholders urge that our executive pay committee adopt a policy requiring that senior executives retain a significant percentage of stock acquired through equity pay programs until one-year following the termination of their employment and to report to shareholders regarding this policy before our next annual shareholder meeting.

Stockholder’s Statement Supporting Proposal No. 5

Shareholders recommend that a percentage of at least 33% of net after-tax stock be required. This policy shall apply to future grants and awards of equity pay and should address the permissibility of transactions such as hedging transactions which are not sales but reduce the risk of loss to executives. This proposal asks for a retention policy starting as soon as possible.

Requiring senior executives to hold a significant portion of stock obtained through executive pay plans after employment termination would focus our executives on our company’s long-term success. A Conference Board Task Force report on executive pay stated that at least hold-to-retirement requirements give executives “an ever-growing incentive to focus on long-term stock price performance.”

The merit of this proposal should also be considered in the context of the opportunity for additional improvement in our company’s 2011 reported corporate governance in order to make our company more competitive:

The Corporate Library, an independent investment research firm rated DaVita “D” with “High Governance Risk” and “Very High Concern” in Executive Pay—$14 million for CEO Kent Thiry.

Long-term incentive pay for executives continued to be in the form of time-vesting equity pay such as market-priced stock options and restricted stock units (RSU). Equity pay given for long-term incentive pay should include performance-vesting conditions. Mr. Thiry was given 300,000 options (2,300,000 over the last four years) and 75,000 RSU’s in 2010 with a combined given date value of $9 million and realized over $6 million from the exercise of 385,000 options (and about $58 million from the exercise of options over the last four years).

Plus our CEO was potentially entitled to $40 million if there was a change in control. Executive pay polices such as these are not in the interests of shareholders.

Peter Grauer, with 17-years tenure (independence concern), was still our Lead Director after receiving our highest negative votes. This was compounded by Mr. Grauer also sitting on our Executive Pay Committee and chairing our Nomination Committee. Plus our Nomination Committee appeared to be most of the board members rather than a committee of the board. This could suggest that it was dominated by its chairman. Eight of our directors each received double-digits in negative votes.

 

32


Table of Contents

Please encourage our board to respond positively to this proposal to initiate improved corporate governance to make our company more competitive:

Executives To Retain Significant Stock—Yes on 5.

The Company’s Statement in Opposition to Proposal No. 5

The Board of Directors recommends that you vote AGAINST this proposal for the following reasons:

We agree that meaningful, long-term stock ownership aligns executives’ interests with stockholders, promotes a focus on the company’s long-term success and discourages unreasonable risk-taking. However, we believe our current policies and programs achieve this goal effectively.

The company’s executive compensation program, which is discussed at length in this Proxy Statement under “Compensation Discussion and Analysis,” emphasizes compensation based on performance and is designed to align the interests of our executives with those of our stockholders by providing a significant portion of total compensation in the form of stock based awards. These awards are part of a carefully balanced compensation package designed to attract and retain the very best, and contain vesting and other provisions that tie compensation to the long-term performance of the company and the interests of its stockholders.

Consistent with the belief in the importance of equity compensation, the company has established a stock ownership policy that applies to all of our executive officers. This policy, which has been in effect since 2002, applies to all full-time members of our management team at the vice president level and above and any part-time vice presidents who continue to receive stock-based awards under our equity compensation programs, and requires them to accumulate a meaningful ownership stake in the company over time by retaining a specified financial interest in our common stock. See “Executive Compensation Process & Governance—Management Share Ownership Policy” beginning on page 54 of this Proxy Statement for more information regarding our management share ownership policy. As of December 31, 2011, all of the members of our management team to whom the policy applies were in compliance with the policy, and as of such date the stock ownership of our chief executive officer, our president, our chief operating officer and our chief financial officer was greater by 280%, 673%, 266% and 266%, respectively, than the amounts required under the policy. The company believes that these guidelines have for the most part achieved objectives that are similar to those sought to be achieved under the proposal, without subjecting the executives to some of the negative consequences that could result from adopting the proposal.

The Compensation Committee believes that a compensation policy that imposes an ownership requirement that extends beyond a senior executive’s term of employment, when the executive is no longer in a position to influence the company’s direction and future, would not serve the purposes of our compensation program and would unduly interfere in the retirement and estate planning of our senior executives. Such a policy could diminish our ability to attract and retain the talented executives who are critical to our long-term success, as such executives might find more attractive equity compensation without such restrictions that is offered by another employer seeking their services.

Because equity compensation is the largest element of compensation for our executive officers, the company’s stock makes up a substantial proportion of their net worth. These executives may have legitimate needs to diversify their portfolios. Further, requiring executive officers to retain a significant stock ownership position beyond termination or retirement could motivate executives to leave the company early in order to realize the value of their equity compensation. Executive officers already retain a financial stake in the company’s performance after termination or retirement because, under the company’s so-called “clawback policy,” the company has the right to repayment of bonus and incentive compensation paid to him or her, including gains realized on stock awards, based on financial statements that are required to be restated.

 

33


Table of Contents

We have designed our stock ownership guidelines and other compensation policies to ensure that our executives are focused on the company’s long-term success and that their interests are aligned with those of our stockholders, which are the stated goals of the proponent. We believe the current stock ownership guidelines strike the right balance between ensuring that our executives own significant amounts of company equity while allowing them to prudently manage their personal financial matters.

The company imposes restrictions on the ability of all employees, including senior executives, to engage in certain transactions involving their holdings in company stock, including short sales, trading in options and other speculative investment transactions. These policies encourage our senior executives to implement an operating strategy for the company that focuses on long-term growth and performance and discourage our executives from engaging in transactions having the primary objective of realizing short-term gains.

The affirmative vote of a majority of the shares of common stock present at the annual meeting, in person or by proxy and entitled to vote thereon, is required for the approval of this proposal.

For these reasons, the Board of Directors recommends that you vote AGAINST this proposal.

 

34


Table of Contents

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information regarding the ownership of our common stock as of March 31, 2012 by (a) all persons known by us to own beneficially more than 5% of our common stock, (b) each of our directors and named executive officers, and (c) all of our directors, named executive officers and other executive officers as a group. We know of no agreements among our stockholders which relate to voting or investment power over our common stock or any arrangement the operation of which may at a subsequent date result in a change of control of the company.

 

Name and address of beneficial owner(1)

   Number of
shares
beneficially
owned
     Percentage
of shares
beneficially
owned
 

TimesSquare Capital Management, LLC(2)

     6,042,931         6.4

1177 Avenue of the Americas, 39th Floor

     

New York, NY 10036

     

BlackRock, Inc.(3)

     5,482,336         5.8

40 East 52nd Street

     

New York, NY 10022

     

The Vanguard Group, Inc.(4)

     4,998,406         5.3

100 Vanguard Blvd.

     

Malvern, PA 19355

     

Kent J. Thiry(5)

     1,437,760         1.5

Dennis L. Kogod(6)

     278,770         *   

Javier J. Rodriguez(7)

     347,463         *   

Luis A. Borgen(8)

     3,517         *   

Kim M. Rivera(9)

     22,500         *   

Pamela M. Arway(10)

     22,558         *   

Charles G. Berg(11)

     45,052         *   

Willard W. Brittain, Jr.(12)

     19,104         *   

Carol Anthony (“John”) Davidson(13)

     5,106         *   

Paul J. Diaz(14)

     17,312         *   

Peter T. Grauer(15)

     23,042         *   

John M. Nehra(16)

     116,618         *   

William L. Roper(17)

     64,984         *   

Roger J. Valine(18)

     61,081         *   

All directors, named executive officers and other executive officers as a group (20 persons)(19)

     2,726,197         2.8

 

* 

Amount represents less than 1% of our common stock.

(1) 

Unless otherwise set forth in the following table, the address of each beneficial owner is 1551 Wewatta Street, 6th Floor, Denver, Colorado, 80202.

(2) 

Based on information contained in a Schedule 13G/A filed with the SEC on February 8, 2012, these securities are owned by investment advisory clients of TimesSquare Capital Management, LLC (“Times Square”). In its role as investment advisor, Times Square has sole voting power with respect to 4,456,981 shares and sole dispositive power with respect to 6,042,931 shares.

(3) 

Based upon information contained in a Schedule 13G/A filed with the SEC on February 13, 2012, BlackRock, Inc. may be deemed to be the beneficial owner of 5,482,336 shares with sole power to vote and sole power to dispose of all 5,482,336 shares as a result of being a parent holding company or control person.

(4)

Based upon information contained in a Schedule 13G/A filed with the SEC on February 8, 2012, The Vanguard Group, Inc., an investment adviser, has sole voting power with respect to 130,905 shares, sole dispositive power with respect to 4,867,501 shares and shared dispositive power with respect to 130,905 shares.

 

35


Table of Contents
(5) 

Includes 148,177 shares held in a family trust and 1,270,833 shares issuable upon the exercise of SSARs and 18,750 RSUs, which are exercisable as of, or will become exercisable within 60 days after, March 31, 2012.

(6) 

Includes 278,770 shares issuable upon the exercise of SSARs and 9,375 RSUs, which are exercisable as of, or will become exercisable within 60 days after, March 31, 2012.

(7) 

Includes 294,332 shares issuable upon the exercise of SSARs and 3,499 RSUs, which are exercisable as of, or will become exercisable within 60 days after, March 31, 2012.

(8) 

None of the SSARs or RSUs held by Mr. Borgen is exercisable as of, or will become exercisable within 60 days after, March 31, 2012.

(9) 

Includes 22,500 shares issuable upon the exercise of SSARs, which are exercisable as of, or will become exercisable within 60 days after, March 31, 2012.

(10) 

Includes 19,500 shares issuable upon the exercise of SSARs, which are exercisable as of, or will become exercisable within 60 days after, March 31, 2012, and 156 vested but unissued restricted stock units.

(11)

Includes 36,000 shares issuable upon the exercise of SSARs, which are exercisable as of, or will become exercisable within 60 days after, March 31, 2012, and 156 vested but unissued restricted stock units.

(12) 

Includes 12,000 shares issuable upon the exercise of SSARs, which are exercisable as of, or will become exercisable within 60 days after, March 31, 2012, and 156 vested but unissued restricted stock units.

(13) 

Includes 3,750 shares issuable upon the exercise of SSARS, which are exercisable as of, or will become exercisable within 60 days after, March 31, 2012, and 156 vested but unissued restricted stock units.

(14) 

Includes 3,750 and 12,000 shares issuable upon the exercise of options and SSARs, respectively, which are exercisable as of, or will become exercisable within 60 days after, March 31, 2012, and 156 vested but unissued restricted stock units.

(15) 

Includes 18,000 shares issuable upon the exercise of SSARs, which are exercisable as of, or will become exercisable within 60 days after, March 31, 2012, and 1,786 vested but unissued restricted stock units.

(16) 

Includes 62,332 shares held in a family trust and 54,000 shares issuable upon the exercise of SSARs, which are exercisable as of, or will become exercisable within 60 days after, March 31, 2012, and 286 vested but unissued restricted stock units.

(17) 

Includes 54,000 shares issuable upon the exercise of SSARs, which are exercisable as of, or will become exercisable within 60 days after, March 31, 2012, and 286 vested but unissued restricted stock units.

(18) 

Includes 10,639 and 36,000 shares issuable upon the exercise of options and SSARs, respectively, which are exercisable as of, or will become exercisable within 60 days after, March 31, 2012, and 286 vested but unissued restricted stock units.

(19) 

Includes 14,389 and 2,317,979 shares issuable upon the exercise of options and SSARs, respectively, and 35,169 RSUs, which are exercisable as of, or will become exercisable within 60 days after, March 31, 2012, and 3,424 vested but unissued restricted stock units.

Information Concerning Our Executive Officers

 

Name

   Age     

Position

Kent J. Thiry

     56       Chairman of the Board of Directors and Chief Executive Officer

Luis A. Borgen

     42       Former Chief Financial Officer

James K. Hilger

     50       Interim Chief Financial Officer and Chief Accounting Officer

Dennis L. Kogod

     52       Chief Operating Officer

Laura A. Mildenberger

     53       Chief People Officer

Allen R. Nissenson, MD, FACP

     65       Chief Medical Officer

Kim M. Rivera

     43       Chief Legal Officer and Corporate Secretary

Javier J. Rodriguez

     41       President

David T. Shapiro

     42       Chief Compliance Officer

Thomas O. Usilton, Jr.

     60       Senior Vice President

LeAnne M. Zumwalt

     53       Group Vice President

 

36


Table of Contents

Our executive officers are elected by, and serve at the discretion of, the Board of Directors. Set forth below is a brief description of the business experience of all executive officers other than Mr. Thiry, who is also a director and whose business experience is set forth above in the section of this Proxy Statement entitled “Information Concerning Members of the Board of Directors Standing for Reelection.”

Luis A. Borgen became our chief financial officer in May 2010 and served in that capacity until April 2012, when he resigned from the company. Prior to serving as chief financial officer of the company, he served as our senior vice president beginning in March 2010. From February 2009 until joining us, Mr. Borgen served as senior vice president, finance for the U.S. retail division of Staples, an office products company, where he played a role in strategy development and business planning efforts. From June 2005 until January 2009, Mr. Borgen served as the vice president, finance for the U.S. retail division of Staples. From July 2002 to June 2005, Mr. Borgen served as vice president, corporate financial planning and analysis of Staples where he led the global business planning efforts. From February 1999 to June 2002, Mr. Borgen served in the corporate treasury department of Staples, including as vice president and assistant treasurer.

James K. Hilger became our interim chief financial officer in April 2012 in connection with Mr. Borgen’s resignation from the company and continues to serve as our chief accounting officer, a position he has held since April 2010. Prior to April 2010, Mr. Hilger served as our vice president and controller since May 2006, after having served as our vice president, finance beginning in September 2005. Mr. Hilger was our acting chief financial officer from November 2007 through February 2008. From September 2003 until joining us, Mr. Hilger served as vice president, finance and administration and chief financial officer of Pyramid Breweries, a brewer of specialty beverages. From December 1998 to July 2003, Mr. Hilger served in positions as chief executive officer and chief financial officer of WorldCatch, Inc., a seafood industry company. From 1987 until joining WorldCatch, Inc., Mr. Hilger held a variety of senior financial positions in the food industry. Mr. Hilger began his career in public accounting with Ernst & Whinney.

Dennis L. Kogod became our chief operating officer in January 2009 and prior to that, he served as our president-west beginning in October 2005. From January 2004 until joining us, Mr. Kogod served as president and chief operating officer-west of Gambro Healthcare, Inc., which we acquired in October 2005. From July 2000 to January 2004, Mr. Kogod served as president, west division of Gambro Healthcare, Inc. From June 1999 to July 2000, Mr. Kogod was president of Teleflex Medical Group, a medical original equipment manufacturer of medical delivery systems. From January 1996 to June 1999, Mr. Kogod was corporate vice president of Teleflex Surgical Group, a surgical device and service organization. Mr. Kogod served on the board of directors of Arbios Systems, Inc., a medical device and cell-based therapy company.

Laura A. Mildenberger became our chief people officer in July 2008, having joined us in October 2001 as vice president of operations. Prior to joining us, Ms. Mildenberger served as vice president of operations for the western U.S. for Matrix Rehabilitation, a physical therapy outpatient company, from March 2000 to October 2001. From 1993 to 2000, Ms. Mildenberger served as a general manager for NovaCare Outpatient Rehabilitation, a provider of physical and occupation therapy services. From 1988 to 1993, Ms. Mildenberger was the executive vice president/principal of Worker Rehabilitation Services, a multi-site physical rehabilitation company. Ms. Mildenberger began her career as an occupational therapist at the Mayo Clinic.

Allen R. Nissenson, MD, FACP, became our chief medical officer in August 2008. He is an emeritus professor of medicine at the David Geffen School of Medicine at UCLA, where he served as director of the dialysis program from 1977 to 2008 and associate dean from 2005 to 2008. Dr. Nissenson was the president of the Southern California End-Stage Renal Disease Network from 2005 to 2007. Dr. Nissenson was the president of the National Anemia Action Council from 2001 to 2007. Dr. Nissenson was the president of the Renal Physicians Association from 1999 to 2001.

Kim M. Rivera became our chief legal officer and secretary in July 2011, and prior to that served as our vice president, general counsel and secretary since January 2010. From February 2006 to November 2009, Ms. Rivera served as vice president and associate general counsel of The Clorox Company, a consumer products company. From August 2004 to February 2006, Ms. Rivera served as vice president law and chief litigation

 

37


Table of Contents

counsel to Rockwell Automation, Inc., a provider of industrial automation control and information solutions. From November 1999 to August 2004, she served as general counsel to Rockwell’s Automation Control and Information Group. Prior to joining Rockwell, Ms. Rivera was an attorney at the law firm of Jones Day.

Javier J. Rodriguez became our president in February 2012. Mr. Rodriguez served as our senior vice president from April 2006 to February 2012. From December 2003 to April 2006, Mr. Rodriguez served as our vice president value management, operations. From August 1999 to December 2003, Mr. Rodriguez served as our vice president of payor contracting. From July 1998 to August 1999, Mr. Rodriguez served as divisional financial analyst. Prior to joining DaVita, Mr. Rodriguez worked for Baxter Healthcare Corporation in Finance from 1995 to 1996. He also served as Director of Operations for CBS Marketing Inc. in Mexico City.

David T. Shapiro became our chief compliance officer in October 2008 having joined us in March 2008 as the deputy chief compliance officer. Additionally, from October of 2008 until July 2011, Mr. Shapiro served as senior vice president. Prior to joining us, Mr. Shapiro was counsel at the Pepper Hamilton law firm from March 2007 through February 2008, during which time he represented health care clients in government investigations and compliance issues. From October 2003 through March 2007, Mr. Shapiro served as a trial attorney with the Civil Frauds Section of the United States Department of Justice. From June 1999 through October 2003, Mr. Shapiro was an attorney with the law firm Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. in Washington, DC.

Thomas O. Usilton, Jr. has served as our senior vice president since April 2006 and from July 2010 until July 2011 served as our chief development officer. Prior to that, he served as our group vice president beginning in August 2004. From February 2000 until joining us, Mr. Usilton served as president and chief executive officer of Digital Insurance Inc., a health and welfare brokerage and services company. From 1995 until founding Digital Insurance Inc. in 2000, Mr. Usilton was senior vice president of Vivra Specialty Partners, a national physicians practice management company. Prior to joining Vivra Specialty Partners, Mr. Usilton served as president and chief executive officer of Premier Asthma and Allergy, a disease management company specializing in asthma management. From 1986 to 1987, Mr. Usilton was general manager and executive vice president of CIGNA Corporation. Prior to his employment with CIGNA Corporation, from 1978 to 1985, he served as executive vice president for Health America Inc., a national leader in the Health Maintenance Organization medical insurance field.

LeAnne M. Zumwalt became our group vice president in July 2011. From January 2000 to July 2011, Ms. Zumwalt served as vice president and currently oversees our public policy and government relations and our purchasing functions. Ms. Zumwalt has served in various capacities with us and served as our vice president investor relations from January 2000 through October 2009. From 1997 to 1999, Ms. Zumwalt served as chief financial officer of Vivra Specialty Partners, a privately held health care service and technology firm. From 1991 to 1997, Ms. Zumwalt held various executive positions at Vivra Incorporated, a publicly held provider of dialysis services. Prior to joining Vivra Incorporated, Ms. Zumwalt was a senior manager at Ernst & Young, LLP. Ms. Zumwalt serves on the board of directors of The Advisory Board Company.

None of the executive officers has any family relationship with any other executive officer or with any of our directors.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires “insiders,” including our executive officers, directors and beneficial owners of more than 10% of our common stock, to file reports of ownership and changes in ownership of our common stock with the SEC and the NYSE, and to furnish us with copies of all Section 16(a) forms they file. Based solely on our review of the copies of such forms received by us, or written representations from reporting persons, we believe that our insiders complied with all applicable Section 16(a) filing requirements during 2011, except that (1) one Form 4 was inadvertently filed late for Messrs. Grauer, Rodriguez and Borgen, each relating to a single transaction to acquire shares of the company’s common stock, and (2) two Form 4s were inadvertently filed late for Mr. Shapiro relating to two separate transactions to dispose shares of the company’s common stock, and (3) one Form 4 was inadvertently filed late for Ms. Mildenberger relating to two transactions to acquire and six transactions to dispose of the company’s shares of common stock.

 

38


Table of Contents

EQUITY COMPENSATION PLAN INFORMATION

The following table provides information about our common stock that may be issued upon the exercise of stock options, SSARs, restricted stock units and other rights under all of our existing equity compensation plans as of December 31, 2011, including our omnibus 2011 Incentive Award Plan (formerly known as our 2002 Equity Compensation Plan) and our Employee Stock Purchase Plan. The material terms of these plans are described in Note 17 to the consolidated financial statements, which are part of our Annual Report on Form 10-K for the year ended December 31, 2011.

 

Plan category

  Number of shares to be
issued upon exercise of
outstanding options,
warrants and rights
    Weighted-average
exercise price of
outstanding options,
warrants and rights
    Number of shares
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in column (a))
    Total of shares
reflected in columns
(a) and (c)
 
    (a)     (b)     (c)     (d)  

Equity compensation plans approved by stockholders

    10,728,672      $ 56.90        9,192,928        19,921,600   

Equity compensation plans not requiring stockholder approval

    —          —          —          —     
 

 

 

   

 

 

   

 

 

   

 

 

 

Total

    10,728,672      $ 56.90        9,192,928        19,921,600   
 

 

 

   

 

 

   

 

 

   

 

 

 

 

39


Table of Contents

EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

This Compensation Discussion and Analysis (the “CD&A”) describes our executive compensation program for our named executive officers. As of December 31, 2011, our named executive officers consisted of Kent J. Thiry, our chairman of the Board of Directors and chief executive officer, Dennis L. Kogod, our chief operating officer, Javier J. Rodriguez, our president, Luis A. Borgen, our chief financial officer, and Kim M. Rivera, our chief legal officer and corporate secretary.

EXECUTIVE SUMMARY

DaVita is a leading provider of kidney dialysis services in the United States through a network of approximately 1,809 outpatient dialysis centers and approximately 900 hospitals, serving approximately 142,000 patients in 43 states. In 2011, our overall network of dialysis centers increased by 208 centers primarily as a result of opening new centers and acquisitions. In addition, the overall number of patients that we serve in the U.S. increased by approximately 13.0%. We believe our attention to these three stakeholders—our patients, our business partners, and our teammates—represents the major driver of our long-term performance, although we are subject to the impact of external factors such as government reimbursement policies and physician practice patterns.

We design our compensation programs for executive officers to attract and retain outstanding leaders who possess the skills and talent necessary to achieve our business goals and objectives. Ultimately, our objective is to continue to create long-term stockholder value by generating strong overall revenue growth, market share increases, improvements in cost per treatment, operating income growth, operating margin growth, increases in earnings per share and improvement in our debt to equity ratio. In order to achieve this objective, we have established an executive compensation program that is intended to: (i) reward strong company performance; (ii) align our executives’ interests with our stockholders’ interests and (iii) be competitive within the health care services, diagnostics and solutions market so that we can attract and retain outstanding executives.

Pay-For-Performance

When establishing the compensation for our named executive officers for 2011, the Compensation Committee gave significant weight to our sustained record of strong operating performance, our improvement in strategic positioning and our continued strong clinical performance, particularly in light of general economic volatility and significant industry regulatory challenges and uncertainty.

Our overall financial, operating and TSR performance was very strong for 2011 and we believe that the named executive officers were instrumental in achieving these results. Our major financial operating performance indicators in 2011 were as follows:

 

   

we experienced a one-year TSR of 9.1%, compared to the median one-year TSR of 0.8% in our Global Industry Classification Standard (“GICS”) group and the median one-year TSR of -2.2% in our comparator peer group;

 

   

we returned approximately $323 million to our stockholders through our stock buy-back program;

 

   

we experienced strong operating cash flow of $1,180 million;

 

   

our consolidated revenue growth was approximately 8.5%;

 

   

normalized non-acquired treatment growth was 4.6%;

 

   

we experienced an increase of approximately 9.1% in the overall number of treatments that we provided; and

 

   

our consolidated operating income growth was approximately 13.4%, which includes the impact of a noncash goodwill impairment charge of 2.4%.

 

40


Table of Contents

DaVita’s total stockholder return from the first quarter of 2000 (our CEO’s first full quarter with the company) through the fourth quarter of 2011 was approximately 2400%, exceeding the return of all other current S&P 500 companies over that period.

We believe our clinical outcomes compare favorably with other dialysis providers in the United States and generally exceed the dialysis outcome quality indicators of the National Kidney Foundation. Key clinical outcomes in 2011 were the best in the company’s history.

The Compensation Committee balanced its evaluation of our performance in 2011 by also considering the potential impact on DaVita and our industry of healthcare reform and other significant healthcare regulatory changes, including changes to government reimbursement policies. In 2011, we continued to lead industry public policy efforts, achieving favorable outcomes for the industry and the company. When establishing 2011 compensation for our named executive officers, the Compensation Committee considered these and other factors in the context of individual named executive officer performance.

Our compensation programs for our named executive officers emphasize compensation based on performance and are designed to align our named executive officers’ interests with those of our stockholders and to permit individuals who have performed well in creating significant long-term value for the company and its stockholders to share in the value generated. To this end, our compensation programs emphasize variable compensation in the form of cash and equity awards over fixed compensation. In light of this emphasis, the Compensation Committee determined to limit increases to fixed compensation amounts in 2011 such that the base salaries of our named executive officers were retained at 2010 levels, other than Mr. Rodriguez (whose compensation was increased in December 2011) and Ms. Rivera (see “Elements of Compensation—Base Salary” for more information on their respective base salary increases). The following pie charts illustrate the allocation of the total direct compensation that the named executive officers earned for 2011:

 

LOGO

The Compensation Committee believes that the above compensation structure struck an appropriate balance by promoting long-term stockholder value without motivating or rewarding excessive risk-taking.

The following graph illustrates how cash performance bonuses over the past three years varied with changes in our operating income:

 

LOGO

 

41


Table of Contents

To further illustrate our emphasis on compensation based on performance and our commitment to align the interests of our named executive officers with those of our stockholders, the following graph illustrates how our chief executive officer’s compensation over the past five years varied with changes in our TSR for the same period (indexed to the commencement year of the graph, i.e., 2007):

 

LOGO

Stockholder Interest Alignment

We believe that our equity awards further serve to align the interests of our executives with the long-term interests of our stockholders by providing our executives with an opportunity to benefit from the appreciation of our stock price, by providing for vesting over a period of time and by requiring executives to accumulate meaningful ownership through our stock ownership policy. Therefore, a primary objective of our executive compensation programs is to provide a significant portion of compensation in the form of equity awards. For 2011, equity awards ranged from 48% to 74% of our named executive officers’ compensation. Further, the equity awards granted in 2011 vest commencing on the third anniversary of the date of grant, such that the awards vest 50% on the third anniversary of the date of grant and the remaining 50% on the fourth anniversary of the date of grant, with the exception of an equity grant to Mr. Rodriguez in December 2011 (see “Determining Award Amounts” for further detail on the vesting schedule of this equity award). The vesting schedules are intended to assist in the long-term retention of such named executive officers and further align the interests of our executives with the long-term interests of our stockholders. Stock-based compensation creates an incentive for the named executive officer to contribute to the overall success of the company and to take actions that result in the creation of long-term stockholder value.

Market Competitiveness

We evaluate the overall competitiveness of our executives’ total direct compensation each year in order to assist in executive retention. For 2011, the Compensation Committee retained Compensia, an independent national compensation consulting firm, to perform a comprehensive market analysis of our executive compensation programs and pay levels. See “Role of Independent Compensation Consultant” beginning on page 54 of this Proxy Statement and “Corporate Governance—Information Regarding the Board of Directors and its Committees—Compensation Committee” beginning on page 9 of this Proxy Statement for detailed discussion of the services provided by Compensia in 2011.

In 2012, Compensia provided the Compensation Committee with an analysis of comparative market data on the cash, stock-based compensation and total compensation for senior executives at a group of comparable companies within our industry. In addition to public executive compensation data, the Compensation Committee

 

42


Table of Contents

reviewed the compensation practices of our comparator peer group for purposes of benchmarking and to understand general compensation practices of our peers, consisting of the following companies, which are all in the health care services, diagnostics and solutions markets:

 

Company(1)

   1-Year  TSR(2)     Market
Capitalization
(in millions)(3)
     Net Income for
Last 4 Quarters
(in millions)(4)
    Revenue for
Last 4 Quarters
(in millions)(4)
 

Community Health Systems, Inc.

     -46.8   $ 1,818       $ 241      $ 13,627   

Coventry Health Care, Inc.

     0.3   $ 4,499       $ 543      $ 12,187   

Express Scripts, Inc.

     -9.2   $ 25,494       $ 1,276      $ 46,272   

HCA Holdings, Inc.

     N/A      $ 12,147       $ 2,465      $ 32,506   

Health Management Associates, Inc.

     -29.6   $ 1,781       $ 179      $ 5,805   

Health Net, Inc.

     32.3   $ 3,179       $ 72      $ 11,901   

HealthSouth Corporation

     -14.7   $ 1,796       $ 938      $ 2,030   

Kindred Healthcare, Inc.

     -34.4   $ 640       $ 39      $ 5,135   

Laboratory Corporation of America Holdings

     1.7   $ 8,976       $ 520      $ 5,542   

Lincare Holdings Inc.

     -2.1   $ 2,264       $ 177      $ 1,848   

Magellan Health Services, Inc.

     0.8   $ 1,387       $ 133      $ 2,827   

MEDNAX Services, Inc.

     7.7   $ 3,557       $ 218      $ 1,588   

Omnicare, Inc.

     27.3   $ 3,770       $ (10   $ 6,184   

Quest Diagnostics Incorporated

     2.8   $ 9,057       $ 471      $ 7,511   

Tenet Healthcare, Inc.

     -20.5   $ 2,603       $ 232      $ 9,523   

Universal Health Services, Inc.

     -1.5   $ 4,093       $ 340      $ 7,221   

Summary Statistics:

         

75th Percentile

     2.2   $ 5,618       $ 526      $ 11,972   

50th Percentile

     -1.5   $ 3,368       $ 236      $ 6,702   

DaVita

     10.8   $ 8,027       $ 478      $ 6,982   

DaVita Percentage Rank

     87     79%         68%        52%   

 

(1) 

The Company’s peer group was compiled by Compensia.

(2) 

Data as of January 31, 2012.

(3) 

Data as of February 27, 2012.

(4) 

Data generally through December 31, 2011.

In 2011, the Compensation Committee used the comparator peer group above, except that Medco Health Solutions, Inc. and WebMD Health Corp. were also included in the 2011 comparator peer group and Coventry Health Care, Inc. and Health Net, Inc. were not included in the 2011 comparator peer group. Coventry Health Care, Inc. and Health Net, Inc. were added to the 2012 comparator peer group to provide further balance to DaVita’s relative positioning among the peer group companies. The Compensation Committee considered this 2011 market data, along with other factors, in determining base salary amounts and the equity awards granted in April 2011.

Our 2012 comparator peer group includes a diverse representation in various health care services, diagnostics and solutions markets because we compete in this broad industry group for executive talent. Our comparator peer companies are comparable to us in their size, as measured by market capitalization, net income and revenues. Compensation paid by this comparator peer group is representative of the compensation we believe is required to attract, retain and motivate our executive talent. The Compensation Committee, in conjunction with Compensia, reviews the composition of this group annually and makes adjustments to the composition of the group as it deems appropriate. The majority of the companies in our comparator peer group have remained the same over the years. The group therefore provides a fairly consistent measure for comparing executive compensation.

The Compensation Committee considered Compensia’s analysis (based on publicly disclosed compensation practices) of the compensation of executives serving in similar positions at comparable companies to obtain a general understanding of current compensation practices in our industry. The analysis provided by

 

43


Table of Contents

Compensia was used to provide context for the compensation decisions made in 2012 for 2011 performance, but the Compensation Committee’s decisions were not directly related to or otherwise based upon the comparative data. Instead, the Compensation Committee used this comparative data as one of many factors considered to set the compensation for our named executive officers. The Compensation Committee also used the analysis as a tool to assess how well the company is implementing its core compensation objective of awarding compensation weighted heavily in favor of variable compensation tied to performance. The emphasis on equity awards as compared to cash compensation was reflected in the results of Compensia’s analysis which showed that the percentage of overall average equity awards as compared to overall average cash awards for our named executive officers in 2011 was higher than the median for comparable companies.

In its 2012 report, Compensia found that the total direct compensation for our named executive officers clusters above 75% of our 16-company 2012 comparator peer group. In approving executive compensation, the Compensation Committee considered that DaVita’s market capitalization is at the 79th percentile of our 2012 comparator peer group and DaVita’s size, in terms of net income and revenue, is greater than the median of our 2012 comparator peer group. Further, the Compensation Committee notes that DaVita’s TSR was above the median one-year TSR and five-year compound average annual TSR of its industry peers (i.e., companies in the same GICS group as DaVita) and above the 80th percentile for one-year TSR and five-year and ten-year compound average annual TSRs of the 2012 comparator peer group companies. DaVita also has a record of sustained performance against the 2012 comparator peer group companies, posting above the 70th percentile for three-year operating margin and net margin and above the 60th percentile for revenue growth against the 2012 comparator peer group companies. The Compensation Committee also considers each named executive officer’s roles and responsibilities within the company, individual performance, company performance and internal pay equity in addition to the results of the competitive pay analysis.

Good Governance and Best Practices

Pursuant to our desire to maintain fair and responsible compensation programs while serving our retention objectives, we have entered into employment agreements with each of our named executive officers. Each agreement is individually negotiated and the terms vary; however, the employment agreements reflect current compensation practices and trends by, among other things: (i) not providing for any single trigger payments upon a change in control event of the company and (ii) limiting severance payments to not more than three times base salary and bonus. Further, in 2011, the Compensation Committee determined that the company will no longer enter into any new or materially amended agreements with its executives that include any excise tax gross-up provisions with respect to payments contingent upon a change in control.

In addition, our equity incentive plans prohibit repricing or replacing underwater stock options or stock appreciation rights without prior stockholder approval and our equity awards are designed so that in order to vest and earn the full benefit of the award the named executive officers must remain employed for a multi-year period. This reinforces a culture in which the company’s long-term success takes precedence over volatile and unsustainable short-term results.

Further, approximately every other year, the Compensation Committee engages an outside independent consultant to conduct an in-depth analysis of our chief executive officer’s performance as a manager during the year. The most recent assessment took place in 2011. The results of this assessment are reviewed by the Board of Directors and the Compensation Committee and is one of the many factors considered when making compensation decisions.

In 2010, the Board of Directors adopted a clawback policy that permits the Board of Directors to recover bonuses, incentive and equity-based compensation from executive officers and members of the Board of Directors whose fraud or intentional misconduct was a significant contributing factor to the company having to

 

44


Table of Contents

restate all or a portion of its financial statements. See “Executive Compensation Process & Governance—Policy Regarding Clawback of Bonuses and Incentive Compensation” for additional details.

Share Ownership Guidelines

We have a share ownership policy that applies to all of our named executive officers to strengthen the alignment of our named executive officers’ and stockholders’ interests. The purpose of the policy is to ensure that our executive officers and other members of our senior management team accumulate a meaningful ownership stake in the company over time by retaining a specified financial interest in our common stock. As of December 31, 2011, all of the named executive officers meet or exceed our share ownership policy and guidelines. See “Management Share Ownership Policy” beginning on page 54 of this Proxy Statement for more information regarding our stock ownership guidelines.

ELEMENTS OF COMPENSATION

We believe it is in the best interests of our stockholders to attract and retain talented leaders. In order to attract and retain executives who are not only outstanding leaders but who also embody our mission and values, we strive to provide compensation that is reasonable and provides the best value for our stockholders but that is also sufficient to achieve our recruitment and retention objectives. When recruiting new executives, the Compensation Committee and our chief executive officer evaluate the comparative compensation of executives within the company with similar levels of responsibility, the prior experience of the executive and expected contributions to company performance. Thereafter, each executive’s compensation is reviewed annually by the Compensation Committee and chief executive officer, and considered for adjustment based on individual performance and other factors.

When evaluating performance, we base compensation decisions on an assessment of company and individual performance over the year, taking individual accomplishments into consideration in light of the totality of circumstances together with individual potential to contribute to the company’s future growth. We believe that all of our named executive officers have the ability to influence overall company policies and performance and, accordingly, should be accountable for company-wide performance as well as the areas over which they have direct influence. The differences in total annual compensation levels among the named executive officers are based on their individual roles and responsibilities within the company and their relative individual performance. The Compensation Committee uses its judgment in awarding compensation to our named executive officers in accordance with the overall objectives of the company’s compensation programs.

The Compensation Committee takes into consideration a number of factors when determining the elements and amounts of compensation awarded to our named executive officers, including individual performance, overall financial and non-financial performance of the company for the year, individual skill sets and experience relative to industry peers, readiness for promotion, past and expected future performance, the importance and difficulty of achieving future company and individual objectives, the value of each executive’s outstanding equity awards, aggregate historical compensation, levels of responsibility and performance relative to other executives within the company, importance to the company and difficulty of replacement. The Compensation Committee also gives significant weight to our clinical performance and quality of patient care. Accordingly, company-wide patient clinical outcomes and improvements in quality of patient care, and each named executive officer’s contributions in those areas, can have a significant impact on named executive officer compensation.

The company-wide factors taken into consideration by the Compensation Committee include, but are not limited to, the following:

 

   

overall revenue growth, increases in our treatment volume, market share increases, improvements in cost per treatment, operating income growth, operating margin growth, increases in earnings per share and improvement in the company’s debt to equity ratio;

 

   

healthcare regulatory compliance initiatives;

 

45


Table of Contents
   

improved strategic positioning;

 

   

improved positioning of the company for continued growth and diversification;

 

   

improved organizational capabilities;

 

   

patient growth;

 

   

relationships with private payors;

 

   

improved clinical outcomes, vaccination rates and fistula utilization;

 

   

relationships with medical directors;

 

   

selection and implementation of improved financial, operating and clinical information systems;

 

   

management performance in attracting and retaining high-performing employees throughout our organization and succession planning;

 

   

implementation of successful public policy efforts;

 

   

good corporate citizenship; and

 

   

advancement of strategic business initiatives supporting our mission to be the provider, partner and employer of choice.

The Compensation Committee considers the foregoing items subjectively. There is no formal weighting of the individual elements considered and no particular elements are required to be considered with respect to a given individual or in any particular year.

When determining annual compensation for our named executive officers, other than for our chief executive officer, the Compensation Committee works closely with our chief executive officer to review each individual’s performance for the year and determine such named executive officer’s compensation. Shortly following the end of each year, our chief executive officer provides his assessment of each named executive officer’s performance during the year based on his personal experience with the individual, the named executive officer’s achievement of success in areas determined to be significant to the company, and any changes in responsibility levels. The Compensation Committee also considers performance discussions that have taken place at the Board of Directors and Compensation Committee level regarding the named executive officers, retention objectives and the future growth potential of the individual executive. Our chief executive officer recommends to the Compensation Committee the amounts of cash and stock-based compensation for each of the named executive officers. The Compensation Committee considers the recommendations made by the chief executive officer regarding the other named executive officers but retains the discretion to deviate from those recommendations. Neither the chief executive officer nor other members of management provide a recommendation to the Compensation Committee with regard to the chief executive officer’s compensation.

The Compensation Committee evaluates our chief executive officer’s performance at the same time as it sets the compensation of the other named executive officers. When evaluating the performance of our chief executive officer and making decisions about his compensation, the Compensation Committee considers overall company performance as part of the assessment of our chief executive officer’s performance but does not rely on the achievement of specific objectives to determine his compensation. The Compensation Committee also considers a self-assessment prepared by our chief executive officer. As part of this self-assessment, our chief executive officer reviews with the Compensation Committee the overall annual management objectives of the company and his participation in the attainment or level of responsibility for the shortfall of such objectives. Approximately every other year, the Compensation Committee engages an outside independent consultant to conduct an in-depth analysis of our chief executive officer’s performance as a manager during the year. The most recent assessment took place in 2011. This evaluation involves a rigorous assessment of our chief executive officer’s performance by members of the senior management team. The results of this assessment are reviewed

 

46


Table of Contents

by the Board of Directors and the Compensation Committee and is one of the many factors considered when making compensation decisions. The compensation package for our chief executive officer is approved by the Compensation Committee, subject to ratification by the independent members of the Board of Directors.

As noted above, in its compensation review process, the Compensation Committee considers whether our executive compensation program is aligned with the interests of our stockholders. In June 2011, we held a stockholder advisory vote on the compensation of our named executive officers, commonly referred to as a say-on-pay vote. Our stockholders indicated their strong support of our compensation program for our named executive officers, with over 83% of stockholder votes cast in favor of our say-on-pay resolution. As we evaluated our compensation practices and talent needs throughout fiscal 2011, we were mindful of the strong support our stockholders expressed for our philosophy of linking compensation to our financial and non-financial objectives and the enhancement of stockholder value. As a result, our Compensation Committee decided to retain our general approach to executive compensation and did not make any changes to the executive compensation program in response to the 2011 say-on-pay vote.

Base Salary

Base salary is included in the compensation of our named executive officers because we believe it is appropriate that some portion of compensation be provided in a form that is liquid and assured. Base salaries are initially established at levels necessary to enable us to attract and retain highly qualified executives with reference to comparative pay within the company for executives with similar levels of responsibility, prior experience of the executive and expected contributions to company performance.

We do not guarantee salary adjustments on a yearly basis. During March of each year, the Compensation Committee considers adjustments to salary as part of the overall compensation assessment for our named executive officers. Our chief executive officer typically provides the Compensation Committee with his recommendation regarding merit-based increases for each named executive officer other than himself. The chief executive officer’s base salary is determined by the Compensation Committee with input from Compensia and Compensia’s analysis of CEO compensation of our comparator peer group.

In accordance with our emphasis on performance-based compensation and the Compensation Committee’s decision to limit increases to fixed compensation amounts in 2011, the Compensation Committee retained the base salary of Messrs. Thiry, Kogod and Rodriguez at 2010 levels. The Compensation Committee increased Ms. Rivera’s base salary for 2011 pursuant to the Compensation Committee’s review of her performance in the previous year and consideration of comparative market data provided by Compensia. The base salaries for 2010 and 2011 are shown in the table below.

 

Name

   2010 Base
Salary
     2011 Base
Salary
 

Kent J. Thiry

   $ 1,050,000       $ 1,050,000   

Dennis L. Kogod

   $ 800,000       $ 800,000   

Javier J. Rodriguez(1)

   $ 550,000       $ 550,000   

Luis A. Borgen

   $ 450,000       $ 450,000   

Kim M. Rivera

   $ 400,000       $ 500,000   

 

(1) 

Mr. Rodriguez’ base salary was increased on December 8, 2011 to $700,000 in connection with his promotion to President, in consideration of his performance in 2011 and the comparative market data provided by Compensia.

For 2012, the Compensation Committee retained the base salary for Messrs. Thiry, Kogod and Borgen and Ms. Rivera at 2011 levels. The Compensation Committee increased Mr. Rodriguez’ base salary in December 2011 to $700,000, pursuant to the Compensation Committee’s review and consideration of his promotion to President, in consideration with his performance in 2011 and the comparative market data provided by Compensia.

 

47


Table of Contents

Annual Performance-Based Cash Compensation

Our 2011 annual performance-based cash compensation was paid to our named executive officers under our performance-based Executive Incentive Plan. We believe that cash bonuses based on performance provide an incentive to consistently excel on an individual level as well as to contribute to the overall success of the company.

Executive Incentive Plan

We maintain an Executive Incentive Plan (“EIP”), in which our chief executive officer and other executives selected by the Compensation Committee may participate. For 2011, the Compensation Committee identified all of the named executive officers as eligible participants in the EIP. The EIP is structured to satisfy the requirements of Section 162(m) of the Internal Revenue Code as described below. The Compensation Committee has historically established an operating income target as the performance measure for participants in the EIP. The Compensation Committee uses operating income as the relevant performance measure because it believes that operating income provides the best measurement of our operating results, is a key measure of the financial strength and stability of our company, and can also be consistently measured by us and our stockholders against the operating results of other companies in our industry.

For 2011, the Compensation Committee established a fiscal year operating income target of not less than $808 million as the performance goal. When the Compensation Committee was determining the operating income target for 2011, it considered the uncertainties of the time period, including, among others, those relating to healthcare reform and other significant healthcare regulatory changes, changes to government reimbursement policies, reduction in government payment rates and changes to the structure of payments under the Medicare ESRD program or other government-based programs, including, for example, the implementation of a bundled payment rate system, which will lower reimbursement for services we provide to Medicare patients. The Compensation Committee considered the company’s estimates of 2011 budgeted operating income, as approved by the Board of Directors, when this target was established and attempted to establish a performance target at a level that can be characterized as “stretch but attainable,” meaning that based on historical performance and then-current economic and regulatory uncertainty, attainment of the performance target was uncertain but reasonably anticipated to be achieved. For 2011, the Compensation Committee established a maximum aggregate cash and equity award amount of up to $10,000,000 for each of Messrs. Thiry and Kogod; further establishing that of the $10,000,000, the maximum cash awards for each of Messrs. Thiry and Kogod was limited to $5,000,000 for 2011. Similarly, the Compensation Committee established a maximum aggregate cash and equity award amount of up to $5,000,000 for each of Messrs. Rodriguez and Borgen and Ms. Rivera; further establishing that of the $5,000,000, the maximum cash awards for each of Messrs. Rodriguez and Borgen and Ms. Rivera was limited to $2,500,000 for 2011. The Compensation Committee has the ability to apply only negative discretion in determining incentive compensation; and, historically, the Compensation Committee has applied such negative discretion in determining incentive compensation, resulting in cash-based incentive awards under the EIP over the last five years never greater than 25% of the maximum award amount. The annual target award opportunity for Mr. Thiry is set forth in his employment agreement. The Compensation Committee did not establish target award opportunities for the other named executive officers under the EIP.

The company achieved operating income of $1,131 million for 2011, which exceeded the 2011 target performance goal. When determining the award amounts, the Compensation Committee considered the achievement of the target performance goal, as well as overall company and individual performance. With regard to the overall company performance, the Compensation Committee considered that, as compared to 2010, (i) we experienced strong operating cash flow of $1,180 million; (ii) our consolidated revenue grew by approximately 8.5%; (iii) normalized non-acquired treatment growth was 4.6%, (iv) we experienced an increase of approximately 9.1% in the overall number of treatments that we provided and (v) our consolidated operating income grew by approximately 13.4%, which includes the impact of a noncash goodwill impairment charge of 2.4%.

The Compensation Committee also considered our strong sustained TSR performance. As compared to our GICS group, we experienced a one-year TSR of 9.1%, compared to a median one-year TSR of 0.8%. Moreover, our three-year compound average annual TSR was 15.2%, compared to the median three-year compound average annual TSR of 14.5% for our GICS group; our five-year compound average annual TSR was

 

48


Table of Contents

5.9%, compared to the median five-year compound average annual TSR of 1.3% for our GICS group; and our ten-year compound average annual TSR was 16.6%, compared to the median ten-year compound average annual TSR of 7.1% for our comparator peer group and above the 75th percentile of our GICS group.

In addition, the Compensation Committee considered a calculation of the company’s TSR adjusted for share buybacks, compared to those of the companies in its comparator peer group, for each of the last five years and noted that DaVita ranked above the peer group median in three of the last five years and in the top quartile in two of those years.

The Compensation Committee also considered that our clinical outcomes compare very favorably with other dialysis providers in the United States and generally exceed the dialysis outcome quality indicators of the National Kidney Foundation. In addition to significant contributions to overall company performance, the Compensation Committee also considered individual performance, as listed for each named executive officer below.

 

Name

  

Individual Performance Factors Considered

in Determining EIP Award

Kent J. Thiry,

Chairman of the Board of Directors and Chief Executive Officer

  

•    succession planning efforts and his successful development of key members of senior management, resulting in the company being better prepared for managing future growth

  

•    successful development of exceptionally high-caliber management team

  

•    significant improvement in organizational capabilities over past years

  

•    successful progress with respect to significant clinical initiatives

  

•    leadership in public policy efforts that promote the interests of the company and the dialysis industry as a whole

  

•    advancement of strategic business initiatives

  

•    success with initiatives that position the company for successful continued growth and diversification, including meeting or exceeding operating plan and financial metrics

  

•    successful working relationship with the Board of Directors, Board recruiting efforts and focus on Board diversity

Dennis L. Kogod,

  

•    substantial contributions to the company’s strong operational and clinical performance

Chief Operating Officer

  
  

•    higher percentage of acquisitions closed

  

•    improved vaccination rates, fistula utilization and first 90-day dialysis care

  

•    lower rate of attrition for teammates in the field

  

•    improved retention rate for high performance leaders

  

•    maintained strong teammate organizational productivity and efficiency that contribute to operational cost management

  

•    substantial contribution to developing international opportunities

Javier J. Rodriguez,

  

•    succession planning for his position

President

  

•    significant development as a manager

  

•    successfully secured major payor contracts

  

•    demonstrated leadership in the areas of disease management and integrated care operations

  

•    significant contributions to enterprise strategy, development and growth

Luis A. Borgen,

  

Former Chief Financial Officer

  

•    demonstrated expertise in evaluating international opportunities

Kim M. Rivera,

    Chief Legal Officer and Corporate Secretary

  

•    enhanced corporate governance

•    built capacity and strengthened the legal organization

•    demonstrated support of international opportunities

•    success in negotiating favorable outcomes in legal matters

 

49


Table of Contents

Our chief executive officer recommends to the Compensation Committee the performance bonus amount for our named executive officers, other than for himself, and the final performance bonus amounts are reviewed by the Compensation Committee and sometimes adjusted in consultation with our chief executive officer, prior to approval by the Compensation Committee. The Compensation Committee determines the performance bonus amount for our chief executive officer without recommendations from management. The award of amounts below the maximum amount was not a negative reflection on the performance of the eligible participants. In consideration of the company and individual performance listed above, market data and in consultation with our chief executive officer with regard to performance bonuses for the named executive officers other than himself, the Compensation Committee awarded 2011 performance cash bonuses under the EIP to the eligible named executive officers, as follows:

 

Name

   2011 EIP Award Amount  

Kent J. Thiry

   $ 3,750,000   

Dennis L. Kogod

   $ 1,750,000   

Javier J. Rodriguez

   $ 750,000   

Luis A. Borgen

   $ 100,000   

Kim M. Rivera

   $ 180,000   

Relocation Bonuses

In 2011, we relocated our headquarters to Denver, Colorado and in order to support the relocation and transition of each of Messrs. Thiry and Kogod and Ms. Rivera, the Company agreed to pay each executive relocation bonuses and/or reimburse certain relocation expenses. See the “2011 Summary Compensation Table” in this Proxy Statement for more information relating to the relocation bonuses.

Long-Term Equity Incentives

While we emphasize stock-based compensation, we do not designate a target percentage of total compensation as stock-based. We instead maintain flexibility to use judgment to respond to changes in named executive officer and company performance and related objectives. The emphasis on stock-based compensation creates a commonality of interest between our named executive officers and our stockholders. Grants of equity awards also serve as an important tool for attracting and retaining our named executive officers. The majority of our grants of equity awards vest solely based on the passage of time, and vesting is contingent upon continued employment with us. To vest in equity awards and earn the full benefit of the award the named executive officers must remain employed for a multi-year period, typically over four years, which reinforces a culture in which the company’s long-term success takes precedence over volatile and unsustainable short-term results.

Equity awards to our named executive officers are made pursuant to our Equity Compensation Plan. The Equity Compensation Plan permits the issuance of stock options, stock appreciation rights, restricted stock units, and other forms of equity awards. The majority of our equity awards to named executive officers are in the form of SSARs, which only derive value if the market value of our common stock increases. Each year, the Compensation Committee recommends to the full Board of Directors an aggregate equity award pool that will be available for grants to all eligible recipients of equity awards, based on (i) the historical amounts granted, (ii) the amount of equity that is currently in-the-money, (iii) the number of shares we expect to be forfeited due to anticipated departures, and (iv) the number of shares that will likely be required both to retain our highest-potential and highest-performing employees and to attract new executives we expect to hire during the coming year. The Compensation Committee may also recommend the establishment of special purpose share budgets for proposed interim grants. After considering such recommendations, the Board of Directors approves a budget and delegates authority to the Compensation Committee to make awards to our executive officers and other employees.

The equity awards that are granted to our named executive officers are generally made annually (typically in the first half of the year). Discretionary interim awards to our named executive officers may be made during the year to address special circumstances, such as retention concerns, promotions and special performance

 

50


Table of Contents

recognition awards, and new hire awards. Our annual equity awards are generally awarded upon the completion of performance reviews and in connection with the Compensation Committee’s decision and review process regarding other forms of direct compensation. The timing of the interim grants depends upon individual circumstances. Under the terms of the Equity Compensation Plan, awards are granted with an exercise or base price not less than the closing price of our common stock on the date of grant.

Stock Appreciation Rights

Since July 2006, we have primarily issued SSARs in lieu of stock options. The economic value and tax and accounting treatment of SSARs are comparable to those of stock options, but SSARs are less dilutive to our stockholders because only shares with a total value equal to the grantee’s gain (the difference between the fair market value of the base shares and their base price) are ultimately issued. SSARs are granted with an exercise or base price not less than the closing price of our common stock on the date of grant and vest based on the passage of time.

Determining Award Amounts

The Compensation Committee reviews the annual grant recommendations for our named executive officers and other executives in advance of the grant date with the input of our chief executive officer. Based upon a review of equity award shares available, their dilutive effect on stockholders, long-term share budgeting restrictions and recommendations from management, the Compensation Committee recommends an aggregate equity award pool for the year for approval by the Board of Directors. In considering how to distribute the shares in the aggregate equity award pool, our chief executive officer, together with a team that includes our chief financial officer, our chief operating officer and our chief people officer, gives differential attention to high-potential individuals whom the company believes will be the future leaders of the company, and to other high-performing individuals whose performance in their current positions exceeded expectations.

Each such high-potential and/or high-performing employee is then individually reviewed, from a holistic perspective, starting with a review of such employee’s historical compensation, including his or her initial base salary, any base salary increases during his or her tenure with the company and performance cash bonuses and equity award grants over his or her career at the company. A determination is then made as to the number of equity award shares that should be granted and the appropriate vesting schedule that should be implemented for such awards in order to retain and continue to motivate these high-quality, high-performing individuals. Our goal is to achieve fairness in compensation over the course of multiple years, which is the reason we take into account all compensation that has been awarded to such individuals over their respective careers at the company.

For our named executive officers that participate in the EIP, RSU awards are also made pursuant to the EIP and after the Compensation Committee determines that the company has achieved the EIP performance target for such year. In 2011, the annual equity awards granted to our named executive officers were made in the form of SSARs with such SSARs being granted outside of the EIP but pursuant to our Equity Compensation Plan. Similar to the analysis that the Compensation Committee makes in determining the annual performance-based cash compensation, the Compensation Committee considers overall company and individual performance. For the equity awards granted in 2011, the Compensation Committee reviewed the findings and recommendations of the chief executive officer for named executive officers other than himself and considered each named executive officers’ individual performance since the last grant.

The Compensation Committee also evaluates market competitiveness by analyzing the 2011 comparator peer group’s executive equity award grants, as provided in the February 2011 Compensia report. After taking into account the elements as set forth above, the Compensation Committee approved equity award grants to our named executive officers in 2011. All of the SSARs granted to our named executive officers were granted on April 13, 2011 after the completion of the review by the Compensation Committee, with the exception of an

 

51


Table of Contents

SSAR grant to Mr. Borgen on May 26, 2011 and a second SSAR grant made to Mr. Rodriguez on December 8, 2011, each as described below. The table below shows the aggregate SSAR awards granted to each named executive officer in 2011.

 

Name

   Shares Subject to SSARs  

Kent J. Thiry

     500,000   

Dennis L. Kogod

     250,000   

Javier J. Rodriguez

     170,000   

Luis A. Borgen

     20,000  

Kim M. Rivera

     60,000   

The Compensation Committee determined that these SSAR awards shall vest 50% on the third anniversary of the date of grant and the remaining 50% on the fourth anniversary of the date of grant, for all of the above named executive officers, with the exception of the second SSAR grant awarded to Mr. Rodriguez in December 2011, which shall vest 33% on the second, third and fourth anniversary of the grant date. The extended vesting schedule for the annual equity grant was instituted to assist in the long-term retention of the named executive officers.

Interim discretionary grants are recommended by our chief executive officer and management and reviewed by the Compensation Committee as a part of mid-year performance evaluations, special projects participation, new hires and other factors. Accordingly, on May 26, 2011 Mr. Borgen received SSARs for 20,000 shares and on, December 8, 2011, Mr. Rodriguez received SSARs for 40,000 shares in recognition of their respective accomplishments and senior leadership roles in the Company. Those grants are reflected in the table above.

Personal Benefits and Perquisites

As described above, our compensation programs for named executive officers emphasize compensation based on performance and compensation which serves to align our named executive officers’ interests with those of our stockholders. As a result, the Compensation Committee has determined that the company should provide few perquisites to named executive officers. We believe that the perquisites and personal benefits that we provide support important attraction and retention objectives. We also consider the extent to which the perquisite or personal benefit provided serves to enhance the performance of our named executive officers in light of the demands on these individuals’ time. The perquisites and personal benefits available to our named executive officers are reviewed annually by the Compensation Committee.

The Compensation Committee has authorized the personal use of a fractionally-owned or chartered corporate aircraft by some of our named executive officers. The Compensation Committee believes that access to an aircraft for personal travel enables our named executive officers to maximize their work hours, particularly in light of their demanding business travel schedules. One of the Compensation Committee’s objectives is to ensure that our named executive officers are afforded adequate flexibility to allow for sufficient personal time in light of the significant demands of the company. The Compensation Committee and our chief executive officer allocate a fixed number of hours for use by identified named executive officers and consider the allocated amount as part of the named executive officer’s total compensation. The Compensation Committee and our chief executive officer use their discretion when determining the number of allocated hours and displace other forms of compensation that otherwise would have been awarded to the named executive officer.

Our chief executive officer is authorized by the Compensation Committee to use a fractionally-owned or chartered corporate aircraft for business purposes, including long-distance commuting, and for a fixed number of hours per year for personal use instead of additional cash compensation that would have otherwise been paid. As part of our chief executive officer’s aggregate compensation package, the Compensation Committee approves a fixed number of hours for personal use each year and unused hours from the prior year are available for use the

 

52


Table of Contents

following year. When determining the number of hours of personal use of aircraft to award, the Compensation Committee takes into consideration Mr. Thiry’s overall compensation package. If Mr. Thiry were to exceed the fixed number of hours for personal use that is unrelated to business or long-distance commuting in a given year, the excess hours of personal use would offset the number of hours approved by the Compensation Committee the following year for personal use or Mr. Thiry would be required to compensate us directly, although historically he has not exceeded the hours authorized for personal use. The Compensation Committee reviews all business and personal use of the aircraft annually, including detailed passenger logs with special attention to mixed business and personal use and required reimbursements to the company.

Deferred Compensation Programs

Our deferred compensation programs permit certain employees, including our named executive officers, to defer compensation at the election of the participant or at the election of the company. We maintain a Voluntary Deferral Plan which allows certain employees, including our named executive officers, to defer a percentage of their base salary, cash bonus and other compensation as identified by the company. We do not utilize deferred compensation as a significant component of compensation.

Severance and Change of Control Arrangements

We have entered into employment agreements with each of our named executive officers. These agreements, among other things, provide for severance benefits in the event of a termination of employment in certain circumstances, including, with respect to certain named executive officers, the departure of the named executive officer following a change of control of our company. Each agreement is individually negotiated and the terms vary. When entering into employment agreements with our named executive officers, we attempt to provide severance and change of control benefits which strike a balance between providing sufficient protections for the named executive officer while still providing post-termination compensation that is reasonable and in the best interests of the company and our stockholders. We have also adopted the DaVita Inc. Severance Plan (the “DaVita Severance Plan”), which provides for severance benefits for our vice presidents and director-level employees in the event of termination in certain circumstances. The employment agreements of our named executive officers provide for severance benefits and therefore none of the named executive officers is eligible to participate in the DaVita Severance Plan. See “Potential Payments Upon Termination or Change of Control” beginning on page 63 of this Proxy Statement for a description of the severance and change of control arrangements set forth in our employment agreements with the named executive officers.

In addition, our stock-based agreements provide for accelerated vesting of stock-based awards in certain circumstances following a change of control of the company or in the case of a resignation for “good reason” or termination by the company without “cause.” The terms of individual agreements vary but under our current stock-based award agreements accelerated vesting of stock-based awards is generally triggered when a change of control event occurs and either the acquiring entity fails to assume, convert or replace the stock-based award or the grantee’s employment is terminated within the twenty-four-month period following a change of control or if the executive resigns for “good reason” or is terminated by the company without “cause” as provided in his or her applicable employment agreement. For stock-based award agreements entered into prior to October 2006, accelerated vesting of stock-based awards is triggered when a change of control event occurs, even if there is no subsequent termination or resignation. Our stock-based award agreements further provide that a change of control shall not be deemed to have occurred if the person acting as chief executive officer for the six months prior to such transaction becomes the chief executive officer or executive chairman of the board of directors of the acquiring entity and remains in such position for at least one year following the transaction and a majority of the acquiror’s board of directors immediately after such transaction consists of persons who were directors of the company immediately prior to such transaction. The additional acceleration provisions in our stock-based award agreements further serve to secure the continued employment and commitment of our named executive officers prior to or following a change of control. See “Potential Payments Upon Termination or Change of Control” beginning on page 63 of this Proxy Statement for more information regarding accelerated vesting under our stock-based award agreements.

 

53


Table of Contents

EXECUTIVE COMPENSATION PROCESS & GOVERNANCE

We are committed to strong governance standards with respect to our compensation programs, procedures and practices. We believe that the following aspects of our compensation programs are indicative of this commitment.

Management Share Ownership Policy

We have a share ownership policy that applies to all full-time members of our management team at the vice president level and above and any part-time vice presidents who continue to receive equity awards under our equity compensation programs. The management share ownership policy is similar to our share ownership policy that applies to all non-management members of the Board of Directors described on page 15 of this Proxy Statement. The purpose of the policy is to ensure that our executive officers and other members of our senior management team accumulate a meaningful ownership stake in the company over time by retaining a specified financial interest in our common stock. Both shares owned directly and shares underlying vested but unexercised SSARs, stock options and shares underlying unvested restricted stock units are included in the determination of whether the share ownership guidelines are met. The total net realizable share value retained must have a current market value of not less than the lower of 25% of the total equity award value in excess of $100,000 realized to date by the executive (since promotion to VP); or a specific multiple of the executive’s base salary. The salary multiple requirement is 5.0 for Mr. Thiry, 3.0 for Messrs. Kogod, Rodriguez and Borgen, and 2.0 for Ms. Rivera.

Role of Independent Compensation Committee

Our executive compensation and benefits programs are designed and administered under the direction and control of the Compensation Committee. Our Compensation Committee is composed solely of independent directors, who review and approve our overall executive compensation programs, strategy and policies and sets the compensation of our executive officers.

Role of Independent Compensation Consultant

The Compensation Committee has selected and directly retains the services of Compensia, an independent compensation consulting firm. Compensia only provides compensation consulting services to the Compensation Committee, and works with the company’s management only on matters for which the Compensation Committee is responsible. The Compensation Committee periodically seeks input from Compensia on a range of external market factors, including evolving compensation trends, appropriate peer companies and market survey data. Compensia also provides general observations on the company’s compensation programs, but it does not determine or recommend the amount or form of compensation for the named executive officers. See “Corporate Governance—Information Regarding the Board of Directors and its Committees—Compensation Committee” beginning on page  9 of this Proxy Statement for detailed discussion of the Compensia services provided in 2011.

Policy Regarding Clawback of Bonuses and Incentive Compensation

In 2010, the Board of Directors adopted a clawback policy that permits the Board of Directors to recover bonuses, incentive and equity-based compensation from executive officers and members of the Board of Directors whose fraud or intentional misconduct was a significant contributing factor to the company having to restate all or a portion of its financial statements. The policy allows for the recovery of any bonus or incentive compensation paid to those executive officers or directors, the cancellation of restricted or deferred stock awards and outstanding stock awards granted to those executive officers or directors, and the reimbursement of any gains realized that are attributable to such awards to the fullest extent permitted by law. The policy allows for the foregoing actions to the extent that the amount of incentive compensation was calculated based upon the achievement of certain financial results that were subsequently reduced due to a restatement; the executive

 

54


Table of Contents

officer or director engaged in any fraud or intentional misconduct that was a significant contributing factor to the company having to restate its financial statements; and where the amount of the bonus or incentive compensation that would have been awarded to the officer had the financial results been properly reported would have been lower than the amount actually awarded. The company will not seek to recover bonuses or incentive or equity-based compensation paid or vested more than three years prior to the date the applicable restatement is disclosed.

TAX AND ACCOUNTING CONSIDERATIONS

When reviewing compensation matters, the Compensation Committee considers the anticipated tax and accounting treatment of various payments and benefits to the company and, when relevant, to its executives. Section 162(m) of the Internal Revenue Code generally disallows a tax deduction for compensation in excess of $1 million paid to the chief executive officer and the three other most highly compensated named executive officers employed at the end of the year (other than the chief financial officer), such executives hereinafter referenced as “covered employees.”

Certain compensation is specifically exempt from the deduction limit to the extent that it does not exceed $1 million during any fiscal year or is “performance-based” as defined in Section 162(m). Although we have plans that permit the award of deductible compensation under Section 162(m) of the Internal Revenue Code, the Compensation Committee does not necessarily limit executive compensation to the amount deductible under that provision. Rather, it considers the available alternatives and acts to preserve the deductibility of compensation to the extent reasonably practicable and consistent with its other compensation objectives. As a result, most of our compensation programs are intended to qualify for deductibility under Section 162(m), including our EIP.

Section 409A of the Internal Revenue Code requires programs that allow executives to defer a portion of their current income to meet certain requirements regarding risk of forfeiture and election and distribution timing (among other considerations).

Section 409A of the Internal Revenue Code requires that “nonqualified deferred compensation” be deferred and paid under plans or arrangements that satisfy the requirements of the statute with respect to the timing of deferral elections, timing of payments and certain other matters. Failure to satisfy these requirements can expose employees and other service providers to accelerated income tax liabilities and penalty taxes and interest on their vested compensation under such plans. Accordingly, as a general matter, it is our intention to design and administer our compensation and benefits plans and arrangements for all of our employees and other service providers, including our named executive officers, so that they are either exempt from, or satisfy the requirements of, Section 409A of the Internal Revenue Code.

DaVita accounts for stock-based compensation in accordance with FASB ASC Topic 718, which requires DaVita to recognize compensation expense for share-based payments (including SSARs, RSUs and other forms of equity compensation). FASB ASC Topic 718 is taken into account by the Compensation Committee in determining to use a portfolio approach to equity grants, awarding SSARs and RSUs on a value-equivalent basis considering the natural economic exchange ratios implied by their respective fair values.

COMPENSATION COMMITTEE REPORT

The Compensation Committee of the Board of Directors is currently composed of three independent, non-employee directors. The Compensation Committee oversees the company’s compensation programs on behalf of the Board of Directors. The Compensation Committee reviewed and discussed the Compensation Discussion and Analysis set forth in this Proxy Statement with management.

 

55


Table of Contents

Based on the Compensation Committee’s review and discussion with management, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in the company’s Proxy Statement for the company’s 2012 annual meeting of stockholders.

COMPENSATION COMMITTEE

John M. Nehra (Chairman)

Peter T. Grauer

Roger J. Valine

The information contained above under the caption “Compensation Committee Report” will not be considered “soliciting material” or to be “filed” with the SEC, nor will that information be incorporated by reference into any future filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that we specifically incorporate it by reference into a filing.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

No member of the Compensation Committee has served as one of our officers or employees at any time. During 2011, none of our executive officers served as a member of the compensation committee or board of directors of any other company whose executive officer(s) served as a member of our Compensation Committee or Board of Directors.

2011 Summary Compensation Table

 

Name and Principal Position

  Year     Salary
($)
    Bonus(1)
($)
    Stock
Awards(2)
($)
    Option
Awards(3)
($)
    Non-Equity
Incentive
Plan
Compensa-
tion (4)
($)
    All
Other
Compensa-
tion(5)
($)
    Total
($)
 

Kent J. Thiry

    2011      $ 1,050,000      $ 200,000        —        $ 12,057,150      $ 3,750,000      $ 484,495      $ 17,541,645   

Chairman of the Board of

Directors and Chief Executive Officer

    2010      $ 1,020,000      $ 200,000      $ 4,755,000      $ 4,729,560      $ 3,125,000      $ 291,483      $ 14,121,043   
    2009      $ 1,090,385        —          —        $ 7,856,160      $ 2,500,000      $ 225,597      $ 11,672,142   
               

Dennis L. Kogod

    2011      $ 800,010      $ 118,000        —        $ 6,028,575      $ 1,750,000      $ 107,383      $ 8,803,968   

Chief Operating Officer

    2010      $ 727,075      $ 118,000      $ 2,377,500      $ 2,364,780      $ 1,500,000      $ 17,095      $ 7,104,450   
    2009      $ 628,855      $ 250,000        —        $ 4,230,240      $ 950,000      $ 772      $ 6,059,867   

Javier J. Rodriguez

    2011      $ 549,990        —          —        $ 3,835,663      $ 750,000      $ 35,379      $ 5,171,032   

President

    2010      $ 544,990        —        $ 665,700      $ 457,814      $ 1,000,000      $ 50,375      $ 2,718,879   
    2009      $ 571,143      $ 200,000        —        $ 776,445      $ 520,000      $ 28,632      $ 2,096,220   

Luis A. Borgen

    2011      $ 450,000        —          —        $ 452,422      $ 100,000     $ 660      $ 1,003,082   

Former Chief Financial Officer

    2010      $ 346,154      $ 262,976      $ 962,850      $ 957,702      $ 96,000      $ 2,500      $ 2,628,182   
               

Kim M. Rivera

    2011      $ 465,376      $ 896,000        —        $ 1,446,858      $ 180,000      $ 660      $ 2,988,894   

Chief Legal Officer and Corporate Secretary

               
               

 

(1) 

The amounts reported in this column represent discretionary bonuses, including relocation bonuses and signing bonuses, for the year with respect to which they were earned, regardless of when such bonuses are paid. Bonuses may be paid in cash, SSARs, restricted stock units or a combination of cash, SSARs, and restricted stock units. The cash component of a bonus is included in this column; however, the cash component of any bonus awarded under our EIP is included in the “Non-Equity Incentive Plan Compensation” column.

 

56


Table of Contents
(2) 

The amounts shown in this column reflect restricted stock unit awards and represent the aggregate grant date fair value of all such awards granted to the executive during the year as estimated by the company for financial reporting purposes. See Note 17 to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2011 for a discussion of the relevant assumptions used in calculating these amounts pursuant to FASB ASC Topic 718.

(3) 

The amounts shown in this column reflect SSAR awards and represent the aggregate grant date fair value of all such awards granted to the executive during the year as estimated by the company for financial reporting purposes. See Note 17 to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2011 for a discussion of the relevant assumptions used in calculating these amounts pursuant to FASB ASC Topic 718.

(4) 

The amounts shown in this column constitute payments made under our EIP. Under our EIP, awards are reported for the year with respect to which they were earned, regardless of when the award is paid. Please see the “Elements of Compensation—Annual Performance-Based Cash Compensation—Executive Incentive Plan” in this Proxy Statement for a discussion of the performance criteria under the EIP.

(5) 

Amounts included in this column are set forth by category below. The amounts disclosed, other than use of a fractionally-owned or chartered corporate aircraft, are the actual or share of actual costs to the company of providing these benefits. Because a fractionally-owned or chartered corporate aircraft is used primarily for business purposes, we do not include in incremental cost the fixed costs that do not change based on usage. The incremental cost to us of personal use of a fractionally-owned or chartered corporate aircraft, including use for commuting, is calculated based on the variable operating costs related to the operation of the aircraft, including fuel costs and landing fees, trip-related repairs and maintenance, catering and other miscellaneous variable costs. Fixed costs that do not change based on usage, such as pilot salaries, training, utilities, depreciation, management fees, taxes and general repairs and maintenance are excluded. The value of the personal use of a fractionally-owned or chartered corporate aircraft and the corporate residential property by our named executive officers is included in their personal income in accordance with applicable tax regulations.

 

Name and Principal Position

   Year      Aircraft
Usage(a)
($)
     Corporate
Residential
Property
Usage
($)
     Life
Insurance
Premiums
($)
     Total All Other
Compensation
($)
 

Kent J. Thiry

     2011       $ 477,410       $ 5,500       $ 1,585       $ 484,495   

Dennis L. Kogod

     2011       $ 106,611         —         $ 772      $ 107,383   

Javier J. Rodriguez

     2011       $ 34,719         —         $ 660       $ 35,379   

Luis A. Borgen

     2011         —           —         $ 660       $ 660   

Kim M. Rivera

     2011         —           —         $ 660       $ 660   

 

  (a) 

For purposes of calculating the incremental costs to the company of each named executive officer’s personal use of company aircraft, the total cost of the flight is allocated to personal use based upon the relative ratio of personal mileage to total mileage. Costs for fuel, ground costs, catering costs, landing fees, domestic passenger fees and federal excise tax charges are also included, if applicable.

 

Narrative to the Summary Compensation Table

Employment Agreements

On July 25, 2008, we entered into an employment agreement with Mr. Thiry which replaced his employment agreement that was entered into on October 18, 1999 (as amended on May 20, 2000, November 28, 2000 and March 20, 2005). The employment agreement provides for an initial term through July 25, 2011 and continues thereafter with no further action by either party for successive one-year terms. The successive one-year terms of Mr. Thiry’s employment agreement enable us to carry forward his visions and strategy and his unique skills. Mr. Thiry is eligible to receive a bonus based upon the achievement of performance goals as determined by the Compensation Committee and the independent directors in accordance with the Compensation Committee charter. His target incentive bonus under his employment agreement is his annual base salary in effect during the beginning of the applicable fiscal year, although his actual incentive bonus may exceed that amount in a particular year, and has exceeded that amount in recent years.

We entered into an employment agreement with Mr. Kogod effective October 24, 2005. This agreement was subsequently amended effective December 12, 2008. The agreement provides for employment at will, with either party permitted to terminate the agreement at any time, with or without cause, subject to notice requirements. Mr. Kogod is eligible to receive a discretionary performance bonus with the actual amount to be decided by our chief executive officer and/or the Board of Directors or the Compensation Committee.

 

57


Table of Contents

We entered into an employment agreement with Mr. Rodriguez effective March 17, 2010. The agreement provides for employment at will, with either party permitted to terminate the agreement at any time, with or without cause, subject to notice requirements. Mr. Rodriguez is eligible to receive a discretionary performance bonus with the actual amount to be decided by our chief executive officer and/or the Board of Directors or the Compensation Committee.

We entered into an employment agreement with Mr. Borgen effective February 26, 2010. This agreement was subsequently amended effective March 18, 2010. The agreement provides for employment at will, with either party permitted to terminate the agreement at any time, with or without cause, subject to notice requirements. Mr. Borgen is eligible to receive a discretionary performance bonus with the actual amount to be decided by our chief executive officer and/or the Board of Directors or the Compensation Committee. In April 2012, Mr. Borgen resigned from the company.

We entered into an employment agreement with Ms. Rivera effective October 19, 2009. The agreement provides for employment at will, with either party permitted to terminate the agreement at any time, with or without cause, subject to notice requirements. Ms. Rivera is eligible to receive a discretionary performance bonus with the actual amount to be decided by our chief executive officer and/or the Board of Directors or the Compensation Committee.

For a description of certain termination and change of control provisions included in the employment agreements for certain of our named executive officers, please see “Potential Payments Upon Termination or Change of Control” beginning on page 63 of this Proxy Statement.

The following table sets forth information concerning awards made to each of the named executive officers under the company’s EIP and equity compensation plans during 2011.

2011 Grants of Plan-Based Awards

 

Name

   Grant Date      Estimated Future
Payouts
Under Non-Equity
Incentive
Plan Awards(1)
     All Other
Stock
Awards:
Number of
Shares of
Stock or
Units (#)
     All Other
Options
Awards:
Number of
Securities
Underlying
Options
(#)
    Exercise
or Base
Price of
Option
Awards
($/Sh)
     Grant
Date Fair
Value of
Stock and
Option
Awards
($)(2)
 
      Target
($)
     Maximum
($)
            

Kent J. Thiry

     N/A       $ 1,050,000       $ 5,000,000         —           —          —           —     
     4/13/2011         —           —           —           500,000 (3)    $ 86.70       $ 12,057,150   

Dennis L. Kogod

     N/A       $ 1,500,000       $ 2,500,000         —           —          —           —     
     4/13/2011         —           —           —           250,000 (3)    $ 86.70       $ 6,028,575   

Javier J. Rodriguez

     N/A       $ 1,000,000       $ 2,500,000         —           —          —           —     
     4/13/2011         —           —           —           130,000 (3)    $ 86.70       $ 3,134,859   
     12/8/2011         —           —           —           40,000 (4)    $ 73.92       $ 700,804   

Luis A. Borgen

     N/A       $ 96,000       $ 2,500,000         —           —          —           —     
     5/26/2011         —           —           —           20,000 (3)    $ 83.94       $ 452,422   

Kim M. Rivera

     N/A         —         $ 2,500,000         —           —          —           —     
     4/13/2011         —           —           —           60,000 (3)    $ 86.70       $ 1,446,858   

 

(1)

Non-equity incentive awards to Messrs. Thiry, Kogod, Rodriguez and Borgen were made under the EIP. The “maximum” amounts shown in the table above reflect the largest possible payments under the EIP for the 2011 performance period for purposes of qualifying the plan under Section 162(m) of the Code. There are no thresholds or targets under the EIP; however, pursuant to Mr. Thiry’s employment agreement, his target incentive bonus opportunity for each fiscal year shall be equal to 100% of his base salary in effect at

 

58


Table of Contents
 

the beginning of such fiscal year; provided, that the amount of his bonus may exceed 100% of his base salary if target performance goals for the fiscal year are exceeded. With respect to Messrs. Kogod, Rodriguez and Borgen and Ms. Rivera, because the Compensation Committee does not set a target amount under the EIP, the target amount reported is the cash bonus amount earned by each of them under the EIP in 2010. The EIP provides that the Compensation Committee may use “negative discretion” to award any amount that does not exceed the maximum. The actual amounts awarded under the EIP are reported in the “Non-Equity Incentive Plan Compensation” column of the “2011 Summary Compensation Table.” For a description of the EIP, see “Compensation Discussion and Analysis—Elements of Compensation—Annual Performance-Based Compensation—Executive Incentive Plan” in this Proxy Statement.

(2) 

These amounts are the aggregate grant date fair values of each award determined pursuant to FASB ASC Topic 718. See Note 17 to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2011 for a discussion of the relevant assumptions used in calculating grant date fair value pursuant to FASB ASC Topic 718.

(3) 

This number represents SSARs awarded under the Equity Compensation Plan. These awards vest 50% on the third and fourth anniversaries of the grant date.

(4) 

This number represents SSARs awarded under the Equity Compensation Plan. These awards vest 33% on the second, third and fourth anniversary of the grant date.

Narrative to the Grants of Plan-Based Awards Table

Awards

See “Compensation Discussion and Analysis—Elements of Compensation—Annual Performance-Based Compensation—Executive Incentive Plan,” “Compensation Discussion and Analysis—Elements of Compensation—Long-Term Equity Incentives” in this Proxy Statement for a description of the EIP and grants of SSAR awards.

Salary and Cash Bonus in Proportion to Total Compensation

The following table sets forth the percentage of each named executive officer’s total compensation as set forth in the Summary Compensation Table that we paid in the form of base salary and cash bonus. For a description of the objectives of our compensation programs and overall compensation philosophy, please see “Compensation Discussion and Analysis” beginning on page 40 of this Proxy Statement.

 

Name

   Salary and Cash Bonus
as Percentage of Total
2011 Compensation
 

Kent J. Thiry

     29

Dennis L. Kogod

     30

Javier J. Rodriguez

     25

Luis A. Borgen

     55

Kim M. Rivera

     52

The following table sets forth information concerning outstanding stock options and SSARs and unvested stock awards held by each of the named executive officers at December 31, 2011.

 

59


Table of Contents

2011 Outstanding Equity Awards at Fiscal Year-End

 

           Option Awards     Stock Awards  

Name

  Grant
Date
    Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
    Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
    Option
Exercise
Price
($)
    Option
Expiration
Date
    Number of
Shares or
Units of Stock
That Have
Not Vested
(#)
    Market
Value of
Shares or
Units of
Stock That
Have Not
Vested(1)
($)
 

Kent J. Thiry

    3/16/2007        50,000 (2)       —        $ 52.76        3/16/2012       
    3/11/2008        625,000 (2)       125,000 (2)     $ 43.70        3/11/2013       
    3/2/2009        379,166 (2)       270,834 (2)     $ 46.26        3/2/2014       
    3/31/2010        131,250 (3)     168,750 (3)     $ 63.40        3/31/2015       
    4/13/2011        —          500,000 (4)    $ 86.70        4/13/2016       
    3/31/2010                56,250 (5)    $ 4,264,313   

Dennis L. Kogod

    3/14/2007        4,167 (2)       —        $ 52.12        3/14/2012       
    3/14/2007        25,000 (6)       —        $ 52.12        3/14/2012       
    2/28/2008        33,333 (2)       33,334 (2)     $ 50.37        2/28/2013       
    3/2/2009        104,166 (2)       145,834 (2)     $ 46.26        3/2/2014       
    3/31/2010        65,625 (3)       84,375 (3)     $ 63.40        3/31/2015       
    4/13/2011        —          250,000 (4)     $ 86.70        4/13/2016       
    3/31/2010                28,125 (5)    $ 2,132,156   

Javier J. Rodriguez

    3/14/2007        7,500 (7)       —        $ 52.12        3/14/2012       
    3/14/2007        25,000 (6)       —        $ 52.12        3/14/2012       
    7/30/2007        150,000 (2)       —        $ 54.13        7/30/2012       
    2/28/2008        83,333 (2)       16,667 (2)     $ 50.37        2/28/2013       
    3/6/2009        37,916 (2)       27,084 (2)     $ 45.72        3/6/2014       
    3/31/2010        —          28,000 (8)     $ 63.40        3/31/2015       
    4/13/2011        —          130,000 (4)     $ 86.70        4/13/2016       
    12/8/2011        —          40,000 (8)     $ 73.92        12/8/2016       
    7/30/2007                3,333 (8)    $ 252,675   
    3/31/2010                10,500 (9)    $ 796,005   

Luis A. Borgen

    3/22/2010        5,000 (2)       40,000 (2)     $ 64.19        3/22/2015       
    5/26/2011        —          20,000 (4)     $ 83.94        5/26/2016       
    3/22/2010                15,000 (10)    $ 1,137,150   

Kim M. Rivera

    1/8/2010        12,500 (2)       40,000 (2)     $ 61.00        1/8/2015       
    4/13/2011        —          60,000 (4)     $ 86.70        4/13/2016       
    1/8/2010                5,000 (10)    $ 379,050   

 

(1) 

The market value of shares or units of stock that have not vested reflects the $75.81 closing price of our stock on December 31, 2011, as reported by the NYSE.

(2) 

These SSARs vest 25% on the first anniversary, 8.33% on the 20th month and 8.33% every four months thereafter from the grant date.

(3)

These SSARs vest 25% on the first anniversary and 6.25% every three months thereafter from the grant date.

(4) 

These SSARs vest 50% on the third and fourth anniversaries of the grant date.

(5) 

25% of these restricted stock units vested on May 15, 2011. The remaining 75% of these restricted stock units will vest in equal installments on each of May 15, 2012, May 15, 2013 and May 15, 2014.

(6) 

These SSARs vest 50% on the third anniversary, 12.5% on the 45th month and 12.5% every three months thereafter from the grant date.

 

60


Table of Contents
(7)

These SSARs vest 25% on the second anniversary, 12.5% on the 32nd month and 12.5% every four months thereafter from the grant date.

(8) 

These SSARs vest 33% on the second, third and fourth anniversaries of the grant date.

(9)

These restricted stock units vest 33% on each of May 15, 2012, May 15, 2013 and May 15, 2014.

(10) 

These restricted stock units vest 33.34% on the third anniversary and 11.11% every four months thereafter from the grant date.

The following table sets forth information concerning the exercise of stock options and SSARs and the vesting of stock awards held by each of the named executive officers during 2011.

2011 Option Exercises and Stock Vested

 

Name

   Option Awards      Stock Awards  
   Number of Shares
Acquired on
Exercise
(#)
     Value Realized on
Exercise
($)(1)
     Number of Shares
Acquired on
Vesting
(#)
     Value Realized
on Vesting
($)(2)
 

Kent J. Thiry

     765,000       $ 24,503,357         18,750       $ 1,604,813   

Dennis L. Kogod

     389,166       $ 12,253,456         9,375       $ 801,736   

Javier J. Rodriguez

     127,500       $ 4,398,650         5,000       $ 408,715   

Luis A. Borgen

     15,000       $ 268,526         —           —     

Kim M. Rivera

     7,500       $ 142,791         —           —     

 

(1)

Value realized on exercise is determined by subtracting the exercise or base price from the market price of our common stock at exercise, and multiplying the remainder by the number of shares exercised.

(2)

Value realized on vesting is determined by multiplying the number of shares underlying restricted stock units by the closing price for our common stock on the date of vesting, as reported by the NYSE.

2011 Pension Benefits

The company does not have a defined benefit pension plan in which any employee, including the named executive officers, can participate to receive payments or other benefits at, following, or in connection with retirement.

The following table sets forth information concerning the company’s nonqualified deferred compensation plans.

2011 Nonqualified Deferred Compensation

 

Name

   Executive
Contributions
in Last FY ($)
    Registrant
Contributions
in Last FY ($)
     Aggregate
Earnings
in Last FY
($)(1)
    Aggregate
Withdrawals/
Distributions
($)
     Aggregate
Balance at
Last
FYE ($)
 

Kent J. Thiry

            

Voluntary Deferral Plan

     1,443,750 (2)      —         $ (109,155     —         $ 2,693,303 (3) 

Dennis L. Kogod

            

Executive Retirement Plan

     —          —         $ (5,111     —         $ 188,372   

Javier J. Rodriguez

            

Voluntary Deferral Plan

     —          —         $ (26,473     —         $ 390,997 (4) 

Luis A. Borgen(5)

     —          —           —          —           —     

Kim M. Rivera(5)

     —          —           —          —           —     

 

61


Table of Contents

 

(1) 

Unless otherwise indicated, none of the earnings in this column are included in the Summary Compensation Table because they are not preferential or above market.

(2) 

This amount is reported in the “Salary” column in the Summary Compensation Table for 2011.

(3) 

Mr. Thiry also deferred $772,596 in 2009 and $255,769 in 2008 into the Voluntary Deferral Plan. The 2009 amount is reported in the “Salary” column of the Summary Compensation Table and the 2008 amount was reported in the “Salary” column of last year’s Summary Compensation Table for 2008.

(4) 

Mr. Rodriguez deferred $338,934 of his base salary in 2007, as previously reported in the company’s Summary Compensation Table for 2007.

(4) 

Mr. Borgen and Ms. Rivera did not participate in any of the company’s nonqualified deferred compensation plans in 2011.

The 2011 Nonqualified Deferred Compensation Table presents amounts deferred under our Voluntary Deferral Plan. Under the Voluntary Deferral Plan, participants may defer (i) up to 50% of their base salary, (ii) all or a portion of their annual bonus payment that is earned in the same year as their base salary but payable in the following year and (iii) all or a portion of their other compensation as determined by the company. Deferred amounts are credited with earnings or losses based on the rate of return of one or more investment alternatives selected by the participant from among the investment funds selected by the company. Participants may change their investment elections daily. We do not make contributions to participants’ accounts under the Voluntary Deferral Plan. All participant contributions are irrevocably funded into a rabbi trust for the benefit of those participants. Assets held in the trust are subject to the claims of the company’s general creditors in the event of the company’s bankruptcy or insolvency until paid to the plan participants. Distributions are generally paid out in cash at the participant’s election either in the first or second year following retirement or in a specified year at least three to four years after the deferral election was effective. Participants elect to receive distributions in the form of one, five, ten, fifteen or twenty annual installments. If the participant has not elected a specified year for payout and the participant becomes disabled, dies or has a separation from service, distributions generally will be paid in a lump sum cash distribution. In the event of an unforeseeable emergency, the plan administrator may, in its sole discretion, authorize the cessation of deferrals by a participant, provide for immediate distribution to a participant in the form of a lump sum cash payment or provide for such other payment schedule as the plan administrator deems appropriate.

The table also presents amounts deferred under our Executive Retirement Plan. The Executive Retirement Plan was assumed by the company from Gambro Healthcare, Inc. following our acquisition of Gambro Healthcare in October 2005. Amounts contributed to the plan were based on a percentage of an executive’s annual base salary and such contributions were made prior to our assumption of the plan. We did not make any contributions to the Executive Retirement Plan following our assumption of the plan and effective February 1, 2006 we amended the plan to eliminate the obligation to make further contributions under the plan. Under the plan, amounts in a participant’s deferred account vest 100% upon the earlier of: (i) two years of service following the date of contribution and (ii) the date the participant reaches the age of 60. All amounts contributed under this plan and currently in deferred accounts were contributed prior to February 1, 2006 and therefore are fully vested. Deferred amounts are credited with earnings or losses based on the rate of return of one or more investment alternatives selected by the participant from among the investment funds selected by the company. Participants may change their investment elections daily. All contributions are irrevocably funded into a rabbi trust for the benefit of plan participants. Assets held in the trust are subject to the claims of the company’s general creditors in the event of the company’s bankruptcy or insolvency until paid to the plan participants.

 

62


Table of Contents

Potential Payments Upon Termination or Change of Control

General Terms and Definitions

For purposes of the employment agreements with each of our named executive officers and the table below:

“Cause” is defined in Mr. Thiry’s employment agreement as any of the following: (i) conviction of a felony; (ii) any act of fraud or dishonesty resulting or intended to result directly or indirectly in personal enrichment at the expense of the company; (iii) repeated failure or refusal by the executive to follow policies established by the Board of Directors or written directives of the Board of Directors that goes uncorrected for a period of 30 consecutive days after notice of such failure or refusal, and that is material and willful and has a material adverse effect on the company’s business; or (iv) a material breach of the executive’s employment agreement that goes uncorrected for a period of 30 consecutive days after written notice has been provided to the executive.

Involuntary termination for “Material Cause” occurs if the company terminates employment for any of the following reasons: (i) conviction of a felony or plea of no contest to a felony; (ii) any act of fraud or dishonesty in connection with the performance of the executive’s duties; (iii) repeated failure or refusal by the executive to follow lawful policies or directives reasonably established by the chief executive officer of the company or his designee that goes uncorrected for a period of 10 consecutive days after written notice has been provided to the executive; (iv) a material breach of the executive’s employment agreement; (v) any gross or willful misconduct or gross negligence by the executive in performance of his duties; (vi) egregious conduct by the executive that brings the company or any of its subsidiaries or affiliates into public disgrace or disrepute; (vii) an act of unlawful discrimination, including sexual harassment; (viii) a violation of the duty of loyalty or of any fiduciary duty; or (ix) exclusion or notice of exclusion of the executive from participating in any federal health care program. Further, Mr. Borgen’s employment agreement also includes the following reason for termination under the definition of “Material Cause”: the executive’s failure to relocate to Denver, Colorado with his immediate family by September 6, 2010. Further, the definition of “Material Cause” in Ms. Rivera’s employment agreement includes the following additional language: “Before the company may discharge Ms. Rivera for an act of fraud or dishonesty in connection with the performance of her duties, Ms. Rivera shall have a right to contest her termination to the entire Board of Directors.”

“Material Cause” is defined in the employment agreement of Mr. Kogod as any of the following: (i) conviction of a felony or plea of no contest to a felony; (ii) the adjudication by a court of competent jurisdiction that the executive has committed any act of fraud or dishonesty resulting or intended to result directly or indirectly in personal enrichment at the expense of the company; (iii) repeated failure or refusal by the executive to follow policies or directives reasonably established by the chief executive officer of the company or his designee that goes uncorrected for a period of 30 consecutive days after written notice has been provided to the executive; (iv) a material breach of the executive’s employment agreement that goes uncorrected for a period of 30 consecutive days after written notice has been provided to the executive; (v) any gross or willful misconduct or gross negligence by the executive in the performance of his duties; (vi) egregious conduct by the executive that brings the company or any of its subsidiaries or affiliates into public disgrace or disrepute; (vii) an act of unlawful discrimination, including sexual harassment; (viii) a violation of the duty of loyalty or of any fiduciary duty; or (ix) exclusion or notice of exclusion of the executive from participating in any federal health care program.

Except with respect to Mr. Thiry, as noted below, a “Change of Control” means (i) any transaction or series of transactions in which any person or group (within the meaning of Rule 13d-5 under the Exchange Act and Sections 13(d) and 14(d) of the Exchange Act) becomes the direct or indirect “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), by way of a stock issuance, tender offer, merger, consolidation, other business combination or otherwise, of greater than 50% of the total voting power (on a fully diluted basis as if all convertible securities had been converted and all warrants and options had been exercised) entitled to vote in the

 

63


Table of Contents

election of directors of the company (including any transaction in which the company becomes a wholly-owned or majority-owned subsidiary of another corporation), (ii) any merger or consolidation or reorganization in which the company does not survive, (iii) any merger or consolidation in which the company survives, but the shares of the company’s common stock outstanding immediately prior to such merger or consolidation represent 40% or less of the voting power of the company after such merger or consolidation, and (iv) any transaction in which more than 40% of the company’s assets are sold. However, despite the occurrence of any of the above-described events, a “Change of Control” will not have occurred if Mr. Thiry remains the chief executive officer of the company for at least one year after the Change of Control or becomes the chief executive officer or executive chair of the surviving company with which the company merged or consolidated and remains in that position for at least one year after the Change of Control.

“Good Cause” means the occurrence of the following events without the executive’s express written consent: (i) the company materially diminishes the scope of the executive’s duties and responsibilities; or (ii) the company materially reduces the executive’s base compensation. Notwithstanding the above, the occurrence of any such condition shall not constitute Good Cause unless the executive provides notice to the company of the existence of such condition not later than 90 days after the initial existence of such condition, and the company shall have failed to remedy such condition within 30 days after receipt of such notice.

“Good Reason” is defined in Mr. Borgen’s employment agreement as the occurrence of the following events without the executive’s express written consent: (i) the company reduces the executive’s annual base salary in a percentage greater than concurrent base salary reductions for similarly-situated executives; (ii) the company fails to pay compensation on a timely basis or continue benefits in accordance with the terms of the executive’s employment agreement, as amended; (iii) the company assigns the executive to a new work location more than thirty-five miles from the executive’s assignment to the company’s current offices in Denver, Colorado; or (iv) any material breach by the company of the executive’s employment agreement.

With respect to Mr. Thiry’s employment agreement, “Good Reason” means during the employment period, without the written consent of the executive, any one or more of the following (provided that an isolated, insubstantial or inadvertent action not taken in bad faith or failure not occurring in bad faith which is remedied by the company promptly after receipt of notice thereof given by the executive shall not constitute Good Reason): (i) the assignment to the executive of any duties inconsistent in any material and adverse respect with the executive’s then current duties and responsibilities; (ii) the material and adverse change in the executive’s titles or positions; (iii) reduction in the executive’s base salary or target annual incentive opportunity, unless such reductions are part of an across-the-board reduction that applies to all senior executives of the company and takes effect prior to a Change in Control (as defined below for Mr. Thiry); or (iv) any material breach by the company of the employment agreement, that is not corrected within 30 days after notice of such breach.

For purposes of the definition of “Good Reason” in Mr. Thiry’s employment agreement above, a “Change of Control” means (i) any transaction or series of transactions in which any person or group (within the meaning of Rule 13d-5 under the Exchange Act and Sections 13(d) and 14(d) under the Exchange Act) becomes the direct or indirect “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), by way of a stock issuance, tender offer, merger, consolidation, other business combination or otherwise, of greater than 40% of the total voting power (on a fully diluted basis as if all convertible securities had been converted and all warrants and options had been exercised) entitled to vote in the election of directors of the company (including any transaction in which the company becomes a wholly-owned or majority-owned subsidiary of another corporation), (ii) consummation of any merger or consolidation in which the shares of the company’s common stock outstanding immediately prior to such merger or consolidation represent 50% or less of the voting power of the corporation resulting from such merger or consolidation, or, if applicable, the ultimate parent corporation of such corporation, (iii) during any twenty-four month period, individuals who, as of the beginning of such period, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of such Board; provided that any individual who becomes a director of the company subsequent to the beginning of such period whose election, or nomination for election by the company’s stockholders, was approved by the vote of at least a

 

64


Table of Contents

majority of the directors then comprising the Incumbent Board shall be deemed a member of the Incumbent Board; and provided further, that any individual who was initially elected as a director of the company as a result of an actual or threatened solicitation by a person other than the Board for the purpose of opposing a solicitation by any other person with respect to the election or removal of directors, or any other actual or threatened solicitation of proxies or consents by or on behalf of any person other than the Board shall not be deemed a member of the Incumbent Board, (iv) consummation of any transaction in which all or substantially all of the company’s assets are sold, or (v) the approval by the company’s shareholders of a plan of complete liquidation or dissolution of the company; provided, however, that no transaction contemplated by clauses (i) through (iv) above shall constitute a Change of Control if the person acting as the chief executive officer of the company for the twelve months prior to such transaction continues as the chief executive officer or executive chairman of the Board of Directors of the company or becomes the chief executive officer or executive chairman of the Board of Directors of the entity that has acquired control of the company as a result of such transaction (the “Acquiror”) immediately after such transaction and remains the chief executive officer or executive chairman of the Board of Directors for not less than twelve months following the transaction, and further provided, that in the event that the person acting as the chief executive officer of the company for the twelve months prior to such transaction ceases to be chief executive officer or executive chairman of the Board of Directors of the company or of the Acquiror during the twelve months following the transaction, a Change of Control shall be deemed to have occurred on the date on which such person ceases to be chief executive officer or executive chairman of the Board of Directors.

 

65


Table of Contents

Severance Payments and Benefits

The following tables and summary set forth the company’s payment obligations pursuant to the terms of the employment agreements for each of our named executive officers, under the circumstances described below, assuming that their employment was terminated on December 31, 2011. For a description of the value of stock-based awards held by Messrs. Thiry, Kogod, Rodriguez, Borgen, and Ms. Rivera that are subject to accelerated vesting upon a Change of Control, see “—Accelerated Vesting of Stock-Based Awards” below.

 

     Payment of
Base Salary
(or multiple
thereof) in
effect at
termination
for a specified
period
following
termination
    Bonus(1)     Continued
Health
Benefits for
a Specified
Period
Following
Termination
    Office and
Secretarial
Assistance
    Tax Gross-
Up
     Total Value  

Kent J. Thiry

             

Death

     —        $ 3,750,000 (2)      —          —          —         $ 3,750,000   

Disability

     —        $ 3,750,000 (2)      —          —          —         $ 3,750,000   

Involuntary Termination without Cause

   $ 11,587,500 (3)    $ 3,750,000 (4)    $ 58,208 (5)    $ 380,456 (6)      —         $ 15,776,164   

Involuntary Termination without Cause (prior to age 62)(7)

   $ 5,793,750 (8)    $ 3,750,000 (4)    $ 58,208 (5)    $ 380,456 (6)      —         $ 9,982,414   

Resignation for Good Reason

   $ 11,587,500 (3)    $ 3,750,000 (4)    $ 58,208 (5)    $ 380,456 (6)      —         $ 15,776,164   

Dennis L. Kogod

             

Death

     —          —          —          —          —           —     

Disability

     —          —          —          —          —           —     

Involuntary Termination for Other than Material Cause

   $ 800,000 (9)    $ 1,500,000 (10)      —          —          —         $ 2,300,000   

Resignation Following a Good Cause Event Unrelated to a Change of Control

   $ 800,000 (9)    $ 1,500,000 (10)      —          —          —         $ 2,300,000   

Resignation Following a Good Cause Event After a Change of Control

   $ 1,600,000 (11)    $ 1,500,000 (10)      —          —          —         $ 3,100,000   

Javier J. Rodriguez

             

Death

     —          —          —          —          —           —     

Disability

     —          —          —          —          —           —     

Involuntary Termination for Other than Material Cause

   $ 1,050,000 (12)    $ 1,000,000 (13)      —          —          —         $ 2,050,000   

Resignation for Good Cause

   $ 1,050,000 (12)    $ 1,000,000 (13)      —          —          —         $ 2,050,000   

Resignation Following a Good Cause Event After a Change of Control

   $ 1,400,000 (14)    $ 1,000,000 (13)      —          —          —         $ 2,400,000   

Luis A. Borgen

             

Death

     —          —          —          —          —           —     

Disability

     —          —          —          —          —           —     

Involuntary Termination for Other than Material Cause

   $ 450,000 (15)      —        $ 18,464 (16)      —          —         $ 468,464   

Resignation for Good Reason

   $ 450,000 (15)      —        $ 18,464 (16)      —          —         $ 468,464   

Kim M. Rivera

             

Death

     —          —          —          —          —           —     

Disability

     —          —          —          —          —           —     

Involuntary Termination for Other than Material Cause

   $ 500,000 (17)    $ 188,000 (18)      —          —          —         $ 688,000   

Resignation Following a Good Cause Event

   $ 500,000 (17)    $ 188,000 (18)      —          —          —         $ 688,000   

 

(1) 

Does not include any amounts payable to Messrs. Thiry and Rodriguez pursuant to our Voluntary Deferral Plan which amounts are included in the 2011 Nonqualified Deferred Compensation Table. Such amounts are currently vested, but payment thereof may be accelerated in the event of death, disability or termination of employment.

 

66


Table of Contents
(2) 

Mr. Thiry (or his estate) will be entitled to receive the amount of any bonus earned and payable but not yet paid for the fiscal year prior to the year in which the termination occurs. On December 31, 2011, Mr. Thiry had fully earned his bonus for 2011, so he would have received the full amount of his annual incentive bonus as reported in the Summary Compensation Table upon termination.

(3) 

Mr. Thiry will be entitled to receive a lump-sum payment equal to the product of (x) three, and (y) the sum of his base salary in effect as of the date of termination and the Prior Bonus. “Prior Bonus” means the average of the annual incentive bonus earned under the EIP (including any bonus earned and payable but not yet paid) for the last two fiscal years before the fiscal year in which Mr. Thiry’s employment was terminated. The amount reported in the table above reflects the product of (x) three, and (y) the sum of Mr. Thiry’s base salary as of December 31, 2011, which was $1,050,000, and the average of Mr. Thiry’s 2010 annual incentive bonus in the amount of $3,125,000 and Mr. Thiry’s 2009 annual incentive bonus in the amount of $2,500,000.

(4) 

Mr. Thiry will be entitled to receive the amount of any bonus earned and payable but not yet paid for the fiscal year prior to the year in which the termination occurs. Mr. Thiry will also be entitled to receive a prorated annual incentive bonus (based on the actual bonus earned under the objective standards set forth in the EIP for the fiscal year in which the termination occurs) through and including the date of termination. On December 31, 2011, Mr. Thiry had fully earned his annual incentive bonus for 2011, so he would have received the full amount of his annual incentive bonus as reported in the Summary Compensation Table upon termination.

(5) 

Mr. Thiry will continue to receive his health benefits for the three-year period following termination. The amount reported in the table above is the estimated actual cost of COBRA insurance premiums for Mr. Thiry for the three-year period following termination.

(6) 

Mr. Thiry will be entitled to the use of an office and services of an administrative assistant for three years or until he obtains other full-time employment. The amounts above reflect the estimated costs to us of providing the office and secretarial services for three years.

(7) 

Mr. Thiry will be entitled to receive the payments set forth in this row in the event that, prior to the date on which Mr. Thiry attains age 62, the Board of Directors gives Mr. Thiry written notice that the term of his employment agreement shall not be extended.

(8) 

Mr. Thiry will be entitled to receive a lump sum payment equal to the product of (x) one and one-half, and (y) the sum of his base salary in effect as of the date of termination and the Prior Bonus (as defined above). The amount reported in the table above reflects the product of (x) one and one-half, and (y) the sum of Mr. Thiry’s base salary as of December 31, 2011, which was $1,050,000, and the average of Mr. Thiry’s 2010 annual incentive bonus in the amount of $3,125,000 and Mr. Thiry’s 2009 annual incentive bonus in the amount of $2,500,000.

(9) 

Mr. Kogod will be entitled to receive his salary for the one-year period following his termination or resignation. As of December 31, 2011, Mr. Kogod’s base salary was $800,000.

(10) 

Mr. Kogod will be entitled to receive a lump-sum payment equivalent to the bonus that he had been paid in the year before the termination. The company interprets this severance provision to mean the severance is based on the bonus paid “for” the year prior to the year for which a bonus was most recently earned. Mr. Kogod had fully earned his bonus for 2011 on December 31, 2011. This severance amount is reported as the bonus paid to Mr. Kogod for 2010, which was $1,500,000.

(11) 

Mr. Kogod will be entitled to receive his salary for the two-year period following his resignation.

(12) 

Mr. Rodriguez will be entitled to receive his salary for the 18-month period following his termination or resignation. As of December 31, 2011, Mr. Rodriguez’s base salary was $700,000.

(13) 

If Mr. Rodriguez is terminated after April in a given year, he will be entitled to receive a lump-sum payment equal to the bonus paid in the year prior to the termination, pro-rated for the number of months served in the year his employment is terminated. The company interprets this severance provision to mean the severance is based on the bonus paid “for” the year prior to the year for which a bonus was most recently earned. Mr. Rodriguez had fully earned his bonus for 2011 on December 31, 2011. This severance amount is reported as the bonus paid to Mr. Rodriguez for 2010, which was $1,000,000.

(14) 

Mr. Rodriguez will be entitled to receive his salary for the two-year period following his resignation.

(15) 

Mr. Borgen will be entitled to receive his salary for the one-year period following his termination or resignation. As of December 31, 2011, Mr. Borgen’s base salary was $450,000.

(16) 

Mr. Borgen will continue to receive his health benefits for the one-year period following termination. The amount reported in the table above is the estimated actual cost of COBRA insurance premiums for Mr. Borgen for the one-year period following termination.

(17) 

Ms. Rivera will be entitled to receive her salary for the one-year period following her termination or resignation. As of December 31, 2011, Ms. Rivera’s base salary was $500,000.

 

67


Table of Contents
(18) 

If Ms. Rivera is terminated after April in a given year, she will be entitled to receive a payment equal to the bonus paid in the year prior to the termination, pro-rated for the number of months served in the year her employment is terminated, to be paid in equal installments over the one-year period following the termination of her employment. The company interprets this severance provision to mean the severance is based on the bonus paid “for” the year prior to the year for which a bonus was most recently earned. Ms. Rivera had fully earned her bonus for 2011 on December 31, 2011. This severance amount is reported as the bonus paid to Ms. Rivera for 2010, which was $188,000.

Other Severance Payments and Benefits

The company’s obligation to provide continued health benefits under the circumstances set forth in the tables above is subject to earlier termination in connection with the executive accepting employment with another employer.

In the event of termination as a result of death, the estates of the named executive officers identified in the tables above will also receive the proceeds of the respective term life insurance policy for each named executive officer. The coverage amount for each named executive officer is as follows: $1,201,000 for Mr. Thiry, $585,000 for Mr. Kogod, $500,000 for Mr. Rodriguez, $500,000 for Mr. Borgen, and $500,000 for Ms. Rivera.

Pursuant to the terms of his employment agreement, Mr. Thiry will be eligible to receive a “gross-up” payment to the extent that any payment or benefit received or to be received by him is reduced by tax obligations possibly imposed by Sections 280G or 4999 of the Internal Revenue Code.

To receive the severance payments and benefits described above, each named executive officer must execute the company’s standard severance and general release agreement. In addition, the employment agreements with each of our named executive officers include confidentiality provisions that would apply until the confidential information becomes publicly available (other than through breach by the named executive officer). These employment agreements also include nonsolicitation provisions which prohibit each named executive officer from soliciting any patient or customer of the company to patronize a competing dialysis facility or from soliciting any patient, customer, supplier or physician to terminate their business relationship with the company, for a period of two years following the termination of the named executive officer’s employment. However, with respect to Mr. Borgen and Mr. Kogod, the nonsolicitation provision would apply for a period of one year following termination.

Accelerated Vesting of Stock-Based Awards

For grants and awards of SSARs and/or restricted stock units to our named executive officers, the stock-based award agreements provide that in the event that either (i) in connection with a Change of Control (as defined below), the acquiring entity fails to assume, convert or replace the named executive officer’s options or awards, or (ii) the named executive officer’s employment is terminated within the twenty-four-month period following a Change of Control by the company (or the acquiring entity) other than for Cause (as defined below) or, if applicable, by the named executive officer in accordance with the termination for Good Reason provisions of the named executive officer’s employment agreement, if any, then, in any such case, the options or awards shall automatically vest and become immediately exercisable in their entirety, such vesting to be effective as of immediately prior to the effective date of the Change of Control in the case of (i), and as of the date of termination of the named executive officer’s employment in the case of (ii).

 

68


Table of Contents

The table below sets forth the value of the company’s obligations upon the automatic vesting of the stock-based awards of our named executive officers as described above and assumes that the triggering event took place on December 31, 2011, the last day of our most recent fiscal year.

 

Name

   Value of
Options/
SSARs(1)
     Value of
Stock
Awards(2)
     Tax
Gross-Up
 

Kent J. Thiry(3) (4)

   $ 14,111,082       $ 4,264,313         —     

Dennis L. Kogod

   $ 6,204,505       $ 2,132,156         —     

Javier J. Rodriguez

   $ 1,662,046       $ 1,048,680         —     

Luis A. Borgen

   $ 464,800       $ 1,137,150         —     

Kim M. Rivera

   $ 592,400       $ 379,050         —     

 

(1) 

Values are based on the aggregate difference between the respective exercise or base prices and the closing sale price of our common stock on December 31, 2011, which was $75.81 per share, as reported by the NYSE.

(2)

Values are based on the aggregate number of shares underlying restricted stock units multiplied by the closing sale price of our common stock on December 31, 2011, which was $75.81 per share, as reported by the NYSE.

(3) 

Pursuant to the terms of his employment agreement entered into on July 25, 2008, Mr. Thiry would be entitled to receive a “gross-up” payment to the extent any benefit received is reduced by tax obligations possibly imposed by Sections 280G or 4999 of the Internal Revenue Code. Any such tax gross-up amount would be calculated using a 20% excise tax rate and an approximately 40% individual income tax rate and assumes that the base amount for purposes of Sections 280G and 4999 of the Internal Revenue Code has been allocated between the cash severance and equity components of the change of control benefits in proportion to the amounts of each component. Assuming a triggering event took place on December 31, 2011, there would not be any tax gross-up amount payable.

(4) 

After Mr. Thiry has been employed by the company at least ten years, 50% of any unvested SSARs, stock options and restricted stock units would vest upon any termination by Mr. Thiry without Cause or for Good Reason. Since Mr. Thiry has been employed for over ten years as of December 31, 2011, the value of such accelerated vesting is equal to 50% of the amounts set forth in the table.

Definitions under Stock-Based Award Agreements

For purposes of the stock-based award agreements and the table above:

A “Change of Control” means (i) any transaction or series of transactions in which any person or group (within the meaning of Rule 13d-5 under the Exchange Act and Sections 13(d) and 14(d) of the Exchange Act) becomes the direct or indirect “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), by way of a stock issuance, tender offer, merger, consolidation, other business combination or otherwise, of greater than 50% of the total voting power (on a fully diluted basis as if all convertible securities had been converted and all warrants and options had been exercised) entitled to vote in the election of directors of the company (including any transaction in which the company becomes a wholly-owned or majority-owned subsidiary of another corporation), (ii) any merger or consolidation or reorganization in which the company does not survive, (iii) any merger or consolidation in which the company survives, but the shares of the company’s common stock outstanding immediately prior to such merger or consolidation represent 50% or less of the voting power of the company after such merger or consolidation, and (iv) any transaction in which more than 50% of the company’s assets are sold.

No transaction will constitute a Change of Control under the stock-based award agreements if both (x) the person acting as the chief executive officer of the company for the six months prior to such transaction becomes the chief executive officer or executive chairman of the board of directors of the entity that has acquired control of the company as a result of such transaction immediately after such transaction and remains the chief executive

 

69


Table of Contents

officer or executive chairman of the board of directors for not less than one year following the transaction and (y) a majority of the acquiring entity’s board of directors immediately after such transaction consist of persons who were directors of the company immediately prior to such transaction.

“Cause” means: (1) a material breach by the executive of those duties and responsibilities of the executive which do not differ in any material respect from the duties and responsibilities of the executive during the 90-day period immediately prior to a Change of Control (other than as a result of incapacity due to physical or mental illness) which is demonstrably willful and deliberate on the executive’s part, which is committed in bad faith or without reasonable belief that such breach is in the best interests of the company and which is not remedied in a reasonable period of time after receipt of written notice from the company specifying such breach; (2) willful misconduct or gross negligence which results in material harm to the company; (3) the conviction of the executive of, or a plea of nolo contendere by the executive to, a felony or other crime involving fraud or dishonesty; or (4) willful violation of company policies which results in material harm to the company.

Compensation of Directors

The following table sets forth information concerning the compensation of our non-employee directors during 2011.

2011 Director Compensation

 

Name

   Fees Earned or  Paid
in  Cash
($)(1)
     Stock Awards
($)(2) (3) (4)
     Option
Awards
($)(5) (6)
     Total ($)  

Pamela M. Arway

   $ 32,000       $ 85,012       $ 228,775       $ 345,787   

Charles G. Berg

   $ 34,692       $ 87,960       $ 228,775       $ 351,427   

Willard W. Brittain, Jr(7).

   $ 19,541       $ 61,976       $ 228,775       $ 310,292   

Carol Anthony (“John”) Davidson

   $ 30,000       $ 80,000       $ —         $ 110,000   

Paul J. Diaz

   $ 17,000       $ 44,963       $ 228,775       $ 290,738   

Peter T. Grauer

   $ 38,000       $ 206,343       $ 343,163       $ 587,506   

John M. Nehra

   $ 26,500       $ 90,984       $ 343,163       $ 460,647   

William L. Roper

   $ 38,800       $ 86,537       $ 343,163       $ 468,500   

Roger J. Valine

   $ 48,800       $ 93,947       $ 343,163       $ 485,910   

 

(1) 

Consists of the amounts described below under “Annual Retainer,” “Lead Independent Director and Committee Chair Retainer,” “Meeting Fees,” and “Expense Reimbursement and Per Diem Compensation.” With respect to Messrs. Valine, Nehra, Roper and Grauer, includes the $10,000 cash portion for service as chair of the Audit Committee, Compensation Committee, Compliance Committee and as lead independent director, respectively.

(2) 

With respect to Messrs. Valine, Nehra, Roper and Grauer, includes the $10,000 equity portion denominated in restricted stock units for service as chair of the Audit Committee, Compensation Committee, Compliance Committee and as lead independent director, respectively, which are deferred for one year from grant. With respect to Mr. Grauer, includes 1,500 restricted stock units for service as lead independent director.

 

70


Table of Contents
(3) 

The amounts shown in this column reflect the aggregate grant date fair value of all common stock awards and restricted stock unit awards granted to our directors during 2011 as estimated by the company for financial reporting purposes pursuant to FASB ASC Topic 718. The grant date fair value of each such award is set forth below:

 

     Stock Awards  

Name*

   Number of Shares
of  Stock or Units
(#)
     Grant Date      Grant Date
Fair Value  of
Stock  Awards
($)*
 

Pamela M. Arway

     113         1/20/2011       $ 8,005   
     79         3/9/2011       $ 6,503   
     99         3/10/2011       $ 8,008   
     35         3/31/2011       $ 2,993   
     92         5/19/2011       $ 7,975   
     35         6/30/2011       $ 3,031   
     48         7/27/2011       $ 3,987   
     96         7/28/2011       $ 7,934   
     48         9/30/2011       $ 3,008   
     163         10/6/2011       $ 10,541   
     130         10/7/2011       $ 8,020   
     54         12/8/2011       $ 3,992   
     107         12/9/2011       $ 7,983   
     40         12/31/2011       $ 3,032   
  

 

 

       

 

 

 

Total

     1,139          $ 85,012   

Charles G. Berg

     113         1/20/2011       $ 8,005   
     97         3/9/2011       $ 7,985   
     99         3/10/2011       $ 8,008   
     35        3/31/2011      $ 2,993   
     138        5/19/2011      $ 11,963   
     35        6/30/2011      $ 3,031   
     48        7/27/2011      $ 3,987   
     96        7/28/2011      $ 7,934   
     48        9/30/2011      $ 3,008   
     124        10/6/2011      $ 8,019   
     130        10/7/2011      $ 8,020   
     54        12/8/2011      $ 3,992   
     107        12/9/2011      $ 7,983   
     40        12/31/2011      $ 3,032   
  

 

 

       

 

 

 

Total

     1,164         $ 87,960   

Willard W. Brittain, Jr.

     30        3/9/2011      $ 2,470   
     130        3/10/2011      $ 10,516   
     35        3/31/2011      $ 2,993   
     92        5/19/2011      $ 7,975   
     35        6/30/2011      $ 3,031   
     30        7/27/2011      $ 2,492   
     96        7/28/2011      $ 7,934   
     48        9/30/2011      $ 3,008   
     39        10/6/2011      $ 2,522   
     130        10/7/2011      $ 8,020   
     107        12/9/2011      $ 7,983   
     40        12/31/2011      $ 3,032   
  

 

 

       

 

 

 

Total

     812         $ 61,976   

 

71


Table of Contents
     Stock Awards  

Name*

   Number of Shares
of  Stock or Units
(#)
     Grant Date      Grant Date
Fair Value  of
Stock  Awards
($)*
 

Carol Anthony (“John”) Davidson

     113        1/20/2011      $ 8,005   
     49        3/9/2011      $ 4,034   
     99        3/10/2011      $ 8,008   
     35        3/31/2011      $ 2,993   
     138        5/19/2011      $ 11,963   
     35        6/30/2011      $ 3,031   
     48        7/27/2011      $ 3,987   
     96        7/28/2011      $ 7,934